Investing over the life cycle with long-run labor income risk

Many financial advisors and much of the academic literature often argue that young people should place most of their savings in stocks. In contrast, a significant fraction of U.S. households do not hold stocks. Investors typically hold very little in stocks when they are young, progressively increase their holdings as they age, and decrease their exposure to stock market risk when they approach retirement. The authors show how long-run labor income risk helps explain this evidence. Moreover, they discuss the effect of long-run labor income risk on the valuation of pension plan obligations, their funding, and the allocation of pension assets across different investment classes.Income ; Stock market ; Labor market ; Wages

Amplitude equations for weakly nonlinear surface waves in variational problems

Among hyperbolic Initial Boundary Value Problems (IBVP), those coming from a variational principle 'generically' admit linear surface waves, as was shown by Serre [J. Funct. Anal. 2006]. At the weakly nonlinear level, the behavior of surface waves is expected to be governed by an amplitude equation that can be derived by means of a formal asymptotic expansion. Amplitude equations for weakly nonlinear surface waves were introduced by Lardner [Int. J. Engng Sci. 1983], Parker and co-workers [J. Elasticity 1985] in the framework of elasticity, and by Hunter [Contemp. Math. 1989] for abstract hyperbolic problems. They consist of nonlocal evolution equations involving a complicated, bilinear Fourier multiplier in the direction of propagation along the boundary. It was shown by the authors in an earlier work [Arch. Ration. Mech. Anal. 2012] that this multiplier, or kernel, inherits some algebraic properties from the original IBVP. These properties are crucial for the (local) well-posedness of the amplitude equation, as shown together with Tzvetkov [Adv. Math., 2011]. Properties of amplitude equations are revisited here in a somehow simpler way, for surface waves in a variational setting. Applications include various physical models, from elasticity of course to the director-field system for liquid crystals introduced by Saxton [Contemp. Math. 1989] and studied by Austria and Hunter [Commun. Inf. Syst. 2013]. Similar properties are eventually shown for the amplitude equation associated with surface waves at reversible phase boundaries in compressible fluids, thus completing a work initiated by Benzoni-Gavage and Rosini [Comput. Math. Appl. 2009]

Conflict of interest and certification in the U.S. IPO market

We examine the long-run performance and valuation of IPOs underwritten by relationship banks. We find that over one- to three-year horizons these IPOs do not underperform similar stocks managed by independent institutions. Moreover, our analysis suggests that relationship banks avoid potential conflicts of interest by choosing to underwrite their best clients' IPOs. Consistent with this result, we show that investors value new issues managed by relationship banks higher than similar IPOs managed by outside banks. Our findings support the certification role of relationship banks and suggest that the effect of the 1999 repeal of Sections 20 and 32 of the Glass-Steagall Act has not been negative.Going public (Securities) ; Securities

Stochastic volatility

Given the importance of return volatility on a number of practical financial management decisions, the efforts to provide good real- time estimates and forecasts of current and future volatility have been extensive. The main framework used in this context involves stochastic volatility models. In a broad sense, this model class includes GARCH, but we focus on a narrower set of specifications in which volatility follows its own random process, as is common in models originating within financial economics. The distinguishing feature of these specifications is that volatility, being inherently unobservable and subject to independent random shocks, is not measurable with respect to observable information. In what follows, we refer to these models as genuine stochastic volatility models. Much modern asset pricing theory is built on continuous- time models. The natural concept of volatility within this setting is that of genuine stochastic volatility. For example, stochastic-volatility (jump-) diffusions have provided a useful tool for a wide range of applications, including the pricing of options and other derivatives, the modeling of the term structure of risk-free interest rates, and the pricing of foreign currencies and defaultable bonds. The increased use of intraday transaction data for construction of so-called realized volatility measures provides additional impetus for considering genuine stochastic volatility models. As we demonstrate below, the realized volatility approach is closely associated with the continuous-time stochastic volatility framework of financial economics. There are some unique challenges in dealing with genuine stochastic volatility models. For example, volatility is truly latent and this feature complicates estimation and inference. Further, the presence of an additional state variable - volatility - renders the model less tractable from an analytic perspective. We examine how such challenges have been addressed through development of new estimation methods and imposition of model restrictions allowing for closed-form solutions while remaining consistent with the dominant empirical features of the data.Stochastic analysis

Do Bonds Span Volatility Risk in the U.S. Treasury Market? A Specification test for Affine Term Structure Models

We investigate whether bonds span the volatility risk in the U.S. Treasury market, as predicted by most 'affine' term structure models. To this end, we construct powerful and model-free empirical measures of the quadratic yield variation for a cross-section of fixed-maturity zero-coupon bonds ("realized yield volatility") through the use of high-frequency data. We find that the yield curve fails to span yield volatility, as the systematic volatility factors are largely unrelated to the cross-section of yields. We conclude that a broad class of affine diffusive, Gaussian-quadratic and affine jump-diffusive models is incapable of accommodating the observed yield volatility dynamics. An important implication is that the bond markets per se are incomplete and yield volatility risk cannot be hedged by taking positions solely in the Treasury bond market. We also advocate using the empirical realized yield volatility measures more broadly as a basis for specification testing and (parametric) model selection within the term structure literature.

Realized volatility

Realized volatility is a nonparametric ex-post estimate of the return variation. The most obvious realized volatility measure is the sum of finely-sampled squared return realizations over a fixed time interval. In a frictionless market the estimate achieves consistency for the underlying quadratic return variation when returns are sampled at increasingly higher frequency. We begin with an account of how and why the procedure works in a simplified setting and then extend the discussion to a more general framework. Along the way we clarify how the realized volatility and quadratic return variation relate to the more commonly applied concept of conditional return variance. We then review a set of related and useful notions of return variation along with practical measurement issues (e.g., discretization error and microstructure noise) before briefly touching on the existing empirical applications.Stochastic analysis

Do bonds span volatility risk in the U.S. Treasury market? a specification test for affine term structure models

We investigate whether bonds span the volatility risk in the U.S. Treasury market, as predicted by most 'affine' term structure models. To this end, we construct powerful and model-free empirical measures of the quadratic yield variation for a cross-section of fixed- maturity zero-coupon bonds ('realized yield volatility') through the use of high-frequency data. We find that the yield curve fails to span yield volatility, as the systematic volatility factors are largely unrelated to the cross- section of yields. We conclude that a broad class of affine diffusive, Gaussian-quadratic and affine jump-diffusive models is incapable of accommodating the observed yield volatility dynamics. An important implication is that the bond markets per se are incomplete and yield volatility risk cannot be hedged by taking positions solely in the Treasury bond market. We also advocate using the empirical realized yield volatility measures more broadly as a basis for specification testing and (parametric) model selection within the term structure literature.Bonds ; Treasury bonds

Stability of periodic waves in Hamiltonian PDEs of either long wavelength or small amplitude

Stability criteria have been derived and investigated in the last decades for many kinds of periodic traveling wave solutions to Hamiltonian PDEs. They turned out to depend in a crucial way on the negative signature of the Hessian matrix of action integrals associated with those waves. In a previous paper (Nonlinearity 2016), the authors addressed the characterization of stability of periodic waves for a rather large class of Hamiltonian partial differential equations that includes quasilinear generalizations of the Korteweg--de Vries equation and dispersive perturbations of the Euler equations for compressible fluids, either in Lagrangian or in Eulerian coordinates. They derived a sufficient condition for orbital stability with respect to co-periodic perturbations, and a necessary condition for spectral stability, both in terms of the negative signature - or Morse index - of the Hessian matrix of the action integral. Here the asymptotic behavior of this matrix is investigated in two asymptotic regimes, namely for small amplitude waves and for waves approaching a solitary wave as their wavelength goes to infinity. The special structure of the matrices involved in the expansions makes possible to actually compute the negative signature of the action Hessian both in the harmonic limit and in the soliton limit. As a consequence, it is found that nondegenerate small amplitude waves are orbitally stable with respect to co-periodic perturbations in this framework. For waves of long wavelength, the negative signature of the action Hessian is found to be exactly governed by the second derivative with respect to the wave speed of the Boussinesq momentum associated with the limiting solitary wave

Chiuse poetiche e senso della fine. Spunti per una tipologia

Ricordata la sfuggente polisemia del concetto di fine, lo studio (che privilegia l'analisi delle strutture formali, con rilievi di stilistica e metrica) tratta due questioni di carattere generale: quando un testo possa dirsi compiuto e cosa rafforzi una chiusa. Dapprima viene fissata, anche attraverso un'analisi contrastiva, la differenza tra compiutezza e scarto conclusivo, tra effetti di saturazione ed effetti più propriamente clausolari; quindi vengono definite, cercando di valutarne la portata, alcune tra le principali tecniche di intensificazione della chiusa poetica; tecniche sostanzialmente riconducibili a tre ordini di fenomeni: 1) chiuse intensificate da sottolineature tematiche e suggestioni iconiche; 2) chiuse scandite attraverso figure di ricorrenza e variazione; 3) chiuse rilevate da una strategica distribuzione delle informazioni, attraverso dinamiche di attesa e sorpresa, di tensione e soluzione. La varia casistica è illustrata con esempi tratti principalmente, ma non solo, dalla letteratura italiana (e in particolare dalla poesia del Novecento), senza però circoscrivere preliminarmente un corpus omogeneo, coll'intento di mettere in luce come meccanismi conclusivi analoghi ritornino in testi diversissimi per genere ed epoca.Reviewing the ever-fugitive concept of fine, the study (which prioritises the analysis of formal structures, with particular emphasis being given to stylistics and metrics) deals with two questions of a general character: when can a text can be said to be complete, and what elements reinforce a closure? First, also through contrastive analysis, the article sets out the difference between completion and discarded conclusion, between effects of saturation and effects that more properly form part of closure. Thus the author, in an effort to evaluate the scope of this, defines some of the main techniques of the intensification of poetic closure, techniques that are substantially aimed at analysing three types of phenomenon: 1) closures that intensify thematic emphasis and iconic suggestion; 2) closures articulated through figures of recurrence and variation; 3) closures that highlight a strategic distribution of information, through the dynamics of expectation and surprise, of tension and solution. The various types are illustrated with examples taken largely, though not exclusively, from Italian literature (and, in particular, the poetry of the Novecento), without, however, circumscribing an essentially homogenous corpus. The intention is to shed light on the ways in which analogous mechanisms of conclusion recur in the most diverse of texts, throughout different genres and periods