Implicit Bayesian Inference Using Option Prices

A Bayesian approach to option pricing is presented, in which posterior inference about the underlying returns process is conducted implicitly via observed option prices. A range of models allowing for conditional leptokurtosis, skewness and time-varying volatility in returns are considered, with posterior parameter distributions and model probabilities backed out from the option prices. Models are ranked according to several criteria, including out-of-sample fit, predictive and hedging performance. The methodology accommodates heteroscedasticity and autocorrelation in the option pricing errors, as well as regime shifts across contract groups. The method is applied to intraday option price data on the S&P500 stock index for 1995. Whilst the results provide support for models which accommodate leptokurtosis, no one model dominates according to all criteria considered.Bayesian Option Pricing; Leptokurtosis; Skewness; GARCH Option Pricing; Option Price Prediction; Hedging Errors.

Identification of common and idiosyncratic shocks in real equity prices: Australia 1982 to 2002

A structural vector autoregressive (SVAR) model of real equity prices in Australia is specified to contain common shocks in international equity markets and domestic shocks in Australian financial and goods markets. Common shocks are identified through the long-run comovements of international equity markets, resulting in the model being characterized as having more shocks than variables. The empirical results show that the dot-com crisis of 2000 causes Australian real equity values to depreciate significantly below a precrisis baseline forecast, while contagion from the Asian financial crisis of 1997–1998 is found to have a much smaller negative impact

Financial contagion and asset pricing

Asset market interconnectedness can give rise to significant contagion risks during periods of financial crises that extend beyond the risks associated with changes in volatilities and correlation. These channels include the transmission of shocks operating through changes in the higher order comoments of asset returns, including changes in coskewness arising from changes in the interaction between volatility and average returns across asset markets. These additional contagion channels have nontrivial implications for the pricing of options through changes in the payoff probability structure and more generally, in the management of financial risks. The effects of incorrectly pricing risk has proved to be significant during many financial crises, including the subprime crisis from mid 2007 to mid 2008, the Great Recession beginning 2008 and the European debt crisis from 2010. Using an exchange options model, the effects of changes in the comoments of asset returns across asset markets are investigated with special emphasis given to understanding the effects on hedging risk during financial crises. The results reveal that by not correctly pricing the risks arising from higher order moments during financial crises, there is significant mispricing of options, while hedged portfolios during noncrisis periods become exposed to price movements in times of crises.The authors gratefully acknowledge Australian Research Council Grant DP0985783

Joint Tests of Contagion with Applications to Financial Crises

Joint tests of contagion are derived which are designed to have power where contagion operates simultaneously through coskewness, cokurtosis and covolatility. Finite sample properties of the new tests are evaluated and compared with existing tests of contagion that focus on a single channel. Applying the tests to daily Eurozone equity returns from 2005 to 2014 shows that contagion operates through higher order moment channels during the GFC and the European debt crisis, which are not necessarily detected by traditional tests based on correlations.The authors gratefully acknowledge ARC Discovery Project DP160102350 and DP0985783 funding

Shocks and systemic influences: contagion in global equity markets in 1998

The transmission of the financial crises in 1998 though international equity markets is estimated through a multi-factor model of financial markets specifically allowing for contagion effects. The application measures the strength of contagion emanating from the Russia crisis of 1998, and the LTCM near collapse, using a panel of 10 emerging and developed financial markets. Pre and post default periods for Russia are distinguished. The results show that contagion is significant and widespread from both crises, although the LTCM crises has more impact on developed than emerging markets. Consistent with the existing literature, regional effects are found to be strong during financial crises. Asian markets are found to be relatively immune from contagion, perhaps reflecting the effect of their own recent crisis

Fusing Quantitative Requirements Analysis with Model-based Systems Engineering

A vision is presented for fusing quantitative requirements analysis with model-based systems engineering. This vision draws upon and combines emergent themes in the engineering milieu. “Requirements engineering” provides means to explicitly represent requirements (both functional and non-functional) as constraints and preferences on acceptable solutions, and emphasizes early-lifecycle review, analysis and verification of design and development plans. “Design by shopping” emphasizes revealing the space of options available from which to choose (without presuming that all selection criteria have previously been elicited), and provides means to make understandable the range of choices and their ramifications. “Model-based engineering” emphasizes the goal of utilizing a formal representation of all aspects of system design, from development through operations, and provides powerful tool suites that support the practical application of these principles. A first step prototype towards this vision is described, embodying the key capabilities. Illustrations, implications, further challenges and opportunities are outlined

Are financial crises alike?

This paper investigates whether financial crises are alike by considering whether a single modeling framework can fit multiple distinct crises in which contagion effects link markets across national borders and asset classes. The crises considered are Russia and LTCM in the second half of 1998, Brazil in early 1999, dot-com in 2000, Argentina in 2001-2005, and the recent U.S. subprime mortgage and credit crisis in 2007. Using daily stock and bond returns on emerging and developed markets from 1998 to 2007, the empirical results show that financial crises are indeed alike, as all linkages are statistically important across all crises. However, the strength of these linkages does vary across crises. Contagion channels are widespread during the Russian/LTCM crisis, are less important during subsequent crises until the subprime crisis, where again the transmission of contagion becomes rampant

Pretransplant HLA typing revealed loss of heterozygosity in the major histocompatibility complex in a patient with acute myeloid leukemia

Introduction Chromosomal abnormalities are frequent events in hematological malignancies. The degree of HLA compatibility between donor and recipient in hematopoietic stem cell transplantation is critical. Purpose of the study In this report, we describe an acute myeloid leukemia case with loss of heterozygosity (LOH) encompassing the entire HLA. Materials and methods HLA molecular typing was performed on peripheral blood (PB) and buccal swabs (BS). Chromosomal microarray analysis (CMA) was performed using a whole genome platform. Results Typing results on PB sample collected during blast crisis demonstrated homozygosity at the -A, -B, -C, -DR, and -DQ loci. A BS sample demonstrated heterozygosity at all loci. A subsequent PB sample drawn after count recovery confirmed heterozygosity. The CMA performed on PB samples collected during and after blast crisis revealed a large terminal region of copy-neutral LOH involving chromosome region 6p25.3p21.31, spanning approximately 35.9 Mb. The results of the CMA assay on sample collected after count recovery did not demonstrate LOH. Conclusions LOH at the HLA gene locus may significantly influence the donor search resulting in mistakenly choosing homozygous donors. We recommend confirming the HLA typing of recipients with hematological malignancies when homozygosity is detected at any locus by using BS samples, or alternatively from PB when remission is achieved

A Rare Novel Deletion of the Tyrosine Hydroxylase Gene in Parkinson Disease

Tyrosine hydroxylase (TH) enzyme is a rate limiting enzyme in dopamine biosynthesis. Missense mutation in both alleles of the TH gene is known to cause dopamine-related phenotypes, including dystonia and infantile Parkinsonism. However, it is not clear if single allele mutation in TH modifies the susceptibility to the adult form of Parkinson disease (PD). We reported a novel deletion of entire TH gene in an adult with PD. The deletion was first identified by copy number variation (CNV) analysis in a genome-wide association study using Illumina Infinium BeadChips. After screening 635 cases and 642 controls, the deletion was found in one PD case but not in any control. The deletion was confirmed by multiple quantitative PCR (qPCR) assays. There is no additional exonic single nucleotide variant in the one copy of TH gene of the patient. The patient has an age-at-onset of 54 years, no evidence for dystonia, and was responsive to L-DOPA. This case supports the importance of the TH gene in PD pathogenesis and raises more attention to rare variants in candidate genes being a risk factor for Parkinson disease. © 2010 Wiley-Liss, Inc

Developmental fluoxetine exposure in zebrafish reduces offspring basal cortisol concentration via life stage-dependent maternal transmission

Fluoxetine (FLX) is a pharmaceutical used to treat affective disorders in humans, but as environmental contaminant also affects inadvertently exposed fish in urban watersheds. In humans and fish, acute FLX treatment and exposure are linked to endocrine disruption, including effects on the reproductive and stress axes. Using the zebrafish model, we build on the recent finding that developmental FLX exposure reduced cortisol production across generations, to determine possible parental and/or life-stage-dependent (age and/or breeding experience) contributions to this phenotype. Specifically, we combined control and developmentally FLX-exposed animals of both sexes (F0) into four distinct breeding groups mated at 5 and 9 months, and measured offspring (F1) basal cortisol at 12 dpf. Basal cortisol was lower in F1 descended from developmentally FLX-exposed F0 females bred at 5, but not 9 months, revealing a maternal, life-stage dependent effect. To investigate potential molecular contributions to this phenotype, we profiled maternally deposited transcripts involved in endocrine stress axis development and regulation, epigenetic (de novo DNA methyltransferases) and post-transcriptional (miRNA pathway components and specific miRNAs) regulation of gene expression in unfertilized eggs. Maternal FLX exposure resulted in decreased transcript abundance of glucocorticoid receptor, dnmt3 paralogues and miRNA pathway components in eggs collected at 5 months, and increased transcript abundance of miRNA pathway components at 9 months. Specific miRNAs predicted to target stress axis transcripts decreased (miR-740) or increased (miR-26, miR-30d, miR-92a, miR-103) in eggs collected from FLX females at 5 months. Increased abundance of miRNA-30d and miRNA-92a persisted in eggs collected from FLX females at 9 months. Clustering and principal component analyses of egg transcript profiles separated eggs collected from FLX-females at 5 months from other groups, suggesting that oocyte molecular signatures, and miRNAs in particular, may serve as predictive tools for the offspring phenotype of reduced basal cortisol in response to maternal FLX exposure