This paper studies the hedging activities of 104 non-financial UK MNEs from 2005 to 2009 to examine their potential effect on the cost of equity. We use the Fama and French Three Factor Model to estimate the cost of equity and we collect detailed information on hedging and risk management activities directly from the annual reports. Although we evidence a negative relation between the cost of equity and hedging activities, we find that the cost of equity is not significantly affected by whether firms are hedgers or non-hedgers. We further use different subsamples and we are able to observe that: (i) size and leverage are important factors in the analysis of hedging and cost of equity, and (ii) the financial crisis plays an active role in the way firms understand and react towards unexpected volatility and risk. Finally we find that controlling for endogeneity of the hedging decision and for potential sample selection bias our results are more robust and are supporting evidence for the negative and significant relationship between hedging and cost of equity.

My dissertation proposes new ways to study decisions in the housing market with structural models that deliver a consistent connection between house values and rents, incorporating investment and consumption motives for housing consumption, and allowing for preference heterogeneity. The models also take into account the difficulty of measuring complete housing quality in estimation by treating it as latent. The dissertation includes applications where I analyze issues like the size of agglomeration benefits of larger cities (New York City vs Chicago), and the dynamics of rent and prices as a reaction to household financial and demographic conditions during the re- cent housing crisis (in Miami). I find that New York has relatively lower qualities of housing and higher prices than Chicago, which implies positive compensating variations required by households moving from the latter to the former; and that there was a disconnect between the rent and ownership markets that suggest that the crisis mainly affected the asset and not the real market, respectively. Also, I find that heterogeneity in tastes plays an important role in the behavior of households in the housing market. I also present models that introduce heterogeneity in tastes to analyze the interaction between households with different demographics. Going beyond a single type of household presents additional challenges for estimation and identification that are addressed. I define types as households with and without children, and asses the effect of the presence of children on how sensitive households are to changes in the market. I obtain the robust result that the presence of children reduces the sensitivity of demand for housing quality to changes in the market. Additionally, I also use machine learning clustering methods to categorize house- holds into different demographic types based on age, number of children and expenditure in the housing market. With these types, I per- form analyses that contrast the implied demands for housing quality in the different obtained clusters. The methods developed in the different chapters are of interest to policy makers and agents who want to follow the evolution of rental rates and prices at different levels of the quality distribution, as well as for those interested in making welfare evaluations of policies that affect local housing markets differently for households with different demographics. Also, they give insight on agglomeration benefits of larger cities and compensations required when moving a household from one area to another.

With the financial globalization process, the geography of money and the social relations that are within it transformed. National currencies as integral part of the states’ financial and economic infrastructure are no longer associated with a particular territory as well as are “no longer the instrument of an exclusive national sovereignty” (Cohen, 2004, 1). This process is driven by different forces that determine the financial system today, where capital flows, trade, technology, institutions and new form of money challenge the control of the state over national currencies within its borders and question its function in the system. This paper thus suggest that national monopoly currencies are still a solid and prevailing instrument for economic and monetary leadership and power of the modern state, where sovereign authorities, rather than loosing its autonomy and influential power in the international financial market, are going through a reconfiguration process regarding the relationship between the state and a particular territory. In this context, rather than being “endangered species”, national currencies are going through a reconfiguration process that requires a redefinition of the geography of money.

Option markets recognize that the Black & Scholes model does not account for the empirical behavior of prices. The volatility surface is the main result of such shortcoming and provides market practitioners with useful information regarding the underlying’s volatility. Colombia’s option market is almost inexistent and no volatility surface can be observed or calculated. In an attempt to lay down theoretical foundations for the local market, this paper approaches the volatility surface based on the jump-diffusion model. Results are not only intuitive and supported by developed market’s evidence, but useful for immature options markets’ development and for risk management. Tomado del resumen de esta publicación

The set of objectives in reserves management are normally predefined and include: protecting the economy against potential external shocks on the current account or on capital flows; invest the reserves minimizing the potential of a loss and ensuring the availability of international liquidity when necessary. Whereas the adoption of a floating exchange rate in theory reduces the need for reserves to protect against external shocks, in the context of free capital movements it will be a function of the efficiency of international markets. Recently, given the increase in the size of the foreign reserves in recent decades for some central banks, as a result and in response to globalization and more volatility on currency flows, portfolio foreign investment and other related factors as contagion effects, the pressure to generate long-term returns has increased. However, the goal of increased returns is subdued to the security and liquidity objectives in international reserves management. As a result, the process of asset allocation and the construction of an efficient set of investment guidelines, as well as a risk policy, must be framed by a liquidity policy and, generally, to an asymmetric exposure to risk where capital loses are to be avoided in specific time horizons; i.e. a fiscal year. Tomado de la introducción a este documento

This study intends to prove the viability of the mean-variance portfolio methodology introduced by Harry Markowitz in 1950 as a traditional concept that modern retail investors could use to improve the performance of their investments, over and above that offered by the average actively managed or index equity fund. Likewise, represents a final dossier with several outputs obtained by the design and running of an optimization model, which was developed by using basic financial concepts. This algorithm which is based on a back testing analysis, simulated four investment strategies by taking into account historical data on the Colombian stock market. From this application, recommended portfolios for each strategy are obtained and ran for the period between 2007 and 2013, which are compared in terms of return and risk to the most representative Colombian stock index (IGBC) behavior. Results achieved indicate that the designed algorithm is effective, yet demonstrate a more superior integral performance than the market. Its main contribution is the model’s potential use for supporting actual investment decisions. It is believed there is sufficient evidence to support the use of traditional concepts and financial tools like the mean-variance optimization as a valid, value-adding mechanism for investors.

Este trabajo se presentó en Abril de 2009 en un seminario de ingeniería financiera. El propósito del seminario era introducir a estudiantes de derecho financiero, maestría en finanzas y estudiantes de maestría de administración de empresas (MBA) instrumentos financieros creados recientemente y sobre los cuales no existiera literatura académica previa. El 30 de enero de 2009, en medio de turbulencias severas en los mercados financieros y rumores persistentes acerca de una posible nacionalización del banco, Barclays Bank PLC introdujo un instrumento financiero que aprovecha la volatilidad de los mercados de capitales. Un instrumento conocido como Nota transable en bolsa (ETN, Exchange traded note) que deriva su valor de un índice de volatilidad (El índice de volatilidad de la bolsa de opciones de Chicago (CBOE) el índice VIX, comúnmente conocido como el índice del ¨miedo financiero¨). Este documento intentara explicar los rasgos únicos de este titulo y una metodología hipotética para su valoración.

The aim of this paper was to measure the effect of different credit-related events on the option implied volatility of several companies that belong to the Dow Jones Euro Stoxx 50 index list. Measuring the effect of credit events on volatility will augment on the already important body of literature that investigates the volatility-related phenomena; in particular those who research the effect of news on volatility. I find that, over the entire window around the credit events, there was a decrease in the implied volatility but that only the negative events have a statistically significant effect, which reflects the stronger information content of negative credit events researched by previous papers. I also found that this negative effect is mainly due to a strong “reversal” effect in the post-event 10-day period, where the negative effect is stronger and more statistically significant (particularly for the negative events). Furthermore, during the pre-event period there is not much evidence that supports any type of foresight of the market. My results also suggest that there is a difference between the behavior of the implied volatility when the events are outlook changes and credit reviews, and when the event is a rating change (downgrade/upgrade).

This dissertation explains in detail how Albrecher et al. (2008) developed three different model independent lower bounds and one upper comonotonic bound for European Asian call option prices. The main characteristic of these bounds is that Albrecher et al. (2008) only use the observable plain vanilla option prices in the market to calculate them whichallows for the _nding of static hedging portfolios. The concepts behind the bounds are basically Jensen's inequality and some properties of comonotonicity of random vectors. This document will also explain how to implement these bounds when the market has a finite number of options available, moreover, how to do it when these bounds do not involve strikes found in the market. Two facts will be used: the call option price function is convex with respect to strike, and the lower and upper bounds for a call option suggested by Bertsimas and Popescu (2002). Finally, as an example, one application of these bounds in the Colombian FX option market will be presented.

Many central banks, particularly in the developing world, aim for exchange rate stability as a macroeconomic goal. However, most are reluctant to relinquish monetary policy autonomy, so they end up operating through both interest rate and foreign exchange interventions. But the use of multiple policy instruments does not necessarily equip monetary authorities with better tools to achieve their targets. On the contrary, their effects can potentially offset each other. Using daily data from the Central Bank of Colombia during the period of 1999–2012, I study the effects of simultaneous policies by first deriving new measures of monetary shocks and then determining their impact on economic activity. The main findings indicate that (a) while interest rate interventions have a significant impact on real and nominal variables, foreign exchange interventions tend to have limited effects; and (b) empirical anomalies, such as the positive relationship between output growth, inflation, and the policy rate are eliminated when properly accounting for the systematic responses of policy.