Correlation products and risk management issues

Unlike standard derivatives instruments, correlation products contain nonseparable risk, meaning that the price sensitivity of one risk factor is a function of the level of another risk factor. This article outlines the pricing and hedging of one type of correlation product, the differential swap, to show how nonseparable risk may escape traditional methods of assessing the risk of institutions' portfolios. The article considers the implications of correlation products for supervisory and institutional practices and concludes with a brief discussion of some ways nonseparable risk may be managed.Derivative securities ; Risk ; Swaps (Finance) ; Hedging (Finance)

A Closed-Form Shave from Occam's Quantum Razor: Exact Results for Quantum Compression

The causal structure of a stochastic process can be more efficiently transmitted via a quantum channel than a classical one, an advantage that increases with codeword length. While previously difficult to compute, we express the quantum advantage in closed form using spectral decomposition, leading to direct computation of the quantum communication cost at all encoding lengths, including infinite. This makes clear how finite-codeword compression is controlled by the classical process' cryptic order and allows us to analyze structure within the length-asymptotic regime of infinite-cryptic order (and infinite Markov order) processes.Comment: 21 pages, 13 figures; http://csc.ucdavis.edu/~cmg/compmech/pubs/eqc.ht

Recent revisions to corporate profits: what we know and when we knew it

Initial estimates in the National Income and Product Accounts significantly overstated U.S. corporate profits for the 1998-2000 period. Subsequent revisions reveal that the profitability of the nation's corporate sector in the late 1990s was substantially weaker than "real-time" data indicated. An unexpected surge in employee stock options exercised-and perhaps, in some sectors, firms' inflated statements of profit-may help explain the large downward revisions.Corporate profits ; Stock options ; Statistics ; Economic indicators

Securities trading and settlement in Europe: issues and outlook

The institutional arrangements for trading and settling securities in Europe remain fragmented along national lines, making cross-border trading costly. Consolidation efforts are under way, however, and major market centers have now emerged in France, Germany, and the United Kingdom. Although the restructuring of trading and settlement systems should bring the European Community closer to its goal of a single capital market, changes in corporate governance and the competitive environment may raise significant regulatory issues.Capital market - Europe ; Securities - Europe ; International finance

Urine Specimens from Pregnant and Nonpregnant Women Inhibitory to Amplification of \u3cem\u3eChlamydia trachomatis\u3c/em\u3e Nucleic Acid by PCR, Ligase Chain Reaction, and Transcription-Mediated Amplification: Identification of Urinary Substances Associated with Inhibition and Removal of Inhibitory Activity

The presence of endogenous amplification inhibitors in urine may produce false-negative results for the detection of Chlamydia trachomatis nucleic acids by tests such as PCR, ligase chain reaction (LCR), and transcription-mediated amplification (TMA). Consecutive urine specimens from 101 pregnant women and 287 nonpregnant women submitted for urinalysis were processed for C. trachomatis detection. Aliquots were spiked with the equivalent of one C. trachomatis elementary body and were tested by three commercial assays: AMPLICOR CT/NG, Chlamydia LCX, and Chlamydia TMA. The prevalence of inhibitors resulting in complete inhibition of amplification was 4.9% for PCR, 2.6% for LCR, and 7.5% for TMA. In addition, all three assays were partially inhibited by additional urine specimens. Only PCR was more often inhibited by urine from pregnant women than by urine from nonpregnant women (9.9 versus 3.1%; P = 0.011). A complete urinalysis including dipstick and a microscopic examination was performed. Logistic regression analysis revealed that the following substances were associated with amplification inhibition: beta-human chorionic gonadotropin (odd ratio [OR], 3.3) and crystals (OR, 3.3) for PCR, nitrites for LCR (OR, 14.4), and hemoglobin (OR, 3.3), nitrites (OR, 3.3), and crystals (OR, 3.3) for TMA. Aliquots of each inhibitory urine specimen were stored at 4 and -70°C and a dilution of 1:10 (84% for PCR, 100% for LCR, and 92% for TMA). Five urine specimens (three for PCR and two for TMA) required phenol-chloroform extraction to remove inhibitors. The results indicate that the prevalence of nucleic acid amplification inhibitors in female urine is different for each technology, that this prevalence may be predicted by the presence of urinary factors, and that storage and dilution remove most of the inhibitors

Morphological asymmetry and interspecific hybridization: A case study using hylid frogs

The limited studies addressing developmental stability of interspecific hybrids suggest a positive association between the level of fluctuating asymmetry and 1) the degree of divergence between parental species, and 2) the recency of the contact zone. To evaluate these associations, we examined asymmetry in a recentlyestablished hybrid population of treefrogs (Hyla cinerea and H. gratiosa) that show marked structural gene divergence. Fluctuating asymmetry (FA), directional asymmetry, and antisymmetry were assessed for eight paired osteometric traits in allozymically-defined parental and hybrid categories. FA levels varied considerably among traits. Nonetheless, for any given trait, the hybrid categories did not demonstrate elevated levels of FA compared to the parental categories, or compared to frogs from a non-hybridizing parental population. The only trait that differed statistically among categories (pterygoid length) involved a significantly lower FA value for the Fl hybrids. Thus, observed FA values do not support expectations that the hybrid categories should experience decreased developmental stability

Morphological asymmetry and interspecific hybridization: A case study using hylid frogs

The limited studies addressing developmental stability of interspecific hybrids suggest a positive association between the level of fluctuating asymmetry and 1) the degree of divergence between parental species, and 2) the recency of the contact zone. To evaluate these associations, we examined asymmetry in a recentlyestablished hybrid population of treefrogs (Hyla cinerea and H. gratiosa) that show marked structural gene divergence. Fluctuating asymmetry (FA), directional asymmetry, and antisymmetry were assessed for eight paired osteometric traits in allozymically-defined parental and hybrid categories. FA levels varied considerably among traits. Nonetheless, for any given trait, the hybrid categories did not demonstrate elevated levels of FA compared to the parental categories, or compared to frogs from a non-hybridizing parental population. The only trait that differed statistically among categories (pterygoid length) involved a significantly lower FA value for the Fl hybrids. Thus, observed FA values do not support expectations that the hybrid categories should experience decreased developmental stability

Synchronization and Control in Intrinsic and Designed Computation: An Information-Theoretic Analysis of Competing Models of Stochastic Computation

We adapt tools from information theory to analyze how an observer comes to synchronize with the hidden states of a finitary, stationary stochastic process. We show that synchronization is determined by both the process's internal organization and by an observer's model of it. We analyze these components using the convergence of state-block and block-state entropies, comparing them to the previously known convergence properties of the Shannon block entropy. Along the way, we introduce a hierarchy of information quantifiers as derivatives and integrals of these entropies, which parallels a similar hierarchy introduced for block entropy. We also draw out the duality between synchronization properties and a process's controllability. The tools lead to a new classification of a process's alternative representations in terms of minimality, synchronizability, and unifilarity.Comment: 25 pages, 13 figures, 1 tabl

Prediction and Generation of Binary Markov Processes: Can a Finite-State Fox Catch a Markov Mouse?

Understanding the generative mechanism of a natural system is a vital component of the scientific method. Here, we investigate one of the fundamental steps toward this goal by presenting the minimal generator of an arbitrary binary Markov process. This is a class of processes whose predictive model is well known. Surprisingly, the generative model requires three distinct topologies for different regions of parameter space. We show that a previously proposed generator for a particular set of binary Markov processes is, in fact, not minimal. Our results shed the first quantitative light on the relative (minimal) costs of prediction and generation. We find, for instance, that the difference between prediction and generation is maximized when the process is approximately independently, identically distributed.Comment: 12 pages, 12 figures; http://csc.ucdavis.edu/~cmg/compmech/pubs/gmc.ht