Call and put implied volatilities and the derivation of option implied trees

Standard methodologies for the derivation of implied trees from option prices are based on the validity of the put-call parity. Muzzioli and Torricelli (2002) propose a methodology which accounts for PCP violations. Based on this latter approach the present paper advances in two main directions. First we propose a different methodology in order to imply the interval of artificial probabilities at each node of the tree. Secondly, we perform an empirical validation of the implied tree obtained, both in the sample and out of sample, by using DAX index options data set covering the period from January 4, 1999 to December 28, 2000. Numerical results are compared with one of the most used standard methodologies, i.e. Derman and Kani’s. The results suggest that the estimation proposed, by taking into account the informational content of both call and put prices, highly improves both the in-the-sample fitting and the out-of-sample performance.Binomial Method; Put-Call Parity; Choquet Pricing; Interval Tree.

The no arbitrage condition in option implied trees: evidence from the Italian index options market

A major issue in the construction of implied trees is the no arbitrage property preservation. Within the literature on deterministic smile-consistent trees using forward induction, two major contributions are: Derman and Kani (1994) and Barle and Cakici (1998). The former proposes a methodology to override the nodes that violate the no arbitrage condition. The latter extends the Derman and Kani’s algorithm, in order to increase its stability in the presence of high interest rates. The aim of the present paper is to modify the Derman and Kani’s methodology in order to improve the fit of the implied tree to option prices. The proposed methodology is compared with Barle and Cakici both in the sample and out of sample with Italian index options data. Overall findings support a better performance of the modified Derman and Kani’s methodology.Binomial tree; implied volatility; calibration.

A liquidity risk index as a regulatory tool for systemically important banks? An empirical assessment across two financial crises

We provide an assessment of the IMF suggestion, based on Severo (2012), to use an index of systemic liquidity risk (SLRI) that could help to estimate a Pigouvian tax on large banks for the externality on the international banking system out of their risk exposure. To this end we compute a parsimonious and fully documented SLRI and investigate its statistical significance in explaining level and variability of stock returns for a group of large international banks during the subprime financial and the Eurozone sovereign debt crises. The empirical investigation consistently fails to detect, within and across the two crises, a core group among the systemically important banks listed by the Financial Stability Board and thus supports a sceptical assessment of the proposal

The Population ageing in Italy: facts and impact on household portfolios

This paper aims to assess the impact of ageing on household portfolios in Italy and hence ultimately on financial markets. To this end, the analysis is carried out in two steps. First, the dimension of population ageing in Italy is assessed by means of both historical and forecast data on the structure of Italian population. Second, based on data taken from the Bank of Italy Survey of Household Income and Wealth (SHIW) over the last decade, we analyse the average household portfolio in relation to demographic characteristics. The main findings are: first, Italy turns out to be one of the countries most affected by ageing; second, financial choices of Italian households are sensibly affected by age. Thus, the exceptional ageing in Italy might have relevant consequences on the Italian financial market

Linking food web functioning and habitat diversity for an ecosystem based management: A Mediterranean lagoon case-study

We propose a modelling approach relating the functioning of a transitional ecosystem with the spatial extension of its habitats. A test case is presented for the lagoon of Venice, discussing the results in the context of the application of current EU directives. The effects on food web functioning due to changes related to manageable and unmanageable drivers were investigated. The modelling procedure involved the use of steady-state food web models and network analysis, respectively applied to estimate the fluxes of energy associated with trophic interactions, and to compute indices of food web functioning. On the long term (hundred years) temporal scale, the model indicated that the expected loss of salt marshes will produce further changes at the system level, with a lagoon showing a decrease in the energy processing efficiency. On the short term scale, simulation results indicated that fishery management accompanied by seagrass restoration measures would produce a slight transition towards a more healthy system, with higher energy cycling, and maintaining a good balance between processing efficiency and resilience. Scenarios presented suggest that the effectiveness of short term management strategies can be better evaluated when contextualized in the long term trends of evolution of a system. We also remark the need for further studying the relationship between habitat diversity and indicators of food web functioning

Who holds the purse strings within the household? The determinants of intra-family decision making

We study the determinants of intra-household decision-making responsibility over economic and financial choices using a direct measure provided in the 1989–2010 Bank of Italy Survey of Household Income and Wealth. We find that the probability that the wife is responsible for decisions increases as the wife’s characteristics in terms of age, education and income become closer or even higher than those of her husband’s. Thus, consistently with a bargaining approach, decision-making responsibility is associated with marriage heterogamy, and not only along strictly economic dimensions. However, in support of an alternative household production approach, we also find that the probability that the wife is responsible is lower when she is employed, which suggests the presence of a specialization pattern assigning responsibility to the spouse with more available time. Our results are robust to additional controls and alternative samples

Diet and diving behaviour of European Storm Petrels Hydrobates pelagicus in the Mediterranean (ssp. melitensis).

Unlike Atlantic populations, which feed on krill, Mediterranean populations feed mainly on pelagic fish Gymnammodites cicerellus. European Storm Petrels in the Mediterranean exploit pelagic fish which are taken by diving. This contrasts with the Atlantic populations which feed mainly on krill. Mediterranean birds also feed on Opossum Shrimps Mysidacea during short foraging trips made at night just outside the colony. Differences in diet between long and short foraging trips may be because adults have to forage for both themselves and their chicks

Precessing jets from a moving source and bright X-ray filaments in galaxy clusters

We present hydrodynamical calculations carried out with the 3D yguazu-a code of a precessing jet model, which interacts with a plane parallel wind. This scenario describes an extragalactic jet, in which the jet source is in motion with respect to the surrounding intra-cluster medium. From the numerical results, synthetic emission maps and spectra in X-ray band were obtained. We compare these predictions with observations of the radio jets emanating from the radio-galaxy 4C 26.42 (in the Abell 1795 galaxy cluster). We find that the general morphology of the radio jets can be described by a point-symmetric precessing jet system interacting with a plane parallel wind (i.e., the intra-cluster medium flowing past the galaxy). We also find that our synthetic X-ray emission maps reproduce the observed large scale structures (with sizes of the order of tens of kpc).Comment: Accepted for publication in A&A - 7 Pages, 6 figure

Switching Casimir forces with Phase Change Materials

We demonstrate here a controllable variation in the Casimir force. Changes in the force of up to 20% at separations of ~100 nm between Au and AgInSbTe (AIST) surfaces were achieved upon crystallization of an amorphous sample of AIST. This material is well known for its structural transformation, which produces a significant change in the optical properties and is exploited in optical data storage systems. The finding paves the way to the control of forces in nanosystems, such as micro- or nanoswitches by stimulating the phase change transition via localized heat sources.Comment: 7 pages, 3 figures The AFM images for the inset in Fig.2 were replaced with new ones as obtained with tips having high aspect rati

Models for household portfolios and life-cycle allocations in the presence of labour income and longevity risk

Campbell (2006) stressed the two main challenges of household finance: empirical analyses that highlight how households do invest (i.e. positive household finance) have important measurement problems, while suggestions about how investments should be made (i.e. normative household finance) encounter modelling problems. In this latter connection the final aim of this paper is to highlight the modelling requirements necessary to analyse the impact of household-specific risks on their portfolios, with special focus on the financial segment. To this end, after an overview of household portfolio theory, special emphasis is given to models incorporating two increasingly more important risks for the household: labour income and longevity risks. The paper concludes with some research directions