Capital Asset Pricing Model (CAPM) with drawdown measure

The notion of drawdown is central to active portfolio management. Conditional Drawdown-at-Risk (CDaR) is defined as the average of a specified percentage of the largest drawdowns over an investment horizon and includes maximum and average drawdowns as particular cases. The necessary optimality conditions for a portfolio optimization problem with CDaR yield the capital asset pricing model (CAPM) stated in both single and multiple sample-path settings. The drawdown beta in the CAPM has a simple interpretation and is evaluated for hedge fund indices from the HFRX database in the single sample-path setting. Drawdown alpha is introduced similarly to the alpha in the classical CAPM and is evaluated for the same hedge fund indices. Both drawdown beta and drawdown alpha are used to prioritize hedge fund strategies and to identify instruments for hedging against market drawdowns.     

THE SPIRIT OF CAPITALISM, NON-EXPECTED UTILITY AND ASSET PRICING

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A Family of Maximum Entropy Densities Matching Call Option Prices

Abstract

We investigate the position of the Buchen–Kelly density (Peter W. Buchen and Michael Kelly. The maximum entropy distribution of an asset inferred from option prices. Journal of Financial and Quantitative Analysis, 31(1), 143–159, March 1996.) in the family of entropy maximizing densities from Neri and Schneider (Maximum entropy distributions inferred from option portfolios on an asset. Finance and Stochastics, 16(2), 293–318, April 2012.), which all match European call option prices for a given maturity observed in the market. Using the Legendre transform, which links the entropy function and the cumulant generating function, we show that it is both the unique continuous density in this family and the one with the greatest entropy. We present a fast root-finding algorithm that can be used to calculate the Buchen–Kelly density and give upper boundaries for three different discrepancies that can be used as convergence criteria. Given the call prices, arbitrage-free digital prices at the same strikes can only move within upper and lower boundaries given by left and right call spreads. As the number of call prices increases, these bounds become tighter, and we give two examples where the densities converge to the Buchen–Kelly density in the sense of relative entropy. The method presented here can also be used to interpolate between call option prices, and we compare it to a method proposed by Kahalé (An arbitrage-free interpolation of volatilities. Risk, 17(5), 102–106, May 2004). Orozco Rodriguez and Santosa (Estimation of asset distributions from option prices: Analysis and regularization. SIAM Journal on Financial Mathematics, 3(1), 374–401, 2012.) have produced examples in which the Buchen–Kelly algorithm becomes numerically unstable, and we use these as test cases to show that the algorithm given here remains stable and leads to good results.     

Asset Pricing Using Finite State Markov Chain Stochastic Discount Functions

This article fuses two pieces of theory to make a tractable model for asset pricing. The first is the theory of asset pricing using a stochastic discounting function (SDF). This will be reviewed. The second is to model uncertainty in an economy using a Markov chain. Using the semi-martingale dynamics for the chain these models can be calibrated and asset valuations derived. Interest rate models, stock price models, futures pricing, exchange rates can all be introduced endogenously in this framework.     

社会保障的改善对我国居民家庭消费——投资选择的影响研究

与发达国家相比,我国居民家庭的资产配置中存在着消费比例过低、金融资产配置结构不合理等问题.而导致这一问题的重要因素是我国目前的社会保障仍处于较低水平.以跨期消费—投资组合理论为基础,研究社会保障制度的改善对居民家庭资产配置的影响机理及影响效果.结果表明,社会保障制度一方面通过降低居民家庭的风险厌恶水平,可以显著提高其消费比例及风险资产投资比例;另一方面通过提高退休后的收入水平,可以提高居民家庭的整体效用水平.同时,社会保障制度的改善,也有利于提高居民家庭对金融市场的参与热情,有利于活跃我国金融市场.     

Robust asset allocation with conditional value at risk using the forward search

The well‐known Markowitz approach to portfolio allocation, based on expected returns and their covariance, seems to provide questionable results in financial management. One motivation for the pitfall is that financial returns have heavier than Gaussian tails, so the covariance of returns, used in the Markowitz model as a measure of portfolio risk, is likely to provide a loose quantification of the effective risk. Additionally, the Markowitz approach is very sensitive to small changes in either the expected returns or their correlation, often leading to irrelevant portfolio allocations. More recent allocation techniques are based on alternative risk measures, such as value at risk (VaR) and conditional VaR (CVaR), which are believed to be more accurate measures of risk for fat‐tailed distributions. Nevertheless, both VaR and CVaR estimates can be influenced by the presence of extreme returns. In this paper, we discuss sensitivity to the presence of extreme returns and outliers when optimizing the allocation, under the constraint of keeping CVaR to a minimum. A robust and efficient approach, based on the forward search, is suggested. A Monte Carlo simulation study shows the advantages of the proposed approach, which outperforms both robust and nonrobust alternatives under a variety of specifications. The performance of the method is also thoroughly evaluated with an application to a set of US stocks.     

自由现金流、公司治理与财务性投资——基于2011-2013年A股上市公司的实证研究

本文基于预期效用和控股权利益理论,运用数理分析方法,通过构造公司价值的V-N-M效用函数,对影响我国上市公司财务性投资行为的因素及其机理进行分析,并以2008-2011年沪深两市A股上市公司为样本进行实证检验。研究发现:(1)公司自由现金流越多,越有可能进行财务性投资;(2)在自由现金流一定条件下,资产负债率越高,上市公司越不可能进行财务性投资;(3)控股股东持股比例与财务性投资存在倒U型的关系。     

The human factor in quality management

 "Quality management is not just a strategy. It must be a new style of working, even a new style of thinking. A dedication to quality and excellence is more than good business. It is a way of life, giving something back to society, offering your best to others" (George Bush 1991). From this statement it becomes immediately clear that the human factor plays an eminent role in quality management. Therefore, some important relevant aspects of quality management are highlighted which are not so frequently discussed elsewhere. Various definitions and statements on quality lead to the fact that quality depends essentially on people. Some thoughts are developed on the Japanese quality culture which contributed essential impulses to the evolution of certain quality installations such as quality circles. The Japanese also developed a philosophy of quality, Kaizen, which is significantly different from Western industrial quality concepts. Kaizen works well in a slow growth economy, contrary to Western innovation which is more suited to the fast growth economy of the past. Some ideas on the quality control of top management as well as on the quality control of ourselves are expressed and it is shown how this is related to ethical principles. Every human society is as successful as: its intrinsic degree of honesty and righteousness, its degree of prevention of corruption and nepotism, and its readiness to work hard for personal advancement and for the sake of the community. Leadership, political or economic, is a special cultural effort – or at least it should be. But the striving for quality must be everybody's business in a company. It is the old 'pride of workmanship' which is greatly lost in today's industrial structures, and which is so absolutely important to again find satisfaction and contentment in our work. It is shown that the human factor in quality management, apart from all the necessary formal and institutional regulations, is of major importance, but very often neglected, especially in the present situation of over-rationalization. It is shown that dynamic equilibria do not only regulate chemical and biological systems but also operate in our psychic world. Unfortunately, there is a tendency to unhealthy extremes in the latter, e.g. to workaholics or neo-capitalism. Installations of total quality management such as systems, procedural and product audits are important facets of modern quality assurance. They are again closely related to human behaviour, as well as the procedure of company and laboratory accreditation. Finally the "Codex Hammurabi" shows that product liability was a clearly regulated issue in ancient Babylon, 2200 BC. This may be indicative of the fact that many new trends propagated by management gurus usually stem from a very old part of the wisdom of mankind but they are newly decorated and formed to modern slogans. Received: 11 May 1999 / Accepted: 24 September 1999     

耐用品长期风险模型的广义矩估计和可测性研究

基于我国2002年到2012年的季度数据,本文使用广义矩估计方法检验了耐用品长期风险模型。模型参数依赖的状态变量不可观测,通过推导把状态变量表示成可以观测的指标价格红利比率,从而可以对模型参数进行估计。研究表明,投资者的风险厌恶系数和跨期替代弹性相互分离,模型能够有效刻画投资者的消费和投资行为特征。此外,模型预测成分对于红利增长率、市场收益率和股权溢价有较强的预测能力,而对消费增长率的预测能力有限。     

Risk measures on ordered non-reflexive Banach spaces

This work is devoted to the study of coherent and convex risk measure on non-reflexive Banach spaces. An extension of dual representation and continuity results which hold in the case of reflexive spaces is established in this paper for the class of non-reflexive Banach spaces. This study also relies on the fact that the riskless bond is replaced by some numeraire asset which defines a base on the cone of the spot-price functionals.