Risk measurement and management in a crisis-prone world

The current subprime crisis has prompted us to look again into the nature of risk at the tail of the distribution. In particular, we investigate the risk contribution of an asset, which has infrequent but huge losses, to a portfolio using two risk measures, namely Value-at-Risk (VaR) and Expected Shortfall (ES). While ES is found to measure the tail risk contribution effectively, VaR is consistent with intuition only if the underlying return distribution is well behaved. To facilitate the use of ES, we present a power function formula that can calculate accurately the critical values of the ES test statistic. This in turn enables us to derive a size-based multiplication factor for risk capital requirement

A Field Proof-of-Concept of Aquifer Imaging Using 3-D Transient Hydraulic Tomography with Modular, Temporarily-Emplaced Equipment

Hydraulic tomography is a field scale aquifer characterization method capable of estimating 3-D heterogeneous parameter distributions, and is directly sensitive to hydraulic conductivity (K), thus providing a useful data source for improving flow and transport models. We present results from a proof-of-concept field and modeling study in which we apply 3-D transient hydraulic tomography (3DTHT) to the relatively high-K and moderately heterogeneous unconfined aquifer at the Boise Hydrogeophysical Research Site. Short-duration (20 min) partially penetrating pumping tests, for which observed responses do not reach steady state, are used as the aquifer stimulation. To collect field data, we utilize a system of temporarily emplaced packer equipment to isolate multiple discrete intervals in boreholes. To analyze the data, we utilize MODFLOW combined with geostatistical inversion code based on the quasilinear approach of Kitanidis (1995). This combination of practical software allows inversion of large datasets (\u3e250 drawdown curves, and almost 1000 individual data points) and estimation of K at \u3e100,000 locations; reasonable runtimes are obtained using a single multicore computer with 12 GB of RAM. The K heterogeneity results from 3DTHT are cross-validated against K characterization from a large set of partially penetrating slug tests, and found to be quite consistent. The use of portable, modular equipment for field implementation means that 3DTHT data collection can be performed (including mobilization/demobilization) within a matter of days. Likewise, use of a practical, efficient and scalable numerical modeling and inversion strategy means that computational effort is drastically reduced, such that 3-D aquifer property distributions can be estimated quickly

Aquifer Heterogeneity Characterization with Oscillatory Pumping: Sensitivity Analysis and Imaging Potential

[1] Periodic pumping tests, in which a fluid is extracted during half a period, then reinjected, have been used historically to estimate effective aquifer properties. In this work, we suggest a modified approach to periodic pumping test analysis in which one uses several periodic pumping signals of different frequencies as stimulation, and responses are analyzed through inverse modeling using a “steady-periodic” model formulation. We refer to this strategy as multifrequency oscillatory hydraulic imaging. Oscillating pumping tests have several advantages that have been noted, including no net water extraction during testing and robust signal measurement through signal processing. Through numerical experiments, we demonstrate additional distinct advantages that multifrequency stimulations have, including: (1) drastically reduced computational cost through use of a steady-periodic numerical model and (2) full utilization of the aquifer heterogeneity information provided by responses at different frequencies. We first perform fully transient numerical modeling for heterogeneous aquifers and show that equivalent results are obtained using a faster steady-periodic heterogeneous numerical model of the wave phasor. The sensitivities of observed signal response to aquifer heterogeneities are derived using an adjoint state-based approach, which shows that different frequency stimulations provide complementary information. Finally, we present an example 2-D application in which sinusoidal signals at multiple frequencies are used as a data source and are inverted to obtain estimates of aquifer heterogeneity. These analyses show the different heterogeneity information that can be obtained from different stimulation frequencies, and that data from several sinusoidal pumping tests can be rapidly inverted using the steady-periodic framework

The other side of the trading story: evidence from NYSE

We analyse the well-known TORQ dataset of trades on the NYSE over a 3-month period, breaking down transactions depending on whether the active or passive side was institutional or private. This allows us to compare the returns on the different trade categories. We find that, however we analyse the results, institutions are best informed, and earn highest returns when trading with individuals as counterparty. We also confirm the conclusions found elsewhere in the literature that informed traders often place limit orders, especially towards the end of the day (as predicted on the basis of laboratory experiments in Bloomfield, O�'Hara, and Saar (2005)). Finally, we find that trading between institutions accounts for the bulk of trading volume, but carries little information and seems to be largely liquidity-driven

Information-based trade in the Shanghai stock market

We show that the probability of information-based trade (PIN) played a significant role in explaining monthly returns on Shanghai A shares over the period 2001 to 2006. In particular, PIN, as approximated by order imbalance as a proportion of total transactions, appears to explain returns even after controlling for risk in the much-cited Fama and French (1992) three-factor model. However, we also find that some of the PIN effect appears to be indistinguishable from a turnover effect

Data Processing for Oscillatory Pumping Tests

Characterizing the subsurface is important for many hydrogeologic projects such as site remediation and groundwater resource exploration. Methods based on the analysis of conventional pumping tests have the notable disadvantage that at a certain distance, the signal is small relative to the noise due to the effects of recharge, pumping in neighboring wells, change in the level or adjacent streams, and other common disturbances. This work focuses on oscillatory pumping tests in which fluid is extracted for half a period, then reinjected. We discuss a major advantage of oscillatory pumping tests: small amplitude signals can be recovered from noisy data measured at observation wells and quantify the uncertainties in the estimates. We demonstrate results from a joint inversion of storativity and transmissivity. We conclude with an analysis of the duration of the initial transient, providing lower bounds on the length of elapsed time until the effects of the transient can be neglected

Hydraulic Conductivity Imaging from 3-D Transient Hydraulic Tomography at Several Pumping/Observation Densities

[1] 3-D Hydraulic tomography (3-D HT) is a method for aquifer characterization whereby the 3-D spatial distribution of aquifer flow parameters (primarily hydraulic conductivity, K) is estimated by joint inversion of head change data from multiple partially penetrating pumping tests. While performance of 3-D HT has been studied extensively in numerical experiments, few field studies have demonstrated the real-world performance of 3-D HT. Here we report on a 3-D transient hydraulic tomography (3-D THT) field experiment at the Boise Hydrogeophysical Research Site which is different from prior approaches in that it represents a “baseline” analysis of 3-D THT performance using only a single arrangement of a central pumping well and five observation wells with nearly complete pumping and observation coverage at 1 m intervals. We jointly analyze all pumping tests using a geostatistical approach based on the quasi-linear estimator of Kitanidis (1995). We reanalyze the system after progressively removing pumping and/or observation intervals; significant progressive loss of information about heterogeneity is quantified as reduced variance of the K field overall, reduced correlation with slug test K estimates at wells, and reduced ability to accurately predict independent pumping tests. We verify that imaging accuracy is strongly improved by pumping and observational densities comparable to the aquifer heterogeneity geostatistical correlation lengths. Discrepancies between K profiles at wells, as obtained from HT and slug tests, are greatest at the tops and bottoms of wells where HT observation coverage was lacking

A unique orthogonal variance decomposition

Let e and S be respectively the vector of shocks and its variance covariance matrix in a linear system of equations in reduced form. This article shows that a unique orthogonal variance decomposition can be obtained if we impose a restriction that maximizes the trace of A, a positive definite matrix such that Az = e where z is vector of uncorrelated shocks with unit variance. Such a restriction is meaningful in that it associates the largest possible weight for each element in e with its corresponding element in z. It turns out that 1/2 A = S , the square root of S

Increased bit rate direct modulation AMO-OFDM transmission by optical injection using monolithically integrated lasers

Experimental and simulation work, presented in this letter, demonstrates for the first time how the monolithic integration of two single-mode lasers in a master-slave configuration, can substantially increase the achievable bit rate of a direct modulation adaptively modulated optical orthogonal frequency-division multiplexing (AMO-OFDM) system. The Levin-Campello algorithm is applied to select the OFDM bit and power loading scheme used for each system configuration. Improvement in terms of data throughput due to injection is measured for several transmission distances with the improvement in performance presented in terms of error vector magnitude per OFDM subcarrier