Arbitrage, Covered Interest Parity and Long-Term Dependence between the US Dollar and the Yen

Using a daily time series from 1983 to 2005 of currency prices in spot and forward USD/Yen markets and matching equivalent maturity short term US and Japanese interest rates, we investigate the sensitivity over the sample period of the difference between actual prices in forward markets to those calculated from short term interest rates. According to a fundamental theorem in financial economics termed covered interest parity (CIP) the actual and estimated prices should be identical once transaction and other costs are accommodated. The paper presents four important findings: First, we find evidence of considerable variation in CIP deviations from equilibrium that tends to be one way and favours those market participants with the ability to borrow US dollars (and subsequently lend yen). Second, these deviations have diminished significantly and by 2000 have been almost eliminated. We attribute this to the effects of electronic trading and pricing systems. Third, regression analysis reveals that interday negative changes in spot exchange rates, positive changes in US interest rates and negative changes in yen interest rates generally affect the deviation from CIP more than changes in interday volatility. Finally, the presence of long-term dependence in the CIP deviations over time is investigated to provide an insight into the equilibrium dynamics. Using a local Hurst exponent – a statistic used in fractal geometry - we find episodes of both positive and negative dependence over the various sample periods, which appear to be linked to episodes of dollar decline/yen appreciation, or vice versa. The presence of negative dependence is consistent with the actions of arbitrageurs successfully maintaining the long-term CIP equilibrium. Given the time varying nature of the deviations from equilibrium the sample period under investigation remains a critical issue when investigating the presence of longterm dependence.Hurst exponent; Efficient market hypothesis; covered interest parity, arbitrage

Developing Foreign Bond Markets: The Arirang Bond Experience in Korea

This study investigates the development of Korea’s foreign bond (Arirang) market for won-denominated foreign bonds. We provide an institutional perspective and discuss the problems, concerns and key issues related to the development of this market. We find no evidence that Arirang issuance either crowded out local debt or had exchange rate implications. Overall, the Korean experience provides valuable lessons for other emerging nations seeking to build bond markets for local and foreign issuers. Instigating market development demands an enabling infrastructure, the nurturing of local and international demand and the deregulation of capital flows. This process is demanding, as the sophistication of the local bond market does not make it appealing to foreign borrowers per se.Arirang bonds; foreign bonds; bond market development

Accurate gravitational waveforms for binary-black-hole mergers with nearly extremal spins

Motivated by the possibility of observing gravitational waves from merging black holes whose spins are nearly extremal (i.e., 1 in dimensionless units), we present numerical waveforms from simulations of merging black holes with the highest spins simulated to date: (1) a 25.5-orbit inspiral, merger, and ringdown of two holes with equal masses and spins of magnitude 0.97 aligned with the orbital angular momentum; and (2) a previously reported 12.5-orbit inspiral, merger, and ringdown of two holes with equal masses and spins of magnitude 0.95 anti-aligned with the orbital angular momentum. First, we consider the horizon mass and spin evolution of the new aligned-spin simulation. During the inspiral, the horizon area and spin evolve in remarkably close agreement with Alvi's analytic predictions, and the remnant hole's final spin agrees reasonably well with several analytic predictions. We also find that the total energy emitted by a real astrophysical system with these parameters---almost all of which is radiated during the time included in this simulation---would be 10.952% of the initial mass at infinite separation. Second, we consider the gravitational waveforms for both simulations. After estimating their uncertainties, we compare the waveforms to several post-Newtonian approximants, finding significant disagreement well before merger, although the phase of the TaylorT4 approximant happens to agree remarkably well with the numerical prediction in the aligned-spin case. We find that the post-Newtonian waveforms have sufficient uncertainty that hybridized waveforms will require far longer numerical simulations (in the absence of improved post-Newtonian waveforms) for accurate parameter estimation of low-mass binary systems.Comment: 17 pages, 7 figures, submitted to Classical and Quantum Gravit

Spooky Stuff

A real imaginal exploration of the aesthetics of the supernatural

Foreign Bond Markets and Financial Market Development: International Perspectives

The domestic bond markets of the Asia and Pacific region have grown considerably since the Asian financial crisis of 1997, although they remain undeveloped relative to the region's weight in the world economy. This paper proposes that in order to encourage further development of these markets, regulators should make them more accessible to foreign borrowers. To that end we offer insights into the nature and mechanics of foreign bond issuance by investigating the key characteristics of 3,132 foreign bonds issued in 14 countries (other than the United States) between July 1928 and June 2009. We found that the foreign borrowers that tap domestic markets are overwhelmingly of high credit quality and comprise sovereigns, supranationals, and major financial institutions. There is a preference for simple fixed-rate payment structures, which can then be swapped into the currency and coupon type of choice using currency and interest rate derivatives. On the whole, the long-term viability of foreign bond markets appears linked to the presence of highly liquid foreign exchange and derivatives markets that facilitate risk management and transformation, enabling regulation that facilitates cooperation with market participants, the presence of benchmark issues, and competitive pricing between alternate market segments.bond markets; financial market development; foreign bonds

Black hole-neutron star mergers for 10 solar mass black holes

General relativistic simulations of black hole-neutron star mergers have currently been limited to low-mass black holes (less than 7 solar mass), even though population synthesis models indicate that a majority of mergers might involve more massive black holes (10 solar mass or more). We present the first general relativistic simulations of black hole-neutron star mergers with 10 solar mass black holes. For massive black holes, the tidal forces acting on the neutron star are usually too weak to disrupt the star before it reaches the innermost stable circular orbit of the black hole. Varying the spin of the black hole in the range a/M = 0.5-0.9, we find that mergers result in the disruption of the star and the formation of a massive accretion disk only for large spins a/M>0.7-0.9. From these results, we obtain updated constraints on the ability of BHNS mergers to be the progenitors of short gamma-ray bursts as a function of the mass and spin of the black hole. We also discuss the dependence of the gravitational wave signal on the black hole parameters, and provide waveforms and spectra from simulations beginning 7-8 orbits before merger.Comment: 11 pages, 11 figures - Updated to match published versio

Fast and accurate prediction of numerical relativity waveforms from binary black hole coalescences using surrogate models

Simulating a binary black hole (BBH) coalescence by solving Einstein's equations is computationally expensive, requiring days to months of supercomputing time. Using reduced order modeling techniques, we construct an accurate surrogate model, which is evaluated in a millisecond to a second, for numerical relativity (NR) waveforms from non-spinning BBH coalescences with mass ratios in $[1, 10]$ and durations corresponding to about $15$ orbits before merger. We assess the model's uncertainty and show that our modeling strategy predicts NR waveforms {\em not} used for the surrogate's training with errors nearly as small as the numerical error of the NR code. Our model includes all spherical-harmonic ${}_{-2}Y_{\ell m}$ waveform modes resolved by the NR code up to $\ell=8.$ We compare our surrogate model to Effective One Body waveforms from $50$-$300 M_\odot$ for advanced LIGO detectors and find that the surrogate is always more faithful (by at least an order of magnitude in most cases).Comment: Updated to published version, which includes a section comparing the surrogate and effective-one-body models. The surrogate is publicly available for download at http://www.black-holes.org/surrogates/ . 6 pages, 6 figure

Comparing Gravitational Waveform Extrapolation to Cauchy-Characteristic Extraction in Binary Black Hole Simulations

We extract gravitational waveforms from numerical simulations of black hole binaries computed using the Spectral Einstein Code. We compare two extraction methods: direct construction of the Newman-Penrose (NP) scalar $\Psi_4$ at a finite distance from the source and Cauchy-characteristic extraction (CCE). The direct NP approach is simpler than CCE, but NP waveforms can be contaminated by near-zone effects---unless the waves are extracted at several distances from the source and extrapolated to infinity. Even then, the resulting waveforms can in principle be contaminated by gauge effects. In contrast, CCE directly provides, by construction, gauge-invariant waveforms at future null infinity. We verify the gauge invariance of CCE by running the same physical simulation using two different gauge conditions. We find that these two gauge conditions produce the same CCE waveforms but show differences in extrapolated-$\Psi_4$ waveforms. We examine data from several different binary configurations and measure the dominant sources of error in the extrapolated-$\Psi_4$ and CCE waveforms. In some cases, we find that NP waveforms extrapolated to infinity agree with the corresponding CCE waveforms to within the estimated error bars. However, we find that in other cases extrapolated and CCE waveforms disagree, most notably for $m=0$ "memory" modes.Comment: 26 pages, 20 figure

Initial data for black hole-neutron star binaries, with rotating stars

The coalescence of a neutron star with a black hole is a primary science target of ground-based gravitational wave detectors. Constraining or measuring the neutron star spin directly from gravitational wave observations requires knowledge of the dependence of the emission properties of these systems on the neutron star spin. This paper lays foundations for this task, by developing a numerical method to construct initial data for black hole--neutron star binaries with arbitrary spin on the neutron star. We demonstrate the robustness of the code by constructing initial-data sets in large regions of the parameter space. In addition to varying the neutron star spin-magnitude and spin-direction, we also explore neutron star compactness, mass-ratio, black hole spin, and black hole spin-direction. Specifically, we are able to construct initial data sets with neutron stars spinning near centrifugal break-up, and with black hole spins as large as $S_{\rm BH}/M_{\rm BH}^2=0.99$.Comment: 25 pages, 12 figure