Accounting for the determinants of banks’ credit ratings

The contribution of the banking industry to the recent financial crisis 2007/8 has raised public concerns about the excessive involvement of banks in risky activities. In addition there have been public concerns about the ability of credit rating agencies to evaluate these risks in advance. In this context, this study uses an ordered logit analysis to examine the determinants of banks’ credit ratings using a sample of US and UK banks’ accounting data from 1994 to 2009. Our intention is to examine to what extent banks’ ratings reflect banks’ risks. Our analysis shows that a small number of accounting variables, namely: bank size, liquidity, efficiency and profitability are able to correctly assign credit rating for approximately 74% to 78% the sample banks. Surprisingly, the association between banks’ credit ratings and each of leverage asset quality and capital is not robust, suggesting that the rating agency’s models did not pick them up despite their importance in the crisis. In addition, the relationship between banks’ credit ratings and liquidity is the reverse of that which an adequate early warning system would require. As banks benefit from higher credit ratings they will have addressed their determinants rather than taking care of systemic factors that affect underlying risk. Policy makers therefore need to intervene to address this market failure.This study was financially supported by the Institute of Chartered Accountants of Scotland (ICAS)

Plasmon dispersion in semimetallic armchair graphene nanoribbons

The dispersion relations for plasmons in intrinsic and extrinsic semimetallic armchair graphene nanoribbons (acGNR) are calculated in the random phase approximation using the orthogonal p_z-orbital tight binding method. Our model predicts new plasmons for acGNR of odd atomic widths N=5,11,17,... Our model further predicts plasmons in acGNR of even atomic width N=2,8,14,... related to those found using a Dirac continuum model, but with different quantitative dispersion characteristics. We find that the dispersion of all plasmons in semimetallic acGNR depends strongly on the localization of the p_z electronic wavefunctions. We also find that overlap integrals for acGNR behave in a more complex way than predicted by the Dirac continuum model, suggesting that these plasmons will experience a small damping for all q not equal to 0. Plasmons in extrinsic semimetallic acGNR with the chemical potential in the lowest (highest) conduction (valence) band are found to have dispersion characteristics nearly identical to their intrinsic counterparts, with negligible differencs in dispersion arising from the slight differences in overlap integrals for the interband and intraband transitions.Comment: 8 pages, 9 figure

A Differentiation Theory for It\^o's Calculus

A peculiar feature of It\^o's calculus is that it is an integral calculus that gives no explicit derivative with a systematic differentiation theory counterpart, as in elementary calculus. So, can we define a pathwise stochastic derivative of semimartingales with respect to Brownian motion that leads to a differentiation theory counterpart to It\^o's integral calculus? From It\^o's definition of his integral, such a derivative must be based on the quadratic covariation process. We give such a derivative in this note and we show that it leads to a fundamental theorem of stochastic calculus, a generalized stochastic chain rule that includes the case of convex functions acting on continuous semimartingales, and the stochastic mean value and Rolle's theorems. In addition, it interacts with basic algebraic operations on semimartingales similarly to the way the deterministic derivative does on deterministic functions, making it natural for computations. Such a differentiation theory leads to many interesting applications some of which we address in an upcoming article.Comment: 10 pages, 9/9 papers from my 2000-2006 collection. I proved these results and more earlier in 2004. I generalize this theory in upcoming articles. I also apply this theory in upcoming article