Kent Centre for Finance

Dr Huamao Wang from School of Mathematics will present a working paper “Momentum and Reversion or Uncertainty in Dynamic Asset Allocation” at the conference “Finance and Commodities” at The University of St. Andrews between the 12th and 14th July 2013.

The conference aims to bring together leading experts in the field of Finance, with reference in particular to the economic and financial modelling of commodities and natural resources.
Plenary speakers include Eduardo Schwartz (UCLA Anderson School of Management), Alexander Eydeland (Morgan Stanley), Helyette Geman (Birkbeck, University of London and John Hopkins University), Andrew Lyasoff (Boston University School of Management) and Ronnie Sircar (Operations Research and Financial Engineering Department, Princeton)

Dr Huamao Wang from SMSAS will present a working paper “Momentum and Reversion or Uncertainty in Dynamic Asset Allocation”.

Empirical studies reveal that the stock return demonstrates short-run momentum and long-run mean reversion. Previous studies characterize both features explicitly by stochastic dynamics of state variables. While another direction of literature implicitly captures them via the filter estimate of uncertain expected rate of return under partial information. The paper provides an evaluation of the two strategies in a continuous-time state dependent dynamic asset allocation problem. Their benefits and drawbacks are revealed from the aspects of allocation to stocks, the economic value of hedging time variation or parameter uncertainty.

Students on the MSc in Finance, Investment and Risk programme took part in a session in the School of Mathematics’ Finance Lab to explore further the functionality and analytics offered by Bloomberg platform. The session led by Bloomberg analysis and development team, provided an opportunity for the students and staff to explore the possibilities for the design and development of new finance applications using Bloomberg.

An international conference on Banks, Financial Markets and Institutions in Europe was held at the University of Southampton, UK, in association with the Journal of International Money.

Dr Antonis Alexandridis presented a paper “Global Financial Crisis and Multi-scale Systematic Risk: Evidence from Selected European Markets” in an international conference on global financial crisis. The conference “The impact of Global Financial Crisis: on Banks, Financial Markets and Institutions in Europe” was held at the university of Southampton, UK in association with the Journal of International money and Finance.

The paper, investigates the impact of the crisis on the stock markets of selected European markets within the framework of Capital Asset Pricing Model. The behavior and performance of the CAPM during the pre-crisis, crisis, and two post-crisis periods provides a convenient and powerful framework for an empirical assessment of the impact of the crisis on the European stock markets. Given the mixed results regarding the inference about the CAPM and betas, and the multi-scale nature of the systematic risk, a recent and powerful method was employed to estimate the systematic risk of CAPM using wavelet analysis to examine the meteor shower effects of the global financial crisis on selected European stock markets. The results support the CAPM at medium scales, however, the behavior of beta is found to be different for the two groups. Finally, the was estimated at different time-scales for the four time-periods. The results also indicate that for all periods the risk is concentrated at higher frequencies (lower scales) of the data. Moreover, the was increased for all countries during the crisis and the two post-crisis periods however the difference between the two groups is evident.

Dr Huamao Wang from School of Mathematics, University of Kent presented a paper “Entrepreneurial Finance with Endogenous Borrowing Constraints and Idiosyncratic Risk” at The Arne Ryde Workshop in Financial Economics, Lund University, Sweden.

The paper introduces an innovative financial contract, named equity-for-guarantee swap.
A dynamic incomplete model is built to investigate the effects of both frictions on consumption, portfolio, financing, and exit. The contract raises net profit while reduces idiosyncratic risk premium, default and cash-out probabilities, especially for lower risk aversion. It increases investment opportunity especially for higher risk aversion and higher idiosyncratic volatility.

Dr Antonis Alexandridis from the School of Mathematics, University of Kent presented a paper “Non-linear non-parametric temperature modeling in the context of weather derivatives pricing” in the Actuarial and Financial Mathematics Conference in Brussels, Belgium.

The study aims to develop a model that accurately describes the dynamics of the daily average temperature in the context of weather derivatives pricing. Using wavelet networks and wavelet analysis, a non-linear non-parametrical method is proposed for modelling the daily average temperature. The decomposition of temperature time-series is performed by wavelet analysis. Next, a wavelet network is constructed in order to learn the underlying dynamics of the temperature. The valuation of the weather contracts is based on the forecast of temperature evolution given by the trained network. The model was evaluated and compared in-sample and out-of-sample in various locations against models previously proposed in literature. The findings suggest that the proposed method significantly outperforms alternative models and can be used for accurate weather derivative pricing.

The book “Weather Derivatives: Modelling and Pricing Weather-Related Risk” published by authors Dr Antonis Alexandridis, School of Mathematics, University of Kent and Dr Achilleas D. Zapranis University of Macedonia, Greece.
http://link.springer.com/book/10.1007/978-1-4614-6071-8/page/1