Model Uncertainty and Liquidity

Extreme market outcomes are often followed by a lack of liquidity and a lack of trade. This market collapse seems particularly acute for markets where traders rely heavily on a specific empirical model such as in derivative markets. Asset pricing and trading, in these cases, are intrinsically model dependent. Moreover, the observed behavior of traders and institutions that places a large emphasis on 'worst-case scenarios'' through the use of 'stress testing'' and 'value-at-risk'' seems different than Savage rationality (expected utility) would suggest. In this paper we capture model-uncertainty explicitly using an Epstein-Wang (1994) uncertainty-averse utility function with an ambiguous underlying asset-returns distribution. To explore the connection of uncertainty with liquidity, we specify a simple market where a monopolist financial intermediary makes a market for a propriety derivative security. The market-maker chooses bid and ask prices for the derivative, then, conditional on trade in this market, chooses an optimal portfolio and consumption. We explore how uncertainty can increase the bid-ask spread and, hence, reduces liquidity. In addition, 'hedge portfolios'' for the market-maker, an important component to understanding spreads, can look very different from those implied by a model without Knightian uncertainty. Our infinite-horizon example produces short, dramatic decreases in liquidity even though the underlying environment is stationary.

Equilibrium Commodity Prices with Irreversible Investment and Non-Linear Technology

We model equilibrium spot and futures oil prices in a general equilibrium production economy. In our model production of the consumption good requires two inputs: the consumption good and a commodity, e.g., Oil. Oil is produced by wells whose flow rate is costly to adjust. Investment in new Oil wells is costly and irreversible. As a result in equilibrium, investment in Oil wells is infrequent and lumpy. Even though the state of the economy is fully described by a one-factor Markov process, the spot oil price is not Markov (in itself). Rather it is best described as a regime-switching process, the regime being an investment `proximity' indicator. The resulting equilibrium oil price exhibits mean-reversion and heteroscedasticity. Further, the risk premium for exposure to commodity risk is time-varying, positive in the far-from-investment regime but negative in the near-investment regime. Further, our model captures many of the stylized facts of oil futures prices, such as backwardation and the `Samuelson effect.' The futures curve exhibits backwardation as a result of a convenience yield, which arises endogenously. We estimate our model using the Simulated Method of Moments with economic aggregate data and crude oil futures prices. The model successfully captures the first two moments of the futures curves, the average non-durable consumption-output ratio, the average oil consumption-output and the average real interest rate. The estimation results suggest the presence of convex adjustment costs for the investment in new oil wells. We also propose and test a linear approximation of the equilibrium regime-shifting dynamics implied by our model, and test its empirical implication for time-varying risk-premia.

Character Sequence Models for ColorfulWords

We present a neural network architecture to predict a point in color space from the sequence of characters in the color's name. Using large scale color--name pairs obtained from an online color design forum, we evaluate our model on a "color Turing test" and find that, given a name, the colors predicted by our model are preferred by annotators to color names created by humans. Our datasets and demo system are available online at colorlab.us

Generalized Disappointment Aversion and Asset Prices

We provide an axiomatic model of preferences over atemporal risks that generalizes Gul (1991) A Theory of Disappointment Aversion' by allowing risk aversion to be first order' at locations in the state space that do not correspond to certainty. Since the lotteries being valued by an agent in an asset-pricing context are not typically local to certainty, our generalization, when embedded in a dynamic recursive utility model, has important quantitative implications for financial markets. We show that the state-price process, or asset-pricing kernel, in a Lucas-tree economy in which the representative agent has generalized disappointment aversion preferences is consistent with the pricing kernel that resolves the equity-premium puzzle. We also demonstrate that a small amount of conditional heteroskedasticity in the endowment-growth process is necessary to generate these favorable results. In addition, we show that risk aversion in our model can be both state-dependent and counter-cyclical, which empirical research has demonstrated is necessary for explaining observed asset-pricing behavior.

An Analysis of the Broadband (22-3900 MHz) Radio Spectrum of HB3 (G132.7+1.3): The Detection of Thermal Radio Emission from an Evolved Supernova Remnant?

We present an analysis of the broadband radio spectrum (from 22 to 3900 MHz) of the Galactic supernova remnant (SNR) HB3 (G132.7+1.3). Published observations have revealed that a curvature is present in the radio spectrum of this SNR, indicating that a single synchrotron component appears is insufficient to adequately fit the spectrum. We present here a fit to this spectrum using a combination of a synchrotron component and a thermal bremsstrahlung component. We discuss properties of this latter component and estimate the ambient density implied by the presence of this component to be n \~ 10 cm^-3. We have also analyzed extracted X-ray spectra from archived {\it ASCA} GIS observations of different regions of HB3 to obtain independent estimates of the density of the surrounding interstellar medium (ISM). From this analysis, we have derived electron densities of 0.1-0.4 f^-1/2 cm^-3 for the ISM for the three different regions of the SNR, where f is the volume filling factor. By comparing these density estimates with the estimate derived from the thermal bremsstrahlung component, we argue that the radio thermal bremsstrahlung emission is emitted from a thin shell enclosing HB3. The presence of this thermal bremsstrahlung component in the radio spectrum of HB3 suggests that this SNR is in fact interacting with an adjacent molecular cloud associated with the HII region W3. By extension, we argue that the presence of thermal emission at radio wavelengths may be a useful tool for identifying interactions between SNRs and molecular clouds, and for estimating the ambient density near SNRs using radio continuum data.Comment: 5 pages, 2 figures, accepted for ApJ

Model Uncertainty and Liquidity

We investigate the dynamic portfolio problem of a market-maker for a derivative security whose preferences exhibit uncertainty aversion (Knightian uncertainty). The Choquet-expected utility implied by such preference is used to capture the feature that the trader is uncertain about which model should be used. The prices that emerge from the model are similar to standard models and have the feature that as uncertainty is removed, the derivative prices converge to standard prices. However, the optimal changes in the agent's portfolio that results from the option position are quite different than the standard hedge position. It is this feature that links uncertainty with market liquidity.

"Recursive Preferences,"

We summarize the class of recursive preferences. These preferences fit naturally with recursive solution methods and hold the promise of generating new insights into familiar problems. Portfolio choice is used as an example

Association of Exposure to Particular Matter and Carotid Intima-Media Thickness: A Systematic Review and Meta-Analysis

Background: Long time exposure to particular matter has been linked to myocardial infarction, stroke and blood pressure, but its association with atherosclerosis is not clear. This meta-analysis was aimed at assessing whether PM2.5 and PM10 have an effect on subclinical atherosclerosis measured by carotid intima-media thickness (CIMT). Methods: Pubmed, Ovid Medline, Embase and NICK between 1948 and 31 March 2015 were searched by combining the keywords about exposure to the outcome related words. The random-effects model was applied in computing the change of CIMT and their corresponding 95% confidence interval (95% CI). The effect of potential confounding factors was assessed by stratified analysis and the impact of traffic proximity was also estimated. Results: Among 56 identified studies, 11 articles satisfied the inclusion criteria. In overall analysis increments of 10 μg/m3 in PM2.5 and PM10 were associated with an increase of CIMT (16.79 μm; 95% CI, 4.95–28.63 μm and 4.13 μm; 95% CI, −5.79–14.04 μm, respectively). Results shown in subgroup analysis had reference value for comparing with those of the overall analysis. The impact of traffic proximity on CIMT was uncertain. Conclusions: Exposure to PM2.5 had a significant association with CIMT and for women the effect may be more obvious

The Nuclear Receptors of Biomphalaria glabrata and Lottia gigantea : Implications for Developing New Model Organisms

Funding: This work was funded by the National Centre for the Replacement, Refinement and Reduction of Animals in Research, Grant Ref:G0900802 to CSJ, LRN, SJ & EJR [www.nc3rs.org.uk]. The funders had no role in study design, data collection and analysis, decision to publish, or preparation of the manuscript.Peer reviewedPublisher PD