The recent behaviour of financial market volatility

A striking feature of financial market behaviour in recent years has been the low level of price volatility over a wide range of financial assets and markets. The issue has attracted the attention of central bankers and financial regulators due to the potential implications for financial stability. This paper makes an effort to shed light on this phenomenon, drawing on literature surveys, reviews of previous analyses by non-academic commentators and institutions, and some new empirical evidence. The paper consists of seven sections. Section 2 documents the current low level of volatility, putting it into a historical perspective. Section 3 briefly reviews the theoretical determinants of volatility, with the aim of helping the reader through the subsequent sections of this Report, which are devoted to the explanations of the phenomenon under study. These explanations have been grouped into four categories: real factors; financial factors; shocks; and monetary policy. Thus, Section 4 looks into the relation between volatility and real factors, from both a macro- and a microeconomic perspective. Section 5 considers how the recent developments in financial innovation and improvements in risk management techniques might have contributed to the decline in volatility. Section 6 considers the relation between real and financial shocks and volatility. Finally, Section 7 explores whether more systematic and transparent monetary policies might have led to lower asset price volatility.financial volatility, risk taking, international financial markets

The impact of short-duration precipitation events over the historic Cauvery basin: a study on altered water resource patterns and associated threats

The Cauvery Delta, the ‘Rice Bowl’ of India follows a time-tested cultivation pattern over several irrigation zones. However, in this era of the Anthropocene, it is now well-established that short-duration, intense precipitation episodes will batter the flood plains year after year. The purpose of this first study is thus to quantify the impacts that such episodes may have on the floodplains of the Cauvery Delta and the concomitant threats to the historic Kallanai Dam. Precipitation events during the North-East monsoon period are driven not just by warm rain microphysics but also by large frozen hydrometeors falling from deep clouds causing undesirable flooding over the region to the extent of 66%. Additionally, from an assessment of the velocity heads and the floodwater depths, this study projects a heightened vulnerability. The total extent of submergence along riverbanks and other flow paths was estimated to be 145.98 km2 out of which 65.14% of the submerged area is agricultural land. The most important conceptual advance established in this paper is that sub-zones in major watersheds that are currently safe will get inundated in the RCP8.5 warming scenario in 2050

Reserve Currency Allocation: An Alternative Methodology

This paper provides a quantitative framework for choosing the composition of reserve currencies. Assuming that the central bank's performance objectives are defined in terms of ex post returns in different currency numeraires, the currency allocation problem is formulated as a multi-objective optimisation problem. The advantage of the proposed methodology is that it does not require any explicit assumptions about the risk preferences of the central bank or knowledge of the currency numeraire. Using some proxy values for the possible range of ex post returns measured in different currency numeraires, the study shows how the currency allocation problem can be solved. In particular, the proposed method borrows the concept of the degree of satisfaction from fuzzy decision theory and maximises such a function defined on the least favourable return outcome. In this sense, the proposed method differs from standard utility-based approaches which look for solutions that are best on ..

Portfolio selection using fuzzy decision theory

This paper presents an approach to portfolio selection using fuzzy decision theory. The approach is such that a given target rate of return is achieved for an assumed market scenario. If the assumed market scenario turns out to be incorrect, the portfolio is guaranteed to secure a given minimum rate of return. The methodology is useful in the management of assets against given liabilities or in forming structured portfolios that guarantee a minimum rate of return.