Exotic Products Research Articles

Practical Applications of Are Flows Costly to ETF Investors?

As ETFs evolve to include more exotic products, cash creation and redemption is becoming a more common strategy for investors to gain exposure to less-liquid, difficult-to-trade assets, particularly in emerging markets. In <b><i>Are Flows Costly to ETF Investors?</i></b>, <b>Gerald Buetow</b> and <b>Brian J. Henderson</b> examine whether or not cash creations and redemptions are costly to investors. Buetow is Chief Investment Officer at <b>Innealta Capital</b>, in Charlottesville, Virginia, and Henderson is an Assistant Professor of finance at the <b>George Washington University</b>, in Washington, DC. “The idea was that, if we are going to incorporate these exposures into our various strategies, then we should be able to understand the implicit cost of the exposures, ” <b>Buetow</b> explains. “This research attempts to better quantify those costs. ” <b>TOPICS:</b>Exchange-traded funds and applications, exchanges/markets/clearinghouses, in markets

Model01: Quantifying the Risk of Incremental Model Changes

DV01, the dollar value impact of a 1 basis point change in a yield curve is one of the most basic and widely used measures of market risk. Similar quantities and sensitivities have been defined for other parameters or “risk drivers” for a given, fixed model. In this present work we provide a meaningful and intuitive notion of Model01, which attempts to capture the analogue of a “1 basis point” bump in the space of models, beyond simple parametric changes. Importantly, our technique successfully calibrates each of these bumped models to the same set of liquid reference contracts. This turns out to be fundamental for a proper assessment of Model01 among exotic portfolios, and allows a meaningful comparison of the Model01 dollar value against the total reference price of a portfolio. Using the same procedure, it is possible to compute Model01 for single trades or portfolios of multiple trades, across different asset types and underliers, due to the flexibility of Weighted Monte Carlo techniques, on which it relies. The literature on quantification of model risk is limited. We will highlight the main features of R. Cont on model uncertainty and P. Glasserman and X. Xu on model risk, and compare Model01 against these approaches. The contributions from the present effort are manifold. We put forward the Hellinger distance as a more intuitive and genuine metric in the space of probability distributions, in contrast with relative entropy, which is more commonly used in the financial literature. We highlight connections between Model01 and an active area of research called information-geometry. This field applies the methods of differential geometry to the problem of statistical inference, and in particular, the problem of defining intuitive notions of distances across probability distributions. The problem at hand is strongly related, with a meaningful quantification of model uncertainty calling for a normalized measure of distances in the space of models. A fruitful connection and further explorations of these ideas should come then as no surprise. We motivate an interpretation of relative entropy as a distance squared. We employ this to analyze P. Glasserman and X. Xu techniques and cast them in rescaled units, revealing a linear dependence of their risk profiles which can be explained and proved. To the authors' best knowledge, these contributions represent novel undertakings in the financial literature, with the Hellinger distance, the interpretation of relative entropy and the introduction of information-geometry techniques being put forward in the context of model sensitivity for the first time in this present work. We apply the techniques of information geometry to shed light into relative entropy and the Hellinger distance, and reveal a natural Riemannian geometric structure in the parameter space of the alternative, bumped models used to compute Model01. The application of these concepts further enriches the interpretation of our results. Armed with these techniques, we demonstrate that Model01 intrinsically depends on the effective marginal covariance between a set of liquid instruments used for model calibration, and a portfolio of more exotic products. As the level of “exoticity'' or illiquidity of this portfolio increases, so does Model01. Model01 represents a flexible tool, potentially applicable to a wide variety of financial instruments, providing a glimpse into portfolios' model sensitivity, in a unified way.

The Philippine Islands: a vital crossroads during the first globalization period

The first globalization is a concept which should be interpreted as the period during which a system of exchanges of every kind (human, economic, cultural) was established between the different continents, unknown to each other until the last decade of the 15th century. After being conquered by Spain in 1565, the Philippine Islands represented a vital crossroads in this process. Firstly, the islands acted as a major distributor of Mexican silver in the Pacific sphere. Secondly, they were Spain’s launching pad for access to neighbouring kingdoms (China, Japan, the countries of Southeast Asia, the Spice Islands), with which it was connected by means of trade, missionary activities, diplomacy and sometimes war. News, learning and exotic products were taken from the islands to Mexico and other parts of Spanish America. Lastly, the Philippine Islands were connected directly to the mother country following the opening of the Cape of Good Hope route by various ships, dispatched first by the Navy, then by private trading companies and lastly, by the Royal Company of the Philippines. The Seville (or Cadiz)-Veracruz-Mexico City-Acapulco-Manila axis, with movement in both directions, served as a permanent route for the exchange of precious metals and exotic products.

Teste de germinação em sementes de Cucumis metuliferus E. Mey

O kino (Cucumis metuliferus E. Mey) é uma olerícola de ampla distribuição geográfica, com aumento significativo em relação à comercialização no mundo inteiro, devido não só à sua vida útil ser muito longa em temperatura ambiente, como também pela constante busca do mercado consumidor por produtos exóticos. Assim, a demanda e a comercialização de suas sementes estão aumentando, gerando a necessidade do estabelecimento de padrões estaduais e federais e do desenvolvimento de metodologias adequadas para a avaliação da qualidade delas. Dessa maneira, o objetivo deste trabalho foi determinar a metodologia quanto ao substrato, temperatura e tempo de contagem para o teste de germinação em sementes de kino. As avaliações constaram de quatro substratos: rolo de papel, sobre papel, entre areia e sobre areia e quatro temperaturas: 20, 25 e 30°C constantes e 20-30°C alternada. O efeito dos substratos e temperaturas sobre o desempenho das sementes foi avaliado pelo teste de germinação, índice de velocidade e tempo médio de germinação. O experimento foi instalado em delineamento inteiramente ao acaso, com os tratamentos distribuídos em esquema fatorial 4 x 4 (substratos x temperaturas), com quatro repetições. O teste de germinação em sementes de kino deve ser realizado no rolo de papel, à temperatura constante de 25°C ou alternada de 20-30°C, com a contagem inicial e final, no quinto e décimo dia, respectivamente.

Identifying Preferable Product Variants Using Similarity Analysis

Analyzing the sales process of many companies in the field of mechanical engineering leads to the conclusion that companies try to satisfy customer requirements at any price instead of offering standard or slightly modified variants to the customer. That would cause much less internal effort. As a result, exotic product variants are often sold unprofitably, since dissimilar products are, of course, more expensive than standard variants due to higher adjustment costs for their development. Until now there is no systematic approach that identifies and visualizes preferable variants for different segments which can be offered to the customer in order to set an anchor for the following configuration and detailing of the product variant. In this paper, a methodology is presented that allows companies to describe and visualize product variants from different perspectives in an integrated way based on similarities between product variants. The paper focuses on the identification and visualization of similarities between product variants and the determination of preferable product variants in different product segments. Similarities are identified with the help of features and specifications covering two major levels: the market level and the customer requirements level. Similarities between product variants are shown on each level by multidimensional scaling, which allows a simple visual evaluation.

A Review: Synthesis of Carbon-Based Nano and Micro Materials by High Temperature and High Pressure

This review covers the production of solid carbonaceous materials at high temperatures (above 500 °C) and high pressures. The review orders the high temperature/high pressure (HTHP) studies by their final product categories, namely carbon spheres, prolate spheroids (also known as ellipsoids and olivaries), nanotubes, and others such as diamonds, fullerenes, composites, and nanostars. The mechanisms as well as the properties of the products are discussed. In particular, the literature pertaining to the production of carbon ellipsoids has been collected for the first time. On one hand, the review concludes that, due to the existence of other conventional and more practical methods, the production of nanotubes and spheres via HTHP does not appear to be industrially feasible. On the other hand, using the HTHP method to produce olivary carbons and other new and exotic products seems attractive due to the absence of conventional methods for their production.

A General Parametrization of Correlation Matrix for a Multidimensional Stochastic Volatility Model

Recent evolutions of the business of exotic products has rendered the use of stochastic volatility models necessary. Calibration of single stochastic volatility models has already been discussed in several articles. The purpose of this paper is to build a parameterization of the correlation matrix of a multidimensional model with stochastic volatility, given that:1. The correlation between each asset and its volatility is specified.2. The correlations between different assets are specified.In the following, we propose a parameterization of the set satisfying the two constraints. This parameterization can be used to calibrate the correlations between single underlying models, and provides a range of attainable prices for standard exotic products.

Heavy metal analysis in commercial Spirulina products for human consumption

For consumption of health foods of Spirulina, by the general public, health food stores are increasingly offering more exotic products. Though Spirulina consumption is growing worldwide, relatively few studies have reported on the quantities of heavy metals/minerals they contain and/or their potential effects on the population’s health. This study reveals the concentrations of six typical heavy metals/minerals (Ni, Zn, Hg, Pt, Mg, and Mn) in 25 Spirulina products commercialized worldwide for direct human consumption. Samples were ground, digested and quantified by Coupled Plasma Mass Spectroscopy (ICP–MS). The concentrations (mg/kg d.w.) were range from 0.001 to 0.012 (Pt) followed by 0.002–0.028 (Hg), 0.002–0.042 (Mg), 0.005–2.248 (Mn), 0.211–4.672 (Ni) and 0.533–6.225 (Zn). The inorganic elements of the present study were significantly lower than the recommended daily intake (RDI) level of heavy metal elements (mg/daily) Ni (0.4), Zn (13), Hg (0.01), Pt (0.002), Mg (400) and Mn (4). Based on this study the concentration of inorganic elements was not found to exceed the present regulation levels, and they can be considered as safe food.

Flogging a dead horse

Flogging a dead horse

CMS, CMS SPREADS AND SIMILAR OPTIONS IN THE MULTI-FACTOR HJM FRAMEWORK

Constant maturity swaps (CMS) and CMS spread options are analysed in the multi-factor HJM framework. For Gaussian models, which include a version of the Libor Market Models and the G2++ model, explicit approximated pricing formulae are provided. Two approximating approaches are proposed: an exact solution to an approximated equation and an approximated solution to the exact equation. The first approach borrows from previous literature on other models; the second approach is new. For the latter, the price approximation errors are smaller than in the previous literature and negligible in practice. These approaches are being used here to price standard CMS and CMS spreads and can be used for other European exotic products.

Niche Commodities and Rural Poverty Alleviation: Contextualizing the Contribution of Argan Oil to Rural Livelihoods in Morocco

Integration of many remote regions into the global economy has brought an increasing array of exotic products from rural areas in the developing world to the plates and cupboards of wealthy consumers. This article contributes to the growing literature that looks at the role of global consumers in social and environmental governance. We examine a set of global commodities that, due to their high value, retail at prices well beyond usual agricultural products, giving wealthy consumers great influence over livelihood and land use choices in producer regions. Proponents assert this kind of commercialization will alleviate rural poverty. We identify necessary conditions for this to happen in general and consider the specific case of argan oil, produced in Morocco and sold abroad for prices above US$400 per liter. Using a livelihood approach drawing on geography and related fields, we test the claim that niche commodity trade alleviates poverty in this specific setting. We find that argan oil commercialization has played a relatively minor role in household budgets and asset accumulation, whereas nonfarm work and remittances play a greater role. Our results show the importance of a livelihood approach in contextualizing commodity chains. We conclude that the poverty alleviation effects of niche commodity marketing are context dependent and influenced by agro-ecological conditions, resource scarcity, resource ownership regime, and characteristics of the value chains.

Species Risk Assessment of Microscopic Exotic Organisms Associated with Forest-Related Commodities and Goods

ABSTRACT Recent increases in international trade have increased the cost to control and eradicate exotic species. Although many species are under quarantine control for agriculture, forestry, and public health, most species invisible to the naked eye are ignored because of the lack of both specialized assessors and risk assessments. We developed a species risk assessment particularly adapted to fungi, nematodes, and mites, that might be unintentionally introduced with exotic forest products and become threats to terrestrial ecosystems. We developed our assessment with reference to existing risk assessments for exotic organisms, including their ecological features such as phoresy and parasitism. We then tested our assessment with well-known organisms and assessed the risks of organisms unintentionally introduced into Japan. The assessment demonstrated scientifically acceptable scores for each organism. We suggest quarantine control of risk pathways as a practical approach for controlling unintentionally introduced organisms that are invisible to the naked eye.

Analyzing Determinants of Foreclosure of Middle-Income Borrowers of Color in the Atlanta, GA Metropolitan Area

Foreclosures have disproportionately affected borrowers and communities of color. Many studies have concentrated on the nation and specific metropolitan areas, but few academic studies have focused on Atlanta. Using a merged data set consisting of Home Mortgage Disclosure Act (HMDA), U.S. Census, and Lender Processing Services (LPS) data and utilizing a logistic regression model, we analyze the likelihood of foreclosure in the Atlanta, GA metropolitan area. We find that African American borrowers are 52 percent and Hispanic borrowers 159 percent more likely to go into foreclosure, controlling for key financial variables. We also find that African American middle-income borrowers are 35 percent more likely to go into foreclosure. Moreover, we find that exotic mortgage products, such as balloon mortgages, adjustable rate mortgages (ARMs) and mortgages with a prepayment penalty have a higher likelihood of foreclosure than standard 30-year fixed rate mortgages.

On bounds for model calibration uncertainty

For a given derivative pricing model and an exotic product, it is natural to ask the following question: if the model prices calibration instruments within their bid-ask spreads (or otherwise, given the model calibration error), what is the uncertainty of the exotic product valuation? This model calibration uncertainty can be defined using Cont's coherent model risk measure. Lower and upper bounds are obtained for this model risk measure that depend only on the model itself and its calibration, not on a particular choice of the modeling parameters. A series of related questions is then discussed.

Illegal cross-border trade of protected species of wild fauna and flora

It is estimated that the international trade in wild plants and animals annually worth several billion dollars, hundreds of millions of species are traded: live specimens of animals and plants and products derived from them, including food products, exotic leather products, wooden musical instruments, timber, souvenirs, drugs, cosmetics and more. Proportion of exploitation of certain plant and animal species are large, so that their traffic together with other factors, such as habitat loss, greatly endangering their populations driving some species to extinction. Although certain species of wild animals and plants are not endangered by trade, traffic regulation is necessary to ensure that trade that meets the requirements of sustainable development in order to preserve the natural resources for the future, and in particular to prevent the damaging effects of illegal trade in protected species in cross-border context.

Analysing Determinants of Foreclosure among High-income African-American and Hispanic Borrowers in the Washington, DC Metropolitan Area

Foreclosures have disproportionately affected minority borrowers and communities. Many academic studies have focused either on the nation as a whole or on specific metropolitan areas, but few have concentrated on the nation's capital. Using a merged dataset consisting of Home Mortgage Disclosure Act (HMDA), US Census, and Lender Processing Services (LPS) data and utilizing a logistic regression model, we analyse the likelihood of foreclosure in the Washington, DC metropolitan area. We find that high-income African-American borrowers are 36 per cent and Hispanic borrowers 79 per cent more likely to go into foreclosure, controlling for key financial variables. Moreover, we find that exotic mortgage products, such as adjustable rate mortgages (ARMs), high-cost mortgages, balloon mortgages and interest-only mortgages, have a higher likelihood of foreclosure than standard 30-year fixed rate mortgages.

On Bounds for Model Calibration Uncertainty

For a given derivative pricing model and an exotic product, one can ask the following natural question: if the model prices calibration instruments within their bid/ask spreads (or generally, given the model calibration error), what is the uncertainty of the exotic product valuation? This model calibration uncertainty can be defined through the coherent model risk measure of R.Cont. Here we give lower and upper bounds for this measure, which only depend on the stochastic dynamics specified by the model and its calibration, but not on a particular choice of the modelling parameters, and discuss a series of related questions.

Uncertain Correlation Model

“The correlation is a big modelling problem, one of the most interesting in the Equity World”. In the last decade, correlation products has become very popular and attractive. The demand for a number of exotic products like dispersion trades, worst of, rainbows, correlation swaps, corridor option on the basket have increased. Recently, as the result of the financial crisis, correlation risk became very significant. In 2007, indeed most of the exotic equity portfolios were mismarked because of this risk and, therefore, correlation started to be considered as a central parameter in valuation problem. We present the Uncertain Correlation Model (UCM) that takes into account the correlation risk in equity derivative modelling. We consider two versions of this model and we discuss its impact on pricing equity exotics. Copyright © 2010 Wilmott Magazine Ltd.

The Global Financial (nee US Subprime Mortgage) Crisis - 12 Contemplations from 3 Perspectives

This article is an informal, conversation-styled retrospective piece on the recent global financial (nee US subprime mortgage) crisis. In lieu of formally enumerating the root causes or reform recommendations, the article observes subtle patterns of crisis dynamics and presents these qualitative lessons as points of contemplation, tying this crisis episode with those in the past. To this end, twelve contemplations are organised along three perspectives: from background macroeconomic factors down to the level of risk-magnifying financial products, from local bubble phenomena to systemic, global event, and from concerns over contemporary issues to the recognition that many issues are indeed timeless. Among others, the author emphasises the danger when institutional investors became desperate for yield enhancements, the irony that often it is the less exotic risk products that (by virtue of accessing much wider investor base than obviously toxic ones) carry the most systemic impact, the manner by which reputation underpins all forms of intermediary risks, the inter-generational futility of safeguarding against future crises, and the interpretation of central banking in terms of an optimal control problem.

CMS Spread Options and Similar Options in Multi-Factor HJM Framework

Constant maturity swaps (CMS), CMS spreads and similar products are analyzed in multi-factor HJM models. For Gaussian models, which include some Libor Market Models and the G2 model, explicit approximated formula are provided. The approximations are done through two different approaches: an exact solution to an approximated equation and an approximated solution to the exact equation. The first approach has been used previously in the literature for other models, the second is new. The approximations provide prices with error less than 0.02 basis point for the best approach; this is better than the previous literature and negligible in practice. The approach can be used to price standard CMS and CMS spreads and also for similar exotic products.