We show how Algorithmic Differentiation can be used to implement efficiently the Pathwise Derivative method for the calculation of option sensitivities with Monte Carlo. The main practical difficulty of the Pathwise Derivative method is that it requires the differentiation of the payout function. For the type of structured options for which Monte Carlo simulations are usually employed, these derivatives are typically cumbersome to calculate analytically, and too time consuming to evaluate with standard finite-differences approaches. In this paper we address this problem and show how Algorithmic Differentiation can be employed to calculate very efficiently and with machine precision accuracy these derivatives. We illustrate the basic workings of this computational technique by means of simple examples, and we demonstrate with several numerical tests how the Pathwise Derivative method combined with Algorithmic Differentiation – especially in the adjoint mode – can provide speed-ups of several orders of magnitude with respect to standard methods.
{"title":"Fast Greeks by Algorithmic Differentiation","authors":"Luca Capriotti","doi":"10.2139/ssrn.1619626","DOIUrl":"https://doi.org/10.2139/ssrn.1619626","url":null,"abstract":"We show how Algorithmic Differentiation can be used to implement efficiently the Pathwise Derivative method for the calculation of option sensitivities with Monte Carlo. The main practical difficulty of the Pathwise Derivative method is that it requires the differentiation of the payout function. For the type of structured options for which Monte Carlo simulations are usually employed, these derivatives are typically cumbersome to calculate analytically, and too time consuming to evaluate with standard finite-differences approaches. In this paper we address this problem and show how Algorithmic Differentiation can be employed to calculate very efficiently and with machine precision accuracy these derivatives. We illustrate the basic workings of this computational technique by means of simple examples, and we demonstrate with several numerical tests how the Pathwise Derivative method combined with Algorithmic Differentiation – especially in the adjoint mode – can provide speed-ups of several orders of magnitude with respect to standard methods.","PeriodicalId":230984,"journal":{"name":"Corporate Governance: Decisions","volume":"11 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-06-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115240031","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Antonio F. A. Silva, P. Carvalho, José Renato Haas Ornelas
This paper discusses assumptions behind market risk measures and models. Using a sample period that includes the 2008 international financial crisis, we run a case study with four market risk models: Riskmetics(TM), Historical Simulation, Mixture of Normal with Monte Carlo Simulation and an approach based on Extreme Value Theory. We argue that the trend in the industry is for more sophisticated models, but the necessary degree of complexity is not so clear. We also conclude that the appropriate approach is not to rely only in a single model or measure for market risk management. In fact, as market participants know all the assumptions behind market risk models and measures, the challenge is to build a risk management strategy that takes into account a framework more complex than relying on a single number.
{"title":"Best Practices in Measuring and Managing Market Risks after 2008 Crisis","authors":"Antonio F. A. Silva, P. Carvalho, José Renato Haas Ornelas","doi":"10.2139/ssrn.1528426","DOIUrl":"https://doi.org/10.2139/ssrn.1528426","url":null,"abstract":"This paper discusses assumptions behind market risk measures and models. Using a sample period that includes the 2008 international financial crisis, we run a case study with four market risk models: Riskmetics(TM), Historical Simulation, Mixture of Normal with Monte Carlo Simulation and an approach based on Extreme Value Theory. We argue that the trend in the industry is for more sophisticated models, but the necessary degree of complexity is not so clear. We also conclude that the appropriate approach is not to rely only in a single model or measure for market risk management. In fact, as market participants know all the assumptions behind market risk models and measures, the challenge is to build a risk management strategy that takes into account a framework more complex than relying on a single number.","PeriodicalId":230984,"journal":{"name":"Corporate Governance: Decisions","volume":"40 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-12-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121485634","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
For the premier Stock Exchange that pioneered the stock broking activity in India, 128 years of experience seems to be a proud milestone. A lot has changed since 1875 when 318 persons became members of what today is called "The Stock Exchange, Mumbai" by paying a princely amount of Re1. Since then, the country's capital markets have passed through both good and bad periods. The journey in the 20th century has not been an easy one. Till the decade of eighties, there was no scale to measure the ups and downs in the Indian stock market. The Stock Exchange, Mumbai (BSE) in 1986 came out with a stock index that subsequently became the barometer of the Indian stock market.
{"title":"Sensex Journey","authors":"Satbir Bagga","doi":"10.2139/ssrn.1456761","DOIUrl":"https://doi.org/10.2139/ssrn.1456761","url":null,"abstract":"For the premier Stock Exchange that pioneered the stock broking activity in India, 128 years of experience seems to be a proud milestone. A lot has changed since 1875 when 318 persons became members of what today is called \"The Stock Exchange, Mumbai\" by paying a princely amount of Re1. Since then, the country's capital markets have passed through both good and bad periods. The journey in the 20th century has not been an easy one. Till the decade of eighties, there was no scale to measure the ups and downs in the Indian stock market. The Stock Exchange, Mumbai (BSE) in 1986 came out with a stock index that subsequently became the barometer of the Indian stock market.","PeriodicalId":230984,"journal":{"name":"Corporate Governance: Decisions","volume":"7 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-08-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123618075","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We test several hypotheses on how takeover premium is related to investors' divergence of opinion on a target's equity value. We show that the total takeover premium, the pre-announcement target stock price run-up, and the post-announcement stock price markup are all higher when investors have higher divergence of opinion. We obtain identical results with higher market-level investor sentiment. When divergence of opinion is higher, a firm is less likely to be a takeover target, although takeover synergy in successful takeovers is higher. Our results suggest that takeovers may play a role in explaining high contemporaneous stock prices in the presence of high divergence of investor opinion. The Author 2011. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com., Oxford University Press.
{"title":"Takeovers and Divergence of Investor Opinion","authors":"Sris Chatterjee, Kose John, An Yan","doi":"10.2139/ssrn.1327289","DOIUrl":"https://doi.org/10.2139/ssrn.1327289","url":null,"abstract":"We test several hypotheses on how takeover premium is related to investors' divergence of opinion on a target's equity value. We show that the total takeover premium, the pre-announcement target stock price run-up, and the post-announcement stock price markup are all higher when investors have higher divergence of opinion. We obtain identical results with higher market-level investor sentiment. When divergence of opinion is higher, a firm is less likely to be a takeover target, although takeover synergy in successful takeovers is higher. Our results suggest that takeovers may play a role in explaining high contemporaneous stock prices in the presence of high divergence of investor opinion. The Author 2011. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com., Oxford University Press.","PeriodicalId":230984,"journal":{"name":"Corporate Governance: Decisions","volume":"38 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126465751","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We carry out a Monte-Carlo simulation of a standard portfolio management strategy involving derivatives, to estimate the sensitivity of its downside risk to a change of mean-reversion of the underlyings. We find that the higher the intensity of mean-reversion, the lower the probability of reaching a pre-determined loss level. This phenomenon appears of large statistical significance for large enough loss levels. We also find that the higher the mean-reversion intensity of the underlyings, the longer the expected time to reach those loss levels. The simulations suggest that selecting underlyings with high mean-reversion effect is a natural way to reduce the downside risk of those widely traded assets.
{"title":"Downside Risk Control of Derivative Portfolios with Mean-Reverting Underlyings","authors":"P. Leoni","doi":"10.2139/ssrn.1344370","DOIUrl":"https://doi.org/10.2139/ssrn.1344370","url":null,"abstract":"We carry out a Monte-Carlo simulation of a standard portfolio management strategy involving derivatives, to estimate the sensitivity of its downside risk to a change of mean-reversion of the underlyings. We find that the higher the intensity of mean-reversion, the lower the probability of reaching a pre-determined loss level. This phenomenon appears of large statistical significance for large enough loss levels. We also find that the higher the mean-reversion intensity of the underlyings, the longer the expected time to reach those loss levels. The simulations suggest that selecting underlyings with high mean-reversion effect is a natural way to reduce the downside risk of those widely traded assets.","PeriodicalId":230984,"journal":{"name":"Corporate Governance: Decisions","volume":"157 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-02-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134433274","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2008-07-01DOI: 10.1111/j.1467-8683.2008.00688.x
Ethel Brundin, M. Nordqvist
We address the call for qualitative research in order to better understand the micro-level dynamics of board work. Our aim is to investigate the role of emotions when board members interact to perform the board's control and service tasks. Empirical accounts from board meetings and diary notes from a CEO show in detail how emotions work as power energizers and status energizers in boardroom dynamics. We find that short-term as well as long-term emotions are a source of energy that affects board work, and that they are influential in the board members' task performance. We provide process insights with process insights to a field dominated by studies of the structures of corporate governance. We disclose the difference between board expectations and board performance, and offer a new understanding as to how and why this difference emerges. Our results also challenge theories that propose that authenticity of emotional displays is necessary in order to achieve a positive outcome in boardroom interactions. The findings also show that confrontation of negative emotions in boardroom communication may alter the power and status relations among board members. Our study shows that the board members who influence processes in the board are those whose emotional energies are built up and transformed as power and status energizers in line with board task expectations. Being aware, and able to understand the subtle working of emotions in board processes are crucial for being an effective board member.
{"title":"Beyond Facts and Figures: The Role of Emotions in Boardroom Dynamics","authors":"Ethel Brundin, M. Nordqvist","doi":"10.1111/j.1467-8683.2008.00688.x","DOIUrl":"https://doi.org/10.1111/j.1467-8683.2008.00688.x","url":null,"abstract":"We address the call for qualitative research in order to better understand the micro-level dynamics of board work. Our aim is to investigate the role of emotions when board members interact to perform the board's control and service tasks. Empirical accounts from board meetings and diary notes from a CEO show in detail how emotions work as power energizers and status energizers in boardroom dynamics. We find that short-term as well as long-term emotions are a source of energy that affects board work, and that they are influential in the board members' task performance. We provide process insights with process insights to a field dominated by studies of the structures of corporate governance. We disclose the difference between board expectations and board performance, and offer a new understanding as to how and why this difference emerges. Our results also challenge theories that propose that authenticity of emotional displays is necessary in order to achieve a positive outcome in boardroom interactions. The findings also show that confrontation of negative emotions in boardroom communication may alter the power and status relations among board members. Our study shows that the board members who influence processes in the board are those whose emotional energies are built up and transformed as power and status energizers in line with board task expectations. Being aware, and able to understand the subtle working of emotions in board processes are crucial for being an effective board member.","PeriodicalId":230984,"journal":{"name":"Corporate Governance: Decisions","volume":"24 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128784132","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The impact of separating cash flow and votes depends on the ownership structure. In widely held firms, one share - one vote is in general not optimal. While it ensures an efficient outcome in bidding contests, dual-class shares mitigate the free-rider problem, thereby promoting takeovers. In the presence of a controlling shareholder, one share - one vote promotes value-increasing control transfers and deters value-decreasing control transfers more effectively than any other vote allocation. Moreover, leveraging the insider's voting power aggravates agency conflicts because it protects her from the takeover threat and provides less alignment with other shareholders. Even so, minority shareholder protection is not a compelling argument for regulatory intervention, as rational investors anticipate the insider's opportunism. Rather, the rationale for mandating one share - one vote must be to disempower controlling minority shareholders in order to promote value-increasing takeovers. As this policy tends to empower managers vis-a-vis shareholders, it is an open question whether it would improve the quality of corporate governance, notably in systems built around large active owners. The verdict in the case of depositary certificates, priority shares, voting and ownership ceilings is less ambiguous, since they insulate managers from both takeovers and effective shareholder monitoring.
{"title":"The One Share - One Vote Debate: A Theoretical Perspective","authors":"Mike Burkart, Samuel David Lee","doi":"10.2139/ssrn.987486","DOIUrl":"https://doi.org/10.2139/ssrn.987486","url":null,"abstract":"The impact of separating cash flow and votes depends on the ownership structure. In widely held firms, one share - one vote is in general not optimal. While it ensures an efficient outcome in bidding contests, dual-class shares mitigate the free-rider problem, thereby promoting takeovers. In the presence of a controlling shareholder, one share - one vote promotes value-increasing control transfers and deters value-decreasing control transfers more effectively than any other vote allocation. Moreover, leveraging the insider's voting power aggravates agency conflicts because it protects her from the takeover threat and provides less alignment with other shareholders. Even so, minority shareholder protection is not a compelling argument for regulatory intervention, as rational investors anticipate the insider's opportunism. Rather, the rationale for mandating one share - one vote must be to disempower controlling minority shareholders in order to promote value-increasing takeovers. As this policy tends to empower managers vis-a-vis shareholders, it is an open question whether it would improve the quality of corporate governance, notably in systems built around large active owners. The verdict in the case of depositary certificates, priority shares, voting and ownership ceilings is less ambiguous, since they insulate managers from both takeovers and effective shareholder monitoring.","PeriodicalId":230984,"journal":{"name":"Corporate Governance: Decisions","volume":"6 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2007-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127145354","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
New risks seem to be unavoidable in a period of rapid change. The last few decades have brought us the risks of global warming, nuclear melt-down, ozone depletion, failure of satellite launcher rockets, collision of supertankers, AIDS, and Ebola. A key feature of a new risk, as opposed to an old and familiar one, is that one knows little about it. In particular, one knows little about the chances or the costs of its occurrence. This makes it hard to manage these risks. Existing paradigms for the rational management of risks require that we associate frequencies to various levels of losses. This poses particular challenges for the insurance industry, which is at the leading edge of risk management. Misestimation of new risks has led to several bankruptcies in the insurance and reinsurance businesses. In this chapter we propose a novel framework for providing insurance cover against risks whose parameters are unknown. In fact many of the risks at issue may not be just unknown but also unknowable, It is difficult to imagine repetition of the events leading to global warming or ozone depletion, and therefore difficult to devise a relative frequency associated with repeated experiments.
{"title":"Catastrophe Futures: Financial Markets for Unknown Risks","authors":"G. Chichilnisky","doi":"10.2139/ssrn.1377706","DOIUrl":"https://doi.org/10.2139/ssrn.1377706","url":null,"abstract":"New risks seem to be unavoidable in a period of rapid change. The last few decades have brought us the risks of global warming, nuclear melt-down, ozone depletion, failure of satellite launcher rockets, collision of supertankers, AIDS, and Ebola. A key feature of a new risk, as opposed to an old and familiar one, is that one knows little about it. In particular, one knows little about the chances or the costs of its occurrence. This makes it hard to manage these risks. Existing paradigms for the rational management of risks require that we associate frequencies to various levels of losses. This poses particular challenges for the insurance industry, which is at the leading edge of risk management. Misestimation of new risks has led to several bankruptcies in the insurance and reinsurance businesses. In this chapter we propose a novel framework for providing insurance cover against risks whose parameters are unknown. In fact many of the risks at issue may not be just unknown but also unknowable, It is difficult to imagine repetition of the events leading to global warming or ozone depletion, and therefore difficult to devise a relative frequency associated with repeated experiments.","PeriodicalId":230984,"journal":{"name":"Corporate Governance: Decisions","volume":"144 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125779651","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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