Of concern is a network in which the conductance of certain branches are variable. The problem posed is the maximization of the joint conductance subject to a bound on the <t norm of the variable conductances. It is shown that at P an optimum state the conductance of a variable branch is proportional to the 2/(p+l) power of the current through the branch. l*his relation together with a dual var...

A recent study shows that industry-specific analysis has no incremental advantage over economy-wide analysis in forecasting firm profitability. This result seems puzzling because some earlier studies have documented the importance of industry effects in explaining firm profitability. We reconcile the apparent inconsistency by showing that industry effects on profitability forecasting exist at t...

ABSTRACT We investigate (1) how well a machine learning algorithm can predict one-year ahead effective tax rates (ETRs) and (2) which items in the financial statements notes are most useful for these predictions. compare our machine-generated ETR predictions with those from ETRs implied by analysts’ earnings forecasts find algorithm’s less biased, more precise, explain of variance future ETRs. ...

We propose new specifications that explicitly account for information noise in the input data of bankruptcy hazard models. The specifications are motivated by a theory of modeling credit risk with incomplete information (Duffie and Lando [2001]). Based on over 2 million firm-months of data during 1979-2012, we demonstrate that our proposed specifications significantly improve both insample mode...

The classical APT model is of the form j j j j EI I r E r ε β + − = − ) ( ) ( , where ) ( j j r E r − is the earning deviation (called basic variance-profit) of the security I j, is a common factor. This paper considers the impact on the securities return caused by the skewness and kurtosis of the stock returns distributions, and poses a re-modified the arbitrage pricing model as follows j j j ...

The estimation of the market price of risk is an open question in the jump-diffusion term structure literature when a closed-form solution is not known. Furthermore, the estimation of the physical drift has a high risk of misspecification. In this paper, we obtain some results that relate the risk-neutral drift and the risk-neutral jump intensity of interest rates with the prices and yields of ...

In its complexity and its vulnerability to market volatility, the CPDO might be viewed as the poster child for the excesses of financial engineering in the credit market. This paper examines the CPDO as a case study in model risk in the rating of complex structured products. We demonstrate that the models used by S&P and Moody’s would have assigned very low probability to the spread levels real...

Volatility models of the market portfolio’s return are central to financial risk management. Within an equilibrium framework, we introduce an implementation method and study two families of such models. One is deterministic volatility, represented by current popular models. Another is in the “constant elasticity of variance” family, in which we propose new models. Theoretically, we show that, t...

This paper examines jump dynamic patterns in three Chinese medical stocks. It also compares the Value-at-Risk (VaR) forecasting performance of a newly proposed realized volatility model allowing for jumps with that of two commonly used realized volatility models, which do not account for jumps. Using the Heterogeneous Autoregressive Realized Volatility model that allows for jumps (HAR-CJN), we ...

We propose a relatively simple, accurate and flexible approach to forecasting the distribution of defaulted debt recovery outcomes. Our approach is based on mixtures of Gaussian distributions, explicitly conditioned on borrower characteristics, debt instrument characteristics and credit conditions at the time of default. Using Moody’s Ultimate Recovery Database, we show that our mixture specifi...