3,614 research outputs found
On the correlation structure of microstructure noise in theory and practice
We argue for incorporating the financial economics of market microstructure into the financial econometrics of asset return volatility estimation. In particular, we use market microstructure theory to derive the cross-correlation function between latent returns and market microstructure noise, which feature prominently in the recent volatility literature. The cross-correlation at zero displacement is typically negative, and cross-correlations at nonzero displacements are positive and decay geometrically. If market makers are sufficiently risk averse, however, the cross-correlation pattern is inverted. Our results are useful for assessing the validity of the frequently-assumed independence of latent price and microstructure noise, for explaining observed cross-correlation patterns, for predicting as-yet undiscovered patterns, and for making informed conjectures as to improved volatility estimation methods
On the Correlation Structure of Microstructure Noise in Theory and Practice
We argue for incorporating the financial economics of market microstructure into the financial econometrics of asset return volatility estimation. In particular, we use market microstructure theory to derive the cross-correlation function between latent returns and market microstructure noise, which feature prominently in the recent volatility literature. The cross-correlation at zero displacement is typically negative, and cross-correlations at nonzero displacements are positive and decay geometrically. If market makers are sufficiently risk averse, however, the cross-correlation pattern is inverted. Our results are useful for assessing the validity of the frequently-assumed independence of latent price and microstructure noise, for explaining observed crosscorrelation patterns, for predicting as-yet undiscovered patterns, and for making informed conjectures as to improved volatility estimation methods.Realized volatility, Market microstructure theory, High-frequency data, Financial econometrics
The development of the Canadian Mobile Servicing System Kinematic Simulation Facility
Canada will develop a Mobile Servicing System (MSS) as its contribution to the U.S./International Space Station Freedom. Components of the MSS will include a remote manipulator (SSRMS), a Special Purpose Dexterous Manipulator (SPDM), and a mobile base (MRS). In order to support requirements analysis and the evaluation of operational concepts related to the use of the MSS, a graphics based kinematic simulation/human-computer interface facility has been created. The facility consists of the following elements: (1) A two-dimensional graphics editor allowing the rapid development of virtual control stations; (2) Kinematic simulations of the space station remote manipulators (SSRMS and SPDM), and mobile base; and (3) A three-dimensional graphics model of the space station, MSS, orbiter, and payloads. These software elements combined with state of the art computer graphics hardware provide the capability to prototype MSS workstations, evaluate MSS operational capabilities, and investigate the human-computer interface in an interactive simulation environment. The graphics technology involved in the development and use of this facility is described
An Arbitrage-Free Generalized Nelson-Siegel Term Structure Model
The Svensson generalization of the popular Nelson-Siegel term structure model is widely used by practitioners and central banks. Unfortunately, like the original Nelson-Siegel specification, this generalization, in its dynamic form, does not enforce arbitrage-free consistency over time. Indeed, we show that the factor loadings of the Svensson generalization cannot be obtained in a standard finance arbitrage-free affine term structure representation. Therefore, we introduce a closely related generalized Nelson-Siegel model on which the no-arbitrage condition can be imposed. We estimate this new arbitrage-free generalized Nelson-Siegel model and demonstrate its tractability and good in-sample fit.Yield Curve, Interest Rate, Bond Market, Svensson Model
The Affine Arbitrage-Free Class of Nelson-Siegel Term Structure Models
We derive the class of arbitrage-free affine dynamic term structure models that approximate the widely-used Nelson-Siegel yield-curve specification. Our theoretical analysis relates this new class of models to the canonical representation of the three-factor arbitrage-free affine model. Our empirical analysis shows that imposing the Nelson-Siegel structure on this canonical representation greatly improves its empirical tractability; furthermore, we find that improvements in predictive performance are achieved from the imposition of absence of arbitrage.arbitrage, Nelson-Siegel, term structure, factor models, forecast accuracy
Uncovering predictability in the evolution of the WTI oil futures curve
Accurately forecasting the price of oil, the world's most actively traded
commodity, is of great importance to both academics and practitioners. We
contribute by proposing a functional time series based method to model and
forecast oil futures. Our approach boasts a number of theoretical and practical
advantages including effectively exploiting underlying process dynamics missed
by classical discrete approaches. We evaluate the finite-sample performance
against established benchmarks using a model confidence set test. A realistic
out-of-sample exercise provides strong support for the adoption of our approach
with it residing in the superior set of models in all considered instances.Comment: 28 pages, 4 figures, to appear in European Financial Managemen
Structure and apparent topography of TiO2 (110) surfaces
We present self-consistent ab-initio total-energy and electronic-structure
calculations on stoichiometric and non-stoichiometric TiO2 (110) surfaces.
Scanning tunneling microscopy (STM) topographs are simulated by calculating the
local electronic density of states over an energy window appropriate for the
experimental positive-bias conditions. We find that under these conditions the
STM tends to image the undercoordinated Ti atoms, in spite of the physical
protrusion of the O atoms, giving an apparent reversal of topographic contrast
on the stoichiometric 1x1 or missing-row 2x1 surface. We also show that both
the interpretation of STM images and the direct comparison of surface energies
favor an added-row structure over the missing-row structure for the
oxygen-deficient 2x1 surface.Comment: 6 pages, two-column style with 5 postscript figures embedded. Uses
REVTEX and epsf macros. Also available at
http://www.physics.rutgers.edu/~dhv/preprints/index.html#ng_tio
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Quantile forecasts of daily exchange rate returns from forecasts of realized volatility
Quantile forecasts are central to risk management decisions because of the widespread
use of Value-at-Risk. A quantile forecast is the product of two factors: the model used to
forecast volatility, and the method of computing quantiles from the volatility forecasts. In
this paper we calculate and evaluate quantile forecasts of the daily exchange rate returns
of five currencies. The forecasting models that have been used in recent analyses of the
predictability of daily realized volatility permit a comparison of the predictive power of
different measures of intraday variation and intraday returns in forecasting exchange rate
variability. The methods of computing quantile forecasts include making distributional
assumptions for future daily returns as well as using the empirical distribution of predicted
standardized returns with both rolling and recursive samples. Our main findings are that the
Heterogenous Autoregressive model provides more accurate volatility and quantile forecasts
for currencies which experience shifts in volatility, such as the Canadian dollar, and that
the use of the empirical distribution to calculate quantiles can improve forecasts when there
are shifts
Monetary policy uncertainty spillovers in time and frequency domains
We use the recently created monthly Interest Rate Uncertainty measure, to investigate monetary policy uncertainty across the US, Germany, France, Italy, Spain, UK, Japan, Canada, and Sweden in both the time and frequency domains. We find that the largest spillover indices are from innovations in the country itself; however, there are some instances where spillover indices between countries are large. These relationships change over time and we observe large variances in pairwise spillovers during the global financial crisis. We find that most of the volatility is confined to the crisis period. Policy makers should consider accounting for the spillovers from the US, Germany, France and Spain, as we found that they are the most consistent net transmitters of monetary policy uncertainty
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