Non-default Component of Sovereign Emerging Market Yield Spreads and its Determinants: Evidence from Credit Default Swap Market

This article shows that a sizable component of emerging market sovereign yield spreads is due to factors other than default risk, such as liquidity. The author estimates the non-default component of the yield spreads as the basis between the actual credit default swap (CDS) premium and the hypothetical CDS premium implied by emerging market bond yields. On average, the basis is large and positive for speculative-grade bonds and slightly negative for investment-grade bonds. The large positive basis for speculative-grade bonds supports the existence of speculation in the CDS market when the underlying's credit quality is bad. The author studies the effects of bond liquidity, liquidity in the CDS market, equity market performance, and macroeconomic variables on the non-default component of the emerging market yield spreads. The results show that bond liquidity has a significant and positive effect on the CDS–bond basis of investment-grade bonds. The results suggest that the liquid bonds of investment-grade bonds are more expensive relative to the prices implied their CDS premiums. However, the results are somewhat mixed and even contrary for the speculative-grade bond sample.Emerging Market Sovereign Bonds, Credit Risk, Credit Default Swaps, Basis, Liquidity, Emerging Market Equity Markets

Certain Results For a Class of Nonlinear Functional Spaces

In this article, we study the properties of a class of functional spaces which arise from the investigation of nonlinear differential equations. We establish some integral inequalities then by applying these inequalities, we prove some lemmas and theorems, which indicate the relation of these spaces (pn-spaces) with the Lebesgue and Sobolev spaces in the case when pn-spaces with constant and variable exponents

Central limit behavior of deterministic dynamical systems

We investigate the probability density of rescaled sums of iterates of deterministic dynamical systems, a problem relevant for many complex physical systems consisting of dependent random variables. A Central Limit Theorem (CLT) is only valid if the dynamical system under consideration is sufficiently mixing. For the fully developed logistic map and a cubic map we analytically calculate the leading-order corrections to the CLT if only a finite number of iterates is added and rescaled, and find excellent agreement with numerical experiments. At the critical point of period doubling accumulation, a CLT is not valid anymore due to strong temporal correlations between the iterates. Nevertheless, we provide numerical evidence that in this case the probability density converges to a $q$-Gaussian, thus leading to a power-law generalization of the CLT. The above behavior is universal and independent of the order of the maximum of the map considered, i.e. relevant for large classes of critical dynamical systems.Comment: 6 pages, 5 figure

Predictive Missile Guidance with Online Trajectory Learning

This study presents a predictive guidance scheme for tactical missiles. The modern day targets, with improved manoeuverability, have revealed insufficient performance of the conventional guidance laws. The underlying cause of this poor performance is the reactive nature of the conventional guidance laws such as proportional navigation (PN) and pure pursuit (PP). Predictive guidance offers an alternative approach to the classical methods by taking proactive actions by estimating target’s future trajectory. However, most of the existing predictive guidance approaches assume that the interceptor have a model of the target dynamics. A guidance strategy is developed in this study, that can learn the target dynamics iteratively and adapt the interceptor actions accordingly. A recursive least squares (RLS) estimation algorithm is employed for learning and estimating the possible future target positions, and a fixed horizon nonlinear program is employed for selecting the optimal interception action. Monte-Carlo simulations show that the guidance algorithm introduced in this work demonstrates a significantly improved performance compared to the alternatives in terms of interception time and miss distance

Rhizomucor miehei Lipase-Immobilized Sodium Alginate Membrane Preparation and Usage in a Pervaporation Biocatalytic Membrane Reactor

In this study, Rhizomucor miehei lipase-coated alginate membrane was prepared and put in a biocatalytic membrane reactor to produce ethyl lactate from ethyl alcohol and lactic acid. Effects of the amount of coated lipase, reaction temperature and initial molar ratio on lactic acid conversion were investigated to evaluate the performance of the system. In order to compare the performance of the membrane reactor, the reaction was also carried out in a classical batch reactor by using lipase-immobilized membrane as a catalyst. The highest lactic acid conversion achieved was 0.63 in the membrane reactor at 50 °C, while the lactic acid conversion was 0.37 in the batch reactor under the same operating conditions. After six reaction runs, approximately 90 % of the lipase’s catalytic activity was preserved in the membrane reactor

Dynamic Sources of Sovereign Bond Market Liquidity

Using 482 US Dollar and Euro denominated bonds issued by 72 sovereigns, we examine the dynamic sources of time-series and cross-sectional variations in \textit{market-wide liquidity} of sovereign bonds as a novelty in the sovereign fixed income literature. Vector autoregression analysis shows that macroeconomic fundamentals and the financial market variables play a substantial role in the movements of aggregate liquidity throughout the whole sample period (1999-2010), although their effects are stronger during the financial crisis. Specifically, US industrial production growth rate and inflation rate have significant informative powers on the sovereign bond market liquidity. An increasing shock to the TED spread (the spread between 3-Month Libor and US T-bill), a measure of distrust in the banking system, has detrimental impact, while equity market performance is positively linked to market-wide bond liquidity. Furthermore, the direction of causality from the world financial and macroeconomic variables towards the aggregate bond market liquidity is confirmed by Granger causality tests. Finally, impulse response functions show that these relationships are persistent up to one-year forecast horizon

Dynamic Sources of Sovereign Bond Market Liquidity

Using 482 US Dollar and Euro denominated bonds issued by 72 sovereigns, we examine the dynamic sources of time-series and cross-sectional variations in \textit{market-wide liquidity} of sovereign bonds as a novelty in the sovereign fixed income literature. Vector autoregression analysis shows that macroeconomic fundamentals and the financial market variables play a substantial role in the movements of aggregate liquidity throughout the whole sample period (1999-2010), although their effects are stronger during the financial crisis. Specifically, US industrial production growth rate and inflation rate have significant informative powers on the sovereign bond market liquidity. An increasing shock to the TED spread (the spread between 3-Month Libor and US T-bill), a measure of distrust in the banking system, has detrimental impact, while on the other side equity market performance is positively linked to market-wide bond liquidity. Furthermore, the direction of causality from the world financial and macroeconomic variables towards the aggregate bond market liquidity is confirmed by Granger causality tests. Finally, impulse response functions show that these relationships are persistent up to one-year forecast horizon

Emerging Market Local Currency Bond Market, Too Risky to Invest?

Over the last decade emerging market (EM) sovereign debt has become a firmly established strategic asset class. Besides Dollar-denominated debt, local currency emerging market debt has also been developing to become an attractive and complementary investment asset class. EM countries have been successful to reduce currency mismatches and maturity problems by implementing sound fiscal and monetary policies. Analyzing the period from 2002 to July 2009, we show that the local currency debt provides significant additional alpha and diversification to traditional bond portfolios. In particular, first, EM local currency bond returns are less correlated to the US stock market, treasury and high-yield bond markets, and global risk premia compared to the a case of EM equity and Dollar-denominated bond markets. Second, we document that yields and excess returns on local currency debt depend largely on expected depreciation of the exchange rate against Dollar, while excess returns on Dollar-denominated EM debt are for the most part compensation for bearing the global risk. Third, we report that EM sovereign local currency bond returns beat other emerging market and mature market asset classes by providing higher risk adjusted excess returns and diversification. We believe that our results will have important policy implications not only for international investors but also for the EM governments. We suggest that the development of local currency bond markets in EM countries could contribute to global financial stability by reducing currency mismatches and reliance on foreign currency debt, which in turn is linked to growth and poverty reduction

Emerging Market Local Currency Bond Market, Too Risky to Invest?

Over the last decade emerging market (EM) sovereign debt has become a firmly established strategic asset class. Besides Dollar-denominated debt, local currency emerging market debt has also been developing to become an attractive and complementary investment asset class. EM countries have been successful to reduce currency mismatches and maturity problems by implementing sound fiscal and monetary policies. Analyzing the period from 2002 to July 2009, we show that the local currency debt provides significant additional alpha and diversification to traditional bond portfolios. In particular, first, EM local currency bond returns are less correlated to the US stock market, treasury and high-yield bond markets, and global risk premia compared to the a case of EM equity and Dollar-denominated bond markets. Second, we document that yields and excess returns on local currency debt depend largely on expected depreciation of the exchange rate against Dollar, while excess returns on Dollar-denominated EM debt are for the most part compensation for bearing the global risk. Third, we report that EM sovereign local currency bond returns beat other emerging market and mature market asset classes by providing higher risk adjusted excess returns and diversification. We believe that our results will have important policy implications not only for international investors but also for the EM governments. We suggest that the development of local currency bond markets in EM countries could contribute to global financial stability by reducing currency mismatches and reliance on foreign currency debt, which in turn is linked to growth and poverty reduction

Chaos edges of zz-logistic maps: Connection between the relaxation and sensitivity entropic indices

Chaos thresholds of the $z$-logistic maps $x_{t+1}=1-a|x_t|^z$ $(z>1; t=0,1,2,...)$ are numerically analysed at accumulation points of cycles 2, 3 and 5. We verify that the nonextensive $q$-generalization of a Pesin-like identity is preserved through averaging over the entire phase space. More precisely, we computationally verify $\lim_{t \to\infty}< S_{q_{sen}^{av}} >(t)/t= \lim_{t \to\infty}(t)/t \equiv \lambda_{q_{sen}^{av}}^{av}$, where the entropy $S_{q} \equiv (1- \sum_i p_i^q)/ (q-1)$ ($S_1=-\sum_ip_i \ln p_i$), the sensitivity to the initial conditions $\xi \equiv \lim_{\Delta x(0) \to 0} \Delta x(t)/\Delta x(0)$, and $\ln_q x \equiv (x^{1-q}-1)/ (1-q)$ ($\ln_1 x=\ln x$). The entropic index $q_{sen}^{av}0$ depend on both $z$ and the cycle. We also study the relaxation that occurs if we start with an ensemble of initial conditions homogeneously occupying the entire phase space. The associated Lebesgue measure asymptotically decreases as $1/t^{1/(q_{rel}-1)}$ ($q_{rel}>1$). These results led to (i) the first illustration of the connection (conjectured by one of us) between sensitivity and relaxation entropic indices, namely $q_{rel}-1 \simeq A (1-q_{sen}^{av})^\alpha$, where the positive numbers $(A,\alpha)$ depend on the cycle; (ii) an unexpected and new scaling, namely $q_{sen}^{av}(cycle n)=2.5 q_{sen}^{av}(cycle 2)+ \epsilon$ ($\epsilon=-0.03$ for $n=3$, and $\epsilon = 0.03$ for $n=5$).Comment: 5 pages, 5 figure