Department of Finance and Real Estate
Permanent URI for this community
This digital collection includes faculty publications from the Department of Finance and Real Estate and publications from the Everitt Real Estate Center.
Browse
Browsing Department of Finance and Real Estate by Author "Elliott, Robert J., author"
Now showing 1 - 6 of 6
Results Per Page
Sort Options
Item Open Access A hidden markov multi-asset price model(Colorado State University. Libraries, 2007-01) Elliott, Robert J., author; Tao, L., author; Miao, Hong, author; Canadian Applied Mathematics Quarterly, publisherPrices for some real world tradable assets, for instance natural gas and oil, are correlated, and the price dynamics for those assets are different in different economic environments. In this paper we extend the mean reverting model to multi-assets and model correlation between prices. Our model also allows the means and the mean reverting factors to switch between different regimes by including a Hidden Markov chain which models the different economic environments, or "states of the world." We then obtain approximate estimates for the parameters by applying filters and the EM algorithm. Approximate derivative prices are also given.Item Open Access A model for energy pricing with stochastic emission costs(Colorado State University. Libraries, 2009-07-23) Elliott, Robert J., author; Lyle, Matthew R., author; Miao, Hong, author; Energy Economics, publisherWe use a supply-demand approach to value energy products exposed to emission cost uncertainty. We find closed form solutions for a number of popularly traded energy derivatives such as: forwards, European call options written on spot prices and European Call options written on forward contracts. Our modeling approach is to first construct noisy supply and demand processes and then equate them to find an equilibrium price. This approach is very general while still allowing for sensitivity analysis within a valuation setting. Our assumption is that, in the presence of emission costs, traditional supply growth will slow down causing output prices of energy products to become more costly over time. However, emission costs do not immediately cause output price appreciation, but instead expose individual projects, particularly those with high emission outputs, to much more extreme risks through the cost side of their profit stream. Our results have implications for hedging and pricing for producers operating in areas facing a stochastic emission cost environment.Item Open Access Fractional differencing in discrete time(Colorado State University. Libraries, 2011-07-23) Elder, John, author; Elliott, Robert J., author; Miao, Hong, author; Quantitative Finance, publisherThis paper consists of two parts, a theoretical followed by an empirical contribution. We first give a new framework for fractional differencing in discrete time and show how the definition of fractional differencing that is commonly employed in empirical financial applications arises as a special case. We then use these methods to estimate the fractional differencing parameter in the return and volatility for three Comex metal futures contracts. The metal futures are sampled at very high frequencies—five-minute intervals over a nearly eight year period.Item Open Access Investment timing with regime switching(Colorado State University. Libraries, 2008-01-17) Elliott, Robert J., author; Miao, Hong, author; Yu, Jin, author; International Journal of Theoretical and Applied Finance, publisherWe investigate the optimal investment timing strategy in a real option framework. Depending on the state of the economy, whose changes are modeled by a Markov chain, the investment cost can take one of two values. The optimal investment timing decision is determined by finding the free boundary of a perpetual American option. Three investment timing policies, based on different assumptions of investors' information sets, are determined and compared. In the full information case, a significantly earlier optimal exercising time is indicated. We show that an optimal-timing policy suggested by the conventional real option model might ruin the investment opportunities.Item Open Access VaR and expected shortfall: a non-normal regime switching framework(Colorado State University. Libraries, 2009-09) Elliott, Robert J., author; Miao, Hong, author; Quantitative Finance, publisherWe have developed a regime switching framework to compute the Value at Risk and Expected Shortfall measures. Although Value at Risk as a risk measure has been criticized by some researchers for lack of subadditivity, it is still a central tool in banking regulations and internal risk management in the finance industry. In contrast, Expected Shortfall (ES) is coherent and convex, so it is a better measure of risk than Value at Risk. Expected Shortfall is widely used in the insurance industry and has the potential to replace Value at Risk as a standard risk measure in the near future. We have proposed regime switching models to measure value at risk and expected shortfall for a single financial asset as well as financial portfolios. Our models capture the volatility clustering phenomenon and variance-independent variation in the higher moments by assuming the returns follow Student-t distributions.Item Open Access Viterbi-based estimation for markov switching GARCH model(Colorado State University. Libraries, 2011-08-22) Elliott, Robert J., author; Lau, John W., author; Miao, Hong, author; Kuen Siu, Tak, author; Applied Mathematical Finance, publisherWe outline a two-stage estimation method for a Markov-switching Generalized Autoregressive Conditional Heteroscedastic (GARCH) model modulated by a hidden Markov chain. The first stage involves the estimation of a hidden Markov chain using the Vitberi algorithm given the model parameters. The second stage uses the maximum likelihood method to estimate the model parameters given the estimated hidden Markov chain. Applications to financial risk management are discussed through simulated data.