Risk Management with Derivatives by Dealers and Market Quality in Government Bond Markets

This paper examines how bond dealers use futures markets to manage the hedgeable market risk component of their core business risk exposure, and whether market quality is adversely affected by their selective risk taking activity. It also investigates the efficiency of market risk sharing within a decentralized semi-transparent market structure. We find that dealers engage in duration targeting, behaving as if they have a comparative advantage in bearing interest rate risk. They make significant directional bets often by holding futures that are in the same direction as the spot. They actively use futures to hedge changes in the spot exposure. They hedge changes in their spot exposure more when the potential costs of regulatory distress are high, when the cost of such hedging is low, and during periods of greater uncertainty. We find that duration targeting by dealers has adverse price effects due to capital constraints as predicted by Froot and Stein (1998). Finally, we find that trades in the spot market are not executed by dealers with extreme exposures. In this context, we recommend market reforms such as introduction of central quote posting or limit order book that will enable more efficient matching of liquidity demanders and suppliers, reduce trading costs, and improve the quality of risk sharing

Do Correlated Exposures Influence Intermediary Decision-making? Evidence from Trading Behavior of Equity Dealers

This paper investigates whether dealers’ trading and pricing decisions are governed by their equivalent inventories (based on total returns as in Ho and Stoll, 1983 or on unhedgeable returns as in Froot and Stein, 1998) or by their ordinary inventories, as would be the case in a decentralized market-making organizational structure. It finds that ordinary inventories, and not equivalent inventories best explain dealers’ quote placement strategy, which dealer executes trades and the quality of execution offered to the trades. This finding is consistent with decentralized market making where, due to information sharing difficulties or the nature of compensation contracts, individual dealers care only about risk of stocks managed by them, and not the positions of other dealers within the firm

Estimation of Columbia River Virgin Flow: 1879 to 1928

The Columbia River has historically been a major source of economic activity for the Pacific Northwest, and is one of the more heavily modified rivers in the United States today. Understanding human and climate-induced changes in its hydrologic properties is, therefore, a topic of considerable interest. Long streamflow records are essential to determining how runoff has changed over time. Daily streamflow records of the Columbia River at The Dalles dates back to June 1978. However, the observed daily flow does not alone provide enough information to understand or separate anthropogenic and climate effects. It is necessary also to have an estimate of virgin flow of the river to provide a historical perspective of water resources development, separate anthropogenic and climate effects, and compare present water use scenarios with those of the past decades. The United State Geological Survey (USGS) has calculated a monthly averaged adjusted river flow at The Dalles for 1879-1999 that accounts for the effects of flow regulation. The Bonneville Power Administration (BPA) has estimated the monthly averaged virgin (or naturalized) flow at The Dalles, i.e., the flow in the absence of both flow regulation and irrigation depletion for 1929-89. We have estimated the monthly virgin flow of the Columbia River at The Dalles from records of irrigated area for the missing years, i.e., for the period 1879-1928. In addition, a filtered version of the daily observed flows were combined with monthly virgin flow corrections to obtain estimates of daily virgin flows with realistic higher moments and spectral properties. Examination of the virgin flow record shows that climate change since late 19th century has caused a decrease of \u3e7% in its annual average flow volume. The decrease in flow due to irrigation diversion during the same period is also ~7%. Broadly speaking, there are three periods of Columbia River flow management. Before 1900, mainstem dams were absent and flow diversions relatively small. Numerous dams were constructed between 1900 and 1970, and irrigation depletion increased 500%. Since about 1970, river flows have been managed on a system-wide basin, effecting significant interannual transfers of flows for the first time

Risk Management with Derivatives by Dealers and Market Quality in Government Bond Markets

This paper examines how bond dealers use futures markets to manage the hedgeable market risk component of their core business risk exposure, and whether market quality is adversely affected by their selective risk taking activity. It also investigates the efficiency of market risk sharing within a decentralized semi-transparent market structure. We find that dealers engage in duration targeting, behaving as if they have a comparative advantage in bearing interest rate risk. They make significant directional bets often by holding futures that are in the same direction as the spot. They actively use futures to hedge changes in the spot exposure. They hedge changes in their spot exposure more when the potential costs of regulatory distress are high, when the cost of such hedging is low, and during periods of greater uncertainty. We find that duration targeting by dealers has adverse price effects due to capital constraints as predicted by Froot and Stein (1998). Finally, we find that trades in the spot market are not executed by dealers with extreme exposures. In this context, we recommend market reforms such as introduction of central quote posting or limit order book that will enable more efficient matching of liquidity demanders and suppliers, reduce trading costs, and improve the quality of risk sharing

Efficacy of Laccases Obtained from the White Rot Basidiomycete \u3cem\u3eSchizophyllum commune\u3c/em\u3e-NI 07 in Enhancing the \u3cem\u3ein Vitro\u3c/em\u3e Digestibility of Crop Residues for Ruminants

Crop residues like maize stover, finger millet straw, wheat straw, rice straw, etc. generally constitute the main dietary component for animals. The rumen microbial utilization of these crop residues is hindered by the presence of lignin, which limits its overall digestion process and can significantly influence animal performance, because it is resistant to most of the enzymatic hydrolysis by microorganisms. In nature lignin is degraded by lignolytic enzymes of white rot fungi (WRF). These residues can thus be converted into high quality feed by means of fungal delignification improving their nutritive value. Fungal ligninolysis breaks down the cellulose-hemicellulose matrix liberating degradable components utilizable by rumen microflora. Earlier we reported on the enhancement in digestibility of ragi straw with lignolytic enzyme extracts. Laccase is one amongst these lignolytic enzymes holding immense potential in biodelignification of crop residues (Sridhar et al., 2014). However, its low level in the native state limits its practical use in the degradation of lingo cellulosics for ruminants necessitating the need for enhancing production. In the current work we report the efficacy of laccases isolated from Schizophyllum commune, in enhancing in vitro digestibility of some commonly used crop residues for ruminants

TpPred: A Tool for Hierarchical Prediction of Transport Proteins Using Cluster of Neural Networks and Sequence Derived Features

A top–down predictor, called TpPred, is developed which consists of 3 level of hierarchical classification using cascade of neural networks from sequence derived features. The 1st layer of the prediction engine is for identifying a query protein as transport protein or not; the 2nd layer for the main functional class; and the 3rd layer for the sub-functional class. The overall success rates for all the three layers are higher than 65% that were obtained through rigorous cross-validation tests on the very stringent benchmark datasets in which none of the proteins has 30% sequence identity with any other in the same class or subclass. TpPred achieved good prediction accuracies and could nicely complement experimental approaches for identification of transport proteins. TpPred is freely available to be use in-house as a standalone version and is accessible at http://www.juit.ac.in/attachments/tppred/Home.html

Risk Management with Derivatives by Dealers and Market Quality in Government Bond Markets

This paper examines how bond dealers use futures markets to manage the hedgeable market risk component of their core business risk exposure, and whether market quality is adversely affected by their selective risk taking activity. It also investigates the efficiency of market risk sharing within a decentralized semi-transparent market structure. We find that dealers engage in duration targeting, behaving as if they have a comparative advantage in bearing interest rate risk. They make significant directional bets often by holding futures that are in the same direction as the spot. They actively use futures to hedge changes in the spot exposure. They hedge changes in their spot exposure more when the potential costs of regulatory distress are high, when the cost of such hedging is low, and during periods of greater uncertainty. We find that duration targeting by dealers has adverse price effects due to capital constraints as predicted by Froot and Stein (1998). Finally, we find that trades in the spot market are not executed by dealers with extreme exposures. In this context, we recommend market reforms such as introduction of central quote posting or limit order book that will enable more efficient matching of liquidity demanders and suppliers, reduce trading costs, and improve the quality of risk sharing