Interest Rates and Information Geometry

The space of probability distributions on a given sample space possesses natural geometric properties. For example, in the case of a smooth parametric family of probability distributions on the real line, the parameter space has a Riemannian structure induced by the embedding of the family into the Hilbert space of square-integrable functions, and is characterised by the Fisher-Rao metric. In the nonparametric case the relevant geometry is determined by the spherical distance function of Bhattacharyya. In the context of term structure modelling, we show that minus the derivative of the discount function with respect to the maturity date gives rise to a probability density. This follows as a consequence of the positivity of interest rates. Therefore, by mapping the density functions associated with a given family of term structures to Hilbert space, the resulting metrical geometry can be used to analyse the relationship of yield curves to one another. We show that the general arbitrage-free yield curve dynamics can be represented as a process taking values in the convex space of smooth density functions on the positive real line. It follows that the theory of interest rate dynamics can be represented by a class of processes in Hilbert space. We also derive the dynamics for the central moments associated with the distribution determined by the yield curve.Comment: 20 pages, 3 figure

Asset Management in Volatile Markets

The 27th SUERF Colloquium in Munich in June 2008: New Trends in Asset Management: Exploring the Implications was already topical in the Summer of 2008. The subsequent dramatic events in the Autumn of 2008 made the presentations in Munich even more relevant to investors and bankers that want to understand what happens in their investment universe. In the present SUERF Study, we have collected a sample of outstanding colloquium contributions under the fitting headline: Asset Management in Volatile Markets.derivatives, financial innovation, asset management, finance-growth-nexus; Relative Value Strategy, Pair Trading, Slippage, Implementation Shortfall, Asset Management, Fin4Cast

Power Utility Maximization in Discrete-Time and Continuous-Time Exponential Levy Models

Consider power utility maximization of terminal wealth in a 1-dimensional continuous-time exponential Levy model with finite time horizon. We discretize the model by restricting portfolio adjustments to an equidistant discrete time grid. Under minimal assumptions we prove convergence of the optimal discrete-time strategies to the continuous-time counterpart. In addition, we provide and compare qualitative properties of the discrete-time and continuous-time optimizers.Comment: 18 pages, to appear in Mathematical Methods of Operations Research. The final publication is available at springerlink.co

Semi-Static Hedging Based on a Generalized Reflection Principle on a Multi Dimensional Brownian Motion

On a multi-assets Black-Scholes economy, we introduce a class of barrier options. In this model we apply a generalized reflection principle in a context of the finite reflection group acting on a Euclidean space to give a valuation formula and the semi-static hedge.Comment: Asia-Pacific Financial Markets, online firs

Risk-Seeking versus Risk-Avoiding Investments in Noisy Periodic Environments

We study the performance of various agent strategies in an artificial investment scenario. Agents are equipped with a budget, $x(t)$, and at each time step invest a particular fraction, $q(t)$, of their budget. The return on investment (RoI), $r(t)$, is characterized by a periodic function with different types and levels of noise. Risk-avoiding agents choose their fraction $q(t)$ proportional to the expected positive RoI, while risk-seeking agents always choose a maximum value $q_{max}$ if they predict the RoI to be positive ("everything on red"). In addition to these different strategies, agents have different capabilities to predict the future $r(t)$, dependent on their internal complexity. Here, we compare 'zero-intelligent' agents using technical analysis (such as moving least squares) with agents using reinforcement learning or genetic algorithms to predict $r(t)$. The performance of agents is measured by their average budget growth after a certain number of time steps. We present results of extensive computer simulations, which show that, for our given artificial environment, (i) the risk-seeking strategy outperforms the risk-avoiding one, and (ii) the genetic algorithm was able to find this optimal strategy itself, and thus outperforms other prediction approaches considered.Comment: 27 pp. v2 with minor corrections. See http://www.sg.ethz.ch for more inf

Are academics willing to forgo citations to publish in high-status journals? Examining preferences for 4* and 4-rated journal publication among UK business and management academics

Academics often judge themselves and are judged by others according to the status of the journals in which they publish. Little is known about whether individual scholars would choose to publish an article in a high-status journal if it would garner similar or lower levels of scholarly impact than an article published in a lower-status journal. Drawing upon status theory, we explore whether and how much business school academics are willing to ‘pay’, as captured by a hypothetical level of ‘forfeited’ citations, to publish in high-status 4* journals rather than leading specialized 4-rated journals. Using choice-set design and survey data from UK business and management scholars, we suggest and empirically demonstrate that the willingness to forgo citations to publish in 4* journals is strongest among academics who have already published in 4* and/or 4-rated journals. Contrary to our expectations, we find that an individual’s existing scholarly impact, as captured by prior citations, has no effect on this preference. We also show that academics working in high-ranked institutions would give up more citations for 4* journal publication than those working at lower-ranked institutions. We explore the implications of these findings for theories of academic status, journal rankings and research assessment systems

Stochastic Cellular Automata Model for Stock Market Dynamics

In the present work we introduce a stochastic cellular automata model in order to simulate the dynamics of the stock market. A direct percolation method is used to create a hierarchy of clusters of active traders on a two dimensional grid. Active traders are characterised by the decision to buy, (+1), or sell, (-1), a stock at a certain discrete time step. The remaining cells are inactive,(0). The trading dynamics is then determined by the stochastic interaction between traders belonging to the same cluster. Most of the stylized aspects of the financial market time series are reproduced by the model.Comment: 17 pages and 7 figure

In vitro production of bovine embryos derived from individual donors in the Corral® dish

Background: Since the identity of the embryo is of outmost importance during commercial in vitro embryo production, bovine oocytes and embryos have to be cultured strictly per donor. Due to the rather low yield of oocytes collected after ovum pick-up (OPU) per individual cow, oocyte maturation and embryo culture take place in small groups, which is often associated with inferior embryo development. The objective of this study was to improve embryonic development in small donor groups by using the Corral (R) dish. This commercial dish is designed for human embryo production. It contains two central wells that are divided into quadrants by a semi-permeable wall. In human embryo culture, one embryo is placed per quadrant, allowing individual follow-up while embryos are exposed to a common medium. In our study, small groups of oocytes and subsequently embryos of different bovine donors were placed in the Corral (R) dish, each donor group in a separate quadrant. Results: In two experiments, the Corral (R) dish was evaluated during in vitro maturation (IVM) and/or in vitro culture (IVC) by grouping oocytes and embryos of individual bovine donors per quadrant. At day 7, a significantly higher blastocyst rate was noted in the Corral (R) dish used during IVM and IVC than when only used during IVM (12.9% +/- 2.10 versus 22.8% +/- 2.67) (P < 0.05). However, no significant differences in blastocyst yield were observed anymore between treatment groups at day 8 post insemination. Conclusions: In the present study, the Corral (R) dish was used for in vitro embryo production (IVP) in cattle; allowing to allocate oocytes and/or embryos per donor. As fresh embryo transfers on day 7 have higher pregnancy outcomes, the Corral (R) dish offers an added value for commercial OPU/IVP, since a higher blastocyst development at day 7 is obtained when the Corral (R) dish is used during IVM and IVC