Assessing the Impact of Market Microstructure Noise and Random Jumps on the Relative Forecasting Performance of Option-Implied and Returns-Based Volatility

This paper presents a comprehensive empirical evaluation of option-implied and returns-based forecasts of volatility, in which new developments related to the impact on measured volatility of market microstructure noise and random jumps are explicitly taken into account. The option-based component of the analysis also accommodates the concept of model-free implied volatility, such that the forecasting performance of the options market is separated from the issue of misspecification of the option pricing model. The forecasting assessment is conducted using an extensive set of observations on equity and option trades for News Corporation for the 1992 to 2001 period, yielding certain clear results. According to several different criteria, the model-free implied volatility is the best performing forecast, overall, of future volatility, with this result being robust to the way in which alternative measures of future volatility accommodate microstructure noise and jumps. Of the volatility measures considered, the one which is, in turn, best forecast by the option-implied volatility is that measure which adjusts for microstructure noise, but which retains some information about random jumps.Volatility Forecasts; Quadratic Variation; Intraday Volatility Measures; Model-free Implied Volatility.

Measuring Poverty and Inequality from Highly Aggregated Small Area Data: The Changing Fortunes of Latrobe Valley Households

The Latrobe Valley generates 85% of Victoria's electricity. The progressive privatisation of the electricity industry between 1989 and 1997, had a lasting effect on income distribution in the region. This paper investigates the change in income level, inequality and poverty for this region between 1986 and 2006. To circumvent data availability issues, we propose a general method of using aggregated data to obtain regional income distributions. We find that in 1986 Latrobe Valley incomes were well above other non-metropolitan areas while inequality measures were relatively low. Mean income subsequently dropped below comparable locations while inequality rose. Although income levels had partially recovered by 2006, inequality measures continued to rise.Poverty, inequality, restructure, privatization, small-area income distribution.

Does the Option Market Produce Superior Forecasts of Noise-Corrected Volatility Measures?

This paper presents a comprehensive empirical evaluation of option-implied and returns-based forecasts of volatility, in which recent developments related to the impact on measured volatility of market microstructure noise are taken into account. The paper also assesses the robustness of the performance of the option-implied forecasts to the way in which those forecasts are extracted from the option market. Using a test for superior predictive ability, model-free implied volatility, which aggregates information across the volatility 'smile', and at-the-money implied volatility, which ignores such information, are both tested as benchmark forecasts. The forecasting assessment is conducted using intraday data for three Dow Jones Industrial Average (DJIA) stocks and the S&P500 index over the 1996-2006 period, with future volatility proxied by a range of alternative noise-corrected realized measures. The results provide compelling evidence against the model-free forecast, with its poor performance linked to both the bias and excess variability that it exhibits as a forecast of actual volatility. The positive bias, in particular, is consistent with the option market factoring in a substantial premium for volatility risk. In contrast, implied volatility constructed from liquid at-the-money options is given strong support as a forecast of volatility, at least for the DJIA stocks. Neither benchmark is supported for the S&P500 index. Importantly, the qualitative results are robust to the measure used to proxy future volatility, although there is some evidence to suggest that any option-implied forecast may perform less well in forecasting the measure that excludes jump information, namely bi-power variation.Volatility Forecasts; Quadratic Variation; Intraday Volatility Measures

Bayesian Estimation of a Stochastic Volatility Model Using Option and Spot Prices: Application of a Bivariate Kalman Filter

In this paper Bayesian methods are applied to a stochastic volatility model using both the prices of the asset and the prices of options written on the asset. Posterior densities for all model parameters, latent volatilities and the market price of volatility risk are produced via a hybrid Markov Chain Monte Carlo sampling algorithm. Candidate draws for the unobserved volatilities are obtained by applying the Kalman filter and smoother to a linearization of a state-space representation of the model. The method is illustrated using the Heston (1993) stochastic volatility model applied to Australian News Corporation spot and option price data. Alternative models nested in the Heston framework are ranked via Bayes Factors and via fit, predictive and hedging performance.Option Pricing; Volatility Risk; Markov Chain Monte Carlo; Nonlinear State Space Model; Kalman Filter and Smoother.

Meeting Graduate Student Needs through Alternative Programs: An Analysis of the Impact of Factors Related to Student Choice

The purpose of the study was to explore the design and initiation of alternative graduate programs and their impact on student needs, to examine the university organizational structure and environment that fosters the development of alternative graduate programs, and to identify the factors graduate students see as important in their choice to attend and participate in an alternative graduate program. The intent of the research was to rank the factors significant in the design of a graduate program to meet the factors meaningful to the student in meeting their needs related to graduate programs. The content of the survey instrument was derived from in-depth interviews with the designers/initiators of the programs, record and document analysis, participant observations, and triangulated through strategies of archival data and a focus group activity. Gender, age, ethnic diversity, work setting, job, and work level were used as the independent variables. Measures of satisfaction on the five identified themes and thirty individual factors were used to identify areas of agreement and disagreement. The five identified themes were career, professional and personal; university as an institution; accessibility; flexibility; and program characteristics, program linkages. The study found that graduate students expressed relatively high agreement on the theme and factors associated with the university as an institution. This was particularly significant when coupled with the variables of age, ethnic diversity, work setting, job and work levels. The theme and factors related to career, professional, and personal was found to be significant by respondents when joined with the variables of age, work setting, job, and work level. The theme of accessibility was found to be impacted by the variables of ethnic diversity and job. In the comparative analysis, each of the identified themes were found to be of similar ranking between the graduate student populations and the designer/initiators who by design of the program, incorporated many of the factors associated with each theme in an attempt to meet the needs of graduate students. The variable of gender interacted significantly (α=.05) with seven of the themes or factors indicating that female and male graduate students vary in their level of importance on what impacts the decision to choose a graduate program. Similarly the variable of ethnic diversity interacted with work level and job categories to further the delineation of identifying specific factors or themes that were of significance to diverse graduate student populations. A further summary of the factors associated with the initiation and design of alternative graduate programs, the reasons for existence of alternative graduate programs, and the relationship between alternative graduate programs and traditional graduate programs was posited. Findings suggested that alternative graduate programs are designed and implemented to meet the needs of graduate students not being met in traditional graduate programs. A further findings suggested that alternative graduate programs are used as a vehicle for change that may impact the design and method of delivery of the traditional graduate programs. (Abstract shortened by UMI.

Matching Teaching Stratiges To The Learning Styles Of Gifted Readers

How does a teacher provide appropriate instruction for gifted readers within the regular classroom setting? The first step is to become aware of cognitive characteristics and learning style patterns that are frequently associated with gifted readers. The next step is to use this knowledge in selecting instructional materials and methods that best match the gifted students\u27 learning styles and preferences. The intent of this article is to assist the teacher in accomplishing both of these steps