Higher connectivity of fiber graphs of Gr\"obner bases

Fiber graphs of Gr\"obner bases from contingency tables are important in statistical hypothesis testing, where one studies random walks on these graphs using the Metropolis-Hastings algorithm. The connectivity of the graphs has implications on how fast the algorithm converges. In this paper, we study a class of fiber graphs with elementary combinatorial techniques and provide results that support a recent conjecture of Engstr\"om: the connectivity is given by the minimum vertex degree.Comment: 18 pages. Minor revision

Price changes in Finland: some evidence from micro CPI data.

In this paper we analyse the Finnish consumer price changes from February 1997 to December 2004 on the basis of a set of microdata which covers over half of the items included in the Finnish CPI. Our findings can be summarised with four stylised facts. Firstly, only a small fraction of prices change monthly. In the period under review, an average 80% of prices remained unchanged in consecutive months. Secondly, price changes can be large in both directions. Thirdly, positive inflation is due to the higher number of price increases compared to decreases, and the magnitude of price changes is more or less in balance. Finally, the decomposition of monthly inflation to the weighted fraction of products with price changes and the weighted average of those price changes seems to give support for the time-dependent modelling of Finnish consumer prices, although signs of state-dependent pricing can also be found in the data. JEL Classification: E31, D40, L11consumer prices, rigidity, state-dependent pricing, time-dependent pricing

Simulation-based stress testing of banks’ regulatory capital adequacy

Banks’ holding of reasonable capital buffers in excess of minimum requirements could alleviate the procyclicality problem potentially exacerbated by the rating-sensitive capital charges of Basel II. Determining the required buffer size is an important risk management issue for banks, which the Basle Committee (2002) suggests should be approached via stress testing. We present here a simulation-based approach to stress testing of capital adequacy where rating transitions are conditioned on business-cycle phase and business-cycle dynamics are taken into account. Our approach is an extension of the standard credit portfolio analysis in that we simulate actual bank capital and minimum capital requirements simultaneously. Actual bank capital (absent mark-to-market accounting) is driven by bank income and default losses, whereas capital requirements within the Basel II framework are driven by rating transitions. The joint dynamics of these determine the necessary capital buffers, given bank management’s specified confidence level for capital adequacy. We provide a tentative calibration of this confidence level to data on actual bank capital ratios, which enables a ceteris-paribus extrapolation of bank capital under the current regime to bank capital under Basel II.Basel II; Pillar 2; bank capital; stress tests; procyclicality

Simulation-based stress testing of banks’ regulatory capital adequacy

Banks’ holding of reasonable capital buffers in excess of minimum requirements could alleviate the procyclicality problem potentially exacerbated by the rating-sensitive capital charges of Basel II. Determining the required buffer size is an important risk management issue for banks, which the Basle Committee (2002) suggests should be approached via stress testing. We present here a simulation-based approach to stress testing of capital adequacy where rating transitions are conditioned on business-cycle phase and business-cycle dynamics are taken into account. Our approach is an extension of the standard credit portfolio analysis in that we simulate actual bank capital and minimum capital requirements simultaneously. Actual bank capital (absent mark- to-market accounting) is driven by bank income and default losses, whereas capital requirements within the Basel II framework are driven by rating transitions. The joint dynamics of these determine the necessary capital buffers, given bank management’s specified confidence level for capital adequacy. We provide a tentative calibration of this confidence level to data on actual bank capital ratios, which enables a ceteris- paribus extrapolation of bank capital under the current regime to bank capital under Basel II.Basel II, Pillar 2, bank capital, stress tests, procyclicality

Rating targeting and the confidence levels implicit in bank capital

The solvency standards implicit in bank capital levels, as reported eg in Jackson et al (2002), are much higher than those required for top ratings, if standard single period economic capital models are taken se-riously. We explain this excess capital puzzle by forward looking rating targeting behaviour by banks, which aims at maintaining rating above a minimum target in future periods. We calibrate to data on actual bank capital the confidence level used by the median US AA rated bank to maintain at least a single A rating. The calibrated confidence level is in line with the historical probability of an AA rated bank to be downgraded below A.bank capital; credit rating; value-at-risk; economic capital; capital structure

Factorization at fixed Q^2(1-x)

We consider QCD factorization between hard and soft subprocesses in inclusive reactions where the momentum fraction x of one parton approaches unity as the hard scale Q^2 -> \infty, such that Q^2(1-x) is fixed. In this "BB limit" the entire (multi-parton) Fock state containing the high x parton is coherent with the hard subprocess. The soft contribution is given by a forward multiparton matrix element. The BB limit corresponds to a fixed (large or small) missing mass and is thus closely connected to exclusive production. We analyze the Drell-Yan process h + N -> \gamma^* + X in detail, explaining why the virtual photon is longitudinally polarized for h = \pi and transversely polarized for h = p. The BB limit may be relevant also for other phenomena observed at high x, such as the large single spin asymmetries of p p -> \Lambda^\uparrow X and in p p^\uparrow -> \pi X.Comment: 18 pages, 6 figures. v2: Version published in JHEP. Text modified as suggested by the refere