More on F versus t tests for unit roots when there is no trend

Rodrigues and Tremayne (2004) interpret a problematic size result in a Monte Carlo study reported in Elder and Kennedy (2001) as arising from Elder and Kennedy's use of an inappropriate testing equation. In expositing their result, Rodrigues and Tremayne inadvertently lead readers to believe that the Elder and Kennedy conclusion is in error. We clarify the Rodrigues and Tremayne contribution, putting the validity of the Elder and Kennedy result in proper perspective and underlining the important role played by the starting value in Monte Carlo analyses.

Robust option replication for a Black-Scholes model extended with nondeterministic trends

Statistical analysis on various stocks reveals long range dependence behavior of the stock prices that is not consistent with the classical Black and Scholes model. This memory or nondeterministic trend behavior is often seen as a reflection of market sentiments and causes that the historical volatility estimator becomes unreliable in practice. We propose an extension of the Black and Scholes model by adding a term to the original Wiener term involving a smoother process which accounts for these effects. The problem of arbitrage will be discussed. Using a generalized stochastic integration theory [8], we show that it is possible to construct a self financing replicating portfolio for a European option without any further knowledge of the extension and that, as a consequence, the classical concept of volatility needs to be re-interpreted. AMS subject classifications: 60H05, 60H10, 90A09

F versus t tests for unit roots

F tests which test jointly for a unit root and a zero intercept, and so compete against Dickey-Fuller t tests, are shown not to enhance power because they are invariant to the intercept value in the absence of a unit root. Monte Carlo results in the literature that indicate otherwise are shown to have resulted from the use of special starting values. Testing procedures that employ these F tests to enhance power should be revised.Dickey-Fuller

WWII and Long Run Convergence in the OECD

Existing evidence for unconditional convergence in the OECD is mixed, and depends largely on whether time series or cross sectional methods are used. In this paper we reconsider the evidence for unconditional convergence by dividing the long run data into several subperiods. We use a two stage approach in this work. We first model the growth rate of output directly and use this model to estimate the long-run growth rate for the countries in our sample. We then use the estimates of long-run growth in output to test for unconditional convergence and to test for equality of long-run growth across countries. GLS is used to explicitly take into account the sampling uncertainty inherent in our estimates of the long-run growth rate we found in the first stage of the process. The results show strong evidence for unconditional convergence in the post WWII period 1951-1974, but no evidence of convergence in the periods preceding or following this period. Moreover, it is di±cult to reject the hypothesis that most of the countries in our sample had the same growth rate outside of this period. Thus find little evidence to suggest that absolute convergence has been a continuous long run process, and some evidence for the view that national policies mainly affect income levels rather than growth rateGrowth, Convergence, Technological Change

Trends for Outer Disk Profiles

The surface-brightness profiles of galaxy disks fall into three main classes, based on whether they are simple exponentials (Type I), bend down at large radii (Type II, "truncations") or bend up at large radii (Type III, "antitruncations"). Here, we discuss how the frequency of these different profiles depends on Hubble type, environment, and the presence or absence of bars; these trends may herald important new tests for disk formation models.Comment: LaTeX, 2 pages, 1 EPS figure, uses modified newpasp.sty (included). To appear in Formation and Evlution of Galaxy Disks, eds. J.G. Funes and E.M. Corsin

Connecting microstructural attributes and permeability from 3D tomographic images of in situ shear-enhanced compaction bands using multiscale computations

Tomographic images taken inside and outside a compaction band in a field specimen of Aztec sandstone are analyzed by using numerical methods such as graph theory, level sets, and hybrid lattice Boltzmann/finite element techniques. The results reveal approximately an order of magnitude permeability reduction within the compaction band. This is less than the several orders of magnitude reduction measured from hydraulic experiments on compaction bands formed in laboratory experiments and about one order of magnitude less than inferences from two-dimensional images of Aztec sandstone. Geometrical analysis concludes that the elimination of connected pore space and increased tortuosities due to the porosity decrease are the major factors contributing to the permeability reduction. In addition, the multiscale flow simulations also indicate that permeability is fairly isotropic inside and outside the compaction band

Azimuthal correlations of forward di-hadrons in d+Au collisions at RHIC in the Color Glass Condensate

We present a good description of recent experimental data on forward di-hadron azimuthal correlations measured in deuteron-gold collisions at RHIC, where monojet production has been observed. Our approach is based on the Color Glass Condensate effective theory for the small-x degrees of freedom of the nuclear wave function, including the use of non-linear evolution equations with running QCD coupling. Our analysis provides further evidence for the presence of saturation effects in RHIC data.Comment: 4 pages, 2 figures, version to appear in PR