by Cheng Ping Kuen, Franco [and] Chin Nai Yun, William. / Bibliography : leaf 85 / Thesis (M.B.A.)--Chinese University of Hong Kong, 1984

This thesis aims to find general principles governing the behaviour of biological systems, with a particular emphasis in the communicational (social) aspect of these systems. Communication between biological entities plays a major role in their evolution, enabling them to exchange information about their environment and thereby improving their chances of survival. Communication also plays a pivotal role in the organisation of populations of organisms, clearly observed in social insects, but present also at least in bacteria, plants, fungi, animals and humans. It is also theorised that the genetic code is a by-product of the establishment of an innovation-sharing protocol between primitive cells [Vetsigian et al., 2006]. This thesis is mainly concerned with identifying necessary conditions for the emergence of communicational codes, and the problems that arise with their establishment. For this purpose, we introduce an information-theoretic framework where species maximise their growth rate by following a Kelly-gambling strategy to bet on environmental conditions. Information theory provides a powerful tool for abstracting away mechanisms and for focusing on hard limits of a system's dynamics which cannot be circumvented. We begin by exploring the relation between information exchange and limited resources. We show that a transition from cooperation to antagonism in the exchange of environmental information follows from a change in the availability of resources, from abundant to scarce. We then assume a non-competitive scenario with abundance of resources, where conflicts in a population occur only at a communicational (informational) level, rather than on the physical level, such as competing for (physical) resources. However, traditional Shannon communication is non-semantic, as opposed to the semantic communication observed in biological systems, which is necessary for capturing conflicts in communication. In the traditional use of information theory, it is assumed that every organism knows how to \interpret" the information offered by other organisms. However, this assumes that one \knows" which other organisms one observes, and thus which code they use. In our model, however, we wish to preclude that: namely, we will do away with the assumption that the identity of the organisms who send the messages and those who receive them is known, and the resulting usable information is therefore influenced by the universality of the code used and by which organisms an organism is \listening" to. We introduce a model which captures semantic communication in information-theoretic terms, where organisms talk to each other in a communication network. We show that, for particular population structures, when organisms cannot identify which other organisms they talk to, the adoption of a universal code emerges as a solution for full interpretation of the shared information. However, the evolution and establishment of universal codes for communication introduces vulnerabilities: organisms can be exploited by parasites. We de ne two types of parasites whose strategies have different levels of complexity and study the co-evolution of a host (the population) and a parasite by optimising their respective objective functions in stages. First, we consider a disruptive parasite (a troll) that inflicts harm in a host by minimising a population's mutual understanding, and then a more complex parasite, which manipulates the members of the population via their codes (the puppetmaster). We show emergent characterisations of both parasites, as well as which host configurations are robust against parasites and show adaptive properties. This thesis introduces a framework which allows the study of informational properties in the host-parasite co-evolution, where the rules of the parasite's habitat, the host, are the outcome of an evolutionary process, and where these very same rules are those that allow the parasite to exploit the host.

Este trabalho tem por objetivo analisar o potencial de desenvolvimento do contrato futuro de soja no Brasil, por meio da atração de hedgers brasileiros e argentinos. Para tanto, faz-se necessário conhecer os padrões das conexões dos preços entre as regiões analisadas. Nesse sentido, o Capítulo 2 investigou a integração espacial do mercado físico de soja no Brasil (região de Sorriso, no Mato Grosso) e na Argentina (região de Rosário, na província de Santa Fé) e comparou ao grau de integração com os Estados Unidos. Foram empregados modelos autorregressivos com threshold (TAR e M-TAR) e modelos vetoriais de correção de erros, lineares e com threshold (VECM e TVECM), visando captar os efeitos dos custos de transação sobre a integração espacial entre essas regiões. Os resultados apontaram que o mercado de soja brasileiro, argentino e norte-americano são integrados, mesmo considerando-se os efeitos dos custos de transação sobre as decisões de arbitragem espacial. Consequentemente, os preços da soja no mercado internacional tendem a refletir o comportamento dos principais países produtores. Apesar disso, o tempo de transmissão de choques de preços mostrou-se, em geral, menor entre Brasil e Argentina, refletindo a proximidade geográfica. Apontou-se também o comportamento assimétrico da transmissão desses choques, uma vez que choques positivos sobre a relação de longo prazo tendem a ser mais persistentes que os negativos. Se o contrato futuro reflete o comportamento de preços de um único mercado físico integrado, deve-se então esperar que o risco de base seja menor para este mercado e, portanto, que a eficiência do hedge seja maior. No Capítulo 3, o objetivo se constituiu em verificar se há maior eficiência no hedge realizado com os contratos com vencimento em março na CME em relação à BM&FBOVESPA, considerando-se as relações de longo prazo entre os preços à vista e futuros, bem como a dinâmica na estrutura de covariâncias condicionais, por meio de modelos de correção de erros (VECM) e modelos de heterocedasticidade condicional generalizados com correlação condicional dinâmica (DCC-GARCH). Os resultados mostraram que, em geral, a introdução da dinâmica nos segundos momentos das distribuições dos erros tende a aumentar a eficiência da estratégia de hedge. Além disso, foi observado que os produtores de Sorriso tendem a obter melhores condições de hedge na CME, embora haja redução da variância ao se operar na BM&FBOVESPA. Por outro lado, a eficiência do hedge para os produtores de Rosário foi significativamente maior na BM&FBOVESPA do que na CME, o que indica o mercado potencial de hedgers argentinos para negociar o contrato futuro de soja local no Brasil. / This work aims to analyze the potential for development of soybean futures contract in Brazil, through the attraction of Brazil and Argentina hedgers. Therefore, it is necessary to know the patterns of price connections between these regions. Chapter 2 investigated the spatial integration of the spot market for soybeans in Brazil (Sorriso in Mato Grosso State) and Argentina (Rosario in Santa Fe Province) and compared the degree of integration with the United States. They were employed autoregressive models with threshold (TAR and M-TAR) and vector error correction models, linear and threshold (VECM and TVECM), to capture the effects of transaction costs on the spatial integration of these regions. The results indicate that the soybeans market in Brazil, Argentina and United States are integrated, even considering the effects of transaction costs on the spatial arbitration decisions. Consequently, soybean prices in the international market tend to reflect the behavior of the main producing countries. Nevertheless, the timing of the price shocks transmission proved to be generally lower between Argentina and Brazil, reflecting the geographical proximity. It was pointed out also the asymmetric behavior of the shocks transmissions, since positive shocks on the long-term relationships tend to be more persistent than the negatives. If the futures contract reflects the behavior of prices from a single integrated physical market, one should then expect lower basis risk and therefore greater hedge efficiency. In Chapter 3, the goal was check for greater hedging efficiency using March contracts in CME compared to BM&FBOVESPA, considering the long-term relationships between spot prices and futures, as well as the dynamics in the structure of conditional covariance, using error correction model (ECM) and models of conditional heteroscedasticity widespread with dynamic conditional correlation (DCC-GARCH). The results showed that, in general, the introduction of the dynamic second moments of distributions of errors tends to increase the hedging efficiency. Moreover, Sorriso producers tend to get better hedge conditions in CME, although there is variance reduction when operating at BM&FBOVESPA. On the other hand, the hedge efficiency for Rosario producers was significantly higher on the BM&FBOVESPA than in CME, which indicates the potential market of Argentine hedgers to trade the futures contract local soybeans in Brazil.

Su, Yiwen. / Thesis (M.Phil.)--Chinese University of Hong Kong, 2009. / Includes bibliographical references (p. 76-84). / Abstract also in Chinese. / Abstract --- p.i / Acknowledgement --- p.iii / Chapter 1 --- Introduction --- p.1 / Chapter 2 --- Literature Review --- p.9 / Chapter 2.1 --- Hedge Ratio Review --- p.9 / Chapter 2.2 --- Estimating the Hedge Ratio --- p.13 / Chapter 2.2.1 --- Static Hedge Ratio --- p.13 / Chapter 2.2.2 --- "Dynamic Hedge Ratio, Multivariate GARCH Frame-work and DCC Model" --- p.14 / Chapter 3 --- Futures Market Efficiency --- p.19 / Chapter 3.1 --- Market Efficiency and Cointegration Test --- p.20 / Chapter 4 --- Model Specifications and Hedging Strategy --- p.24 / Chapter 4.1 --- Model Specifications --- p.24 / Chapter 4.1.1 --- BGARCH-DCC Model --- p.25 / Chapter 4.1.2 --- Symmetric BGARCH-DCC Model --- p.28 / Chapter 4.1.3 --- Asymmetric BGARCH-DCC Model --- p.31 / Chapter 4.2 --- Hedge Ratio --- p.33 / Chapter 4.2.1 --- MV Hedge Ratio --- p.34 / Chapter 4.2.2 --- Zero-VaR Hedge Ratio --- p.35 / Chapter 4.3 --- Evaluation of Hedge Effectiveness --- p.38 / Chapter 5 --- Data Description and Empirical Results --- p.39 / Chapter 5.1 --- Preliminary Data Analysis --- p.39 / Chapter 5.2 --- Estimation Results --- p.42 / Chapter 5.3 --- Dynamic Hedging Performance --- p.53 / Chapter 6 --- Conclusion --- p.68 / Chapter A --- Equation Derivation --- p.72 / Bibliography --- p.76

Cheung, Kwan Hung Edwin. / Thesis (M.Phil.)--Chinese University of Hong Kong, 2010. / Includes bibliographical references (leaves 39-40). / Abstracts in English and Chinese. / Chapter 1 --- Introduction --- p.1 / Chapter 2 --- The Levy Process --- p.4 / Chapter 2.1 --- Levy-Khintchine representation --- p.5 / Chapter 2.2 --- Variance Gamma process --- p.6 / Chapter 3 --- Minimum-Variance Static Hedge with Index futures --- p.8 / Chapter 3.1 --- Capital Asset Pricing Model with static hedge --- p.10 / Chapter 3.2 --- Continuous CAPM under Levy process --- p.11 / Chapter 4 --- Option pricing under Levy process --- p.15 / Chapter 4.1 --- Option pricing under the fast Fourier transform --- p.16 / Chapter 4.2 --- The modified fast Fourier transform on call option price --- p.19 / Chapter 5 --- Empirical Results --- p.23 / Chapter 5.1 --- Proposed model for empirical studies --- p.25 / Chapter 5.2 --- Calibration Procedure and Estimates of Betas --- p.26 / Chapter 5.3 --- Hedging performance of Betas --- p.32 / Chapter 6 --- Conclusion --- p.37 / Bibliography --- p.39

This study attempts to resolve two important issues. First, it investigates the diversification benefit of crude oil for equities. Second, it examines whether or not crude oil derivatives transactions by oil and gas producers can change shareholders' wealth. With these two major goals in mind, I study the risk and return profile of crude oil, the value effect of crude oil derivatives transactions, and the systematic risk exposure effect of crude oil derivatives transactions. In contrast with previous studies, this study applies the Goldman Sachs Commodity Index (GSCI) methodology to measure the risk and return profile of crude oil. The results show that crude oil is negatively correlated with stocks so adding crude oil into a portfolio with equities can provide significant diversification benefits for the portfolio. Given the diversification benefit of crude oil mixed with equities, this study then examines the value effect of crude oil derivatives transactions by oil and gas producers. Differing from traditional corporate risk management literature, this study examines corporate derivatives transactions from the shareholders' portfolio perspective. The results show that crude oil derivatives transactions by oil and gas producers do impact value. If oil and gas producing companies stop shorting crude oil derivatives contracts, company stock prices increase significantly. In contrast, if oil and gas producing companies start shorting crude oil derivatives contracts, stock prices drop marginally significantly. Thus, hedging by producers is not necessarily good. This paper, however, finds that changes in policy regarding crude oil derivatives transactions cannot significantly affect the beta of shareholders' portfolios. The value effect, therefore, cannot be attributed to any systematic risk exposure change of shareholders' portfolios. Market completeness, transaction costs, and economies of scale are identified as possible sources of value effect. The following conclusions have been obtained in this study. Crude oil provides significant diversification benefits for equities. In the presence of market imperfections, crude oil derivatives transactions by oil and gas producers may change shareholders' wealth, even though crude oil derivatives transactions by oil and gas producers do not have significant effect on the systematic risk exposures of companies.

Hedges, or hedging devices, are strategies that the writer or speaker can use in order to convey probability, impreciseness or vagueness. Hedges can appear in most parts of speech, for example as adjectives, adverbs or modal or lexical verbs. This study investigates the translation of hedging devices in a non-fiction text from English to Swedish. It also discusses the translation strategies used when rendering the hedging devices in the target language. The primary source of this study was a non-fictional academic text on American architectural history. The method consisted of identifying and categorizing the hedging devices of the source text and then identifying the manner in which they were translated. In the quantitative analysis, it was found that the most frequently used translation strategy was retention, i.e. literal translation, but modification and omission were also found. It was also determined that the target text used a slightly higher number of hedging devices, which could suggest a cross-cultural difference between the languages. The qualitative analysis, supported by corpora and parallel texts, found that modification occurred due to cross-cultural differences or translator preferences. Omission mainly occurred when multiple hedging devices appeared in the same sentence and the function of the omitted hedge could be inferred by the surrounding hedges.

Credit derivatives are among the most criticized financial instruments in the current credit crises. Given their short history, finance professionals are still researching to discover effective ways to reduce the mark-to-market (MTM) volatility in credit derivatives, especially in turbulent market conditions. Many credit portfolios have been struggling to find out appropriate tools and techniques to help them navigate the current credit crises and hedge mark-to-market volatility in their portfolios. In this study we provide a tool kit to help reduce the pricing fluctuations in structured credit portfolios utilizing data analysis and statistical methods. In Chapter One we provide a snapshot of credit derivatives market by summarizing different types of credit derivatives; including single-name credit default swaps (CDS), market credit indices, bespoke portfolios, market index tranches, and bespoke tranches (synthetic CDOs). In Chapter Two we illustrate a method to calculate a stable hedge ratio (beta) by combining industry practices and statistical techniques. Choosing an appropriate hedge ratio is critical for funds that desire to hedge mark-to-market volatility. Many credit portfolios suffered 40%-80% market value losses in 2008 and 2009 due to the mark-to-market volatility in their long positions. In this chapter we introduce ten different betas in order to hedge a long bespoke portfolio by liquid market indices. We measure the effectives of these betas by two measures: Stability and mark-to-market volatility reduction. Among all betas we present, we deduct that the following betas are appropriate to be used as hedge ratios: Implied Beta, Quarterly Regression Beta on Spread Levels, Yearly Regression Betas on Spread Levels, Up Beta, and Down Beta. In Chapter Three we analyze the risk factors that impact the MTM volatility in CDS tranches; namely Spread Risk, Correlation Risk, Dispersion Risk, and Curve Risk. We focus our analysis in explaining the risks in the equity tranche as this is the riskiest tranche in the capital structure. We show that all four risks introduced are critical in explaining MTM volatility in equity tranches. We also perform multiple regression analysis to show the correlations between different risk factors. We show that, when combined, spread, correlation, and dispersion risks are the most important risk factors in analyzing MTM fluctuations in equity tranche. Curve risk can be used as an add-on risk to further explain local instances. After understanding various risk factors that impact the MTM changes in equity tranche, we put this knowledge to work to analyze two instances in 2008 in which we experienced significant spread widening in equity tranche. Both examples show that a good understanding of the risks that drive MTM changes in CDS tranches is critical in making informed trading decisions. In Chapter Four we focus on two topics: Portfolio Stratification and Index Selection. While portfolio stratification helps us better understand the composition of a portfolio, index selection shows us which indices are more suitable in hedging long bespoke positions. In stratifying a portfolio we define Class-A as the widest credits, Class-B as the middle tier, and Class-C as the tightest credits in a credit portfolio. By portfolio stratification we show that Class-A has significant impact on the overall portfolio. We use five different risk measures to analyze different properties of the three classes we introduce. The risk measures are Sum of Spreads (SOS), Sigma/Mu, Basis Point Volatility (BPVOL), Skewness, and Kurtosis. For all risk measures we show that there is high correlation between Class-A and the whole portfolio. We also show that it is critical to monitor the risks in Class-A to better understand the spread moves in the overall portfolio. In the second part of Chapter Four, we perform analysis to find out which credit index should be used in hedging a long bespoke portfolio. We compare four credit indices for their ability to track the bespoke portfolio on spread levels and on spread changes. Analysis show that CDX.HY and CDX IG indices fits the best to hedge our sample bespoke portfolio in terms of spread levels and spread changes, respectively. Finally, we perform multiple regression analysis using backward selection, forward selection, and stepwise regression methods to find out if we should use multiple indices in our hedging practices. Multiple regression analysis show that CDX.HY and CDX.IG are the best candidates to hedge the sample bespoke portfolio we introduced.

This thesis examines the empirical performance of four Affine Jump Diffusion models in pricing and hedging S&P 500 Index options: the Black Scholes (BS) model, Heston???s Stochastic Volatility (SV) model, a Stochastic Volatility Price Jump (SVJ) model and a Stochastic Volatility Price-Volatility Jump (SVJJ) model. The SVJJ model structure allows for simultaneous jumps in price and volatility processes, with correlated jump size distributions. To the best of our knowledge this is the first empirical study to test the hedging performance of the SVJJ model. As part of our research we derive the SVJJ model minimum variance hedge ratio. We find the SVJ model displays the best price prediction. The SV model lacks the structural complexity to eliminate Black Scholes pricing biases, whereas our results indicate the SVJJ model suffers from overfitting. Despite significant evidence from in and out-of-sample pricing that the SV and SVJ models were better specified than the BS model, this did not result in an improvement in dynamic hedging performance. Overall the BS delta hedge and SV minimum variance hedge produced the lowest errors, although their performance across moneyness-maturity categories differed greatly. The SVJ model???s results were surprisingly poor given its superior performance in out-of-sample pricing. We attribute the inadequate performance of the jump models to the lower hedging ratios these models provided, which may be a result of the negative expected jump sizes.

The aim of this thesis is to investigate how members of Australian superannuation funds can manage risks arising from uncertain security returns and unpredictable mortality so as to ensure a steady income stream during retirement. In chapter 2 we note that the proportion of superannuation assets invested in foreign assets has increased over the past two decades, exposing investors to currency risk. Surveys of superannuation funds verify that most international bond holdings, but not equity holdings, have been hedged for currency risk. We test the mean-variance efficiency of this practice against two alternative hedging strategies: a conventional forward hedge and a selective hedge conditioned on the domestic-foreign interest differential. Implementing optimal hedging results in portfolios whose returns stochastically dominate portfolios constructed under restricted equity hedging, according to our new adaptation of Barrett-Donald (2003) tests. Selective hedging works best for equities and conventional hedging for bonds. Chapter 3 applies a discrete-time Merton (1971) model to questions of optimal decumulation and asset allocation for self-funded retirees drawing down lump-sum retirement benefits. Risk management is taken to revolve around protecting a pre-specified minimum consumption stream. Risk tolerances and lifetimes are allowed to span a range of possibilities. In the case of an agent living to age 90, ideal investment in equity-type assets increases gradually from 27-43 % over remaining life. This is much lower than the 55-60% observed among retirees. Conservative investment strategies are needed to meet consumption goals over long lifetimes. Milevsky and Young (2002, 2003) attribute the reluctance to voluntarily annuitise to a valuable real option to delay annuitisation (RODA). Chapter 4 extends the RODA analysis to the case of HARA preferences. A formula for the optimal timing of annuitisation is derived from the solution to a dynamic stochastic consumption and investment problem with uncertain lifetime. The effect of introducing a consumption floor is to reduce the delay before annuity purchase. As in the CRRA case, delayed annuitisation is associated with optimistic predictions of the Sharpe ratio and divergence between annuity purchaser and provider predictions of mortality.