The concept of emerging markets came to surface in early 1980 and constituted of only eight countries from the two continents of South America and Asia. The globalization of financial markets has since raised the importance of emerging capital markets. We take a quantitative approach to investigate the performance of emerging markets compared to developed markets. The aim of the study is to conclude if emerging markets offers investment value and if logic in portfolio theory can be used to improve the chance of creating a relatively better performing investment. Included markets in our study are Brazil, Russia, India, China, Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa. S&P 500 is our benchmark for developed market performance. Sample period is 2002-01-01 to 2011-12-31 and monthly return data, creating 120 data points on each index.   The weighting schemes used for the portfolios are min variance optimization, geographical location and high and low correlation. All investments are scored on performances in correlation to S&P 500, inflation adjusted growth, currency effect, Sharpe ratio, skewness and kurtosis. Rankings are done on the separate categories, on the individual overall ranking on only countries and one overall ranking on all investments. A brief overview of the overall ranking for all investments suggest that medium performing investments are overrepresented (12/20) and the low and high is underrepresented (3/20 and 5/20). Of note is that the min variance portfolio outperforms its components, the geographical portfolios have a wide range and the high correlated portfolio outperforms the low. The country to portfolio ratio over each grade suggests only a small skew of the results. There is no low scoring portfolio but the other two ratios are close to 50/50, suggesting that on average the portfolios create diversification benefits. Furthermore normality of returns seem to be violated and then the concept of volatility as a risk measure is significantly impaired also currency risk can be of high importance, currency effects ranged from -48% to 28.7%. Assuming non-normality seems more accurate than assuming normality; therefore we need to improve on volatility as a tool to measure risk. So one direction for further research we see a need is in the concept of volatility. The initial reason for this research came from small investors’ seemingly intuitive knowledge that emerging markets are a suitable investment option. We have concluded that they in fact are, therefore we suggest that a qualitative study is conducted to investigate this seemingly natural intuition.

<p>This dissertation is a collection of papers with the unifying objective being to better understand crash risk in foreign exchange markets. I investigate how exposure to the risk of currency crashes is able to provide a unified rationalization of the returns of various sorted currency portfolios.</p><p>In the first chapter, I identify an aggregate global currency skewness risk factor, which I denote SKEW. Currency portfolios that have higher average excess returns covary more positively with this risk factor. They suffer losses in times when high interest rate investment currencies have a greater tendency to depreciate sharply as a group relative to low interest rate funding currencies. Consequently, they earn higher average excess returns as reward for exposure to this risk. I create three sets of sorted currency portfolios reflecting three distinct sources of variation in average excess currency returns. The first set sorts currencies based on interest rate differentials. The second set sorts currencies based on currency momentum. The third set sorts currencies based on currency undervaluedness relative to purchasing power power parity (PPP) implied exchange rates. I find that differences in exposure to the global currency skewness risk factor can explain the systematic variation in average excess currency returns within all three groups of portfolios much better than existing foreign exchange risk factors in the literature.</p><p>In the second chapter, I build on the first chapter by studying the extent to which currency crash risk is predictable or unpredictable and whether the pricing power of aggregate currency skewness, uncovered in the first chapter, is due to unpredictable or predictable crash risk. Focusing on currency crash risk proxied using realized currency skewness at both the individual currency level and at the aggregate level using the SKEW risk factor introduced in the first chapter, I investigate whether either form of crash risk is predictable using only past information about crash risk. In particular, I use past information on both individual currency level and aggregate level measures based on both lagged realized currency skewness and lagged option implied risk neutral skewness. I find evidence that there is not much predictability at the individual country level or at the aggregate level over the full sample period considered. However, there is some evidence of predictability at the aggregate level since 1999, and especially so when option implied risk neutral skewness measures are used. Additionally, I use the predictions of SKEW and conduct asset pricing similar to that in chapter 1 using predicted and unpredicted SKEW to see whether its pricing power comes from predictable or unpredictable components. I find evidence that it is unpredictable currency crash risk that is very important, as the asset pricing results are largely identical when either SKEW or SKEW forecast errors are used. and whether the pricing power of</p> / Dissertation

The present study investigates longshore sediment transport for a variety of bathymetric and wave conditions using the National Oceanic Partnership Program (NOPP) NearCoM Model. The model is used to determine the effects of wave shape and bathymetry changes on the resulting longshore sediment transport. The wave drivers, REF/DIF 1 and REF/DIF S, are used to assess the effects of monochromatic and spectral waves on longshore sediment transport, respectively. SHORECIRC is used as the circulation module and four different sediment transport models are used. Longshore transport comparisons are made with and without skewed orbital velocities in the shear stress and current velocities. It is found that the addition of skewed orbital velocities in shear stress and transport formulations increases longshore sediment transport by increasing time-varying effective shear stress. The addition of skewed orbital velocities greatly increases the transport due to advection by waves. The localized longshore sediment transport is calculated using a generic physics based method and formulas by Bagnold, Bailard, and Bowen, Watanabe, and Ribberink. The transport results for each scenario are compared to the total transport CERC, Kamphuis, and GENESIS formulas. The bathymetries tested include an equilibrium beach profile, cusped beach profiles, and barred beach profiles with different bar locations. The longshore transport on an equilibrium beach profile is modeled for a 0.2 mm and 0.4 mm grain size and transport is compared to the CERC formula. The longshore sediment transport for d=0.2 mm is larger than d=0.4 mm when wave power is small, but as wave power increases the transport for the larger grain size dominates. The transport is also affected by the addition of cusps and bars on an equilibrium beach profile. The barred beach is modified to compare transport between waves breaking at the bar, before the bar, and after the bar. The features affect the transport when the wave powers are small, but as wave heights increase the cusp and bar features induce little change on the longshore sediment transport.

The aim of the present study is to investigate a probability distribution that can be derived from the laplace probability distribution and can be used to model various real world problems. In the last few decades, there has been a growing interest in the construction of flexible parametric classes of probability distributions. Various forms of the skewed and kurtotic distributions have appeared in the literature for data analysis and modeling. In particular, various forms of the skew laplace distribution have been introduced and applied in several areas including medical science, environmental science, communications, economics, engineering and finance, among others. In the present study we will investigate the skew laplace distribution based on the definition of skewed distributions introduced by O'Hagan and extensively studied by Azzalini. A random variable X is said to have the skew-symmetric distribution if its probability density function is f(x) = 2g(x)G(lambda x), where g and G are the probability density function and the cumulative distribution function of a symmetric distribution around 0 respectively and lambda is the skewness parameter. We will investigate the mathematical properties of this distribution and apply it to real applications. In particular, we will consider the exchange rate data for six different currencies namely, Australian Dollar,Canadian Dollar, European Euro, Japanese Yen, Switzerland Franc and United Kingdom Pound versus United States Dollar. To describe a life phenomenon we will be mostly interested when the random variableis positive. Thus, we will consider the case when the skew Laplace pdf is truncated to the left at 0 and we will study its mathematical properties. Comparisons with other life time distributions will be presented. In particular we will compare the truncated skew laplace (TSL) distribution with the two parameter Gamma probability distribution with simulated and real data with respect to its reliability behavior. We also study the hypoexponential pdf and compare it with the TSL distribution. Since the TSL pdf has increasing failure rate (IFR) we will investigate a possible application in system maintenance. In particular we study the problem related to the preventive maintenance.

Sharpekvoten är ett av de mest frekvent använda prestationsmåtten för fonder. Kvoten beskriver en fonds riskjusterade avkastning genom att dividera dess överavkastning med dess standardavvikelse. Måttet har emellertid fått kritik på flera områden och visat sig vara missvisande under vissa scenarion, något som även denna studie påvisar. Studien bygger på en kvantitativ metod där ett stickprov används för att beskriva den studerade populationen; Sverigefonder. Studiens resultat visar att Sverigefonders avkastning inte är normaldistribuerad, något som är ett grundantagande vid Sharpekvots-beräkningen då fondens standardavvikelse används. Resultaten visar att samtliga observationers avkastningsdistribution antingen är positiv eller negativs skev, vilket leder till att standardavvikelsen konsekvent över- eller underskattar tillgångens risk. Tidigare studier betonar att även avkastningsdistributionens skevhet har betydelse vid investeringar. Denna aspekt återspeglas dock inte i den traditionella Sharpekvoten och författaren presenterar därför en egen modifikation av måttet där avkastningsdistributionens skevhet adderas. Studiens resultat bör tolkas ur ett behavior-finance-perspektiv, där människor antas ha olika tidshorisont för investeringar, inte antas agera rationellt, samt påverkas känslomässigt av marknadshändelser. Med det som utgångspunkt adderar avkastningsdistributionens skevhet värdefull information för investeraren, bortom fondens medelavkastning och standardavvikelse som enligt modern portföljteori är de enda två aspekterna en investerare har preferenser om. En ytterligare aspekt som påvisas i studien är att det tycks finnas en osund informationsassymetri mellan spararna och fondkommissionerna, samt strukturella incitament för att behålla denna. Detta kan ses som en förklaringsgrund till det minskade förtroendet som växt fram för de aktivt förvaltade fonderna. Författaren föreslår ökad transparens från fondkommissionernas sida och ser en presentation av en skevhetsjusterad Sharpekvot som ett steg på vägen. Studien bidrar till tidigare forskning genom att empiriskt påvisa fördelen med en modifikation av Sharpekvoten som adderar informationsvärde för investerarna. / The Sharpe ratio is one of the most frequently used performance measures for funds. The ratio is describing a fund’s risk adjusted return by dividing its excess return by its standard deviation. The measure has been subject to critique in several areas and has shown to be misleading under certain scenarios, something that this study also indicates. The study is conducted based on a quantitative method where a sample is used to describe the target population; Sverigefonder. The results of the study shows that Sverigefonders return is not normally distributed, something that is elementary assumed when calculating the Sharpe ratio by the usage of the standard deviation. The results show that all the observations’ return distribution either is positively or negatively skewed. The implication of that is that the standard deviation consistently either over- or under estimates the asset’s risk. Previous studies emphasize that the skewness of the return distribution is of importance as well when investing. This aspect is not reflected though in the traditional Sharpe ratio and the author is therefor presenting an own modification of the performance measure where the skewness is added to the ratio. The results of the study should be interpreted from a behavior finance perspective, where investors are assumed to have different time horizons for investing, act irrational, and reacting emotionally to market events. With those aspects as the premise, the skewness of the return distribution is adding valuable information for the investor, beyond the fund’s average return and standard deviation, which are the only two aspects that the investor has a preference regarding according to modern portfolio theory. One additional aspect that is shown in the study is that there seems to exist an unhealthy information asymmetry between the investors and the fund commissions, and structural incentives to keep it. This can be seen as a suggestion of explanation to the lowered trust for the actively managed funds. The author is proposing enhanced transparency for the fund commissions and sees the presenting of a skewness-adjusted Sharpe ratio as a step in that direction. This study is contributing to previous research by empirically showing the advantage off presenting a modification of the Sharpe ratio, which adds additional information to the investors.

No description available.

No description available.

O Objetivo deste trabalho é usar uma ferramenta matemática conhecida como expansão de Edgeworth em conjunto com a moderna teoria de análise de derivativos financeiros que utilizam o método de precificação neutra ao risco. Tal expansão permite obter uma função densidade de probabilidade com assimetria e curtose arbitrárias a partir de uma densidade normal. Desta forma, podemos usar esta nova distribuição como a state price density do ativo-objeto procurando corrigir o sorriso da volatilidade através da definição de funções de probabilidade com assimetrias positivas ou negativas e curtose maior de que três. Além disso esperamos também chegar a uma nova maneira de realizar o delta hedge de uma carteira de replicação de modo mais eficiente do que a de Black-Scholes. / There is a well-developed framework, the Black?Scholes theory, for the pricing of contracts based on the future prices of certain assets, called options. This theory assumes that the probability distribution of the returns of the underlying asset is a Gaussian distribution. However, it is observed in the market that this hypothesis is 2awed, leading to the introduction of a fudge factor, the so-called volatility smile. Therefore, it would be interesting to explore extensions of the Black?Scholes theory to non-Gaussian distributions. In this paper, we provide an explicit formula for the price of an option when the distributions of the returns of the underlying asset is parametrized by an Edgeworth expansion, which allows for the introduction of higher independent moments of the probability distribution, namely skewness and kurtosis. We test our formula with options in the Brazilian and American markets, showing that the volatility smile can be reduced. We also check whether our approach leads to more e6cient hedging strategies of these instruments.

A utilização do modelo de Black-Scholes e suas extensões na precificação de opções é bastante difundida tanto na academia quanto no mercado financeiro. O objetivo deste trabalho foi avaliar o desempenho de um modelo alternativo de precificação de opções em relação ao do modelo de Black na precificação de opções sobre futuro de dólar. Mais especificamente, a partir de hipóteses sobre o comportamento agregado da economia, da trajetória de preços de ativos e das preferências a risco dos agentes econômicos, é possível reconciliar uma condição de equilíbrio parcial, necessária para a precificação de opções, com uma condição de equilíbrio geral da economia. Essa reconciliação é obtida a partir da escolha cuidadosa de pares de preferências a risco e distribuições e possibilita a obtenção do preço de equilíbrio livre de preferências de um derivativo lançado sobre um dado ativo-objeto. O presente estudo utiliza os resultados de uma generalização recente feita por Câmara (2003), que demonstrou como distribuições e preferências podem ser combinadas de forma que se obtenham fórmulas fechadas para precificação de opções. Particularmente, assume-se que os preços do contrato futuro de dólar possuem distribuição lognormal com assimetria negativa, hipótese que resulta em uma fórmula alternativa de precificação de opções lançadas sobre esse contrato. O modelo obtido foi matematicamente contrastado com o modelo de Black, o que possibilitou que as implicações nos preços das opções, resultantes da premissa de assimetria negativa, fossem evidenciadas. Os desempenhos dos modelos foram comparados com base nos preços de mercado das opções. Os resultados alcançados sugerem que , em geral, o modelo de Black apresenta desempenho melhor que o modelo alternativo na precificação de opções sobre futuro de dólar. / The utilization of the Black-Scholes option pricing model is widespread, in both the academe and the market. Additionally, the literature related to its generalizations and adaptations is vast. Of particular importance are works concerning new sufficient conditions for existing risk-neutral option pricing equations. Under a new set of propositions on distributions and preferences, Câmara (2003) derived new analytical solutions for the price of European-style contingent claims. The objective of the present study was to adapt and test an option pricing model that was derived by Câmara (2003). Particularly, the tested model assumes that the underlying asset, in this case the US dollar futures contract traded on the Brazilian Mercantile & Futures Exchange, follows a negatively skew lognormal distribution. The performance of the alternative model was compared to that of the Black model, the standard model used in the market to price such options. More specifically, the performances of both models were measured against the market prices of US dollar futures options. Also, considerations about the validity of the negative skew lognormal hypothesis were made and a mathematical analysis of the differences in the prices generated by the two models was carried out. In the end, although the alternative model produces, in some cases, prices that are closer to the market’s, the evidences suggest that, in general, the Black model performs better than the alternative one.

The diploma thesis is concerned with analysis of behavior of bettors on horse races. The aim is to test the hypothesis that bettors prefer skewness and they are risk averse. In the thesis is used the method of empirical data collection of horse racing in the Czech Republic and their subsequent testing using a regression model. The testing of the presented model did not confirm the hypothesis of skewness preference in the case of betting on horse races in the Czech Republic.