PRICING OF S&P 100 INDEX OPTIONS BASED ON GARCH VOLATILITY ESTIMATES

This paper is a contribution to the vast literature on the inefficiency in the index options markets. Previous research has found that trading based on implied volatility forecasts do not generate positive profits for the S&P 500 index options but GARCH volatility forecasts do. Trading based on implied volatility forecasts for the S&P 100 index options also fail to generate profits in excess of transaction costs. This paper shows that trading based on GARCH volatility forecast generates profits in excess of transaction costs for the S&P 100 index options hence there is systematic mispricing in the S&P index options markets. GARCH models fair well due to their flexibility to incorporate asymmetric and nonlinear volatility effects. Improved pricing models should work as well or better.GARCH, S&P100, index options

Pricing of S&P 100 Index Options Based On Garch Volatility Estimates

This paper is a contribution to the vast literature on the inefficiency in the index options markets. Previous research has found that trading based on implied volatility forecasts do not generate positive profits for the S&P 500 index options but GARCH volatility forecasts do. Trading based on implied volatility forecasts for the S&P 100 index options also fail to generate profits in excess of transaction costs. This paper shows that trading based on GARCH volatility forecast generates profits in excess of transaction costs for the S&P 100 index options hence there is systematic mispricing in the S&P index options markets. GARCH models fair well due to their flexibility to incorporate asymmetric and nonlinear volatility effects. Improved pricing models should work as well or better.GARCH, S&P100, index options

Intertemporal solvency of Turkey’s current account

We test for sustainability of Turkey’s current account position between 1992 and 2007 using the intertemporal solvency model of Hakkio and Rush (1991) and Husted (1992). This approach examines the relationship between exports and imports+ (which include imports, net interest and unilateral transfer payments). Cointegration between inflows and outflows implies that the intertemporal budget constraint is satisfied. We use the Johansen and the Gregory and Hansen (1996) cointegration tests to determine linkages between exports and imports+ in Turkey. Using the Johansen test we find no cointegration and thus reject intertemporal solvency of the current account for this period. If we allow for a structural break in the cointegrating relation using the Gregory Hansen procedure we do find evidence of cointegration between the two series. This result can be used to estimate the long-run relationship between exports and imports+ using dynamic OLS and test for weak and strong sustainability of the current account position. We find evidence for weak sustainability but reject strong sustainability of the Turkish current account position in recent years.Current account sustainability, intertemporal budget constraint, Turkey, cointegration

An Intertemporal Benchmark Model for Turkey’s Current Account

In this paper, we analyze the Turkish current account between 1992 and 2004 within an intertemporal benchmark model. Increasingly larger current account deficits in the Turkish economy have caused a great level of discussion of the current account but it has mainly focused on the real exchange rate and short-term international competitiveness. However, changes in the fundamentals of the Turkish economy warrant a longer term approach in the analysis. This paper computes the optimal consumption smoothing current account using the intertemporal benchmark model (IBM) and tests for intertemporal solvency of the current account. We find consumption tilting dynamics are in effect. As expected of borrowing developing countries, Turkey tilts consumption to the present. We find support for one of the implications of the IBM, that the current account Granger-causes future changes in national cash flow as implied by the intertemporal benchmark model. However, we also find that the actual consumption smoothing current account is considerably more volatile than the optimal consumption smoothing current account suggesting that speculative forces have driven capital movements during the sample period. From the trends in data and the model and testable implications we believe that although Turkey breached the intertemporal solvency condition in the 1990s, this is not true for Turkey in the period following the 2001 crisis. Therefore, we conclude that changed fundamentals in Turkey have made the high current account deficits sustainable.Current account sustainability, intertemporal benchmark model, Turkey

Regulatory Institutions and Structures

Public Economics,

The Effect of European Accession Prospects on Foreign Direct Investment Flows

The amount of FDI is increasing than any other international transactions during the last two decades. While countries remove barriers and implement policies to attract FDI inflows, the volume of foreign trade and investment increased .The objective of this paper is to enlighten the impact of EU accession of CEEC countries and Turkey on FDI flows into these countries. We perform Arrenalo-Bond - GMM model for the period of 1990-2009 for Poland, Hungary, Czech Republic, Estonia, Slovakia, Romania, Bulgaria, Turkey Croatia, Macedonia, and Ukraine. The empirical results suggest that as agglomeration effects and trade openness are significant determinants of MNCs’ activity during the period, traditional determinants, risk factors, labor cost, and market size are insignificant. In addition, the effect of EU accession prospects is found to be positive and significant.European Union, FDI, Turkey, Accession, Candidacy

Death as a measure of duration of conflict

This paper argues that number of deaths in a conflict can be a measure of duration and demonstrates that there are information gains to this approach. The well-known conflict database of International Peace Research Institute is compared with the database of Center for Systemic Peace which includes data on the number of deaths in addition to length of conflict. There are differences in the two datasets. The number and distribution of conflicts vary however duration analysis yields results that are robust over datasets. We also show that number of deaths, as a measure of duration, challenges some of the results based on number of years as a measure of duration. We can also argue that economic integration coincides with shorter duration of conflicts in terms of both deaths and years. International conflicts have a shorter life and have fewer deaths than domestic conflicts. Geographic or ethnic characteristics of conflicts are not robust over datasets nor over measure of duration.Duration models; violence; wars; conflict studies;ethnic conflict

Nonabelian Hodge Theory in Characteristic p

Given a scheme in characteristic p together with a lifting modulo p^2, we construct a functor from a category of suitably nilpotent modules with connection to the category of Higgs modules. We use this functor to generalize the decomposition theorem of Deligne-Illusie to the case of de Rham cohomology with coefficients.Comment: Revised version. Chapter 3 is almost completely ne

On the center of the ring of differential operators on a smooth variety over \bZ/p^n\bZ

We compute the center of the ring of PD differential operators on a smooth variety over \bZ/p^n\bZ confirming a conjecture of Kaledin. More generally, given an associative algebra $A_0$ over \bF_p and its flat deformation $A_n$ over \bZ/p^{n+1}\bZ we prove that under a certain non-degeneracy condition the center of $A_n$ is isomorphic to the ring of length $n+1$ Witt vectors over the center of $A_0$.Comment: 16 page