In this thesis the GARCH models are applied to evaluate financial options and futures. In the first application, the GARCH models in parsimonious form are studied for pricing the S&P500 options. Unlike previous studies that focus on developed formulation, the results indicate that simplified models provide effective performance and it is the simple GARCH model that yields the least valuation error. To our consideration, examining model possessing simplification is of practical importance because model estimation becomes readily accessible through available econometric software, which circumvent programming barriers in implementing alternative one’s own pricing methods. The second application consider the component GARCH models for currency option pricing. The valuation results favour the component formulations particularly in the pricing of long term contracts. Volatility modelling results indicate that the return-volatility relationship is symmetric in the long run, but over the short term asymmetry also arises in the EURUSD and GBPUSD exchange rates. The third application evaluates canola futures in Canada in relation to spot market price. Results confirm the cointegrating relationship with threshold corresponding to transaction and adjustment cost. And it is the futures market that adjusts actively to price disparities but in the meantime there is volatility spillover from futures to the spot market. Overall, our empirical assessments indicate the importance of the time varying volatility and the improvements achieved in option pricing and futures evaluation. We believe the present study’s analysis provides useful suggestions and further guidance to practitioners and investors for the pricing and trading in the equity and foreign exchange markets, also to the market agents to better evaluate price uncertainty in order to guard against adverse price changes.

本文提出一個動態隱含波動度函數模型，以改善一般隱含波動度函數難以隨時間的經過而調整波動度曲線且無法描述資料的時間序列特性等缺點。本文模型為兩階段隱含波動度函數模型，分別配適隱含波動度函數的時間穩定(time-invariant)部分與時間不穩定(time-variant)部分。 本文模型在波動度的時間不穩定部分配適非對稱GARCH(1,1)過程，以描述隱含波動度的時間序列特性。本文使用的非對稱GARCH(1,1)過程將標的資產的正報酬與負報酬對價平隱含波動度的影響分別估計，並將蘊含於歷史價平隱含波動度中的訊息及標的資產報酬率與波動度之間的關連性藉由價平隱含波動度過程納入隱含波動度函數中，使隱含波動度函數能納入波動度的時間序列特性及資產報酬與波動度的相關性，藉此納入最近期的市場資訊，以增加隱含波動度模型的解釋及預測能力。時間穩定部分則根據Pena et al.(1999)的研究結果，取不對稱二次函數形式以配適實證上發現的笑狀波幅現象。時間穩定部分並導入相對價內外程度做為變數，以之描述價內外程度、距到期時間、及價平隱含波動度三者的交互關係；並以相對隱含波動度作為被解釋變數，使隱含波動度函數模型除理論上包含了比先前文獻提出的模型更多的訊息及彈性外，還能描繪「隱含波動度函數隨波動度的高低水準而變動」、「越接近到期日，隱含波動度對價內外程度的曲線越彎曲」、「隱含波動度函數為非對稱的曲線」、「波動度和資產價格有很高的相關性」等實證上常發現的現象。 本文以統計測度及交易策略之獲利能力檢定模型的解釋能力及預測能力是否具有統計與經濟上的顯著性。本文歸納之前文獻提出的不同隱含波動度函數模型，並以之與本文提出的模型做比較。本文以台指選擇權五分鐘交易頻率的成交價作為實證標的，以2003年1月1日~2006年12月31日作為樣本期間，並將模型解釋力及AIC作為模型樣本內配適能力之比較標準，我們發現本文提出的模型具有最佳的資料解釋能力。本文以2006年7月1日~2006年12月31日作為隱含波動度模型預測期間，以統計誤差及delta投資策略檢定模型的預測能力是否具有統計及經濟上的顯著性。實證結果指出，本文提出的模型對於預測下一期的隱含波動度及下一期的選擇權價格，皆有相當良好的表現。關於統計顯著性方面，我們發現本文提出的動態隱含波動度函數模型對於未來的隱含波動度及選擇權價格的預測偏誤約為其他隱含波動度函數模型的五分之一，而預測方向正確頻率亦高於預測錯誤的頻率且超過50%。關於經濟顯著性方面，本文使用delta投資組合進行經濟顯著性檢定，結果發現在不考慮交易成本下，本文提出的模型具有顯著的獲利能力。顯示去除標的資產價格變動對選擇權造成的影響後，選擇權波動度的預測準確性確實能經由delta投資組合捕捉；在考慮交易成本後，各模型皆無法獲得超額報酬。最後，本文提出的動態隱含波動度函數模型在考量非同步交易問題、30分鐘及60分鐘等不同的資料頻率、不同的投資組合交易策略後，整體的結論依然不變。 / This paper proposes a new implied volatility function to facilitate implied volatility forecasting and option pricing. This function specifically takes the time variation in the option implied volatility into account. Our model considers the time-variant part and fits it with an asymmetric GARCH(1,1) model, so that our model contains the information in the returns of spot asset and contains the relationship of the returns and the volatility of spot asset. This function also takes the time invariant in the option implied volatility into account. Our model fits the time invariant part with an asymmetric quadratic functional form to model the smile on the volatility. Our model describes the phenomena often found in the literature, such as the implied volatility level increases as time to maturity decreases, the curvature of the dependence of implied volatility on moneyness increases as options near maturity, the implied volatility curve changes as the volatility level changes, and the implied volatility function is an asymmetric curve. For the empirical results, we used a sample of 5 minutes transaction prices for Taiwan stock index options. For the in-sample period January 1, 2003–June 30, 2006, our model has the highest adjusted- and lowest AIC. For the out-of-sample period July 1, 2006–December 31, 2006, the statistical significance shows that our model substantially improves the forecasting ability and reduces the out-of-sample valuation errors in comparison with previous implied volatility functions. We conjecture that such good performance may be due to the ability of the GARCH model to simultaneously capture the correlation of volatility with spot returns and the path dependence in volatility. To test the economic significance of our model, we examine the profitability of the delta-hedged trading strategy based on various volatility models. We find that although these strategies are able to generate profits without transaction costs, their profits disappear quickly when the transaction costs are taken into consideration. Our conclusions were unchanged when we considered the non-synchronization problem or when we test various data frequency and different strategies.

This thesis studies the trading of the Chinese American Depositories Receipts (ADRs) and their respective underlying H shares issued in Hong Kong. The primary intention of this work is to investigate the arbitrage opportunity between the Chinese ADRs and their underlying H shares. This intention is motivated by the market observation that hedge funds are often in the top 10 shareholders of these Chinese ADRs. We start our study from the origin place of the Chinese ADRs, China’s stock market. We pay particular attention to the ownership structure of the Chinese listed firms, because part of the Chinese ADRs also listed A shares (exclusively owned by the Chinese citizens) in Shanghai. We also pay attention to the market microstructures and trading costs of the three China-related stock exchanges. We then proceed to empirical study on the Chinese ADRs arbitrage possibility by comparing the return distribution of two securities; we find these two securities are different in their return distributions, and which is due to the inequality in the higher moments, such as skewness, and kurtosis. Based on the law of one price and the weak-form efficient markets, the prices of identical securities that are traded in different markets should be similar, as any deviation in their prices will be arbitraged away. Given the intrinsic property of the ADRs that a convenient transferable mechanism exists between the ADRs and their underlying shares which makes arbitrage easy; the different return distributions of the ADRs and the underlying shares address the question that if arbitrage is costly that the equilibrium price of the security achieved in each market is affected mainly by its local market where the Chinese ADRs/the underlying Hong Kong shares are traded, such as the demand for and the supply of the stock in each market, the different market microstructures and market mechanisms which produce different trading costs in each market, and different noise trading arose from asymmetric information across multi-markets. And because of these trading costs, noise trading risk, and liquidity risk, the arbitrage opportunity between the two markets would not be exploited promptly. This concern then leads to the second intention of this work that how noise trading and trading cost comes into playing the role of determining asset prices, which makes us to empirically investigate the comovement effect, as well as liquidity risk. With regards to these issues, we progress into two strands, firstly, we test the relationship between the price differentials of the Chinese ADRs and the market return of the US and Hong Kong market. This test is to examine the comovement effect which is caused by asynchronous noise trading. We find the US market impact dominant over Hong Kong market impact, though both markets display significant impact on the ADRs’ price differentials. Secondly, we analyze the liquidity effect on the Chinese ADRs and their underlying Hong Kong shares by using two proxies to measure illiquidity cost and liquidity risk. We find significant positive relation between return and trading volume which is used to capture liquidity risk. This finding leads to a deeper study on the relationship between trading volume and return volatility from market microstructure perspective. In order to verify a proper model to describe return volatility, we carry out test to examine the heteroscedasticity condition, and proceed to use two asymmetric GARCH models to capture leverage effect. We find the Chinese ADRs and their underlying Hong Kong shares have different patterns in the leverage effect as modeled by these two asymmetric GARCH models, and this finding from another angle explains why these two securities are unequal in the higher moments of their return distribution. We then test two opposite hypotheses about volume-volatility relation. The Mixture of Distributions Hypothesis suggests a positive relation between contemporaneous volume and volatility, while the Sequential Information Arrival Hypothesis indicates a causality relationship between lead-lag volume and volatility. We find supportive evidence for the Sequential Information Arrival Hypothesis but not for the Mixture of Distributions Hypothesis.

This dissertation contains three independent essays relating energy economics. The first essay investigates price asymmetry of diesel in South Korea by using the error correction model. Analyzing weekly market prices in the pass-through of crude oil, this model shows asymmetric price response does not exist at the upstream market but at the downstream market. Since time-variant residuals are found by the specified models for both weekly and daily retail prices at the downstream level, these models are implemented by a Generalized Autoregressive Conditional Heteroskedasticity (GARCH) process. The estimated results reveal that retail prices increase fast in the rise of crude oil prices but decrease slowly in the fall of those. Surprisingly, retail prices rarely respond to changes of crude oil prices for the first five days. Based on collusive behaviors of retailers, this price asymmetry in Korea diesel market is explained. The second essay aims to evaluate the new incentive system for biodiesel in South Korea, which keeps the blend mandate but abolishes tax credits for government revenues. To estimate changed welfare from the new policy, a multivariate stochastic simulation method is applied into time-series data for the last five years. From the simulation results, the new biodiesel policy will lead government revenues to increases with the abolishment of tax credit. However, increased prices of blended diesel will cause to decrease demands of both biodiesel and blended diesel, so consumer and producer surplus in the transport fuel market will decrease. In the third essay, the Regression - Seasonal Autoregressive Integrated Moving Average (REGSARIMA) model is employed to predict the impact of air temperature on daily peak load demand in Houston. Compared with ARIMA and Seasonal Model, a REGARIMA model provides the more accurate prediction for daily peak load demand for the short term. The estimated results reveal air temperature in the Houston areas causes an increase in electricity consumption for cooling but to save that for heating. Since the daily peak electricity consumption is significantly affected by hot air temperature, this study makes a conclusion that it is necessary to establish policies to reduce urban heat island phenomena in Houston.

Les marchés financiers sont sujets quotidiennement à la diffusion de statistiques économiques ainsi que leurs prévisions par des institutions publiques et privées. Ces annonces sont prévues ou non prévues. Les annonces prévues sont organisées selon un calendrier connu à l’avance par tous les opérateurs. Ces annonces telles que les statistiques d'activité, d’exportation ou de sentiments, sont publiées une fois par mois par des agences spécialisées telles que Bloomberg. La diffusion d’une statistique économique ou financière est toujours précédée par la publication de sa prévision calculée comme la médiane de toutes les prévisions individuelles fournies par les agents. Cette médiane est un proxy de la vision commune des opérateurs et aide à la construction d'une représentation collective de l'environnement économique. Le premier chapitre de ma thèse a pour objectif d'analyser l'hétérogénéité dans la prévision des annonces macroéconomiques est testée grâce à des données mensuelles de prévisions issues d'enquêtes conduites par Bloomberg, sur une série d'indicateurs macroéconomiques. S’ensuit alors une deuxième problématique. Quels sont aux yeux des investisseurs, les critères qui permettent de considérer qu’une annonce est plus importante qu’une autre ? L’analyse du processus par lequel une information est incorporée dans les cours, nous a éclairés sur l’existence d’une forte rotation dans les statistiques considérées comme importantes (Market Mover indicators). Le deuxième chapitre tente donc de répondre à cette problématique. Dans un dernier chapitre je m’interroge sur la dynamique des prix post-publications d’annonces macroéconomiques et financières. Des connections sont réalisées entre les Jumps sur les cours des actifs et les annonces macroéconomiques, financières mais aussi imprévues. / Financial markets are subjected daily to the diffusion of economic indicators and their forecasts by public institutions and even private ones. These annoncements can be scheduled or unscheduled. The scheduled announcements are organized according to a specific calendar and known in advance by all operators. These news such as activity indicators, credit, export or sentiments’ surveys, are published monthly or quarterly by specialized agencies to all operators in real time. Our thesis contributes to diferent literatures and aims to thoroughly analyze the three phases of the diffusion process of new information on financial markets : anticipation of the announcement before its publication, interest that arouse its publication and impact of its publication on market dynamics. The aim of the first chapter is to investigate heterogeneity in macroeconomic news forecasts using disaggregate data of monthly expectation surveys conducted by Bloomberg on macroeconomic indicators from January 1999 to February 2013. The second chapter examines the impact of surprises associated with monthly macroeconomic news releases on Treasury-bond returns, by paying particular attention to the moment at which the information is published in the month. In the third chapter we examine the intraday effects of surprises from scheduled and unscheduled announcements on six major exchange rate returns (jumps) using an extension of the standard Tobit model with heteroskedastic and asymmetric errors.

This thesis consists of four self-contained essays on the various topics in finance.  The first essay, The Information Content of The Systematic Risk Structure of Corporate Yields for Future Real Activity: An Exploratory Empirical Investigation, constructs a proxy for the systematic component of the risk structure of corporate yields (or systematic risk structure), and tests how well it predicts real economic activity in the United States. It finds that the systematic risk structure predicts the growth rate of industrial production 3 to 18 months into the future even when other leading indicators are controlled for, outperforming other models. A regime-switching estimation also shows that the systematic risk structure is very successful in identifying and capturing different growth regimes of industrial production.  The second essay, How Much Leverage is Too Much, or Does Corporate Risk Determine the Severity of a Recession? investigates whether financial conditions of the U.S. corporate sector  can explain the probability and severity of recessions. It proposes a measure of corporate vulnerability, the Corporate Vulnerability Index (CVI) constructed as the default probability for the entire corporate sector. It finds that the CVI is a significant predictor of the probability of a recession 4 to 6 quarters ahead, even controlling for other leading indicators, and that an increase in the CVI is also associated with a rise in the probability of a more severe and lengthy recession 3 to 6 quarters ahead.  The third essay, Asian Flu or Wall Street Virus? Tech and Non-Tech Spillovers in the United States and Asia (with Jorge A. Chan-Lau), using TGARCH models, finds that U.S. stock markets have been the major source of price and volatility spillovers to stock markets in the Asia-Pacific region during three different periods: the pre-LTCM crisis period, the “tech bubble” period, and the “stock market correction” period. Hong Kong SAR, Japan, and Singapore were sources of spillovers within the region and affected the United States during the latter period. There is also evidence of structural breaks in the stock price and volatility dynamics induced during the “tech bubble” period.  The fourth essay, Coping with Financial Spillovers from the United States: The Effect of U. S. Corporate Scandals on Canadian Stock Prices, investigates the effect of U.S. corporate scandals on stock prices of Canadian firms interlisted  in the United States. It finds that firms interlisted during the pre-Enron period enjoyed increases in post-listing equilibrium prices, while firms interlisted during the post-Enron period experienced declines in post-listing equilibrium prices, relative to a model-based benchmark. Analyzing the entire universe of Canadian firms, it finds that interlisted firms, regardless of their listing time, were perceived as increasingly risky by Canadian investors after the Enron’s bankruptcy. / Diss. Stockholm : Handelshögskolan, 2003