Patrick Navatte

The Predictive Power of the French Market Volatility Index: A Multi Horizons Study

The main purpose of this paper is to examine empirically the time series properties of the French Market Volatility Index (VX1). We also examine the VX1s ability to forecast future realized market volatility and finds a strong relationship. More importantly, we show how the index can be used to generate volatility forecasts over different horizons and that these forecasts are reasonably accurate predictors of future realized volatility. JEL classification codes: G14, C53, C13.

The information content of implied volatility, skewness and kurtosis: empirical evidence from long‐term CAC 40 options

The implied standard deviation is widely believed to be the best available forecast of the volatility of the returns over the remaining contract life (Jorion 1995). In this paper, we generalize this result to the higher moments of the distribution (Skewness and Kurtosis) based on a Gram-Charlier series expansion of the normal distribution (Corrado and Su 1996) using long term CAC 40 option prices contract, named PXL. First, we find that implied first moments contain a substantial amount of information for realized future moments of CAC 40 returns although this amount is decreasing with respect to the moments order. Second, we find that different shapes of the volatility smile are consistent with different distributions of the underlying returns. Based on these results, we also observe that including other implied moments significantly improve the out-of-sample pricing performance of the Black-Scholes (1973) model.

The Valuation of Interest Rate Digital Options and Range Notes Revisited

The aim of this paper is to value interest rate structured products in a simpler and more intuitive way than Turnbull(1995). Considering some assumptions with respect to the evolution of the term structure of interest rates, the price of a European interest rate digital call option is given. Recall it is a contract designed to pay one dollar at maturity if a reference interest rate is above a prespecified level (the strike), and zero in all the others cases. Combining two options of this type enables us to value a European range digital option. Then using a one factor linear Gaussian model and the new well-known change of numeraire approach, a closed-form formula is found to value range notes which pay at the end of each defined period, a sum equal to prespecified interest rate times the number of days the reference interest rate lies inside a corridor.

Pricing Credit Derivatives in Credit Classes Frameworks

Many credit management systems, based on different underlying frameworks, are now available to measure and control default and credit risks1. Homogeneous credit classes and associated transition matrix may thus be constructed within many different frameworks. For illustration, the KMV Corporation provides a transition matrix within a structural approach a la Black-Sholes-Merton (Crouhy-Galai-Mark [5]). Independentely from the underlying framework, a methodology based on credit classes may therefore be used to price any claim contingent on credit events among which the default.

La mise en place d’un marché interne du capital au sein de la chaîne logistique : un nouveau défi

RÉSUMÉ Cet article s’attache à étudier l’investissement à moyen et long terme dans la chaîne logistique, condition de sa pérennité et de sa croissance. Les conditions de mise en place d’un marché interne du capital où pourraient être sélectionnés de façon collaborative des investissements spécifiques y sont décrites succinctement. Ceci intervient depuis une situation d’asymétrie d’information forte et inhibante pour l’implantation d’un tel marché, jusqu’à une situation de transparence suffisante entre partenaires pour que les règles du MEDAF puissent s’appliquer. La chaîne est alors comparée, au niveau de son comportement d’investissement, à une société diversifiée, voire à un conglomérat. On en déduit quel coût du capital employer au niveau de la décision d’investissement, les coûts d’agence devant être ajoutés, mais aussi qu’une gouvernance forte devrait prendre place pour éviter ou limiter les comportements stratégiques des différents partenaires.

On the Pricing and Early Call of American and Bermudan Callable Bonds

This paper reconsiders American and Bermudan callable bonds and highlights their key differences. We illustrate how the level of interest rate critical for calling Bermudan Callable Bonds (BCBs) can differ from those critical for calling American Callable Bonds (ACBs). We also stress that it is costly for ACB issuers to follow a discrete early call policy. An empirical simulation finally suggests that every US bond issuer having included a call provision between 1993 and 2011 would have called back their debt especially those holding a Bermudan style redemption option. Compared to ACBs, BCBs can more favorably face unexpected changes of the term structure of interest rates. We observe that a discrete monitoring policy for ACBs may be approximately as profitable as the Bermudan regular call policy, but BCBs are less expensive than ACBs at issuance. Our empirical simulation explains why investors require call deferment periods in call provisions.

Private Benefits in a Contingent Claim Framework: Valuation Effects and Other Implications

This article extends the continuous time framework of the firm developed by Black, Scholes, and Merton to analyze effects of private benefits. We highlight first how straight private benefits can lower stakeholders’ wealth. We nevertheless point out that private benefits do not necessarily mean expropriation of minority equity holders. Managers can indeed adjust the business risk of the firm so as to make private benefits innocuous for equity. This in turn has a couple of beneficial consequences for blockholders. First, this prevents minority equity holders to complain for expropriation to authorities. Second, the portion of equity they have does not suffer from any value decrease. Innocuous private benefits cannot have however unlimited value, because the associated volatility would be unreasonable and too detrimental for bondholders. We also consider cases where managers enjoy a retirement plan and account for this in their strategic adjustment. Our simulations suggest that minority shareholders may take advantage of it. Finally, we advocate that covenants in loan contracts may prevent or limit such strategic behaviour.

La vague des fusions-acquisitions des années 1990 aux États-Unis. Une lecture des résultats à l'aide de la théorie de l'agence

La vague d’acquisitions des annees 1990 aux Etats-Unis a genere peu de gains, voire des pertes importantes pour les acquereurs. On peut se demander si ce n’est pas le resultat de la relation d’agence qui existe entre les actionnaires et les dirigeants dans le cadre de la firme manageriale a actionnariat diffus. On passe alors en revue les motivations des dirigeants des societes acquerantes et acquises qui auraient pu les faire s’ecarter d’une gestion effectuee dans l’interet de leurs actionnaires respectifs, puis on examine si les mecanismes de gouvernance ont ete suffisants pour finalement realigner les interets des deux parties. Quelques pistes de recherche sont enfin evoquees.