Dollarization Persistence and Individual Heterogeneity

The most salient feature of financial dollarization, and the one that causes more concern to policymakers, is its persistence: even after successful macroeconomic stabilizations, dollarization ratios often remain high. In this paper we claim that this persistence is connected to the fact that the participants in the dollar deposit market are fairly heterogenous, and so is the way they form their optimal currency portfolio. We develop a simple model when agents differ in their ability to process information, which turns out to be enough to generate persistence upon aggregation. We find empirical support for this claim with data from three Latin American countries and Poland.Dollarization, individual heterogeneity, persistence, aggregation

Dollarization Persistence and Individual Heterogeneity

The most salient feature of financial dollarization, and the one that causes more concern to policy makers, is its persistence: even after successful macroeconomic stabilizations, dollarization ratios often remain high. In this paper we claim that this persistence is connected to the fact that the participants in the dollar deposit market are fairly heterogenous, and so is the way they form their optimal currency portfolio.We develop as simple model when agents differ in their ability to process information, which turns out to be enough to generate persistence up on aggregation. We find empirical support for this claim with data from three Latin American countries and Poland.Dollarization, individual heterogeneity, persistence, aggregation

Fractional diffusion models of option prices in markets with jumps.

Most of the recent literature dealing with the modeling of financial assets assumes that the underlying dynamics of equity prices follow a jump process or a Lévy process. This is done to incorporate rare or extreme events not captured by Gaussian models. Of those financial models proposed, the most interesting include the CGMY, KoBoL and FMLS. All of these capture some of the most important characteristics of the dynamics of stock prices. In this article we show that for these particular Lévy processes, the prices of financial derivatives, such as European-style options, satisfy a fractional partial differential equation (FPDE). As an application, we use numerical techniques to price exotic options, in particular barrier options, by solving the corresponding FPDEs derivedFractional-Black–Scholes; Lévy-stable processes; FMLS; KoBoL; CGMY; Fractional calculus; Riemann–Liouville fractional derivative; Barrier options; Down-and-out; Up-and-out; Double knock-out;

Fluid limit of the continuous-time random walk with general Lévy jump distribution functions.

The continuous time random walk (CTRW) is a natural generalization of the Brownian random walk that allows the incorporation of waiting time distributions ψ(t) and general jump distribution functions η(x). There are two well-known fluid limits of this model in the uncoupled case. For exponential decaying waiting times and Gaussian jump distribution functions the fluid limit leads to the diffusion equation. On the other hand, for algebraic decaying waiting times, and algebraic decaying jump distributions, corresponding to Lévy stable processes, the fluid limit leads to the fractional diffusion equation of order α in space and order β in time. However, these are two special cases of a wider class of models. Here we consider the CTRW for the most general Lévy stochastic processes in the Lévy-Khintchine representation for the jump distribution function and obtain an integro-differential equation describing the dynamics in the fluid limit. The resulting equation contains as special cases the regular and the fractional diffusion equations. As an application we consider the case of CTRWs with exponentially truncated Lévy jump distribution functions. In this case the fluid limit leads to a transport equation with exponentially truncated fractional derivatives which describes the interplay between memory, long jumps, and truncation effects in the intermediate asymptotic regime. The dynamics exhibits a transition from superdiffusion to subdiffusion with the crossover time scaling as τc ∼ λ −α/β where 1/λ is the truncation length scale. The asymptotic behavior of the propagator (Green’s function) of the truncated fractional equation exhibits a transition from algebraic decay for t > τc

On the fluid limit of the continuous-time random walk with general Lévy jump distribution functions.

The continuous time random walk (CTRW) is a natural generalization of the Brownian random walk that allows the incorporation of waiting time distributions ψ(t) and general jump distribution functions η(x). There are two well-known fluid limits of this model in the uncoupled case. For exponential decaying waiting times and Gaussian jump distribution functions the fluid limit leads to the diffusion equation. On the other hand, for algebraic decaying waiting times, and algebraic decaying jump distributions, corresponding to Lévy stable processes, the fluid limit leads to the fractional diffusion equation of order α in space and order β in time. However, these are two special cases of a wider class of models. Here we consider the CTRW for the most general Lévy stochastic processes in the Lévy-Khintchine representation for the jump distribution function and obtain an integro-differential equation describing the dynamics in the fluid limit. The resulting equation contains as special cases the regular and the fractional diffusion equations. As an application we consider the case of CTRWs with exponentially truncated Lévy jump distribution functions. In this case the fluid limit leads to a transport equation with exponentially truncated fractional derivatives which describes the interplay between memory, long jumps, and truncation effects in the intermediate asymptotic regime. The dynamics exhibits a transition from superdiffusion to subdiffusion with the crossover time scaling as τc ∼ λ −α/β where 1/λ is the truncation length scale. The asymptotic behavior of the propagator (Green’s function) of the truncated fractional equation exhibits a transition from algebraic decay for t << τc to stretched Gaussian decay for t >> τc

Fractional diffusion models of option prices in markets with jumps.

Most of the recent literature dealing with the modeling of financial assets assumes that the underlying dynamics of equity prices follow a jump process or a Lévy process. This is done to incorporate rare or extreme events not captured by Gaussian models. Of those financial models proposed, the most interesting include the CGMY, KoBoL and FMLS. All of these capture some of the most important characteristics of the dynamics of stock prices. In this article we show that for these particular Lévy processes, the prices of financial derivatives, such as European-style options, satisfy a fractional partial differential equation (FPDE). As an application, we use numerical techniques to price exotic options, in particular barrier options, by solving the corresponding FPDEs derivedFractional-Black-Scholes; Lévy-Stable processes; FMLS; KoBoL; CGMY; Fractional calculus; Riemann-Liouville fractional derivative; Barrier options; Down-and-out; Up-and-out; Double knock-out;

Multiscale statistical analysis of coronal solar activity

Multi-filter images from the solar corona are used to obtain temperature maps which are analyzed using techniques based on proper orthogonal decomposition (POD) in order to extract dynamical and structural information at various scales. Exploring active regions before and after a solar flare and comparing them with quiet regions we show that the multiscale behavior presents distinct statistical properties for each case that can be used to characterize the level of activity in a region. Information about the nature of heat transport is also be extracted from the analysis.Comment: 24 pages, 18 figure

How can the effects of the introduction of a new airline on a national airline network be measured? A time series approach for the Ryanair case in Spain

This paper quantifies the Ryanair Effect on the Spanish airline network. It proposes new methodology based on an advanced time series approach that allows both the direct and indirect effects of the incorporation of a new airline to be measured and that can be easily extrapolated to other airport systems. The findings show the mean indirect effect on other airlines, in absolute value, is 8.6 per cent of the total airport traffic, peaking at a maximum of almost 29 per cent. Also, surprisingly, there is found to be a negative indirect effect at only four of the ten airports analysed