Panayiotis C. Andreou
Cyprus University of Technology
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Featured researches published by Panayiotis C. Andreou.
European Journal of Operational Research | 2008
Panayiotis C. Andreou; Chris Charalambous; Spiros H. Martzoukos
We compare the ability of the parametric Black and Scholes, Corrado and Su models, and Artificial Neural Networks to price European call options on the S&P 500 using daily data for the period January 1998 to August 2001. We use several historical and implied parameter measures. Beyond the standard neural networks, in our analysis we include hybrid networks that incorporate information from the parametric models. Our results are significant and differ from previous literature. We show that the Black and Scholes based hybrid artificial neural network models outperform the standard neural networks and the parametric ones. We also investigate the economic significance of the best models using trading strategies (extended with the Chen and Johnson modified hedging approach). We find that there exist profitable opportunities even in the presence of transaction costs.
Quantitative Finance | 2015
Panayiotis C. Andreou
This paper examines the time series economic determinants of Standard & Poor’s (S&P) 500 Index option-implied risk-neutral distributions for the period 1998–2007. In particular, we investigate the effects of a market default likelihood index, which is computed by aggregating daily default risk measures for all individual, non-financial firms included in the S&P 500 Index portfolio. The results reveal that market default risk is positively (negatively) related to the index risk-neutral volatility and skewness (kurtosis). Moreover, the findings of this study illuminate a set of economic determinants relating to the characteristics of the underlying asset and microstructure variables characterizing the option market, which are also found to affect the index option-implied risk-neutral moments. Overall, our findings provide a better understanding of what drives the daily shapes of the S&P 500 option-implied risk-neutral distributions and offer explanations of why theoretical predictions of rational option pricing models are not consistent with what is observed in practice.Modern financial engineering has dedicated significant effort in developing sophisticated option pricing models to replicate the implied volatility smirk anomaly. Nonetheless, there is limited empirical evidence to examine the causes of this anomaly implied by market options data. The primary purpose of this study is to investigate the time-series economic determinants that affect the shape of the S&P 500 index Implied Volatility Function (IVF). The analysis is carried out on a daily basis and covers the period from January 1998 to December 2007. One of the most important contributions of this study is to investigate how the market default risk affects the shape of the risk-neutral density function implied by the S&P 500 index options. In order to create the proxy for the market default risk, I compute the daily probability-to-default measure for all individual, non-financial, firms included in the S&P 500 index. The daily probability-to-default is calculated with the Merton distance-to-default measure, which is based on Merton’s (1974) option pricing model. Part of my analysis includes discussions of the different versions of the default risk that I compute and compare with some key results reported in Bharath and Shumway (2008). My analysis shows that the market default risk has a dual role to play, since it can potentially capture both, the market leverage effect, as well as, the market’s perceptions about the future growth/state of the economy. As such, market default risk has been found to affect the shape of the S&P 500 index IVF in numerous ways. The results suggest that, besides options pricing models that admit stochastic volatility and random jumps, it is also worthwhile to exploit models that take into account market leverage such as the ones of Geske (1979) and Toft and Prucyk (1997). More importantly, in a regression analysis where I disentangle the role of market leverage by separating it from the asset return, I show that the contemporaneous index return is still important in explaining the shape of the S&P 500 index IVF. The results of this study illuminate a set of economic determinants that are found to affect the risk-neutral density function of the index. These factors are related to characteristics of the underlying asset and micro-structure variables characterizing the option market itself. Financial engineers can exploit the role and importance of these factors in the future, in order to improve the forecasting accuracy, as well as, the hedging and risk management performance of option pricing models. JEL classification: G12, G13, G14
Archive | 2015
Panayiotis C. Andreou; Daphna Ehrlich; Isabella Karasamani; Christodoulos Louca
We use the 2008 global financial crisis as a natural experiment setting to investigate the relationship between managerial ability and corporate investment. We find a strong positive relation between pre-crisis managerial ability and capital expenditure during the crisis period, which remains robust in the presence of a large array of control variables capturing corporate governance attributes, executive compensation incentives and CEO characteristics. This relationship was prevalent only among firms with CEOs that had general managerial skills, rather than firm-specific skills. Our results also show that the positive relationship between managerial ability and corporate investment was supported by the capacity of such firms to secure greater financing and be less vulnerable to financial constraints during the crisis. Finally, we find that, on average, the stock market evaluates crisis-period investments positively, yet this effect is evident solely among firms characterized by high pre-crisis managerial ability. Overall, the results are consistent with the view that high managerial ability helps to mitigate underinvestment problems during a crisis period, which in turn increases firm value.
European Journal of Finance | 2008
Panayiotis C. Andreou; Yiannos A. Pierides
Pricing and trading practices in the Athens Derivatives Exchange, a newly established derivatives market, result in significant futures arbitrage profit opportunities for low-cost traders. We find that a large part of the mispricing is due to transaction costs, but additional factors, such as anticipated volatility and time to maturity, also contribute. Ex ante tests reveal significant arbitrage opportunities that could have been exploited up to 30 min after they had been identified. All different tests employed indicate that the derivatives market was inefficient during its early trading history because arbitrage opportunities persisted even after other market impact costs were taken into consideration.
international conference on artificial neural networks | 2009
Panayiotis C. Andreou; Chris Charalambous; Spiros H. Martzoukos
We explore the pricing performance of Support Vector Regression for pricing S&P 500 index call options. Support Vector Regression is a novel nonparametric methodology that has been developed in the context of statistical learning theory, and until now it has not been widely used in financial econometric applications. This new method is compared with the Black and Scholes (1973) option pricing model, using standard implied parameters and parameters derived via the Deterministic Volatility Functions approach. The empirical analysis has shown promising results for the Support Vector Regression models.
International Journal of Logistics-research and Applications | 2016
Panayiotis C. Andreou; Christodoulos Louca; Photis M. Panayides
This paper investigates how vertical integration may influence inventory turnover and firm operating performance. A causal model is developed to investigate the effects of vertical integration on three types of inventory, namely raw materials inventory (RMI), work in progress inventory (WIPI) and finished goods inventory (FGI). The model tests the interactions between inventory types and the consequences of inventory turnover performance on various aspects of firm performance including costs and profitability. In particular, path analysis supports systematic differences with respect to how vertical integration affects RMI, WIPI and FGI. Vertical integration has a positive effect on RMI and FGI turnover but no significant effect on WIPI turnover. FGI contributes to a reduction in supporting processes costs which causes an improvement in return on sales (ROSs). Vertical integration impacts ROS directly.
international conference on artificial neural networks | 2002
Panayiotis C. Andreou; Chris Charalambous; Spiros H. Martzoukos
In this paper we compare the predictive ability of the Black-Scholes Formula (BSF) and Artificial Neural Networks (ANNs) to price call options by exploiting historical volatility measures. We use daily data for the S&P 500 European call options and the underlying asset and furthermore, we employ nonlinearly interpolated risk-free interest rate from the Federal Reserve board for the period 1998 to 2000. Using the best models in each sub-period tested, our preliminary results demonstrate that by using historical measures of volatility, ANNs outperform the BSF. In addition, the ANNs performance improves even more when a hybrid ANN model is utilized. Our results are significant and differ from previous literature. Finally, we are currently extending the research in order to: a) incorporate appropriate implied volatility per contract with the BSF and ANNs and b) investigate the applicability of the models using trading strategies.
British Journal of Management | 2018
Nihat Aktas; Panayiotis C. Andreou; Isabella Karasamani; Dennis Philip
This study examines the impact of CEO duality on firms’ internal capital allocation efficiency. We observe that when the CEO is also chair of the board, diversified firms make inefficient investments, as they allocate more capital to business segments with relatively low growth opportunities over segments with high growth opportunities. The adverse impact of CEO duality on investment efficiency prevails only among firms that face high agency problems, as captured by high free cash flows, staggered board structure and low board independence. Depending on the severity of the agency problem, CEO duality is associated with a decrease in industry-adjusted investment in high-growth segments of 1% to 2.1% over the following year, relative to that in low-growth segments. However, CEOs’ equity-based compensation curbs the negative effect of CEO duality on internal capital allocation efficiency. Overall, the findings of this study offer strong support for the agency theory and postulate the internal capital allocation policy as an important channel through which CEO duality lowers firm value in diversified firms.
Archive | 2016
Nihat Aktas; Panayiotis C. Andreou; Isabella Karasamani; Dennis Philip
This study examines the impact of CEO duality on firms’ internal capital allocation efficiency. We observe that when the CEO is also chair of the board, diversified firms make inefficient investments, as they allocate more capital to business segments with relatively low growth opportunities over segments with high growth opportunities. The adverse impact of CEO duality on investment efficiency prevails only among firms that face high agency problems, as captured by high free cash flows, staggered board structure and low board independence. Depending on the severity of the agency problem, CEO duality is associated with a decrease in industry-adjusted investment in high growth segments of 1% to 2.1% over the following year, relative to those in low growth segments. However, CEOs’ equity-based compensation curbs the negative effect of CEO duality on internal capital allocation efficiency. Overall, the findings of this study offer strong support for the agency theory and postulate the internal capital allocation policy as an important channel through which CEO duality lowers firm value in diversified firms.
Social Science Research Network | 2017
Panayiotis C. Andreou; John A. Doukas; Demetris Koursaros; Christodoulos Louca
This study presents a theoretical model that links chief executive officer (CEO) overconfidence to the value loss of corporate diversification. Consistent with the model’s prediction, the findings show that diversified firms run by overconfident CEOs experience value loss compared to diversified firms run by their rational counterparts. Empirically, the value loss is economically significant and ranges between 12.5% and 14.1%. In addition, the model predicts heightened corporate refocusing activity by overconfident CEOs who pursued diversified investments in the past once realized returns fail to match initial expectations. The empirical odds of corporate refocusing decisions are 67% to 98% higher when past diversifications are undertaken by overconfident rather than rational CEOs. Another prediction of the model is that overconfident CEOs exhibit preference for diversified investments, especially in the presence of ample internal funds. This prediction is also strongly supported by the data. Overall, this study proposes CEO overconfidence as a unified and consistent explanation of why firms pursue value-destructive corporate diversification policies and later adopt refocusing policies aiming to restore value.