Model Uncertainty and Liquidity

Extreme market outcomes are often followed by a lack of liquidity and a lack of trade. This market collapse seems particularly acute for markets where traders rely heavily on a specific empirical model such as in derivative markets. Asset pricing and trading, in these cases, are intrinsically model dependent. Moreover, the observed behavior of traders and institutions that places a large emphasis on 'worst-case scenarios'' through the use of 'stress testing'' and 'value-at-risk'' seems different than Savage rationality (expected utility) would suggest. In this paper we capture model-uncertainty explicitly using an Epstein-Wang (1994) uncertainty-averse utility function with an ambiguous underlying asset-returns distribution. To explore the connection of uncertainty with liquidity, we specify a simple market where a monopolist financial intermediary makes a market for a propriety derivative security. The market-maker chooses bid and ask prices for the derivative, then, conditional on trade in this market, chooses an optimal portfolio and consumption. We explore how uncertainty can increase the bid-ask spread and, hence, reduces liquidity. In addition, 'hedge portfolios'' for the market-maker, an important component to understanding spreads, can look very different from those implied by a model without Knightian uncertainty. Our infinite-horizon example produces short, dramatic decreases in liquidity even though the underlying environment is stationary.

Generalized Disappointment Aversion and Asset Prices

We provide an axiomatic model of preferences over atemporal risks that generalizes Gul (1991) A Theory of Disappointment Aversion' by allowing risk aversion to be first order' at locations in the state space that do not correspond to certainty. Since the lotteries being valued by an agent in an asset-pricing context are not typically local to certainty, our generalization, when embedded in a dynamic recursive utility model, has important quantitative implications for financial markets. We show that the state-price process, or asset-pricing kernel, in a Lucas-tree economy in which the representative agent has generalized disappointment aversion preferences is consistent with the pricing kernel that resolves the equity-premium puzzle. We also demonstrate that a small amount of conditional heteroskedasticity in the endowment-growth process is necessary to generate these favorable results. In addition, we show that risk aversion in our model can be both state-dependent and counter-cyclical, which empirical research has demonstrated is necessary for explaining observed asset-pricing behavior.

Function-based Intersubject Alignment of Human Cortical Anatomy

Making conclusions about the functional neuroanatomical organization of the human brain requires methods for relating the functional anatomy of an individual's brain to population variability. We have developed a method for aligning the functional neuroanatomy of individual brains based on the patterns of neural activity that are elicited by viewing a movie. Instead of basing alignment on functionally defined areas, whose location is defined as the center of mass or the local maximum response, the alignment is based on patterns of response as they are distributed spatially both within and across cortical areas. The method is implemented in the two-dimensional manifold of an inflated, spherical cortical surface. The method, although developed using movie data, generalizes successfully to data obtained with another cognitive activation paradigm—viewing static images of objects and faces—and improves group statistics in that experiment as measured by a standard general linear model (GLM) analysis

The use of video imagery to analyse groundwater and shoreline dynamics on a dissipative beach

Groundwater seepage is known to influence beach erosion and accretion processes. However, field measurements of the variation of the groundwater seepage line (GWSL) and the vertical elevation difference between the GWSL and the shoreline are limited. We developed a methodology to extract the temporal variability of the shoreline and the wet-dry boundary using video imagery, with the overarching aim to examine elevation differences between the wet-dry boundary and the shoreline position in relation to rainfall and wave characteristics, during a tidal cycle. The wet-dry boundary was detected from 10-minute time-averaged images collected at Ngaranui Beach, Raglan, New Zealand. An algorithm discriminated between the dry and wet cells using a threshold related to the maximum of the red, green and blue intensities in Hue-Saturation-Value. Field measurements showed this corresponded to the location where the watertable was within 2 cm of the beachface surface. Timestacks, time series of pixels extracted from cross-shore transects in the video imagery, were used to determine the location of the shoreline by manually digitizing the maximum run-up and minimum run-down location for each swash cycle, and averaging the result. In our test data set of 14 days covering a range of wave and rainfall conditions, we found 6 days when the elevation difference between the wet-dry boundary and the shoreline remained approximately constant during the tidal cycle. For these days, the wet-dry boundary corresponded to the upper limit of the swash zone. On the other 8 days, the wet-dry boundary and the shoreline decoupled with falling tide, leading to elevation differences of up to 2.5 m at low tide. Elevation differences between the GWSL and the shoreline at low-tide were particularly large when the cumulative rainfall in the preceding month was greater than 200 mm. This research shows that the wet-dry boundary (such as often used in video shoreline-finding algorithms) is related to groundwater seepage on low-sloped, medium to fine sand beaches such as Ngaranui Beach (mean grain size~0.27 mm, beach slope ~1:70) and may not be a good indicator of the position of the shoreline

In-flight Evaluation of Aerodynamic Predictions of an Air-launched Space Booster

Several analytical aerodynamic design tools that were applied to the Pegasus (registered trademark) air-launched space booster were evaluated using flight measurements. The study was limited to existing codes and was conducted with limited computational resources. The flight instrumentation was constrained to have minimal impact on the primary Pegasus missions. Where appropriate, the flight measurements were compared with computational data. Aerodynamic performance and trim data from the first two flights were correlated with predictions. Local measurements in the wing and wing-body interference region were correlated with analytical data. This complex flow region includes the effect of aerothermal heating magnification caused by the presence of a corner vortex and interaction of the wing leading edge shock and fuselage boundary layer. The operation of the first two missions indicates that the aerodynamic design approach for Pegasus was adequate, and data show that acceptable margins were available. Additionally, the correlations provide insight into the capabilities of these analytical tools for more complex vehicles in which the design margins may be more stringent

Regrowth-related defect formation and evolution in 1 MeV amorphized (001) Ge

Geimplanted with 1MeV Si⁺ at a dose of 1×10¹⁵cm⁻² creates a buried amorphous layer that, upon regrowth, exhibits several forms of defects–end-of-range (EOR), regrowth-related, and clamshell defects. Unlike Si, no planar {311} defects are observed. The minimal EOR defects are small dotlike defects and are very unstable, dissolving between 450 and 550°C. This is in contrast to Si, where the EOR defects are very stable. The amorphous layer results in both regrowth-related defects and clamshell defects, which were more stable than the EOR damage.This work is supported by Semiconductor Research Corporation Contract No. 00057787

Testing and Design of Bolted Connections in Cold Formed Steel Sections

A detailed analysis of the strength and rigidity of bolted connections in cold formed steel has been carried out. Design expressions are proposed that improve on the existing equations for bearing strength, and for the first time, quantify the rigidity of such connections. The effects on the design of bolted joints are described and it is shown how, by incorporating the proposed expressions, it is now possible to select the correct semirigid joint and achieve economy without having to resort to testing