Search results for: implied volatility skew

Authors: Yungtai Lo

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Two-part random effects models have been used to fit semi-continuous longitudinal data where the response variable has a point mass at 0 and a continuous right-skewed distribution for positive values. We review methods proposed in the literature for analyzing data with excess zeros. A two-part logit-log-normal random effects model, a two-part logit-truncated normal random effects model, a two-part logit-gamma random effects model, and a two-part logit-skew normal random effects model were used to examine effects of a bottle-weaning intervention on reducing bottle use and daily milk intake from bottles in toddlers aged 11 to 13 months in a randomized controlled trial. We show in all four two-part models that the intervention promoted bottle-weaning and reduced daily milk intake from bottles in toddlers drinking from a bottle. We also show that there are no differences in model fit using either the logit link function or the probit link function for modeling the probability of bottle-weaning in all four models. Furthermore, prediction accuracy of the logit or probit link function is not sensitive to the distribution assumption on daily milk intake from bottles in toddlers not off bottles.

Keywords: two-part model, semi-continuous variable, truncated normal, gamma regression, skew normal, Pearson residual, receiver operating characteristic curve

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Authors: Yegnanew A. Shiferaw

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Background: commodity price volatility originating from excessive commodity price fluctuation has been a global problem especially after the recent financial crises. Volatility is a measure of risk or uncertainty in financial analysis. It plays a vital role in risk management, portfolio management, and pricing equity. Objectives: the core objective of this paper is to examine the relationship between the prices of agricultural commodities with oil price, gas price, coal price and exchange rate (USD/Rand). In addition, the paper tries to fit an appropriate model that best describes the log return price volatility and estimate Value-at-Risk and expected shortfall. Data and methods: the data used in this study are the daily returns of agricultural commodity prices from 02 January 2007 to 31st October 2016. The data sets consists of the daily returns of agricultural commodity prices namely: white maize, yellow maize, wheat, sunflower, soya, corn, and sorghum. The paper applies the three-state Markov-switching (MS) regression, the standard single-regime GARCH and the two regime Markov-switching GARCH (MS-GARCH) models. Results: to choose the best fit model, the log-likelihood function, Akaike information criterion (AIC), Bayesian information criterion (BIC) and deviance information criterion (DIC) are employed under three distributions for innovations. The results indicate that: (i) the price of agricultural commodities was found to be significantly associated with the price of coal, price of natural gas, price of oil and exchange rate, (ii) for all agricultural commodities except sunflower, k=3 had higher log-likelihood values and lower AIC and BIC values. Thus, the three-state MS regression model outperformed the two-state MS regression model (iii) MS-GARCH(1,1) with generalized error distribution (ged) innovation performs best for white maize and yellow maize; MS-GARCH(1,1) with student-t distribution (std) innovation performs better for sorghum; MS-gjrGARCH(1,1) with ged innovation performs better for wheat, sunflower and soya and MS-GARCH(1,1) with std innovation performs better for corn. In conclusion, this paper provided a practical guide for modelling agricultural commodity prices by MS regression and MS-GARCH processes. This paper can be good as a reference when facing modelling agricultural commodity price problems.

Keywords: commodity prices, MS-GARCH model, MS regression model, South Africa, volatility

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Authors: Vincenzo Russo, Rosella Giacometti

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The paper aims to assess the insurance industry's resilience under Solvency II against adverse scenarios. Starting from the economic balance sheet available under Solvency II for insurance and reinsurance undertakings, we assume that assets and liabilities follow a bivariate geometric Brownian motion (GBM). Then, using the results available under Margrabe's formula, we establish an analytical solution to calibrate the volatility of the asset-liability ratio. In such a way, we can estimate the probability of default and the probability of breaching the undertaking's Solvency Capital Requirement (SCR). Furthermore, since estimating the volatility of the Solvency Ratio became crucial for insurers in light of the financial crises featured in the last decades, we introduce a novel measure that we call Resiliency Ratio. The Resiliency Ratio can be used, in addition to the Solvency Ratio, to evaluate the insurance industry's resilience in case of adverse scenarios. Finally, we introduce a simplified stress test tool to evaluate the economic balance sheet under stressed conditions. The model we propose is featured by analytical tractability and fast calibration procedure where only the disclosed data available under the Solvency II public reporting are needed for the calibration. Using the data published regularly by the European Insurance and Occupational Pensions Authority (EIOPA) in an aggregated form by country, an empirical analysis has been performed to calibrate the model and provide the related results at the country level.

Keywords: Solvency II, solvency ratio, volatility of the asset-liability ratio, probability of default, probability to breach the SCR, resilience ratio, stress test

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Authors: Teh Raihana Nazirah Roslan, Siti Zulaiha Ibrahim, Sharmila Karim

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A warrant is a financial contract that confers the right but not the obligation, to buy or sell a security at a certain price before expiration. The standard procedure to value equity warrants using call option pricing models such as the Black–Scholes model had been proven to contain many flaws, such as the assumption of constant interest rate and constant volatility. In fact, existing alternative models were found focusing more on demonstrating techniques for pricing, rather than empirical testing. Therefore, a mathematical model for pricing and analyzing equity warrants which comprises stochastic interest rate and stochastic volatility is essential to incorporate the dynamic relationships between the identified variables and illustrate the real market. Here, the aim is to develop dynamic pricing formulations for hybrid equity warrants by incorporating stochastic interest rates from the Cox-Ingersoll-Ross (CIR) model, along with stochastic volatility from the Heston model. The development of the model involves the derivations of stochastic differential equations that govern the model dynamics. The resulting equations which involve Cauchy problem and heat equations are then solved using partial differential equation approaches. The analytical pricing formulas obtained in this study comply with the form of analytical expressions embedded in the Black-Scholes model and other existing pricing models for equity warrants. This facilitates the practicality of this proposed formula for comparison purposes and further empirical study.

Keywords: Cox-Ingersoll-Ross model, equity warrants, Heston model, hybrid models, stochastic

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Authors: Rachid Belhachemi, Pierre Rostan, Alexandra Rostan

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This paper develops a discrete-time option pricing model for index options. The model consists of two key ingredients. First, daily stock return innovations are driven by a continuous hidden threshold mixed skew-normal (HTSN) distribution which generates conditional non-normality that is needed to fit daily index return. The most important feature of the HTSN is the inclusion of a latent state variable with a continuum of states, unlike the traditional mixture distributions where the state variable is discrete with little number of states. The HTSN distribution belongs to the class of univariate probability distributions where parameters of the distribution capture the dependence between the variable of interest and the continuous latent state variable (the regime). The distribution has an interpretation in terms of a mixture distribution with time-varying mixing probabilities. It has been shown empirically that this distribution outperforms its main competitor, the mixed normal (MN) distribution, in terms of capturing the stylized facts known for stock returns, namely, volatility clustering, leverage effect, skewness, kurtosis and regime dependence. Second, heteroscedasticity in the model is captured by a threeexogenous-factor GARCH model (GARCHX), where the factors are taken from the principal components analysis of various world indices and presents an application to option pricing. The factors of the GARCHX model are extracted from a matrix of world indices applying principal component analysis (PCA). The empirically determined factors are uncorrelated and represent truly different common components driving the returns. Both factors and the eight parameters inherent to the HTSN distribution aim at capturing the impact of the state of the economy on price levels since distribution parameters have economic interpretations in terms of conditional volatilities and correlations of the returns with the hidden continuous state. The PCA identifies statistically independent factors affecting the random evolution of a given pool of assets -in our paper a pool of international stock indices- and sorting them by order of relative importance. The PCA computes a historical cross asset covariance matrix and identifies principal components representing independent factors. In our paper, factors are used to calibrate the HTSN-GARCHX model and are ultimately responsible for the nature of the distribution of random variables being generated. We benchmark our model to the MN-GARCHX model following the same PCA methodology and the standard Black-Scholes model. We show that our model outperforms the benchmark in terms of RMSE in dollar losses for put and call options, which in turn outperforms the analytical Black-Scholes by capturing the stylized facts known for index returns, namely, volatility clustering, leverage effect, skewness, kurtosis and regime dependence.

Keywords: continuous hidden threshold, factor models, GARCHX models, option pricing, risk-premium

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Authors: Maria Debora Braga, Luigi Riso, Maria Grazia Zoia

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Risk-based approaches to asset allocation are portfolio construction methods that do not rely on the input of expected returns for the asset classes in the investment universe and only use risk information. They include the Minimum Variance Strategy (MV strategy), the traditional (volatility-based) Risk Parity Strategy (SRP strategy), the Most Diversified Portfolio Strategy (MDP strategy) and, for many, the Equally Weighted Strategy (EW strategy). All the mentioned approaches were based on portfolio volatility as a reference risk measure but in 2023, the Kurtosis-based Risk Parity strategy (KRP strategy) and the Minimum Kurtosis strategy (MK strategy) were introduced. Understandably, they used the fourth root of the portfolio-fourth moment as a proxy for portfolio kurtosis to work with a homogeneous function of degree one. This paper contributes mainly theoretically and methodologically to the framework of risk-based asset allocation approaches with two steps forward. First, a new and more flexible objective function considering a linear combination (with positive coefficients that sum to one) of portfolio volatility and portfolio kurtosis is used to alternatively serve a risk minimization goal or a homogeneous risk distribution goal. Hence, the new basic idea consists in extending the achievement of typical risk-based approaches’ goals to a combined risk measure. To give the rationale behind operating with such a risk measure, it is worth remembering that volatility and kurtosis are expressions of uncertainty, to be read as dispersion of returns around the mean and that both preserve adherence to a symmetric framework and consideration for the entire returns distribution as well, but also that they differ from each other in that the former captures the “normal” / “ordinary” dispersion of returns, while the latter is able to catch the huge dispersion. Therefore, the combined risk metric that uses two individual metrics focused on the same phenomena but differently sensitive to its intensity allows the asset manager to express, in the context of an objective function by varying the “relevance coefficient” associated with the individual metrics, alternatively, a wide set of plausible investment goals for the portfolio construction process while serving investors differently concerned with tail risk and traditional risk. Since this is the first study that also implements risk-based approaches using a combined risk measure, it becomes of fundamental importance to investigate the portfolio effects triggered by this innovation. The paper also offers a second contribution. Until the recent advent of the MK strategy and the KRP strategy, efforts to highlight interesting properties of risk-based approaches were inevitably directed towards the traditional MV strategy and SRP strategy. Previous literature established an increasing order in terms of portfolio volatility, starting from the MV strategy, through the SRP strategy, arriving at the EQ strategy and provided the mathematical proof for the “equalization effect” concerning marginal risks when the MV strategy is considered, and concerning risk contributions when the SRP strategy is considered. Regarding the validity of similar conclusions when referring to the MK strategy and KRP strategy, the development of a theoretical demonstration is still pending. This paper fills this gap.

Keywords: risk parity, portfolio kurtosis, risk diversification, asset allocation

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Authors: Muhammad Ilham Agus Salim, Mohammad Ali

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In this article, we have elaborated a study over the nature of Islamic financial transaction by comparing between Dinar and IDR currency in Indonesia. We have found the interesting issue among scholars and practitioners in which Dinar would be a single currency ASEAN Economic Community (AEC), then becoming motivation and added value research. The assessment among dinar volatility analysis for three years ago and IDR fluctuation as well as outlook qualitative test regarding dinar are components of analysis that weak Indonesian currency should be altered to be better coinage. The value of dinar more stable than IDR and also eligible as a currency e.g. limited quantities, easy to carry, durable, easy to saved, and has the same quality. On the other hand, the existing of IDR has defeated by inflation. The EViews program explained that Dinar at current level still fluctuate, but in the first different have fixed variant. The result of analysis describing that dinar has potential as the medium exchange, because the material of dinar is relevant and feasible since 14 century until present. Therefore, dinar should be considered to solve Indonesia crisis today.

Keywords: medium of exchange, dinar & IDR currency, volatility analysis, EViews program

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Authors: Shidvash Vakilipour, Masoud Mohammadi, Rouzbeh Riazi, Scott Ormiston, Kimia Amiri, Sahar Barati

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An essential component of a finite volume method (FVM) is the advection scheme that estimates values on the cell faces based on the calculated values on the nodes or cell centers. The most widely used advection schemes are upwind schemes. These schemes have been developed in FVM on different kinds of structured and unstructured grids. In this research, the physical influence scheme (PIS) is developed for a cell-centered FVM that uses an implicit coupled solver. Results are compared with the exponential differencing scheme (EDS) and the skew upwind differencing scheme (SUDS). Accuracy of these schemes is evaluated for a lid-driven cavity flow at Re = 1000, 3200, and 5000 and a backward-facing step flow at Re = 800. Simulations show considerable differences between the results of EDS scheme with benchmarks, especially for the lid-driven cavity flow at high Reynolds numbers. These differences occur due to false diffusion. Comparing SUDS and PIS schemes shows relatively close results for the backward-facing step flow and different results in lid-driven cavity flow. The poor results of SUDS in the lid-driven cavity flow can be related to its lack of sensitivity to the pressure difference between cell face and upwind points, which is critical for the prediction of such vortex dominant flows.

Keywords: cell-centered finite volume method, coupled solver, exponential differencing scheme (EDS), physical influence scheme (PIS), pressure weighted interpolation method (PWIM), skew upwind differencing scheme (SUDS)

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Authors: Baoubadi Atozou, Koffi Akakpo

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Since the decade 2000, the use of foodstuffs such as corn, wheat, and soybeans in biofuel production has been growing sharply in the United States, Canada, and Europe. Thus, prices for these agricultural products are rising in the world market. These cereals are the most important source of calorific energy for West African Economic and Monetary Union (WAEMU) countries members’ population. These countries are highly dependent on imports of most of these products. Thereby, rising prices can have an important impact on import levels and consequently on food security in these countries. This study aims to analyze the interrelationship between the prices of these commodities and their volatilities, and their effects on imports of these agricultural products by each WAEMU ’country member. The Autoregressive Distributed Lag (ARDL) model, the GARCH Multivariate model, and the Granger Causality Test are used in this investigation. The results show that import levels are highly and significantly sensitive to price changes as well as their volatility. In the short term as well as in the long term, there is a significant relationship between the prices of these products. There is a positive relationship in general between price volatility. And these volatilities have negative effects on the level of imports. The market characteristics affect food security in these countries, especially access to food for vulnerable and low-income populations. The policies makers must adopt viable strategies to increase agricultural production and limit their dependence on imports.

Keywords: price volatility, import of agricultural products, food safety, WAEMU

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Authors: Changhong Guo, Shaomei Fang, Yong He

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In this paper, fractional Black-Scholes models for the European option pricing were established based on the fractional G-Brownian motion (fGBm), which generalizes the concepts of the classical Brownian motion, fractional Brownian motion and the G-Brownian motion, and that can be used to be a tool for considering the long range dependence and uncertain volatility for the financial markets simultaneously. A generalized fractional Black-Scholes equation (FBSE) was derived by using the Taylor’s series of fractional order and the theory of absence of arbitrage. Finally, some explicit option pricing formulas for the European call option and put option under the FBSE were also solved, which extended the classical option pricing formulas given by F. Black and M. Scholes.

Keywords: European option pricing, fractional Black-Scholes equations, fractional g-Brownian motion, Taylor's series of fractional order, uncertain volatility

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Authors: Abdul Kader

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This paper attempts to investigate several contributory factors to recent volatility in the Islamic Banking sector of Bangladesh. In particular, the study explores corporate governance, credit management, credit regulations, inept board of directors, using religious sentiment as a means to deceive general people, and the degree of political interference as potential contributory factors. To find the correlation among different variables, semi-structured questionnaires were distributed among the clients, bank managers, some Banking scholars and ex-members of the board of directors of three Islamic Banks in Bangladesh. Later, ten interviews were collected from key informants to gain in-depth information about the present mismanagement of Islamic Banks in Bangladesh. After then, data were analyzed using statistical software and substantiated by secondary sources like newspapers, reports and investigative reports aired in screen media. The paper found a correlation between almost all contributory factors and recent unstable conditions in the Islamic banking sector. After performing regression analysis, this paper found a more significant relationship between some of the contributory factors with Banking volatility than others. For instance, credit management, inept board of directors, depriving customers of proving no profit in the name of business—no interest-- and political interference have a strong significant positive correlation with the present poor condition of Islamic Banking. This paper concludes that while internal management is important in recovering the losses, the government needs to ensure framing better policy for the Islamic Banking system, Central Bank needs to supervise and monitor all Islamic banks meticulously and loan receivers must go through the impartial evaluation and approved by the representatives of the Central Shariah Board. This paper also recommends that there is a need to strengthen the auditing system and improve regulatory oversight of the Islamic Banks in Bangladesh. Policy recommendations that this paper put forward could provide an outline for dealing with the existing challenging condition of Islamic Banks and these could be applied to similar problems in other countries where the Islamic Banking model exists.

Keywords: Islamic bank, volatility in banking sector, shariah law, credit management, political interference

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Authors: Vithaya Intaraphimol

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This research investigates the effect of financial accounting information and non-financial accounting reports on corporate credibility via strength of board of directors and market environment volatility as moderating effect. Data in this research is collected by questionnaire form non-financial companies listed on the Stock Exchange of Thailand. Multiple regression statistic technique is chosen for analyzing the data. The empirical results find that firms with greater financial accounting information reports and non-financial accounting information reports will gain greater corporate credibility. Therefore, the corporate reporting has the value for the firms. Moreover, the strength of board of directors will positively moderate the financial and non-financial accounting information reports and corporate credibility relationship. Whereas, market environment volatility will negatively moderate the financial and nonfinancial accounting information reports and corporate credibility relationship.

Keywords: corporate credibility, financial and non-financial reports, firms performance, economics

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Authors: Tarik Bazgour, Cedric Heuchenne, Danielle Sougne

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We examine time variation in the market beta of portfolios sorted on quality, liquidity level and liquidity beta characteristics across stock market phases. Using US stock market data for the period 1970-2010, we find, first, the US stock market was driven by four regimes. Second, during the crisis regime, low (high) quality, high (low) liquidity beta and illiquid (liquid) stocks exhibit an increase (a decrease) in their market betas. This finding is consistent with the flight-to-quality and liquidity phenomena. Third, we document the same pattern across stocks when the market volatility is low. We argue that, during low volatility times, investors shift their portfolios towards low quality and illiquid stocks to seek portfolio gains. The pattern observed in the tranquil regime can be, therefore, explained by a flight-to-low-quality and to illiquidity. Finally, our results reveal that liquidity level is more important than liquidity beta during the crisis regime.

Keywords: financial crises, quality, liquidity, liquidity risk, regime-switching models

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Authors: Ameen Alshugaa, Abul Mansur Masih

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This paper sheds light on the economic impacts of political uncertainty caused by the civil uprisings that swept the Arab World and have been collectively known as the Arab Spring. Measuring documented effects of political uncertainty on regional stock market indices, we examine the impact of the Arab Spring on the volatility of stock markets in eight countries in the Middle East and North Africa (MENA) region: Egypt, Lebanon, Jordon, United Arab Emirate, Qatar, Bahrain, Oman and Kuwait. This analysis also permits testing the existence of financial contagion among equity markets in the MENA region during the Arab Spring. To capture the time-varying and multi-horizon nature of the evidence of volatility and contagion in the eight MENA stock markets, we apply two robust methodologies on consecutive data from November 2008 to March 2014: MGARCH-DCC, Continuous Wavelet Transforms (CWT). Our results indicate two key findings. First, the discrepancies between volatile stock markets of countries directly impacted by the Arab Spring and countries that were not directly impacted indicate that international investors may still enjoy portfolio diversification and investment in MENA markets. Second, the lack of financial contagion during the Arab Spring suggests that there is little evidence of cointegration among MENA markets. Providing a general analysis of the economic situation and the investment climate in the MENA region during and after the Arab Spring, this study bear significant importance for policy makers, local and international investors, and market regulators.

Keywords: Portfolio Diversification , MENA Region , Stock Market Indices, MGARCH-DCC, Wavelet Analysis, CWT

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Authors: Muna Mitchell, Akshay Parchure, Krishna Singaraju

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There is an increasing need for medium- to long-span steel bridges with complex geometry due to site restrictions in developed areas. One of the solutions to grade separations in congested areas is to use longer spans on skewed supports that avoid at-grade obstructions limiting impacts to the foundation. Where vertical clearances are also a constraint, continuous steel girders can be used to reduce superstructure depths. Combining continuous long steel spans on severe skews can resolve the constraints at a cost. The behavior of skewed girders is challenging to analyze and design with subsequent complexity during fabrication and construction. As a part of a corridor improvement project, Walter P Moore designed two 1700-foot side-by-side bridges carrying four lanes of traffic in each direction over a railroad track. The bridges consist of prestressed concrete girder approach spans and three-span continuous steel plate girder units. The roadway design added complex geometry to the bridge with horizontal and vertical curves combined with superelevation transitions within the plate girder units. The substructure at the steel units was skewed approximately 56 degrees to satisfy the existing railroad right-of-way requirements. A horizontal point of curvature (PC) near the end of the steel units required the use flared girders and chorded slab edges. Due to the flared girder geometry, the cross-frame spacing in each bay is unique. Staggered cross frames were provided based on AASHTO LRFD and NCHRP guidelines for high skew steel bridges. Skewed steel bridges develop significant forces in the cross frames and rotation in the girder websdue to differential displacements along the girders under dead and live loads. In addition, under thermal loads, skewed steel bridges expand and contract not along the alignment parallel to the girders but along the diagonal connecting the acute corners, resulting in horizontal displacement both along and perpendicular to the girders. AASHTO LRFD recommends a 95 degree Fahrenheit temperature differential for the design of joints and bearings. The live load and the thermal loads resulted in significant horizontal forces and rotations in the bearings that necessitated the use of HLMR bearings. A unique bearing layout was selected to minimize the effect of thermal forces. The span length, width, skew, and roadway geometry at the bridges also required modular bridge joint systems (MBJS) with inverted-T bent caps to accommodate movement in the steel units. 2D and 3D finite element analysis models were developed to accurately determine the forces and rotations in the girders, cross frames, and bearings and to estimate thermal displacements at the joints. This paper covers the decision-making process for developing the framing plan, bearing configurations, joint type, and analysis models involved in the design of the high-skew three-span continuous steel plate girder bridges.

Keywords: complex geometry, continuous steel plate girders, finite element structural analysis, high skew, HLMR bearings, modular joint

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Authors: Sayed Kifayat Shah, Tang Zhongjun, Arfa Tanveer

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This study explores the significant heatwave effect on stock return and volatility. Using an ARCH/GARCH approach, it examines the relationship between the heatwave of Karachi, Islamabad, and Lahore on the KSE-100 index. It also explores the impact of heatwave on returns of the pharmaceutical and electronics industries. The empirical results confirm that that stock return is positively related to the heat waves of Karachi, negatively related to that of Islamabad, and is not affected by the heatwave of Lahore. Similarly, pharmaceutical and electronics indices are also positively related to heatwaves. These differences in results can be ascribed to the change in the behavior of the residents of that city. The outcomes are useful for understanding an investor's behavior reacting to weather and fluxes in stock price related to heatwave severity levels. The results can support investors in fixing biases in behavior.

Keywords: ARCH/GARCH model, heat wave, KSE-100 index, stock market return

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Authors: Owen Harrington-Fernandez, Pilar Alderete-Diez

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Up until recently, translation studies treated children’s literature as something of a marginal preoccupation, but the recent attention that this text type has attracted suggests that it may be fertile ground for research. This paper contributes to this new research avenue by applying a sociolinguistic theoretical framework to explore issues around the intersubjective co-construction of identity in the American English translation of the Spanish children’s story, Manolito Gafotas. The application of Bucholtz and Hall’s framework achieves two objectives: (1) it identifies shifts in the translation of the main character’s behaviour as culturally and morally motivated manipulations, and (2) it demonstrates how the context of translation becomes the very censorship machine that delegitimises the identity of the main character, and, concomitantly, the identity of the implied reader(s). If we take identity to be an intersubjective phenomenon, then it logicall follows that expurgating the identity of the main character necessarily shifts the identity of the implied reader(s) also. It is a double censorship of identity carried out under the auspices of an intellectual colonisation of a Spanish text. After reporting on the results of the analysis, the paper ends by raising the question of censorship in translation, and, more specifically, in children’s literature, in order to promote debate around this topic.

Keywords: censorship, identity, sociolinguistics, translation

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Authors: Shouji Yujiro, Memei Dukovic, Mist Yakubu

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Fields are important objects of study in algebra since they provide a useful generalization of many number systems, such as the rational numbers, real numbers, and complex numbers. In particular, the usual rules of associativity, commutativity and distributivity hold. Fields also appear in many other areas of mathematics; see the examples below. When abstract algebra was first being developed, the definition of a field usually did not include commutativity of multiplication, and what we today call a field would have been called either a commutative field or a rational domain. In contemporary usage, a field is always commutative. A structure which satisfies all the properties of a field except possibly for commutativity, is today called a division ring ordivision algebra or sometimes a skew field. Also non-commutative field is still widely used. In French, fields are called corps (literally, body), generally regardless of their commutativity. When necessary, a (commutative) field is called corps commutative and a skew field-corps gauche. The German word for body is Körper and this word is used to denote fields; hence the use of the blackboard bold to denote a field. The concept of fields was first (implicitly) used to prove that there is no general formula expressing in terms of radicals the roots of a polynomial with rational coefficients of degree 5 or higher. An extension of a field k is just a field K containing k as a subfield. One distinguishes between extensions having various qualities. For example, an extension K of a field k is called algebraic, if every element of K is a root of some polynomial with coefficients in k. Otherwise, the extension is called transcendental. The aim of Galois Theory is the study of algebraic extensions of a field. Given a field k, various kinds of closures of k may be introduced. For example, the algebraic closure, the separable closure, the cyclic closure et cetera. The idea is always the same: If P is a property of fields, then a P-closure of k is a field K containing k, having property, and which is minimal in the sense that no proper subfield of K that contains k has property P. For example if we take P (K) to be the property ‘every non-constant polynomial f in K[t] has a root in K’, then a P-closure of k is just an algebraic closure of k. In general, if P-closures exist for some property P and field k, they are all isomorphic. However, there is in general no preferable isomorphism between two closures.

Keywords: field theory, mechanic maths, supertech, rolltech

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Authors: M. T. Alodat

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In this paper, we propose a mechanism for skewing any symmetric distribution. The new distribution is called the deflation-inflation distribution (DID). We discuss some statistical properties of the DID such moments, stochastic representation, log-concavity. Also we fit the distribution to real data and we compare it to normal distribution and Azzlaini's skew normal distribution. Numerical results show that the DID fits the the tree ring data better than the other two distributions.

Keywords: normal distribution, moments, Fisher information, symmetric distributions

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Authors: H. Zormati, J. Chebil, J. Bel Hadj Taher

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The goal of this paper is to present an addressing scheme that allows for assigning a unique IPv6 address to each node in the Internet of Things (IoT) network. This scheme guarantees uniqueness by extracting the clock skew of each communication device and converting it into an IPv6 address. Simulation analysis confirms that the presented scheme provides reductions in terms of energy consumption, communication overhead and response time as compared to four studied addressing schemes Strong DAD, LEADS, SIPA and CLOSA.

Keywords: addressing, IoT, IPv6, network, nodes

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Authors: Zahid Ahmad, Nosheen Imran, Nauman Ali, Farah Amir

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The objective of the study is to forecast the US Dollar and Pak Rupee exchange rate by using time series models. For this purpose, daily exchange rates of US and Pakistan for the period of January 01, 2007 - June 2, 2017, are employed. The data set is divided into in sample and out of sample data set where in-sample data are used to estimate as well as forecast the models, whereas out-of-sample data set is exercised to forecast the exchange rate. The ADF test and PP test are used to make the time series stationary. To forecast the exchange rate ARIMA model and GARCH model are applied. Among the different Autoregressive Integrated Moving Average (ARIMA) models best model is selected on the basis of selection criteria. Due to the volatility clustering and ARCH effect the GARCH (1, 1) is also applied. Results of analysis showed that ARIMA (0, 1, 1 ) and GARCH (1, 1) are the most suitable models to forecast the future exchange rate. Further the GARCH (1,1) model provided the volatility with non-constant conditional variance in the exchange rate with good forecasting performance. This study is very useful for researchers, policymakers, and businesses for making decisions through accurate and timely forecasting of the exchange rate and helps them in devising their policies.

Keywords: exchange rate, ARIMA, GARCH, PAK/USD

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Authors: Anocha Rojanapanich

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This research investigates the effect of financial accounting information and non-financial accounting reports on corporate credibility via strength of board of directors and market environment volatility as moderating effect. Data in this research is collected by questionnaire form non-financial companies listed on the Stock Exchange of Thailand. Multiple regression statistic technique is used for analyzing the data. Results find that firms with greater financial accounting information reports and non-financial accounting information reports will gain greater corporate credibility. Therefore, the corporate reporting has the value for the firms. Moreover, the strength of board of directors will positively moderate the financial and non-financial accounting information reports and corporate credibility relationship. And market environment volatility will negatively moderate the financial and nonfinancial accounting information reports and corporate credibility relationship and the contribution of accounting information reports on corporate credibility is generated to the corporate image. That is the corporate image has affected by corporate credibility.

Keywords: corporate credibility, financial and non-financial reports, firms performance, corporate image

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Authors: Fauzia Dianawati, Riska W. Purnomo

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Food and agricultural sector become the biggest sector contributing to inflation in Indonesia. Especially in Wonogiri district, red cayenne pepper was the biggest sector contributing to inflation on 2016. A national statistic proved that in recent five years red cayenne pepper has the highest average level of fluctuation among all commodities. Some factors, like supply chain, price disparity, production quantity, crop failure, and oil price become the possible factor causes high volatility level in red cayenne pepper price. Therefore, this research tries to find the key factor causing fluctuation on red cayenne pepper by using ARCH/GARCH method. The method could accommodate the presence of heteroscedasticity in time series data. At the end of the research, it is statistically found that the second level of supply chain becomes the biggest part contributing to inflation with 3,35 of coefficient in fluctuation forecasting model of red cayenne pepper price. This model could become a reference to the government to determine the appropriate policy in maintaining the price stability of red cayenne pepper.

Keywords: ARCH/GARCH, forecasting, red cayenne pepper, volatility, supply chain

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Authors: Bangkit Adhi Nugraha, Bambang Suripto

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On September 2016 Bank Indonesia (BI) release regulation no.18/18/PBI/2016 that permit bank clients for using the FX option call spread USD/IDR. Basically, this product is a combination between clients buy FX call option (pay premium) and sell FX call option (receive premium) to protect against currency depreciation while also capping the potential upside with cheap premium cost. BI classifies this product as a structured product. The structured product is combination at least two financial instruments, either derivative or non-derivative instruments. The call spread is the first structured product against IDR permitted by BI since 2009 as response the demand increase from Indonesia firms on FX hedging through derivative for protecting market risk their foreign currency asset or liability. The composition of hedging products on Indonesian FX market increase from 35% on 2015 to 40% on 2016, the majority on swap product (FX forward, FX swap, cross currency swap). Swap is formulated by interest rate difference of the two currency pairs. The cost of swap product is 7% for USD/IDR with one year USD/IDR volatility 13%. That cost level makes swap products seem expensive for hedging buyers. Because call spread cost (around 1.5-3%) cheaper than swap, the most Indonesian firms are using NDF FX call spread USD/IDR on offshore with outstanding amount around 10 billion USD. The cheaper cost of call spread is the main advantage for hedging buyers. The problem arises because BI regulation requires the call spread buyer doing the dynamic hedging. That means, if call spread buyer choose strike price 1 and strike price 2 and volatility USD/IDR exchange rate surpass strike price 2, then the call spread buyer must buy another call spread with strike price 1’ (strike price 1’ = strike price 2) and strike price 2’ (strike price 2’ > strike price 1‘). It could make the premium cost of call spread doubled or even more and dismiss the purpose of hedging buyer to find the cheapest hedging cost. It is very crucial for the buyer to choose best optimum strike price before entering into the transaction. To help hedging buyer find the optimum strike price and avoid expensive multiple premium cost, we observe ten years 2005-2015 historical data of USD/IDR volatility to be compared with the price movement of the call spread USD/IDR using Garman–Kohlhagen Model (as a common formula on FX option pricing). We use statistical tools to analysis data correlation, understand nature of call spread price movement over ten years, and determine factors affecting price movement. We select some range of strike price and tenor and calculate the probability of dynamic hedging to occur and how much it’s cost. We found USD/IDR currency pairs is too uncertain and make dynamic hedging riskier and more expensive. We validated this result using one year data and shown small RMS. The study result could be used to understand nature of FX call spread and determine optimum strike price for hedging plan.

Keywords: FX call spread USD/IDR, USD/IDR volatility statistical analysis, Garman–Kohlhagen Model on FX Option USD/IDR, Bank Indonesia Regulation no.18/18/PBI/2016

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Authors: Abderrazek Ben Maatoug, Ibrahim Fatnassi, Wassim Ben Ayed

Abstract:

In this paper we investigate the issue of market risk quantification for Middle East and North Africa (MENA) Islamic market equity. We use Value-at-Risk (VaR) as a measure of potential risk in Islamic stock market, for long and short position, based on Riskmetrics model and the conditional parametric ARCH class model volatility with normal, student and skewed student distribution. The sample consist of daily data for the 2006-2014 of 11 Islamic stock markets indices. We conduct Kupiec and Engle and Manganelli tests to evaluate the performance for each model. The main finding of our empirical results show that (i) the superior performance of VaR models based on the Student and skewed Student distribution, for the significance level of α=1% , for all Islamic stock market indices, and for both long and short trading positions (ii) Risk Metrics model, and VaR model based on conditional volatility with normal distribution provides the best accurate VaR estimations for both long and short trading positions for a significance level of α=5%.

Keywords: value-at-risk, risk management, islamic finance, GARCH models

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Authors: Andrea Paltrinieri, Alberto Dreassi, Stefano Miani, Alex Sclip

Abstract:

The financial crises caused a collapse in prices of most asset classes, raising the attention on alternative investments such as Sukuk, a smaller, fast growing but often misunderstood market. We study diversification benefits of Sukuk, their correlation with other asset classes and the effects of their inclusion in investment portfolios of institutional and retail investors, through a comprehensive comparison of their risk/return profiles during and after the financial crisis. We find a beneficial performance adjusted for the specific volatility together with a lower correlation especially during the financial crisis. The distribution of Sukuk returns is positively skewed and leptokurtic, with a risk/return profile similarly to high yield bonds. Overall, our results suggest that Sukuk present diversification opportunities, a significant volatility-adjusted performance and lower correlations especially during the financial crisis. Our findings are relevant for a number of institutional investors. Long term investors, such as life insurers would benefit from Sukuk’s protective features during financial crisis yet keeping return and growth opportunities, whereas banks would gain due to their role of placers, advisors, market makers or underwriters.

Keywords: sukuk, zero beta asset, asset allocation, sukuk market

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Authors: Marco Barassi, Nicola Spagnolo

Abstract:

This paper uses a DCC-GARCH model framework to examine mean and volatility spillovers (i.e. causality in mean and variance) dynamics between financial centers and the stock market indexes of the BRICS countries. In addition, tests for changes in the transmission mechanism are carried out by first testing for structural breaks and then setting a dummy variable to control for the 2008 financial crises. We use weekly data for nine countries, four financial centers (Germany, Japan, UK and USA) and the five BRICS countries (Brazil, Russia, India, China and South Africa). Furthermore, we control for monetary policy using domestic interest rates (90-day Treasury Bill interest rate) over the period 03/1/1990 - 04/2/2014, for a total of 1204 observations. Results show that the 2008 financial crises changed the causality dynamics for most of the countries considered. The same pattern can also be observed in conditional correlation showing a shift upward following the turbulence associated to the 2008 crises. The magnitude of these effects suggests a leading role played by the financial centers in effecting Brazil and South Africa, whereas Russia, India and China show a higher degree of resilience.

Keywords: financial crises, DCC-GARCH model, volatility spillovers, economics

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Authors: Kiri Trier, Theresa Treffers

Abstract:

In the course of continuous volatility like production stops due to the COVID-19 pandemic, video-on-demand player monopolizing the film industry, filmmakers are stuck in traditional, linear content development processes. The industry has to become more agile in order to react quickly and easily to changes. Since content development in agile project management is scientifically–empirically not at all recorded, and a lack beyond the software development in terms of agile methods consists, we examined if the agile manifesto values and principles from the software development can be adapted to the film industry to enable agility and digitalization of content development in the industry. We conducted an online questionnaire with 184 German filmmakers (producers, authors, directors, actors, film financiers) for a first cross-sectional assessment for adaptability of the agile manifesto from the software development to the film industry, factor analysis was used to validate the construct. Our results show that it is crucial to digitalize traditional content development to agile content development end-to-end, with tools, lean processes, new collaboration structures, and holacracy to prepare for any volatility. Overall, we examined the first construct for an agile manifesto for the film industry with four values related to nine own principles. Our findings help to get a better understanding of the agile manifesto beyond the software development as a guideline for implementing agility in the film industry.

Keywords: agile manifesto, agile project management, agility, film industry

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Authors: José M Martín-Moreno, Rafaela Pérez, Jesús Ruiz

Abstract:

In this paper we use a small open economy Dynamic Stochastic General Equilibrium Model (DSGE) for the Spanish economy to search for a deeper characterization of the determinants of Spain’s macroeconomic fluctuations throughout the period 1970-2008. In order to do this, we distinguish between tradable and non-tradable goods to take into account the fact that the presence of non-tradable goods in this economy is one of the largest in the world. We estimate a DSGE model with supply and demand shocks (sectorial productivity, public spending, international real interest rate and preferences) using Kalman Filter techniques. We find the following results. First of all, our variance decomposition analysis suggests that 1) the preference shock basically accounts for private consumption volatility, 2) the idiosyncratic productivity shock accounts for non-tradable output volatility, and 3) the sectorial productivity shock along with the international interest rate both greatly account for tradable output. Secondly, the model closely replicates the time path observed in the data for the Spanish economy and finally, the model captures the main cyclical qualitative features of this economy reasonably well.

Keywords: business cycle, DSGE models, Kalman filter estimation, small open economy

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Authors: Debasis Mondal, Chandan Datta, S. K. Sazim

Abstract:

Quantum coherence is a key resource like entanglement and discord in quantum information theory. Wigner- Yanase skew information, which was shown to be the quantum part of the uncertainty, has recently been projected as an observable measure of quantum coherence. On the other hand, the quantum speed limit has been established as an important notion for developing the ultra-speed quantum computer and communication channel. Here, we show that both of these quantities are related. Thus, cast coherence as a resource to control the speed of quantum communication. In this work, we address three basic and fundamental questions. There have been rigorous attempts to achieve more and tighter evolution time bounds and to generalize them for mixed states. However, we are yet to know (i) what is the ultimate limit of quantum speed? (ii) Can we measure this speed of quantum evolution in the interferometry by measuring a physically realizable quantity? Most of the bounds in the literature are either not measurable in the interference experiments or not tight enough. As a result, cannot be effectively used in the experiments on quantum metrology, quantum thermodynamics, and quantum communication and especially in Unruh effect detection et cetera, where a small fluctuation in a parameter is needed to be detected. Therefore, a search for the tightest yet experimentally realisable bound is a need of the hour. It will be much more interesting if one can relate various properties of the states or operations, such as coherence, asymmetry, dimension, quantum correlations et cetera and QSL. Although, these understandings may help us to control and manipulate the speed of communication, apart from the particular cases like the Josephson junction and multipartite scenario, there has been a little advancement in this direction. Therefore, the third question we ask: (iii) Can we relate such quantities with QSL? In this paper, we address these fundamental questions and show that quantum coherence or asymmetry plays an important role in setting the QSL. An important question in the study of quantum speed limit may be how it behaves under classical mixing and partial elimination of states. This is because this may help us to choose properly a state or evolution operator to control the speed limit. In this paper, we try to address this question and show that the product of the time bound of the evolution and the quantum part of the uncertainty in energy or quantum coherence or asymmetry of the state with respect to the evolution operator decreases under classical mixing and partial elimination of states.

Keywords: completely positive trace preserving maps, quantum coherence, quantum speed limit, Wigner-Yanase Skew information

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