Regional COVID-19 Dynamics: Surrogate Synchrony in Case Infection Rates

As many jurisdictions consider in-person learning strategies (including at Institutions of Higher Education, IHE), implementing travel restrictions or quarantines, and/or establishing interstate pacts to reduce COVID-19 spread, this study explores the degree to which COVID-19 case infection rates in a group of neighboring, Southern and Midwestern U.S. states (namely, Arkansas and its contiguous neighbors) are patterned in a non-random way known as synchrony. Utilizing surrogate synchrony (SUSY) to estimate the dyadic coupling between the COVID-19 case infection rate processes in this region from March to December 2020, results indicate that significant synchrony is present between Arkansas and three of its neighbors. The highest level of instantaneous synchrony occurs between Arkansas and Tennessee, with the next highest level occurring between Arkansas and Missouri. There is evidence of directionality in the synchrony, indicating that Arkansas case infection rates lead Mississippi while rates in Missouri and Tennessee lead Arkansas. The lagged cross-correlations suggest the greatest synchrony to occur between 3 and 6 days. To explore the effect of IHE reopening on COVID-19, synchrony is compared between pre- and post-reopening windows. Results suggested that, following reopening, there are gains in detectable synchrony and that COVID-19 is in-flowing to Arkansas from all of its neighboring states. Taken together, results suggest that there is spatiality to COVID-19 with neighboring states having case infection rates that are significantly synchronous at a lag time that would be expected based on symptom onset. This synchrony is potentially strengthened by the in-flow and cross-border movement of IHE students.

Including Jumps in the Stochastic Valuation of Freight Derivatives

The spot freight rate processes considered in the literature for pricing forward freight agreements (FFA) and freight options usually have a particular dynamics in order to obtain the prices. In those cases, the FFA prices are explicitly obtained. However, for jump-diffusion models, an exact solution is not known for the freight options (Asian-type), in part due to the absence of a suitable valuation framework. In this paper, we consider a general jump-diffusion process to describe the spot freight dynamics and we obtain exact solutions of FFA prices for two parametric models. Moreover, we develop a partial integro-differential equation (PIDE), for pricing freight options for a general unifactorial jump-diffusion model. When we consider that the spot freight follows a geometric process with jumps, we obtain a solution of the freight option price in a part of its domain. Finally, we show the effect of the jumps in the FFA prices by means of numerical simulations.

Stationarity of spot freight rates considering supply/demand effect

The mean-reverting nature of freight rates is one of the important subjects in maritime economics. The classic understanding of maritime economics (and that of the shipping industry) suggests that freight rate processes are mean-reverting and approach the level decided by the demand/supply ratio. However, statistical tests on freight rate processes often reveal these processes to be non-stationary, which means the processes would not have a mean-reverting nature. In this study, we investigated the mean-reverting nature of Panamax freight rates (Baltic Panamax 4 T/C Average) for two “means”: the actual freight rate process itself, and the deviation process of actual freight rates from estimated ones based on the demand/supply ratio. The AR (1) model can be applied to both processes, and their autoregressive coefficient φ was between 0 and 1. In the actual freight process, φ was close to 1, and a unit root test failed to reject that the process is non-stationary. By contrast, in the deviation process, φ was sufficiently smaller than 1, and a unit root test rejected that the process is non-stationary. The result can resolve the contradiction between two views on mean-reverting nature; if we focus on the actual freight rate process itself and do not consider demand/supply, the process is non-stationary and does not have a mean-reverting nature. If we focus on the deviation process of the actual freight rates from the level decided by the demand/supply ratio, the process is stationary and tends to approach zero.

Break Risk

We develop a new approach to modeling and predicting stock returns in the presence of breaks that simultaneously affect a large cross-section of stocks. Exploiting information in the cross-section enables us to detect breaks in return prediction models with little delay and to generate out-of-sample return forecasts that are significantly more accurate than those from existing approaches. To identify the economic sources of breaks, we explore the asset pricing restrictions implied by a present value model which links breaks in return predictability to breaks in the cash flow growth and discount rate processes.

The effect of an instantaneous dependency rate on the social equitability of hybrid PAYG public pension schemes

The defined convex combination (DCC) pay-as-you-go public pension systems recently introduced in the literature are a form of hybridization between defined benefit (DB) and defined contribution (DC) designed to maintain intergenerational social equitability by reacting to demographic shocks in an optimal way. In this paper, we augment DCC schemes with the assumption that the dependency ratio between pensioners and workers is driven by an exogenously modelled instantaneous stochastic rate of change. This assumption enjoys support from the empirical data and allows explicit solutions for the contribution and replacement rate processes which make transparent the nature of the dynamic evolution of a DCC system, as well as the role of the variables involved. The analysis of intergenerational social equitability measures under the assumption of an instantaneous dependency rate confirms the view expressed in previous literature that neither DB nor DC achieves social fairness, and that DCC plans have the potential to improve on both. We perform a calibration test, and our findings seem to indicate that in ageing economies the DC system might indeed be superior to the DB one in terms of intergenerational fairness.