This dissertation provides a contribution to the option pricing literature by means of some recent developments in probability theory, namely the Malliavin Calculus and the Wiener chaos theory. It concentrates on the issue of faster convergence of Monte Carlo and Quasi-Monte Carlo simulations for the Greeks, on the topic of the Asian option as well as on the approximation for convexity adjustment for fixed income derivatives. The first part presents a new method to speed up the convergence of Monte- Carlo and Quasi-Monte Carlo simulations of the Greeks by means of Malliavin weighted schemes. We extend the pioneering works of Fournie et al. (1999), (2000) by deriving necessary and sufficient conditions for a function to serve as a weight function and by providing the weight function with minimum variance. To do so, we introduce its generator defined as its Skorohod integrand. On a numerical example, we find evidence of spectacular efficiency of this method for corridor options, especially for the gamma calculation. The second part brings new insights on the Asian option. We first show how to price discrete Asian options consistent with different types of underlying densities, especially non-normal returns, by means of the Fast Fourier Transform algorithm. We then extends Malliavin weighted schemes to continuous time Asian options. In the last part, we first prove that the Black Scholes convexity adjustment (Brotherton-Ratcliffe and Iben (1993)) can be consistently derived in a martingale framework. As an application, we examine the convexity bias between CMS and forward swap rates. However, for more complicated term structures assumptions, this approach does not hold any more. We offer a solution to this, thanks to an approximation formula, in the case of multi-factor lognormal zero coupon models, using Wiener chaos theory.

The series of banking and currency crises occurring in the 1990s have stimulated the study of financial crises. The research for this thesis has been conducted in the midst of this cluster of events: the Asian flu in 1997-98 and the disturbances in the Russian and Brazilian markets in 1998 and 1999, respectively. The aim of this work is to provide some empirical evidence on the general and systematic factors driving currency crises. After a summary of the literature on currency crises conducted in Chapter 1, the second chapter analyses the determinants of currency crises for 20 OECD countries for the period from 1970 to 1997. We use duration models in order to investigate the causes behind the duration of non-crises periods. Fundamentals are revealed as important determinants in assessing the likelihood of currency crises. Variables concerning the state of the external sector (exports, imports, degree of openness), the REER, foreign portfolio investment and net claims on central government help explain the onset of currency crises. Following historical events, the subsequent chapters in this thesis study currency crises in developing and emerging markets' economies. Chapter 3 develops an indicator called the Emerging Markets Risk Indicator, whose monthly scores reflect the currency risk for 36 emerging markets. We evaluate the contribution of the explanatory variables of this model to the probability of the main crisis events. In order to judge the forecasting power of this model, we estimate two reduced samples: the first one until December 1996 and the second one until December 1997. With these two models we can study the predictive power of the model on the onset of the Asian crisis in 1997 and the Russian and Brazilian crises in 1998-99, respectively. The results shows that had this model been used at those times, it would have predicted those crises. Chapters 4 and 5 analyse the joint occurrence of banking and currency crises, i.e. contribute to the debate on twin crises. In Chapter 4, we develop a currency crisis model with explicit reference to banking crisis indicators as possible determinants of currency crises. Deepening the subject of twin crises. Chapter 5 endogenises the banking crisis variable and jointly estimates two equations, one for banking crises and another for currency crises. This procedure allows us to fully test the interdependence of banking and currency crises, i.e. the direction of a causal link (if any) between both types of crisis. The results indicates the existence of bidirectional causal link between banking and currency crises. The phenomenon of twin crises is rather a case of banking and currency crises being closely intertwined. Which crisis type occurs first is a matter of circumstance.

The thesis examines selected small national securities markets in western and central Europe under the influence of change in the structure of world financial market practice and increased information flows. Markets studied in detail and visited on one or more occasions are those of Denmark, Austria, Portugal, Hungary, The Netherlands, Belgium and two German regional exchanges, Hamburg and Bremen. Data on the German market as a whole is studied for its relevance to neighbouring small national exchanges. The formation of new markets in the Czech Republic and Slovakia is observed based on information about, and visits to, Prague and Bratislava. Market institutions, mechanisms and participants, particularly banks and brokers, are examined for their contribution to the viability and validity of each market and the realisation of development potential. The literature of price discovery, returns generation, asymmetrical information, market microstructure and investor behaviour is reviewed, as is the history of national exchanges for determinants of their present-day form and behaviour. Structured, questionnaire-based interviews with market participants, other fieldwork information and the considerable volume of contemporary press and periodical material relating to market reforms constitute the main body of evidence. Market-by-market analysis is conducted to support conclusions based on initial hypotheses about the function and purpose of small national markets and formal models of investor, borrower and broker behaviour. Trading volume is separately analysed over the longest practicable period, using time-series econometric methods for evidence of ability to reveal information about market behaviour and reliability as an income generator to sustain market-dependent broking populations and market institutions. Institutional factors are found to determine the volume of trading in the medium term and hence, via the level of income generated, to induce virtuous and vicious circles of development. In the short term, trading volume is determined by exogenous shocks and short-run market dynamics.

The primary objective of the thesis is to study the degree of redistribution in the Irish Tax-Benefit System. The first part of the thesis (chapter 2) describes the main features of the system and examines the potential redistributive effect of the system. It also sets the system in its historical context by charting the development of the system in the post war era. Chapter 3 examines the redistributive effect of the sub-components of the tax-benefit system separately on a cross-section of the population by decomposing standard redistributive and progressivity measures. This chapter examines in detail the effect of the reforms from 1987 to 2000. The use of a short accounting period such as a month will tend to exaggerate the degree of redistribution within a tax-benefit system. It is desirable therefore to examine the degree of redistribution over a measure such as lifetime income, as this more fully reflects the standard of living an individual faces. As lifetime income data is not available, a dynamic microsimulation model has been constructed to generate synthetic life histories of a sample of the Irish population, so that lifetime incomes can be constructed. A number of chapters then describe the characteristics of this model. Chapter 4 considers the main issues involved in designing a dynamic microsimulation model and assesses how the main dynamic models internationally have dealt with the issues discussed. Chapter 5 describes how this model dealt with these design issues. Chapters 6 and 7 respectively describe the behavioural equations used by the model to simulate demographic/education and market behaviour respectively. A number of analytical chapters have been included using the dynamic microsimulation model. Chapter 8 examines the degree of redistribution over life-cycle. Chapter 9 analyses the redistributive effect of taxes and benefits over the lifetime. Chapter 10 examines the degree of intra versus inter personal redistribution in the tax-benefit system. The previous chapters examine the redistributive effect of the tax-benefit system in isolation by considering its effect in a steady state world. However neither the world nor the tax-benefit system are in a steady state. The system has evolved over time. In Chapter 11, we examine the degree of inter-generational redistribution of the Irish Welfare State since the foundation of the state in 1921.

This thesis examines the impact of pervasive regulation in the financial system on the economy, in general, and on private investment activity, in particular. A survey of the relevant literature concentrates on the issue of the arguments for, and against, financial deregulation. A macroeconomic growth model is analysed which focuses on the implications of an abrupt rise in the (private) debt service burden, following a removal of interest rate ceilings. Subsequently, selected models of investment are estimated on Greek annual data covering the period 1958-1985. The aim of the empirical work is to detect the effects of the elaborate controls imposed on the Greek banking system. (The possibility of such effects, and associated policy implications, were discussed in the preceding, theoretical, part of the thesis.) Particular effort has been expended to generate the appropriate series required for the estimations, especially those relating to the fiscal factors which influence investment behaviour. The empirical results reveal the important role of policy induced financial rationing in the determination of aggregate investment in Greece.

This thesis concludes that aggregate stock market prices are significantly linked to the real economy. The thesis does, however, find a number of instances of non-efficient market behaviour, in terms of unexplained stock returns prior to financial crises, the predictability of the equity premium, and, possibly, the weak statistical relationship between stock market prices and corporate investment. Chapter I examines stock price behaviour prior to the stock market crash of 1987. Using data from 23 stock markets, there is little support for the view that the recent crash was caused by a bursting bubble. However, there is evidence that equity prices have recently moved in a non-random manner on some of these exchanges. Chapter II investigates the movements of stock prices in the United Kingdom from 1700 to 1987. A strong nominal interest rate effect on excess returns is found for the entire period, but it appears that inflation has a consistent, negative effect only after 1950. Chapter III analyzes major British financial crises since 1700. Using efficient and non-efficient market models, it is found that fluctuations in macroeconomic variables account for up to one half of equity price variation. As well, relatively few crises have been preceded by the excessive positive returns consistent with rational bubbles. Chapter IV finds that Tobin's Q in OECD countries is inappropriately modelled within a static framework but is improved markedly using a dynamic error correction model. The Q measures are also superior to real stock prices as predictors of investment. Chapter V compares the effects of equity prices on corporate investment and output in Japan, West Germany, the United Kingdom and the United States. It seems that the effect of the equity market is greater in the latter two countries for various institutional reasons associated with managerial autonomy.

This research is exploratory and is intended to help us understand the diverse interests and forces that helped shape various developments in the Nigerian banking industry, during the pre-independence era. The study investigates the activities of colonial banks in British Nigeria. Emphasis is placed on the dealings between these colonial banks and the Africans and the claim, by the Africans, that these foreign institutions were unhelpful to them. The motives and activities of the indigenous banks, subsequently established by the Africans, are also examined. Furthermore, the study investigates the different modes of bank regulation while Nigeria was a British Colony, studying the extent to which bank regulation in Nigeria has been influenced by that in other countries, and examining the complex role of banking sector regulation in a developing economy where banks have often been used overtly as instruments of political policy. Special emphasis is placed on the forces that helped shape the law and enforcement of banking regulation and the structure of the emergent regulatory institution. This research makes a contribution in a number of areas: (1) to our understanding of how banking regulation operates in a highly politicised environment (2) to our knowledge of the diffusion of banking practices and ideas and the significance of political control and social contact to the diffusion process and (3) to our appreciation of the forces shaping banking regulation over a long period.

This study is motivated by the observation that countries in adverse extemal financial situations have to make larger use of more expensive trade financing and payment arrangements. It attempts to contribute to the understanding of the channels through which the external financial situation of debtor countries affects their trade financing, and to identify the determinants of the costs associated with such financing. These costs reflect the higher risk of default associated with credits extended to them and include, for example, interest rate spreads and credit insurance premia. For the purpose of demonstrating the channels through which the perception of such a risk influences these costs, the study adopts the perspective of a "small" creditor or credit insurer, meaning that the risk is exogenous to the creditor/insurer. This leaves the problem of incorporating these risks in the credit insurance premia and interest rate spreads. For this purpose, a theoretical concept of the determination of credit insurance premia is established. Based on the idea that export credit insurance, viewed as a security, is similar to a contingent claim, such as a European put option, the concept uses tools from option pricing theory. Some of its implications are compared with observations and found to be consistent with them, i.e. there is some support for the following hypotheses. The less favourable a country's solvency and liquidity indicators, the higher are the insurance premium rates applying to it, the latter indicators appearing to be relatively more important than the former ones. Moreover, they are higher the greater the volatility of the rates of change in these indicators. The impact of the share of public (and publicly guaranteed) debt in total foreign debt on the costs of external financing is discussed within the same theoretical framework. It is shown that these costs may be a non-monotonic function of that share.

This thesis studies several aspects of the strategy which central banks follow in implementing monetary policy and its implications for the behaviour of exchange rates. The first chapter provides an introduction to the thesis and a review of the relevant literature. The following two chapters analyse the effects of information releases on the high frequency behaviour of the DEM/USD exchange rate, and investigate how these effects are related to the central banks' policy decisions and their strategy for disclosing information to the market. Chapter 2 studies the effects of monetary policy signals released by the Deutsche Bundesbank and the US Federal Reserve, showing that they have a strong impact on exchange rates, and that these effects depend on the channel used to release the policy information, and on when the information is released. Chapter 3 extends this analysis by examining the reaction to publicly announced macroeconomic information emanating from Germany and the US, and associates this reaction with market expectations regarding future monetary policy decisions and the timing of the announcement of those decisions. Alternative monetary policy frameworks and their implication for the behaviour of exchange rates are the topic of the following three chapters. Chapter 4 examines the policy framework in 44 developing countries, covering topics such as the choice of price stability as the objective for monetary policy, the potential conflicts between achieving this objective and other functions of the central bank (in particular the maintenance of financial stability), and central bank independence. Chapter 5 analyses the experience of seven countries that have adopted a policy strategy centered on inflation targets, and investigates how this affected the behaviour of the central banks. Chapter 6 investigates the implications of the strategies analysed in the previous chapters for the stability of financial markets, using price data for several financial assets from a panel of eighteen OECD countries. Finally, Chapter 7 summarises the conclusions of the thesis and provides suggestions for further work.

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