Humanities and Social Sciences

Central European Journal of Economic Modelling and Econometrics

Content

Central European Journal of Economic Modelling and Econometrics | 2013 | No 1 |

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Abstract

This paper defines the concept of simple strategy and introduces three kinds of simple strategies: wealth-invariant, scale-invariant and "wealthier-accept more". For three commonly used utility function families: CARA, CRRA and DARA equivalent characterizations are obtained in terms of the corresponding simple strategy, in terms of the buying and selling price properties, and in terms of the utility function properties as expressed by Cauchy functional equations. Moreover, an extension of famous Pratt (1964) theorem is proved which involves buying price for a lottery as an alternative measure of comparative risk aversion. Additionally a number of propositions on both selling and buying price for a lottery and CRRA utility class are proved.

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Authors and Affiliations

Michał Lewandowski
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Abstract

In the paper we present robust estimation methods based on bounded innovation propagation filters and quantile regression, applied to measure Value at Risk. To illustrate advantage connected with the robust methods, we compare VaR forecasts of several group of instruments in the period of high uncertainty on the financial markets with the ones modelled using traditional quasi-likelihood estimation. For comparative purpose we use three groups of tests i.e. based on Bernoulli trial models, on decision making aspect, and on the expected shortfall.

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Authors and Affiliations

Ewa Ratuszny
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Abstract

We develop a fully Bayesian framework for analysis and comparison of two competing approaches to modelling daily prices on different markets. The first approach, prevailing in financial econometrics, amounts to assuming that logarithms of prices behave like a multivariate random walk; this approach describes logarithmic returns most often by the VAR(1) model with MGARCH (or sometimes MSV) disturbances. In the second approach, considered here, it is assumed that daily price levels are linked together and, thus, the error correction term is added to the usual VAR(1)–MGARCH or VAR(1)–MSV model for logarithmic returns, leading to a reduced rank VAR(2) specification for logarithms of prices. The model proposed in the paper uses a hybrid MSV-MGARCH structure for VAR(2) disturbances. In order to keep cointegration modelling as simple as possible, we restrict to the case of two prices representing two different markets.

The aim of the paper is to show how to check if a long-run relationship between daily prices exists and whether taking it into account influences our inference on volatility and short-run relations between returns on different markets. In the empirical example the daily values of the S&P500 index and the WTI oil price in the period 19.12.2005 – 30.09.2011 are jointly modelled. It is shown that, although the logarithms of the values of S&P500 and WTI oil price seem to be cointegrated, neglecting the error correction term leads to practically the same conclusions on volatility and conditional correlation as keeping it in the model.

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Authors and Affiliations

Krzysztof Osiewalski
Jacek Osiewalski

Editorial office

Editors
JACEK OSIEWALSKI, Cracow University of Economics, Poland
ALEKSANDER WELFE, University of Lodz, Poland

Co-Editors

KATARZYNA BIEŃ-BARKOWSKA, SGH Warsaw School of Economics, Poland
MIKOŁAJ CZAJKOWSKI, University of Warsaw, Poland
JAKUB GROWIEC, SGH Warsaw School of Economics, Poland
MAREK GRUSZCZYŃSKI, SGH Warsaw School of Economics, Poland
BOGUMIŁ KAMIŃSKI, SGH Warsaw School of Economics, Poland
MARCIN KOLASA, SGH Warsaw School of Economics, Poland
ANNA PAJOR, Cracow University of Economics, Poland

Associate Editors
KARIM ABADIR, The American University in Cairo, Cairo, Egypt
ANINDYA BANERJEE, University of Birmingham, UK
STEPHEN HALL, University of Leicester, UK
GARY KOOP, University of Strathclyde, Glasgow, UK
MARK STEEL, University of Warwick, UK
MARTIN WAGNER, Technical University of Dortmund, Germany
JAN WERNER, University of Minnesota, USA
PETER WINKER, University of Giessen, Germany

Editorial Board

HERMAN van DIJK, Erasmus University Rotterdam and VU University Amsterdam, The Netherlands
LAWRENCE R. KLEIN, University of Pennsylvania, Benjamin Franklin Professor of Economics, USA
TIMO TERASVIRTA, University of Aarhus, Denmark
HELMUT LUETKEPOHL, Freie Universität Berlin, Germany

Publishing Editor

ANNA STASZEWSKA-BYSTROVA, University of Lodz, Poland

Editorial Assistant

AGNIESZKA RYGIEL, Cracow University of Economics, Poland

Contact

CEJEME Editorial Office - Ms. Karolina Jaszczyk, Polish Academy of Sciencies - Lodz Branch
Piotrkowska Str. 137/139, 90-434 Lodz, Poland
e-mail: cejeme@pan.pl

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Submission Guidelines and Instructions for Authors of accepted papers please visit: http://cejeme.org/submissionguidelines.aspx

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