On the valuation of Paris options: foundational results

This paper adresses the valuation of the Paris barrier options proposed by Yor, Jeanblanc-Picque, and Chesnay (Advances in Applied Probability, 29(1997), 165-184) using the Laplace transform approach. Based on suggestions by Pliska the notion of Paris options is extended such that their valuation is possible at any point during their lifespan. The Laplace transforms derived by Yor et al. are modified when necessary, and their basic analytic properties are discussed.Comment: 16 Pages, 2 Figure

Investment opportunities in Central and Eastern European equity markets: an econometric examination of the risk-return relationships for western investors

This study focuses on the diversification benefits of the most developed equity markets of Central and Eastern Europe (CEE). To evaluate these benefits of diversification we use so-called spanning tests based on a stochastic discount factor approach and estimated by General Methods of Moments (GMM). Spanning tests investigate whether the returns of test assets (in our case the returns of CEE equity markets) can be mimicked by the returns of some benchmark assets. If this is possible adding the test assets to the set of the benchmark assets does not improve the mean-variance efficient frontier. In recent studies as for example DeSantis (1994), Harvey (1995) or Bekaert/Urias (1996) spanning tests have been successfully applied to emerging equity markets but these studies do not cover the emerging equity markets of Central and Eastern Europe. In addition our study addresses the diversification benefits not only for U.S. investors, as is the usual case in these empirical studies, but extends the analysis on British and German investors, too. A third feature that distinguishes our investigation from most other studies on this topic is the analysis of the effects of currency hedging on diversification benefits. At a quick glance the CEE equity markets seem to offer significant and high diversification benefits. But this picture becomes cloudy after a thorough analysis. Only the equity markets of the Czech Republic, Slovakia and Slovenia contribute significantly to the diversification benefits. But a realisation of these benefits would imply to have not only long but also short positions in CEE equities. Taken into account transaction costs and limited access to futures and options markets it seems to be very doubtful that the theoretical diversification benefits can actually be realised. This result is in correspondence with recent studies on other emerging markets such as DeRoon/Nijman/Werker (2000). The results of the study also show that the home currency of the investor is of some importance for the results of the spanning tests. The outcomes for British, German and U.S. investors are similar but not identical. Therefore it seems to be useful to analyse benefits of diversification not only from the point of view of U.S. investors but to take explicitly into account the currency of the investor. Another interesting result is that currency hedging clearly improves the possible performance of an investment in CEE equity markets. What is now the consequence for investors that consider an investment in CEE equity markets? Our study comes to the result that a buy-and-hold investor could hardly benefit from such an investment. Only investors that have superior timing capabilities could profit from the remarkably strong swings in the levels of CEE equity indices in the past. --Spanning Test,Diversification,Emerging Markets,Central and Eastern Europe

Socially Responsible Investments in Germany, Switzerland and the United States: An Analysis of Investment Funds and Indices

The aim of this study is the analysis of so called socially responsible investments (SRI). First, the performance of SRI equity investment funds and equity indices is investigated using Jensen´s alpha as performance measure. The analysis considers market timing strategies of the fund management and takes publicly available information into account (conditional performance). In the second part sensitivities regarding macroeconomic factors are estimated and the third part investigates the investment style of the SRI funds and indices. It is found that most of the SRI assets have a similar performance than their benchmarks. Only a few funds and indices exhibit a relatively poor performance. As SRI funds and indices seem to have some specific risk-return characteristics (investment styles) that might be characterised as special investment vehicles different from conventional assets. --Socially responsible investing,performance measurement,investment style,investment funds

Value at risk: proposals on a generalization

The Value at Risk approach (VaR) is more and more used as a tool for risk measurement. The approach however has shortcomings both from a theoretical and a practical point of view. VaR can be classified within existing concepts of risk measurement: it is particularly interpretable as a special measure of shortfall risk. From that point of view VaR will be extended and improved. Eventually return distributions and shortfall measures are calculated for portfolios' including option strategies. Though VaR is held constant across the resulting return distributions quite different valuations of risk arise depending on the shortfall measure used for the comparison. --

Is there a Difference? The Performance Characteristics of SRI Equity Indexes

Investments in socially responsible investments (SRI) are still a small, but growing segment of international capital markets. This study analyses whether a SRI screening process applied to equities results in a different performance outcome compared to relevant conventional benchmark indexes. In contrast to other studies, the analysis concentrates on SRI indexes and not on investment funds. This has several advantages, which include that the transaction costs of funds, the timing activities and the skill of the fund management do not have to be considered. This leads to a relatively direct measure of the performance effects of SRI screens. The 29 SRI stock indexes are analysed by single-factor models with benchmarks that closely approximate the investment universe of the SRI stock indexes and by multi-equation systems that also exploit the information in the cross-section. The results show that SRI stock indexes do not exhibit a different risk-adjusted return than conventional benchmarks. But many SRI indexes have a higher risk relative to the benchmarks. These findings are robust to the use of different sets of benchmark indexes and apply to all common types of SRI screening. --Socially responsible investing,equity indexes,performance,risk