Linking credit risk premia to the equity premium

Although the equity premium is - both from a conceptual and empirical perspective - a widely researched topic in finance, there is still no consensus in the academic literature about its magnitude. In this paper, we propose a different estimation method which is based on credit valuations. The main idea is straigtforward: We use structural models to link equity valuations to credit valuations. Based on a simple Merton model, we derive an estimator for the market Sharpe ratio. This estimator has several advantages. First, it offers a new line of thought for estimating the equity premium which is not directly linked to current methods. Second, it is only based on observable parameters. We do neither have to calibrate dividend or earnings growth - which is usually necessary in dividend/earnings discount models - nor do we have to calibrate asset values or default barriers - which is usually necessary in traditional applications of structural models. Third, it is robust to model changes. We examine the model of Duffie/Lando (2001) - which is one of the most sophisticated structural models currently discussed in the literature - to show this robustness. In an empirical analysis we have used CDS spreads of the 125 most liquid CDS in the U.S. from 2003 to 2007 to estimate the equity premium. We derive an average implicit market Sharpe ratio of appr. 40%. Adjusting for taxes and other parts of the credit spread not attributable to credit risk yields an average market Sharpe ratio below 30%. This confirms research on the equity premium, which indicates that the historically observed Sharpe ratio of 40-50% - corresponding to an equity premium of 7-9% and a volatility of 15-20% - was partly due to one-time effects. In addition, our research can be used to explain empirical findings about credit risk premia, which are usually measured as the ratio of risk-neutral to actual default probabilities. We show that the behavior of these ratios can be directly inferred from a simple Merton model and that this behavior is robust to model changes. --equity premium,credit risk premium,credit risk,structural models of default

7. Deutsch-Japanische Kirchenkonsultation: Tokio, 22.-29. April 2016

Christoph Weber-Berg berichtet in seinem Beitrag von seinen Erfahrungen aus der Deutsch-Japanischen Kirchenkonsultation, die vom 22. bis 29. April 2016 in Tokio und Umgebung stattfand. Die Konsultation findet alle drei bis sechs Jahre statt, diesmal erstmals mit Schweizer Beteiligung. Sie stand unter dem Titel «Diakonie und Reformation».Der Austausch zwischen den der deutsch/schweizerischen Delegation mit den Gastgeberinnen und Gastgebern aus den protestantischen Kirchen Japans fand anhand von Empfängen, Konferenzen, Exkursionen und Gemeindebesuchen statt, über welche Weber-Berg chronologisch berichtet: so etwa über die Gemeindebesuche und die gehaltenen Gottesdienste in den protestantischen Kirchgemeinden vor Ort, über den Besuch sozialer Brennpunkte in Tokio und übe Ausflüge zu diakonischen Kinder- und Frauenheimen in der Umgebung. Weber-Berg hebt in seinem Bericht insbesondere die Exkursion in das von der Reaktorkatastrophe verseuchte Gebiet Fukushima hervor. In der zweitägigen Exkursion erlebt die Delegation das gewaltige Ausmass der ökologischen Katastrophe, das mannigfache soziale Auswirkungen nach sich zieht: massive Abwanderung, Entzug ökonomischer Grundlagen und Spannungen in vielen Familien, die zwischen Bleiben und Wegzug stehen. «Es ist unfassbar, was diese Katastrophe hier angerichtet hat. […] Unfassbar auch, was mit der geschändeten Natur geschieht.» Weber-Berg resümiert: «Mir ist nach diesem Tag klarer denn je: Atomkraft ist keine Option. Selbst wenn die Technik beherrschbar sein sollte: Der Mensch ist nicht beherrschbar. […] Die Hilflosigkeit im Umgang mit den Folgen dieser Katastrophe ist selbst in einer hoch entwickelten Industrienation wie Japan grenzenlos.» Die Delegation zeigte sich erfreut und dankbar über das grosse Engagement der Kirchen vor Ort, die gemeinsam mit vielen bürgerschaftlichen Initiativen «Teil der Bewegung [wurden], die den Menschen hier dabei helfen soll, die Folgen der Katastrophe zu bewältigen».Die Konsultation hat für Weber-Berg «die eine, weltweite Kirche für die Teilnehmenden erlebbar und erfahrbar werden lassen», was «auch die Wahrnehmung des eigenen Kircheseins» verändere. Er erachtete es als sehr lehrreich, anhand der Situation der japanischen protestantischen Kirchen zu erleben, wie «die Metamorphose von der Mehrheits- zur Minderheitskirche» geschafft werden kann, «ohne dabei dem Rückzugsreflex zu verfallen»

Von der Diakonie zum Sozialunternehmen

Christoph Weber-Berg stellt in seinem Beitrag «Von der Diakonie zum Sozialunternehmen» den Werdegang der verschiedenen in der zweiten Hälfte des 20. Jahrhunderts gegründeten diakonischen Werke vor. Diesen Werken ist gemein, «dass sie im Geist christlicher Liebestätigkeit gegründet und während vielen Jahren betrieben wurden, heute aber höchstens noch lose Verbindungen zur Kirche haben. Immer wieder hat sich die Kirche als Geburtshelferin oder Patin diakonischer Werke hervorgetan, die in einer späteren Phase ihrer Existenz auf eigenen Füssen standen und losgelöst, selbständig im Rahmen von Leistungsvereinbarungen mit dem Staat, ihre Aufgaben wahrnahmen» – wobei sich die Schritte in die Selbständigkeit u.a. an den Faktoren der Finanzierung (von der kirchlichen zur staatlichen Finanzierung), der Leitung (vom Pfarrer zum Direktor) und der Betreuungsarbeit (von der Diakonisse zur sozialprofessionellen Fachperson) zeigen.Anhand der Entwicklung der kirchlichen Stiftung «Schürmatt» – die «den Bogen von der christlich motivierten diakonischen Pioniertat bis zum modernen, ausdifferenzierten und professionell geführten Sozialunternehmen mit staatlichem Leistungsauftrag [spannt]» – fragt Weber-Berg nach dem «Unterschied zwischen sozialer Arbet oder sozialem Engagement und Diakonie» sowie nach der Bedeutung der Diakonie für das Kirche-Sein. Er hält fest: «Aus einem sozialen Projekt wird nicht automatisch ein diakonisches Projekt, wenn es von der Kirche vollständig oder teilweise finanziert wird. Nicht die Geldflüsse oder der Ursprung von Geldflüssen machen den theologisch formulierbaren Unterschied aus». Es kommt also «nicht auf die Höhe der verteilten Geldsummen oder der diakonisch eingesetzten Zeit von Personen an», die Bedeutung der Diakonie für das Kirche-Sein manifestiere sich vielmehr «in der Fürbitte der Gemeinde. Fürbitte ohne diakonisches Engagement läuft ins Leere». Entsprechend sei das «Mittragen sozialer Anliegen im Gebet als Gemeinde […] zentral für deren Kirche-Sein»: «Dann ist plötzlich weniger wichtig, ob ein ehemals kirchliches Werk heute unabhängig und konfessionell neutral unterwegs ist oder nicht»

Convert-to-Surrender Bonds: A Proposal of How to Reduce Risk-Taking Incentives in the Banking System

We argue that contingent convertible capital (CoCo-Bonds) might have perverse risk-taking incentives for banks (asset substitution problem) and discourage them from investing in positive NPV projects and issuing new equity in times of crisis (debt overhang problem). Whenever the conversion price is set too high - as in the case of the Lloyds CoCo-Bond issuance in November 2009 - a wealth transfer will take place at the time of conversion. This will exacerbate both the asset substitution problem and the debt overhang problem. We propose a new type of contingent convertible capital for banks - which we label Convert-to-Surrender Bonds (CoSu-Bonds) - which eliminates both the asset substitution and the debt overhang problem. CoSu-Bond convert into equity once the equity ratio falls below a certain threshold and CoSu-Bond holders take over the bank while equity holders are totally wiped out. This instrument makes equity holders naturally risk averse and gives incentives to equity holders to raise new equity and to invest also in slightly negative NPV projects in times of financial distress. Our instrument has a unique price if it is augmented by a simple option for old equity holders to issue equity if the trigger is hit, thereby circumventing the problem of multiple equilibria. We develop a tractable model to analyze risk-taking incentives in the banking sector and present a detailled analysis of the Lloyds CoCo-Bond issuance. We finally discuss several policy issues associated with this new instrument including robustness and unique equilibria

PLRU Cache Domino Effects

Domino effects have been shown to hinder a tight prediction of worst case execution times (WCET) on real-time hardware. First investigated by Lundqvist and Stenström, domino effects caused by pipeline stalls were shows to exist in the PowerPC by Schneider. This paper extends the list of causes of domino effects by showing that the pseudo LRU (PLRU) cache replacement policy can cause unbounded effects on the WCET. PLRU is used in the PowerPC PPC755, which is widely used in embedded systems, and some x86 models

Linking credit risk premia to the equity premium

Although the equity premium is - both from a conceptual and empirical perspective - a widely researched topic in finance, there is still no consensus in the academic literature about its magnitude. In this paper, we propose a different estimation method which is based on credit valuations. The main idea is straigtforward: We use structural models to link equity valuations to credit valuations. Based on a simple Merton model, we derive an estimator for the market Sharpe ratio. This estimator has several advantages. First, it offers a new line of thought for estimating the equity premium which is not directly linked to current methods. Second, it is only based on observable parameters. We do neither have to calibrate dividend or earnings growth - which is usually necessary in dividend/earnings discount models - nor do we have to calibrate asset values or default barriers - which is usually necessary in traditional applications of structural models. Third, it is robust to model changes. We examine the model of Duffie/Lando (2001) - which is one of the most sophisticated structural models currently discussed in the literature - to show this robustness. In an empirical analysis we have used CDS spreads of the 125 most liquid CDS in the U.S. from 2003 to 2007 to estimate the equity premium. We derive an average implicit market Sharpe ratio of appr. 40%. Adjusting for taxes and other parts of the credit spread not attributable to credit risk yields an average market Sharpe ratio below 30%. This confirms research on the equity premium, which indicates that the historically observed Sharpe ratio of 40-50% - corresponding to an equity premium of 7-9% and a volatility of 15-20% - was partly due to one-time effects. In addition, our research can be used to explain empirical findings about credit risk premia, which are usually measured as the ratio of risk-neutral to actual default probabilities. We show that the behavior of these ratios can be directly inferred from a simple Merton model and that this behavior is robust to model changes

TGFβ/BMP immune signaling affects abundance and function of C. elegans gut commensals.

The gut microbiota contributes to host health and fitness, and imbalances in its composition are associated with pathology. However, what shapes microbiota composition is not clear, in particular the role of genetic factors. Previous work in Caenorhabditis elegans defined a characteristic worm gut microbiota significantly influenced by host genetics. The current work explores the role of central regulators of host immunity and stress resistance, employing qPCR and CFU counts to measure abundance of core microbiota taxa in mutants raised on synthetic communities of previously-isolated worm gut commensals. This revealed a bloom, specifically of Enterobacter species, in immune-compromised TGFβ/BMP mutants. Imaging of fluorescently labeled Enterobacter showed that TGFβ/BMP-exerted control operated primarily in the anterior gut and depended on multi-tissue contributions. Enterobacter commensals are common in the worm gut, contributing to infection resistance. However, disruption of TGFβ/BMP signaling turned a normally beneficial Enterobacter commensal to pathogenic. These results demonstrate specificity in gene-microbe interactions underlying gut microbial homeostasis and highlight the pathogenic potential of their disruption

Stochastic clonal dynamics and genetic turnover in exponentially growing populations

We consider an exponentially growing population of cells undergoing mutations and ask about the effect of reproductive fluctuations (genetic drift) on its long-term evolution. We combine first step analysis with the stochastic dynamics of a birth-death process to analytically calculate the probability that the parent of a given genotype will go extinct. We compare the results with numerical simulations and show how this turnover of genetic clones can be used to infer the rates underlying the population dynamics. Our work is motivated by growing populations of tumour cells, the epidemic spread of viruses, and bacterial growth.Comment: 13 page

Classically entangled optical beams for high-speed kinematic sensing

Tracking the kinematics of fast-moving objects is an important diagnostic tool for science and engineering. Existing optical methods include high-speed CCD/CMOS imaging, streak cameras, lidar, serial time-encoded imaging and sequentially timed all-optical mapping. Here, we demonstrate an entirely new approach to positional and directional sensing based on the concept of classical entanglement in vector beams of light. The measurement principle relies on the intrinsic correlations existing in such beams between transverse spatial modes and polarization. The latter can be determined from intensity measurements with only a few fast photodiodes, greatly outperforming the bandwidth of current CCD/CMOS devices. In this way, our setup enables two-dimensional real-time sensing with temporal resolution in the GHz range. We expect the concept to open up new directions in photonics-based metrology and sensing.Comment: v2 includes the real-time measurement from the published version. Reference [29] added. Minor experimental details added on page

Anbau und Düngung von Winterraps (Brassica napus L.) im Ökologischen Landbau

At the experimental farm Wiesengut in Hennef (Germany) in 2007/8 four different cultivation methods of rapeseed and an application of fertiliser in springtime were tested in order to manage weeds, to reduce nitrogen losses during wintertime and to enhance grain yield. Cultivation methods tested included i. narrow row distance (12 cm), no mechanical weed control; ii. wide row distance (24 cm), mechanical hoeing; iii. rapeseed sown in double rows intercropped with buckwheat (Fagopyrum esculentum Moench) sown in double rows, row distance 12 cm, no mechanical weed control; iv. rapeseed sown in double rows and left double rows free, row distance 12 cm, mechanical hoeing. In a two factorial completely randomised block design these treatments were fertilised (I. 80 kgN/ha as PPL, Potato Protein Liquid) and not fertilised (II.) in March 2008 at EC 30. In contrast to the hypothesis treatment iii. (rapeseed intercropped with buckwheat) did not control weeds efficiently nor enhanced nitrogen uptake before winter. Grain yield was significantly lower in this treatment compared to all other treatments. The most cost-efficient treatment i. controlled weeds effectively. Grain yield was not significantly lower in this treatment compared to the more cost-intensive treatments (ii. & iv.) where hoeing was performed. Across treatments calculated, application of PPL increased grain yield significantly