A note on a mean-lower partial moment CAPM without risk-free asset

The standard capital asset pricing model (CAPM) is invalid if the risk-free asset ceases to exist or if the risk-free lending and borrowing rates are different. In the mean–variance (MV) framework, we have an alternative model known as zero-beta CAPM. However, in the case of mean-lower partial moment (MLPM) framework, there is no such alternative. This article addresses this issue and develops an equivalent MLPM model, which is valid for situations described above. The MV zero-beta CAPM can be seen as a special case of this model.     

A stochastic delay financial model

We compute the logarithmic utility of an insider when the financial market is modelled by a stochastic delay equation. Although the market does not allow free lunches and is complete, the insider can draw more from his wealth than the regular trader. We also offer an alternative to the anticipating delayed Black-Scholes formula, by proving stability of European call option prices when the delay coefficients approach the nondelayed ones.

     

Probabilistic stability analysis of social obesity epidemic by a delayed stochastic model

Sufficient conditions for stability in probability of the equilibrium point of a social obesity epidemic model with distributed delay and stochastic perturbations are obtained. The obesity epidemic model is demonstrated on the example of the Region of Valencia, Spain. The considered nonlinear system is linearized in the neighborhood of the positive point of equilibrium and a sufficient condition for asymptotic mean square stability of the zero solution of the constructed linear system is obtained.     

Local and global stability analysis of a two prey one predator model with help

In this paper we propose and study a three dimensional continuous time dynamical system modelling a three team consists of two preys and one predator with the assumption that during predation the members of both teams of preys help each other and the rate of predation of both teams are different. In this work we establish the local asymptotic stability of various equilibrium points to understand the dynamics of the model system. Different conditions for the coexistence of equilibrium solutions are discussed. Persistence, permanence of the system and global stability of the positive interior equilibrium solution are discussed by constructing suitable Lyapunov functional. At the end, numerical simulations are performed to substantiate our analytical findings.     

Global asymptotic stability of a stochastic Lotka-Volterra model with infinite delays

In this paper, sufficient criteria for global asymptotic stability of a general stochastic Lotka-Volterra system with infinite delays are established. Some simulation figures are introduced to support the analytical findings.     

Asymptotic stability of a two-group stochastic SEIR model with infinite delays

A two-group stochastic SEIR epidemic model with infinite delays is proposed and investigated. Sufficient conditions for asymptotic stability are established. Some simulation figures are introduced to support the results.     

A stochastic programming model for asset liability management of a Finnish pension company

This paper describes a stochastic programming model that was developed for asset liability management of a Finnish pension insurance company. In many respects the model resembles those presented in the literature, but it has some unique features stemming from the statutory restrictions for Finnish pension insurance companies. Particular attention is paid to modeling the stochastic factors, numerical solution of the resulting optimization problem and evaluation of the solution. Out-of-sample tests clearly favor the strategies suggested by our model over static fixed-mix and dynamic portfolio insurance strategies. Financial support from the Foundation for the Helsinki School of Economics under grants number 9981114 and 9981117 for P. Hilli and M. Koivu is gratefully acknowledged. The work of T. Pennanen was supported by Finnish Academy under contract no. 3385     

CED model for asset returns and fractal market hypothesis

A new general model for asset returns is studied in the framework of the Fractal Market Hypothesis (FMH). To accommodate markets with arbitrage opportunities, it concerns capital market systems in which the Conditionally Exponential Dependence (CED) property can be attached to each investor on the market. Employing the limit theorem for the CED systems, the universal characteristics for the distribution of asset returns are derived. This explains the special role of the Weibull distribution in modeling of global asset returns for market with no arbitrage and the two-power laws property of the density of global returns, evident in the empirical data. Finally, the link with two-parameter Pareto distributions is established.     

An adaptive stochastic model for financial markets

An adaptive stochastic model is introduced to simulate the behavior of real asset markets. The model adapts itself by changing its parameters automatically on the basis of the recent historical data. The basic idea underlying the model is that a random variable uniformly distributed within an interval with variable extremes can replicate the histograms of asset returns. These extremes are calculated according to the arrival of new market information. This adaptive model is applied to the daily returns of three well-known indices: Ibex35, Dow Jones and Nikkei, for three complete years. The model reproduces the histograms of the studied indices as well as their autocorrelation structures. It produces the same fat tails and the same power laws, with exactly the same exponents, as in the real indices. In addition, the model shows a great adaptation capability, anticipating the volatility evolution and showing the same volatility clusters observed in the assets. This approach provides a novel way to model asset markets with internal dynamics which changes quickly with time, making it impossible to define a fixed model to fit the empirical observations.     

Symmetry breaking in a bull and bear financial market model

We investigate bifurcation structures in the parameter space of a one-dimensional piecewise linear map with two discontinuity points. This map describes endogenous bull and bear market dynamics arising from a simple asset-pricing model. An important feature of our model is that some speculators only enter the market if the price is sufficiently distant to its fundamental value. Our analysis starts with the investigation of a particular case in which the map is symmetric with respect to the origin, associated with equal market entry thresholds in the bull and bear market. We then generalize our analysis by exploring how novel bifurcation structures may emerge when the map’s symmetry is broken.     

General financial market model defined by a liquidation value process

Financial market models defined by a liquidation value process generalize the conic models of Schachermayer and Kabanov where the transaction costs are proportional to the exchanged volumes of traded assets. The solvency set of all portfolio positions that can be liquidated without any debt is not necessary convex, e.g. in presence of proportional transaction costs and fixed costs. Therefore, the classical duality principle based on the Hahn–Banach separation theorem is not appropriate to characterize the prices super hedging a contingent claim. Using an alternative method based on the concepts of essential supremum and maximum, we provide a characterization of European and American contingent claim prices under the absence of arbitrage opportunity of the second kind.     

An analysis of the Keen model for credit expansion, asset price bubbles and financial fragility

We analyze the system of differential equations proposed by Keen to model Minsky??s financial instability hypothesis. We start by describing the properties of the well-known Goodwin model for the dynamics of wages and employment. This is followed by Keen??s extension to include investment financed by debt. We determine the several possible equilibria and study their local stability, discussing the economical interpretation behind each condition. We then propose a modified extension that includes the role of a Ponzi speculator and investigate its effect on the several equilibria and their stability. All models are amply illustrated with numerical examples portraying their various properties.     

A unified EOQ model with financial constraints and market tolerance

We consider the general EOQ (with partial backorders) paradigm to study factors related to the recent financial crisis. Upstream, there are financial constraints, which first limit the available capital per replenishment and second impose the prepayment (in full or partial) of the quantity ordered. Downstream, the concept of market tolerance is operationalized, permitting here backorders to occur at no-cost for a fixed time period (directly analogous to upstream payment credit). For the resulting system, we present an exact unified model of the total average profit/cost. Optimal profit/cost and respective decision variables (i.e. order cycle and shortage period) are subsequently obtained in closed form. Interestingly, by appropriately relaxing the solution of the unified system, the solution of several (some previously studied) EOQ-type models prevails. Finally, analytical and computational results reveal the impact that each factor (individually and jointly) has on system optimal solution and on the behavior of the respective optimizers.     

Local stability of evolutionary attractors for continuous structured populations

In this paper, we are interested in the nonlinear stability of Dirac-type steady solutions to an integro-differential equation appearing in the study of populations which are structured with respect to a quantitative (continuous) trait. We show that stability conditions of Adaptive Dynamics extend to this model.     

Local stability of evolutionary attractors for continuous structured populations

In this paper, we are interested in the nonlinear stability of Dirac-type steady solutions to an integro-differential equation appearing in the study of populations which are structured with respect to a quantitative (continuous) trait. We show that stability conditions of Adaptive Dynamics extend to this model.     

Stability analysis of a cobweb model with market interactions

This paper explores the steady-state properties and the dynamic behavior of a generalization of the classical cobweb model. Under fairly general demand and cost functions, producers form naïve expectations about future prices and select their output so as to maximize expected profits. Unlike the traditional setup, producers have the choice between two markets, and tend to enter that which was more profitable in the recent past. Such a switching process implies time-varying aggregated supply schedules, thus representing a further source of nonlinearity for the dynamics of prices. Analytical investigations and the numerical simulation of a particular case with linear demand and supply indicate that such interactions may destabilize otherwise stable markets and generate complex dynamics.     

Deterministic and stochastic stability of a mathematical model of smoking

Our aim in this paper, is first constructing a Lyapunov function to prove the global stability of the unique smoking-present equilibrium state of a mathematical model of smoking. Next we incorporate random noise into the deterministic model. We show that the stochastic model established in this paper possesses non-negative solutions as this is essential in any population dynamics model. Then a stochastic Lyapunov method is performed to obtain the sufficient conditions for mean square and asymptotic stability in probability of the stochastic model. Our analysis reveals that the stochastic stability of the smoking-present equilibrium state, depends on the magnitude of the intensities of noise as well as the parameters involved within the model system.     

Modeling financial asset returns with shot noise processes

We introduce a new class of continuous time processes for modeling the rate of returns of financial assets. The statistical characterization is based on the so-called shot noise processes. The probabilistic structure of the shot noise process provides a very realistic framework for asset returns modeling of the stock price processes. Our class of processes exhibits the natural phenomena well known in empirical financial studies:

1. (a) fat-tail distribution function for the asset returns,

2. (b) dependence of the returns,

3. (c) nonstationarity in time.

Financial asset returns in new emerging markets such as those of Eastern European countries exhibit a highly volatile behavior. Statistical investigations of the unconditional distribution of returns of stocks, commodities, exchange rates, etc., show extremely heavy tails and steep peaks around the expectation. We use a class of shot noise processes with Poissonian times and Brownian magnitudes for modeling this phenomenon.