Showing papers by "J.P. Morgan & Co. published in 2004"
TL;DR: In this paper, the valuation and hedging of volatility swaps within the frame of a GARCH(1,1) stochastic volatility model are discussed, and a closed-form approximate solution for the so-called convexity correction is provided.
Abstract: This article discusses the valuation and hedging of volatility swaps within the frame of a GARCH(1,1) stochastic volatility model. First we use a general and flexible partial differential equation (PDE) approach to determine the first two moments of the realized variance in a continuous or discrete context. Next, and also the main contribution of the paper, is a closed-form approximate solution for the so-called convexity correction, when the risk-neutral process for the instantaneous variance is a continuous time limit of a GARCH (1,1) model. Following this, we provide a numerical example using S&P 500 data.
86 citations
TL;DR: The first four conditional moments of the integrated variance implied by the GARCH diffusionprocess are derived analytically and based on these moments and on a power series method an analytical approximation formula to price European options under the Garch diffusion model is obtained.
Abstract: We derive analytically the first four conditional moments of the integrated variance implied by the GARCH diffusion process. From these moments we obtain an analytical closed-form approximation formula to price European options under the GARCH diffusion model. Using Monte Carlo simulations, we show that this approximation formula is accurate for a large set of reasonable parameters. Finally, we use the closed-form option pricing solution to shed light on the qualitative properties of implied volatility surfaces induced by GARCH diffusion models.
45 citations
TL;DR: In this article, the authors argue that full-time MBA programs limit their effectiveness by clinging to functionalism, and they have made incremental changes to meet the market demand for MBA graduates, in most cases, have failed to integrate the various functional facets of complex business challenges.
Abstract: Many full-time MBA programs limit their effectiveness by clinging to functionalism. At best, they have made incremental changes to meet the market demand for MBA graduates. These changes, in most cases, have failed to integrate the various functional facets of complex business challenges. For insights into how to do so, many business schools need look no further than their own executive programs. Executive programs typically emphasize the synergistic use of core competencies and delivery systems in a way that enables one to truly master business administration.
39 citations
TL;DR: In this paper, the authors discuss whether and how hedge funds erode opportunities in interest-rate, credit, equity, and currency markets, and they believe that this erosion will prove temporary, with new active trading opportunities emerging in the near future.
Abstract: Hedge funds, with almost $1 trillion under management before leverage, have become a dominant force in market trading. As they grow larger, they will eventually erode the market opportunities and mispricings they have relied on to create their superior returns. Opportunities seem to disappear fastest where hedge funds are very active and remain ample where there are fewer hedge funds. This article discusses whether and how hedge funds erode opportunities in interest–rate, credit, equity, and currency markets. The authors believe that this erosion will prove temporary, with new active trading opportunities emerging in the near future.
18 citations
Posted Content•
TL;DR: A study of New York City's tax system finds that over the past three decades, the system has become less dependent on property and general sales taxes and more dependent on corporate and personal income taxes as discussed by the authors.
Abstract: A study of New York City's tax system finds that over the past three decades, the system has become less reliant on property and general sales taxes and more dependent on corporate and personal income taxes. This shift has made the city's tax revenues less stable than the revenues of the 1970s and more sensitive to cyclical swings.
9 citations
Posted Content•
TL;DR: This article found that a high degree of restructuring may help to explain why New York State's most recent downturn persisted for well over two years, and that the permanent reallocation of workers across industries can take time.
Abstract: When economic activity slows down, labor markets may undergo extensive structural change - the permanent reallocation of workers across industries. Job losses can be heavy, and creating new jobs and retraining displaced workers to fill them can take time. A high degree of restructuring may help to explain why New York State's most recent downturn persisted for well over two years.
9 citations
Posted Content•
TL;DR: The authors compare the effects of a transfer tied to investment in public infrastructure from a traditional pure transfer, showing that the latter has no growth or dynamic consequences; it is always welfare improving, the gains increasing with the stock of government debt and the benefits of debt reduction.
Abstract: We contrast the effects of a transfer tied to investment in public infrastructure from a traditional pure transfer. The latter has no growth or dynamic consequences; it is always welfare improving, the gains increasing with the stock of government debt and the benefits of debt reduction. A tied transfer generates dynamic adjustments, as public capital is accumulated in the recipient economy. Its long-run growth and welfare effects depend upon the initial stock of infrastructure, as well as co-financing arrangements. These contrasts also apply to temporary transfers, particularly the transitional dynamics. A temporary pure transfer has only modest short-run growth effects and leads to a permanent deterioration of the current account, while a productive transfer has significant impacts on short-run growth, leading to permanent improvements in key economic variables including the current account.
8 citations
TL;DR: In this article, the authors present Living Cities: Collaborative Investing for Healthy Neighborhoods, which is a collection of living cities with a focus on healthy neighborhoods. Journal of Urban Affairs: Vol. 26, No. 2, pp. 139-149
Abstract: (2004). Living Cities: Collaborative Investing for Healthy Neighborhoods. Journal of Urban Affairs: Vol. 26, No. 2, pp. 139-149.
7 citations
Patent•
28 Jan 2004TL;DR: In this paper, a two-way encrypted credential store is proposed to provide access to Privileged Accounts to users by way of a twoway-encrypted credential store, where a process that needs to retrieve credentials for a third party system causes the operating system to launch a second process, which runs under a secured user id without interactive access.
Abstract: A method that provides access to Privileged Accounts to users by way of a two-way-encrypted credential store. In accordance with this invention, a process that needs to retrieve credentials for a third party system causes the operating system to launch a second process. This second process runs under a secured user id without interactive access. The requesting process can then pass generalized command streams to the second process, including tokenized credential retrieval requests. These tokenized credential retrieval requests are processed to authenticate the requests, perform audit logging of requests and retrieval of credentials. Tokenized credential requests transformed by the second process into credentials, which can be embedded within a command stream and then either forwarded to a sub-process or returned to the requesting process.
3 citations
TL;DR: Basel 2 has been the subject of intense debate amongst bankers around the world as discussed by the authors, but unlike the original Basel Accord of 1988, unlike the latter it looks as if the new Accord will undermine the global consensus.
Abstract: Basel 2 has been the subject of intense debate amongst bankers around the world. It will replace the original Basel Accord of 1988, but unlike the latter it looks as if the new Accord will undermine the global consensus. It is a costly exercise and the heightened risk of regulatory arbitrage may yet distort the competitive landscape. In particular, the completely different ways in which Basel 2 will be implemented in the USA and EU pose a challenge for institutions that operate on a global scale. This article is a brief examination of the key differences and challenges posed by the draft Accord – the prospects for a “final” draft being truly final seem remote and Basel 3 may well have to be on the agenda before the ink is dry on Basel 2.
3 citations
Posted Content•
TL;DR: In this article, the authors proposed a trade-off between protection against speculative pressure and predictability of exchange rate fixity, and the bandwidth chosen should be as narrow as possible and yet unlikely to be challenged by the markets.
Abstract: Are the wide bands adopted in the summer of 1993 too large? The official answer is that wide bands offer a protection against speculative pressure, while exchange rates may be kept within narrower margins at the discretion of the authorities. Yet if exchange rate fixity and predictability are desirable, as implicitly assumed by the mere existence of the system, there must exist a trade-off between protection against speculative pressure and predictability. In that case, the bandwidth chosen should be as narrow as possible and yet unlikely to be challenged by the markets. This paper offers estimates of 'safe' bandwidths. For the long-term member currencies (French franc, peseta, Danish krone and escudo), the existing 15% bands are found to be unnecessarily wide: narrower 3.5% bands would capture at least 95% of expected exchange rate realizations over a three-month horizon. For the lira, Finnish markka and Swedish krone, wider bands of 5-6% would capture a similar amount of the exchange rate distribution. The pound's exchange rate expectations are the most dispersed, requiring 8.4% bands to capture 95% of exchange rate expectations.