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.

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.Bonds ; Treasury bonds

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

An Empirical Investigation of Continuous-Time Equity Return Models

This paper extends the class of stochastic volatility diffusions for asset returns to encompass Poisson jumps of time-varying intensity. We find that any reasonably descriptive continuous-time model for equity-index returns must allow for discrete jumps as well as stochastic volatility with a pronounced negative relationship between return and volatility innovations. We also find that the dominant empirical characteristics of the return process appear to be priced by the option market. Our analysis indicates a general correspondence between the evidence extracted from daily equity-index returns and the stylized features of the corresponding options market prices.

Nonlinear surface waves on the plasma-vacuum interface

In this paper we study the propagation of weakly nonlinear surface waves on a plasma-vacuum interface. In the plasma region we consider the equations of incompressible magnetohydrodynamics, while in vacuum the magnetic and electric fields are governed by the Maxwell equations. A surface wave propagate along the plasma-vacuum interface, when it is linearly weakly stable. Following the approach of Ali and Hunter, we measure the amplitude of the surface wave by the normalized displacement of the interface in a reference frame moving with the linearized phase velocity of the wave, and obtain that it satisfies an asymptotic nonlocal, Hamiltonian evolution equation. We show the local-in-time existence of smooth solutions to the Cauchy problem for the amplitude equation in noncanonical variables, and we derive a blow up criterion.Comment: arXiv admin note: text overlap with arXiv:1305.5327 by other author

Co-periodic stability of periodic waves in some Hamiltonian PDEs

International audienceThe stability theory of periodic traveling waves is much less advanced than for solitary waves, which were first studied by Boussinesq and have received a lot of attention in the last decades. In particular, despite recent breakthroughs regarding periodic waves in reaction-diffusion equations and viscous systems of conservation laws [Johnson–Noble–Rodrigues–Zumbrun, Invent math (2014)], the stability of periodic traveling wave solutions to dispersive PDEs with respect to 'arbitrary' perturbations is still widely open in the absence of a dissipation mechanism. The focus is put here on co-periodic stability of periodic waves, that is, stability with respect to perturbations of the same period as the wave, for KdV-like systems of one-dimensional Hamiltonian PDEs. Fairly general nonlinearities are allowed in these systems, so as to include various models of mathematical physics, and this precludes complete integrability techniques. Stability criteria are derived and investigated first in a general abstract framework, and then applied to three basic examples that are very closely related, and ubiquitous in mathematical physics, namely, a quasilinear version of the generalized Korteweg–de Vries equation (qKdV), and the Euler–Korteweg system in both Eulerian coordinates (EKE) and in mass Lagrangian coordinates (EKL). Those criteria consist of a necessary condition for spectral stability , and of a sufficient condition for orbital stability. Both are expressed in terms of a single function, the abbreviated action integral along the orbits of waves in the phase plane, which is the counterpart of the solitary waves moment of instability introduced by Boussinesq. However, the resulting criteria are more complicated for periodic waves because they have more degrees of freedom than solitary waves, so that the action is a function of N + 2 variables for a system of N PDEs, while the moment of instability is a function of the wave speed only once the endstate of the 1 solitary wave is fixed. Regarding solitary waves, the celebrated Grillakis–Shatah– Strauss stability criteria amount to looking for the sign of the second derivative of the moment of instability with respect to the wave speed. For periodic waves, stability criteria involve all the second order, partial derivatives of the action. This had already been pointed out by various authors for some specific equations, in particular the generalized Korteweg–de Vries equation — which is special case of (qKdV) — but not from a general point of view, up to the authors' knowledge. The most striking results obtained here can be summarized as: an odd value for the difference between N and the negative signature of the Hessian of the action implies spectral instability, whereas a negative signature of the same Hessian being equal to N implies orbital stability. Furthermore, it is shown that, when applied to the Euler–Korteweg system, this approach yields several interesting connexions between (EKE), (EKL), and (qKdV). More precisely, (EKE) and (EKL) share the same abbreviated action integral, which is related to that of (qKdV) in a simple way. This basically proves simultaneous stability in both formulations (EKE) and (EKL) — as one may reasonably expect from the physical point view —, which is interesting to know when these models are used for different phenomena — e.g. shallow water waves or nonlinear optics. In addition, stability in (EKE) and (EKL) is found to be linked to stability in the scalar equation (qKdV). Since the relevant stability criteria are merely encoded by the negative signature of (N + 2) × (N + 2) matrices, they can at least be checked numerically. In practice, when N = 1 or 2, this can be done without even requiring an ODE solver. Various numerical experiments are presented, which clearly discriminate between stable cases and unstable cases for (qKdV), (EKE) and (EKL), thus confirming some known results for the generalized KdV equation and the Nonlinear Schrödinger equation, and pointing out some new results for more general (systems of) PDEs

1D modelling and preliminary analysis of the coupled DYNASTY–eDYNASTY natural circulation loop

In the continuous strive to improve the safety of current-generation and next-generation nuclear power plants, natural circulation can be used to design passive safety systems to remove the decay heat during the shutdown. The Molten Salt Fast Reactor (MSFR) is a peculiar type of Gen-IV nuclear facility, where the fluid fuel is homogeneously mixed with the coolant. This design leads to natural circulation in the presence of an internally distributed heat source during the shutdown. Furthermore, to shield the environment from the highly radioactive fuel, an intermediate loop between the primary and the secondary loops, able to operate in natural circulation, is required. To analyze the natural circulation with a distributed heat source and to study the natural circulation of coupled systems and the influence of the intermediate loop on the behaviour of the primary, Politecnico di Milano designed and built the DYNASTY-eDYNASTY facility. The two facilities are coupled with a double-pipe heat exchanger, which siphons heat from DYNASTY and delivers it to the eDYNASTY loop. This work focuses on modelling the coupled DYNASTY-eDYNASTY natural circulation loops using DYMOLA2023((R)), an integrated development environment based on the Modelica Object-Oriented a-causal simulation language. The 1D Modelica approach allows for building highly reusable and flexible models easing the design effort on a complex system such as the DYNASTY-eDYNASTY case without the need to rewrite the whole model from scratch. The coupled models were developed starting from the already-validated single DYNASTY model and the double-pipe heat exchanger coupling. The models were tested during the whole development process, studying the influence of the numerical integration algorithm on the simulation behaviour. A preliminary analysis of both the adiabatic and the heat loss models analyzed the effect of the secondary natural circulation loop on the behaviour of the DYNASTY loop. The simulation results showed that the eDYNASTY loop dampens the behaviour of the primary DYNASTY loop. Furthermore, a parametric analysis of the DYNASTY and the eDYNASTY coolers highlighted the influence of the cooling configuration on the facility's behaviour. Finally, the simulation results identified the most critical aspects of the models in preparation for an experimental comparison

Monogenoidean parasites of fishes associated with coral reefs in the Ras Mohammed National Park, Egypt: preliminary results

AbstractA parasitological survey of the monogenoids of 14 species of common fishes associated with the local coral reefs of the Ras Mohammed National Park, National Parks of Egypt South Sinai Sector, Egypt, was carried out from May 2003 to May 2005. The monogenoids collected during the survey included 17 species: 8 previously described species, 7 new species in established genera, and 2 new species belonging to new genera

Half-lives of heavy nuclei through α tagging

Neutron-rich isotopes around lead, beyond N=126, have been studied exploiting the fragmentation of a 238 U beam at 1 GeV/u, at the FRS-RISING setup at GSI. In order to study the half-lives of populated nuclei both α and β correlations have been exploited