Can Interest Rate Volatility be Extracted from the Cross Section of Bond Yields? An Investigation of Unspanned Stochastic Volatility

Most affine models of the term structure with stochastic volatility (SV) predict that the variance of the short rate is simultaneously a linear combination of yields and the quadratic variation of the spot rate. However, we find empirically that the A1(3) SV model generates a time series for the variance state variable that is strongly negatively correlated with a GARCH estimate of the quadratic variation of the spot rate process. We then investigate affine models that exhibit "unspanned stochastic volatility (USV)." Of the models tested, only the A1(4) USV model is found to generate both realistic volatility estimates and a good cross-sectional fit. Our findings suggests that interest rate volatility cannot be extracted from the cross-section of bond prices. Separately, we propose an alternative to the canonical representation of affine models introduced by Dai and Singleton (2001). This representation has several advantages, including: (I) the state variables have simple physical interpretations such as level, slope and curvature, (ii) their dynamics remain affine and tractable, (iii) the model is econometrically identifiable, (iv) model-insensitive estimates of the state vector process implied from the term structure are readily available, and (v) it isolates those parameters which are not identifiable from bond prices alone if the model is specified to exhibit USV.

Fluid-driven deformation of a soft granular material

Compressing a porous, fluid-filled material will drive the interstitial fluid out of the pore space, as when squeezing water out of a kitchen sponge. Inversely, injecting fluid into a porous material can deform the solid structure, as when fracturing a shale for natural gas recovery. These poromechanical interactions play an important role in geological and biological systems across a wide range of scales, from the propagation of magma through the Earth's mantle to the transport of fluid through living cells and tissues. The theory of poroelasticity has been largely successful in modeling poromechanical behavior in relatively simple systems, but this continuum theory is fundamentally limited by our understanding of the pore-scale interactions between the fluid and the solid, and these problems are notoriously difficult to study in a laboratory setting. Here, we present a high-resolution measurement of injection-driven poromechanical deformation in a system with granular microsctructure: We inject fluid into a dense, confined monolayer of soft particles and use particle tracking to reveal the dynamics of the multi-scale deformation field. We find that a continuum model based on poroelasticity theory captures certain macroscopic features of the deformation, but the particle-scale deformation field exhibits dramatic departures from smooth, continuum behavior. We observe particle-scale rearrangement and hysteresis, as well as petal-like mesoscale structures that are connected to material failure through spiral shear banding

Portfolio Choice over the Life-Cycle in the Presence of 'Trickle Down' Labor Income

Empirical evidence shows that changes in aggregate labor income and stock market returns exhibit only weak correlation at short horizons. As we document below, however, this correlation increases substantially at longer horizons, which provides at least suggestive evidence that stock returns and labor income are cointegrated. In this paper, we investigate the implications of such a cointegrated relation for life-cycle optimal portfolio and consumption decisions of an agent whose non-tradable labor income faces permanent and temporary idiosyncratic shocks. We find that, under economically plausible calibrations, the optimal portfolio choice for the young investor is to take a substantial {\em short} position in the risky portfolio, in spite of the large risk premium associated with it. Intuitively, this occurs because the cointegration effect makes the present value of future labor income flows `stock-like' for the young agent. However, for older agents who have shorter times-to-retirement, the cointegration effect does not have sufficient time to act, and the remaining human capital becomes more `bond-like.' Together, these effects create a hump-shaped optimal portfolio decision for the agent over the life cycle, consistent with empirical observation.

Can standard preferences explain the prices of out-of-the-money S&P 500 put options?

The 1987 stock market crash occurred with minimal impact on observable economic variables (e.g., consumption), yet dramatically and permanently changed the shape of the implied volatility curve for equity index options. Here, we propose a general equilibrium model that captures many salient features of the U.S. equity and options markets before, during, and after the crash. The representative agent is endowed with Epstein-Zin preferences and the aggregate dividend and consumption processes are driven by a persistent stochastic growth variable that can jump. In reaction to a market crash, the agent updates her beliefs about the distribution of the jump component. We identify a realistic calibration of the model that matches the prices of shortmaturity at-the-money and deep out-of-the-money S&P 500 put options, as well as the prices of individual stock options. Further, the model generates a steep shift in the implied volatility ‘smirk’ for S&P 500 options after the 1987 crash. This ‘regime shift’ occurs in spite of a minimal impact on observable macroeconomic fundamentals. Finally, the model’s implications are consistent with the empirical properties of dividends, the equity premium, as well as the level and standard deviation of the risk-free rate. Overall, our findings show that it is possible to reconcile the stylized properties of the equity and option markets in the framework of rational expectations, consistent with the notion that these two markets are integrated.Money ; Macroeconomics ; Pricing

Can Standard Preferences Explain the Prices of out of the Money S&P 500 Put Options

Prior to the stock market crash of 1987, Black-Scholes implied volatilities of S&P 500 index options were relatively constant across moneyness. Since the crash, however, deep out-of-the-money S&P 500 put options have become %u2018expensive%u2019 relative to the Black-Scholes benchmark. Many researchers (e.g., Liu, Pan and Wang (2005)) have argued that such prices cannot be justified in a general equilibrium setting if the representative agent has %u2018standard preferences%u2019 and the endowment is an i.i.d. process. Below, however, we use the insight of Bansal and Yaron (2004) to demonstrate that the %u2018volatility smirk%u2019 can be rationalized if the agent is endowed with Epstein-Zin preferences and if the aggregate dividend and consumption processes are driven by a persistent stochastic growth variable that can jump. We identify a realistic calibration of the model that simultaneously matches the empirical properties of dividends, the equity premium, the prices of both at-the-money and deep out-of-the-money puts, and the level of the risk-free rate. A more challenging question (that to our knowledge has not been previously investigated) is whether one can explain within a standard preference framework the stark regime change in the volatility smirk that has maintained since the 1987 market crash. To this end, we extend the model to a Bayesian setting in which the agent updates her beliefs about the average jump size in the event of a jump. Note that such beliefs only update at crash dates, and hence can explain why the volatility smirk has not diminished over the last eighteen years. We find that the model can capture the shape of the implied volatility curve both pre- and post-crash while maintaining reasonable estimates for expected returns, price-dividend ratios, and risk-free rates.

Portfolio choice over the life-cycle when the stock and labor markets are cointegrated

We study portfolio choice when labor income and dividends are cointegrated. Economically plausible calibrations suggest young investors should take substantial short positions in the stock market. Because of cointegration the young agent's human capital effectively becomes.Portfolio management ; Stock market ; Labor market

État du développement technologique en matière d'enlèvement des métaux des effluents industriels

Cette étude trace un profil des diverses technologies utilisées et en développement pour la séparation et/ou la récupération des métaux dans les effluents industriels. Les principes de fonctionnement de ces technologies sont abordés, ainsi que leurs avantages et limites d'utilisation. Les procédés d'enlèvement et de récupération des métaux comprennent les techniques de précipitation (formation d'hydroxydes, de carbonates, de sulfures, etc.) et coprécipitation (sels de fer et d'aluminium, etc.), d'adsorption (sable, cellulose, charbon activé, pyrite, ciment, lignite, mousse de tourbe, sciure de bois, etc.) et de biosorption (bactéries, levures, moisissures, algues marines et d'eaux douces), d'électrodéposition et d'électrocoagulation, de cémentation, de séparation par membranes (osmose inverse et électrodialyse), d'extraction par solvant (acides carboxyliques, amines aliphatiques ou aromatiques, acides aminés, composés phénoliques, phosphates alkyl, etc.), et d'échange d'ions (résines naturelles et synthétiques). La précipitation ou la coprécipitation représentent les procédés les plus largement utilisés et étudiés pour l'enlèvement des métaux des effluents industriels, suivis des techniques d'adsorption. Les procédés plus sophistiqués tels que l'électrodéposition, l'extraction par solvant, la séparation par membranes et l'échange d'ions, bien que largement utilisés dans les procédés métallurgiques, sont relativement peu employés et examinés pour le traitement des effluents industriels. La biosorption a fait l'objet de plusieurs travaux de recherche au cours des dernières années et représente une option intéressante pour le traitement de divers types d'effluents contenant de faibles concentrations en métaux. Finalement, le recyclage et la gestion optimale des effluents constitue une avenue de plus en plus suivie par les industries soucieuses de satisfaire aux nouvelles réglementations et législations.This study is dedicated to the review of the different technologies used and evaluated for the removal and/or recovery of metals from industrial effluents. The principles involved in these technologies are discussed, as well as the advantages and limits associated with these processes. The metal removal and recovery processes include the following techniques: precipitation, adsorption and biosorption, electrowinning and electrocoagulation, cementation, membrane separations, solvent extraction and ion exchange.Precipitation and coprecipitation are the most used and studied methods for metal removal from industrial waste waters. The method of precipitation used most often to remove metals from waste water consists of precipitating them in the form of hydroxides. The usual procedure involves the addition of chemicals such as lime (CaO or Ca(OH)2), Mg(OH)2, NaHCO3, Na2 CO3, (NH4)2 CO3, NaOH or NH4 OH. The precipitation of metals by carbonates or sulphides is an effective alternative to hydroxide precipitation. The use of carbonates allows the precipitation of metals to occur at pH values lower than those necessary with the hydroxides. Moreover, the precipitates thus formed are denser and have better characteristics of solid-liquid separation. Precipitation by sulphides is normally carried out with reagents such as: Na2 S, NaHS, H2 S or FeS. In acidic media, the lower solubility of metal sulphides (Cd, Co, Cu, Cr, Ni, Mn, Zn, etc.), makes it possible to reach concentrations lower than those obtained by precipitation as hydroxides. Coprecipitation with aluminum and iron salts is also an effective means for the removal of metals from effluents.Adsorption methods are also widely applied and examined for this purpose. However, in most cases the use of adsorbents requires an effluent neutralization step. Indeed, the neutralization of acid effluents must take place to allow their disposal in sewerage systems. A wide variety of adsorbents can be employed, both organic and inorganic: aluminum or iron oxides, sand, activated carbon, mixtures of coal and pyrite, iron particles, gravel or crushed brick, cement, etc. Studies have demonstrated the possibility of eliminating metals by adsorption on vegetable matter: peat moss, sawdust and wood bark, etc. Chitin and chitosan, two natural polymers that are abundant in the cell walls of fungi and shellfish, also have excellent properties of metal fixation. The utilization of different agricultural by-products (peanut skins, coconuts, corn cobs, onions skins, tea leaves, coffee powder, canola meal, etc.) for metal adsorption has also been proposed.Biosorption has been intensively studied in recent years as an economical treatment for metal recovery from dilute industrial effluents. Biosorption implies the use of live or dead biomass and/or their derivatives, which adsorb the metal ions with the ligands or functional groups located on the external surface of the microbial cells. Capacities for metal adsorption on various types of biomass (bacteria, yeasts, fungi, marine and freshwater algae) have been evaluated. The microorganisms used for the metal adsorption step must usually be immobilized in a matrix or in an easily recoverable support. The immobilizing agents or matrices most usually employed are alginate, polyacrylamine, polysulphone, silica gel, cellulose and glutaraldehyde.Electrowinning is a well-established technology that is widely employed in the mining and metallurgical industries (heap leaching, acid mine drainage, etc.), in metal transformation industries (wastes from plating and metal finishing), and in the electronics and electrical industries for the removal and/or the recovery of metals in solution. Many metals (Ag, Au, Cd, Co, Cr, Cu, Ni, Pb, Sn and Zn) present in the effluents can be recovered by electrodeposition using insoluble anodes.Electrocoagulation is another electrochemical approach, which uses an electrical current to remove several metals in solution. In fact, the electrocoagulation systems can be effective in removing suspended solids, dissolved metals, tannins and dyes. The contaminants present in waste water are maintained in solution by electrical charges. When these ions and the other charged particles are neutralized with ions of opposite electric charge, provided by a electrocoagulation system, they become destabilized and precipitate in a form that is usually very stable.Cementation is a type of precipitation method implying an electrochemical mechanism. In this process, a metal having a higher oxidation potential passes into solution (e.g., oxidation of metallic iron, Fe(0), to ferrous iron, Fe(II)) to replace a metal having a lower oxidation potential. Copper is the metal most frequently separated by cementation. However, the noble metals (Ag, Au and Pd), as well as As, Cd, Ga, Pb, Sb and Sn, can also be recovered in this manner.Reverse osmosis and electrodialysis are two processes using semipermeable membranes applicable to the recovery of metal ions. In electrodialysis, selective membranes (alternation of cation and anion membranes) fit between the electrodes in electrolytic cells. A continuous electrical current and the associated ion migrations, allow the recovery of metals. The techniques of membrane separation are very efficient for the treatment of dilute waste waters.The metallurgical industry has used solvent extraction for many years for a broad range of separations. This technique is employed today for the removal of soluble metals (Cd, Cr, Co, Cu, Ni, Mo, U, V, Zn, etc.) from waste water. Separation is carried out in contact with an immiscible organic phase to form salts or complex compounds, which give a favorable solubility distribution between the aqueous and organic phases. Various types of reagents can be used for the extraction: carboxylic acids, aliphatic or aromatic amines, amino acids, alkyl phosphates, phenolic compounds. The non-selective removal of metal contaminants in aqueous solutions can be obtained with a whole range of organic reagents. Promising new reagents have been proposed recently for the selective extraction of metals, such as Cd, Co, Cr and Zn.Ion exchangers are insoluble substances having in their molecular structure acidic or basic groups able to exchange, without modification of their physical structure, the positive or negative ions fixed at these groups. The first ion exchangers used were natural substances containing aluminosilicates (zeolites, clays, etc). Nowadays, the most-used ion exchangers are mainly organic in nature (resins). For the extraction of metals, the removal of cations in solution is usually done with the sulphonic acid group (-SO3- H+) of a polystyrene resin, or, with a chelating resin containing iminodiacetate functional groups. Ion exchange has recently received considerable attention for the separation and concentration of metals from waste water. These developments are especially applicable to the plating and metal transformation industries, for the removal of Cr, Co, Cu, Cd, Ni, Fe and Zn.The more sophisticated processes, such as electrowinning, solvent extraction, membrane separations and ion exchange, although frequently used in metallurgical processes, are less popular for wastewater treatment than are precipitation methods. Finally, recycling and optimal management of effluents constitutes an approach more and more widely applied by industries to satisfy new environmental regulations and laws