• Title/Summary/Keyword: Mean Reverting

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The Mean Reverting Behavior of Inflation in the Philippines

  • CAMBA, Abraham C. Jr.;CAMBA, Aileen L.
    • The Journal of Asian Finance, Economics and Business
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    • v.8 no.10
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    • pp.239-247
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    • 2021
  • Central Bank authorities should carefully manage inflation rate uncertainties to achieve economic growth and development not only in the short-run but also in the long-run. Since inflation is a key macroeconomic variable, an increased understanding about its behavior is undoubtedly important. Thus, paper employs unit root with breakpoints to examine the mean reverting behavior of inflation rate in the Philippines using monthly data from 2002 to 2020. Empirically, the unit root breakpoint innovational and additive outlier tests favor the stationarity or mean reverting behavior of inflation in the Philippines. Also, results of standard unit root tests, ADF, PP, GLS-Dickey-Fuller, KPSS and NP, provide strong evidence of mean reverting processes. The mean reverting behavior of inflation rate reveals that the monetary policy using inflation targeting framework has succeeded in reducing chronic inflation persistence in the Philippines. Thus, this research supports inflation targeting policy that aims to maintain general price level stability for the Philippine economy's long-term growth and development prospects. The findings of this research remain important for the central bankers for not only providing them better understanding about the behavior of inflation rate, but also helping them formulate and implement policy reforms related to money, credit and banking.

A Two Factor Model with Mean Reverting Process for Stochastic Mortality (평균회귀확률과정을 이용한 2요인 사망률 모형)

  • Lee, Kangsoo;Jho, Jae Hoon
    • The Korean Journal of Applied Statistics
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    • v.28 no.3
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    • pp.393-406
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    • 2015
  • We examine how to model mortality risk using the adaptation of the mean-reverting processes for the two factor model proposed by Cairns et al. (2006b). Mortality improvements have been recently observed in some countries such as United Kingdom; therefore, we assume long-run mortality converges towards a trend at some unknown time and the mean-reverting processes could therefore be an appropriate stochastic model. We estimate the parameters of the two-factor model incorporated with mean-reverting processes by a Metropolis-Hastings algorithm to fit United Kingdom mortality data from 1991 to 2015. We forecast the evolution of the mortality from 2014 to 2040 based on the estimation results in order to evaluate the issue price of a longevity bond of 25 years maturity. As an application, we propose a method to quantify the speed of mortality improvement by the average mean reverting times of the processes.

Characterization of Premature Ventricular Contraction by K-Means Clustering Learning Algorithm with Mean-Reverting Heart Rate Variability Analysis (평균회귀 심박변이도의 K-평균 군집화 학습을 통한 심실조기수축 부정맥 신호의 특성분석)

  • Kim, Jeong-Hwan;Kim, Dong-Jun;Lee, Jeong-Whan;Kim, Kyeong-Seop
    • The Transactions of The Korean Institute of Electrical Engineers
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    • v.66 no.7
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    • pp.1072-1077
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    • 2017
  • Mean-reverting analysis refers to a way of estimating the underlining tendency after new data has evoked the variation in the equilibrium state. In this paper, we propose a new method to interpret the specular portraits of Premature Ventricular Contraction(PVC) arrhythmia by applying K-means unsupervised learning algorithm on electrocardiogram(ECG) data. Aiming at this purpose, we applied a mean-reverting model to analyse Heart Rate Variability(HRV) in terms of the modified poincare plot by considering PVC rhythm as the component of disrupting the homeostasis state. Based on our experimental tests on MIT-BIH ECG database, we can find the fact that the specular patterns portraited by K-means clustering on mean-reverting HRV data can be more clearly visible and the Euclidean metric can be used to identify the discrepancy between the normal sinus rhythm and PVC beats by the relative distance among cluster-centroids.

Are Korean Industry-Sorted Portfolios Mean Reverting?

  • Moon, Seongman
    • East Asian Economic Review
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    • v.20 no.2
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    • pp.169-190
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    • 2016
  • This paper tests the weak-form efficient market hypothesis for Korean industry-sorted portfolios. Based on a panel variance ratio approach, we find significant mean reversion of stock returns over long horizons in the pre Asian currency crisis period but little evidence in the post-crisis period. Our empirical findings are consistent with the fact that Korea accelerated its integration with international financial market by implementing extensive capital liberalization since the crisis.

BUYING AND SELLING RULES FOR A SIMPLE TRANSACTION OF A MEAN-REVERTING ASSET

  • Shin, Dong-Hoon
    • The Pure and Applied Mathematics
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    • v.18 no.2
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    • pp.129-139
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    • 2011
  • We consider an optimal trading rule in this paper. We assume that the underlying asset follows a mean-reverting process and the transaction consists of one buying and one selling. To maximize the profit, we find price levels to buy low and to sell high. Associated HJB equations are used to formulate the value function. A verification theorem is provided for sufficient conditions. We conclude the paper with a numerical example.

한국(韓國) 주식시장(株式市場)에서 주가(株價)는 비합리적(非合理的)로 결정(決定)되는가? - 주가결정모형(株價決定模型)의 실증분석(實證分析)을 중심(中心)으로 -

  • Kim, Gyu-Yeong
    • The Korean Journal of Financial Management
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    • v.10 no.2
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    • pp.239-262
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    • 1993
  • 본 연구에서는 한국 주식시장에서의 주가결정과정에 비합리적인 요소가 내포되어 있는지의 여부를 정가하기 위하여 Fama-French(1988)의 검증방법론을 이용하여 한국종합주가지수, 자본금규모별 주가지수, 산업 별 주가지수, 그리고 한경다우지수 등을 대상으로 실증분석을 실시하였다. 주가의 평균회귀과정(mean-reverting process)이 주식수익률들간의 음의 자기상관관계를 유발한다는 관찰에서 출발한 본 연구는 미국에서의 실증분석 결과와는 판이하게 주식수익률들이 2년까지의 수익률계산기간(return horizon)에서 지속적인 양의 자기 상관을 갖고 있음을 발견하였다. 본 연구에서 발견된 실증분식결과는 대상주가지수에 관계없이 일관성있는 패턴을 유지하고 있는데, 이는 Fama-French(1988)의 결과에 정면으로 배치된다. 따라서 본 연구에서의 실증분석 결과는 우리나라 주식시장의 경우 주가에 비합리적인 평균회귀요소(mean-reverting components)가 포함되어 있다는 가설을 지지하지 않는 것으로 해석 될 수 있을 것이다. 물론, 이것이 반드시 우리 주식 시장에서의 주가결정이 합리적으로 이루어진다는 것을 의미하지는 않으며, 단지 본 연구에서 주장되고 있는 것은 우리 주식시장에서의 주가결정과정을 랜덤웍과 평균회귀과정의 합성 혹은 평균회귀과정 그 자체로 모형화하려는 시도는 실증적 증거에 뿌리를 두고 있지 않다는

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THE PRICING OF VULNERABLE FOREIGN EXCHANGE OPTIONS UNDER A MULTISCALE STOCHASTIC VOLATILITY MODEL

  • MIJIN HA;DONGHYUN KIM;JI-HUN YOON
    • Journal of applied mathematics & informatics
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    • v.41 no.1
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    • pp.33-50
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    • 2023
  • Foreign exchange options are derivative financial instruments that can exchange one currency for another at a prescribed exchange rate on a specified date. In this study, we examine the analytic formulas for vulnerable foreign exchange options based on multi-scale stochastic volatility driven by two diffusion processes: a fast mean-reverting process and a slow mean-reverting process. In particular, we take advantage of the asymptotic analysis and the technique of the Mellin transform on the partial differential equation (PDE) with respect to the option price, to derive approximated prices that are combined with a leading order price and two correction term prices. To verify the price accuracy of the approximated solutions, we utilize the Monte Carlo method. Furthermore, in the numerical experiments, we investigate the behaviors of the vulnerable foreign exchange options prices in terms of model parameters and the sensitivities of the stochastic volatility factors to the option price.

Empirical Study on Credit Spreads in Korea Corporate Market : Using Mean-Reverting Leverage Ratio Model (목표부채비율 회귀 모형을 이용한 한국채권시장의 신용가산금리에 대한 실증연구)

  • Kim, Jae-Woo;Kim, Hwa-Sung
    • The Korean Journal of Financial Management
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    • v.22 no.1
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    • pp.93-118
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    • 2005
  • This paper examines credit spreads in Korea corporate market using one of structural models, the mean reverting leverage ratio model (Collin-Dufresne and Goldstein (2001)). Compared to the actual credit spreads, we show that the credit spreads induced by the model are overpredicted. We also investigate the systematic errors that cause the over-pre-diction of credit spreads using the t-test. We show that the systematic errors are affected by the current leverage ratio and asset volatility.

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A Real Options Analysis on Fuel Cell Power Plant considering Mean Reverting Process of Electricity Price (전력가격 평균회귀성을 고려한 연료전지 발전의 실물옵션 분석)

  • Park, Hojeong;Nam, Youngsik
    • Environmental and Resource Economics Review
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    • v.27 no.4
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    • pp.613-637
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    • 2018
  • Fuel cell power plant which has advantages as a distributed generation is influenced by high cost of investment and uncertainty of electricity price. This study suggests the model of real options which considers the irreversibility of investment in the fuel cell plant and the uncertainty of electricity price. Most models of real options assume the geometric Brownian motion for convenience, but this study develops the model for the feasibility analysis considering the mean reverting process of electricity price, with the closed form solution on the value of investment option. The result of the empirical analysis considering the data related to the fuel cell generation with the scale of 20MW and the domestic RPS circumstance represents that the investment is feasible without the uncertainty, and is not feasible with the uncertainty. This result implies that the political support as well as the improvement of profit system including revenue and cost are necessary for the activation of the fuel cell power plant.

Longevity Bond Pricing by a Cohort-based Stochastic Mortality (코호트 사망률을 이용한 장수채권 가격산출)

  • Jho, Jae Hoon;Lee, Kangsoo
    • The Korean Journal of Applied Statistics
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    • v.28 no.4
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    • pp.703-719
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    • 2015
  • We propose an extension of the Lee and Jho (2015) mean reverting the two factor mortality model by incorporating a period-specific cohort effect. We found that the consideration of cohort effect improves the mortality fit of Korea male data above age 65. Parameters are estimated by the weighted least squares method and Metropolis algorithm. We also emphasize that the cohort effect is necessary to choose the base survival index to calculate longevity bond issue price. A key contribution of the article is the proposal and development of a method to calculate the longevity bond price to hedge the longevity risk exposed to Korea National Pension Services.