Backtesting VaR Models: An Expected Shortfall Approach

Academics and practitioners have extensively studied Value-at-Risk (VaR) to propose a unique risk management technique that generates accurate VaR estimations for long and short trading positions and for all types of financial assets. However, they have not succeeded yet as the testing frameworks of the proposals developed, have not been widely accepted. A two-stage backtesting procedure is proposed to select a model that not only forecasts VaR but also predicts the losses beyond VaR. Numerous conditional volatility models that capture the main characteristics of asset returns (asymmetric and leptokurtic unconditional distribution of returns, power transformation and fractional integration of the conditional variance) under four distributional assumptions (normal, GED, Student-t, and skewed Student-t) have been estimated to find the best model for three financial markets, long and short trading positions, and two confidence levels. By following this procedure, the risk manager can significantly reduce the number of competing models that accurately predict both the VaR and the Expected Shortfall (ES) measures.Value-at-Risk, Expected Shortfall, Volatility Forecasting, Arch Models

The Components of the Bid-Ask Spread: The case of the Athens Stock Exchange

We analyze the components of the bid-ask spread in the Athens Stock Exchange (ASE), which was recently characterized as a developed market. For large and medium capitalization stocks, we estimate the adverse selection and the order handling component of the spreads as well as the probability of a trade continuation on the same side of either the bid or the ask price, using the Madhavan et al.~(1997) model. We extend it by incorporating the traded volume and we find that the adverse selection component exhibits U-shape patterns, while the cost component pattern depends on the stock price. For high priced stocks, the usual U-shape applies, while for low-priced ones, it is an increasing function of time, mainly due to the order handling spread component. Furthermore, the expected price change and the liquidity adjustment to Value-at-Risk that is needed is higher in the low capitalization stocks, while the most liquid stocks are the high priced ones. Moreover, by estimating the Madhavan et al.~(1997) model for two distinct periods we explain why there are differences in the components of the bid-ask spread.Bid-Ask Spread, Asymmetry Information, Transaction Costs, Price Impact

Revisiting Mutual Fund Performance Evaluation

Mutual fund manager excess performance should be measured relative to their self-reported benchmark rather than the return of a passive portfolio with the same risk characteristics. Ignoring the self-reported benchmark introduces biases in the measurement of stock selection and timing components of excess performance. We revisit baseline empirical evidence in mutual fund performance evaluation utilizing stock selection and timing measures that address these biases. We introduce a new factor exposure based approach for measuring the – static and dynamic – timing capabilities of mutual fund managers. We overall conclude that current studies are likely to be overstating lack of skill because they ignore the managers’ self-reported benchmark in the performance evaluation process.Mutual funds, short-term performance, market timing, factor timing

Damage sensing in CFRP composites using electrical potential techniques

This Thesis investigates the damage sensing capabilities of the electrical potential measurement technique in carbon fibre reinforced polymer composites. Impact damage was introduced in multidirectional laminates and its effect on potential distribution studied. It was found that delaminations and fibre breakages within the laminate can be detected and located by measuring potential changes on the external composite surface. The extent and size of potential changes were significantly affected by the position of the current electrodes in relation to the potential measurement probes. A numerical model was developed investigating the effect of different size delaminations, located in various positions within the lamina, on electrical potential distributions on the external ply, and a quantitative analysis of the numerical results is presented. The numerical simulations demonstrated that the measured potential changes on the external ply were in proportion to the delamination size. The numerical and experimental results were compared and the optimum configuration of current electrodes and potential probes for damage detection selected. The response of electrical potential to mechanical strain, in unidirectional and multidirectional samples was also investigated. It was found that the conductive medium, used for introducing the current, defines the piezo-resistance performance of the composite. A finite element model was developed able to predict the effect of inhomogeneous current introduction in unidirectional specimens on electrical potential and piezo-resistance. The effects of temperature and water absorption on potential measurements were also presented

Evaluating the New Greek Electricity Market Rules

The Greek Regulatory Authority for Energy (RAE), in view of the initiation of the new wholesale electricity market on January 1st 2009 as a Day-Ahead mandatory pool, undertook the design and implementation of a simulator for the market. The simulator consists of several interacting modules representing all key market operations and dynamics including day-ahead scheduling, natural gas system constraints, unplanned variability of loads and available capacity driven either by uncertain stochastic outcomes or deliberate participant schedule deviations, real time dispatch, and financial settlement of day ahead and real-time schedule differences. The modules are integrated into one software package. The intended use of the simulator is to elaborate on and allow RAE to investigate the impact of participant decision strategies on market outcomes. The ultimate purpose is to evaluate the effectiveness of Market Rules, whether existing or contemplated, in providing incentives for competitive behaviour and in discouraging gaming and market manipulation. In this paper the simulator is used to analyze market design aspects and rules concerning the co-optimization of energy and reserves in the Day-Ahead energy market and the efficiency of the imbalance settlement procedure compared to real-time pricing.Electricity Market Design; Market Simulation; Regulation; Unit Commitment

The Effect of Muscle Length on Post-Tetanic Potentiation of skMLCK-/- and C57BL/6 Mouse EDL Muscles

Post-tetanic potentiation of force in fast skeletal muscle is inversely related to muscle or sarcomere length, diminishing at longer lengths. This relationship has been mainly attributed to the structural effects of the primary mechanism of potentiation, phosphorylation of the regulatory light chain (RLC) of myosin, which is catalyzed by skeletal myosin light chain kinase (skMLCK). The purpose of this thesis was to compare the relationship between isometric twitch force potentiation and muscle or sarcomere length in fast twitch extensor digitorum longus (EDL) muscles from wildtype and skMLCK-/- mice. It was hypothesized that in addition to reduced potentiation, skMLCK-/- muscles without the ability to phosphorylate the RLC would also display an altered length-dependence of potentiation compared to wildtype muscles with RLC phosphorylation. The main finding was that although twitch potentiation was greater in WT muscles at all lengths, the relationship between potentiation and muscle length was similar in both WT and skMLCK-/- muscles. This indicates that the length-dependence of potentiation cannot necessarily be attributed to RLC phosphorylation. Thus, additional mechanisms, possibly related to Ca2+ handling, thick filament mechanosensing and length-dependent activation may participate in the length-dependence of potentiation displayed by murine fast muscle models