Tom will present a summary of the dissertation which he produced for his MSc in International Banking and Finance, awarded with distinction. He explored whether macro-economic variables can be used to explain and accurately forecast long-term stock movements.

The first part involved coupling Arbitrage Pricing Theory and a standard discounted value model to model macroeconomic risk factors (including interest rates, inflation, money supply, oil prices, GDP, unemployment, industrial production and housing starts) and stock prices within a Cointegration framework for the UK, US, Japan, France and Australia over a contemporary fifteen to thirty year time period. He found significant national endogenous structures and modelled full Vector Error Correction Models (VECM) that described both long run equilibrium relationships and also their transitory short run deviations from these equilibriums.

He then moved to formulate predictive Box-Jenkins and Naïve models in order to compare their performances against the VECM’s in a full dynamic and static out-of-sample forecasting comparison test for each national stock exchange structure; comparing both whole-period single summary statistics and intra-period decompositions in order to evaluate model accuracies. He found varying strengths of performance across the models. Particularly interesting were the substantial and sustained deviations from their endogenous macroeconomic fundamental values that were observed for all tested stock markets which have implications both for fundamental modelling and behavioural finance analysis.

Tom’s talk will be followed by an opportunity for questions over tea/coffee. 

Overview: In seeking the most influential research mathematician, we first need to ask how we should measure influence. In 2005, Jorge Hirsch proposed an index to reflect the importance of research physicists based upon their productivity – through publications – and influence – through the citations that they gathered. Already the idea has been extended to other academic fields and more general areas of application.

In this talk we will look at how the index is calculated and indicate some pros and cons. We will then seek to explore the essential elements of the index via a simple mathematical model for the way that scientists publish their work and gather citations. This will be illustrated by a specific real-life example. Agreement between the theoretical model and the empirical evidence is encouraging but we will highlight some discrepancies.

Note that the question posed in the title will not be answered, but you will at least find out how to do it yourself – with a little help from the internet!

All Members’ Evenings will be at Yn Ynnyd Chegney, Crosby unless stated above

Meetings will commence at 7.45 p.m..

About the Speaker: Professor Chris Budd hold the chair of Applied Mathematics at the University of Bath and is also a Professor of Mathematics at the Royal Institution of Great Britain. Further details about Chris and his work can be found of his web site at:

http://people.bath.ac.uk/mascjb/

in particular Chris commented: “I am interested in the theory, application and computation of nonlinear problems (linear problems are for cissies) with special interest in problems which arise in industry.”

Directions: The presentation will take place at Yn Ynnyd Chegney, which is the Department of Education Language facility on Old Church Road, Crosby. From Douglas take the main road to Peel and turn left immediately after Crosby Post office. Follow the road up the hill YYC is the first building on the right towards the top of the hill.

Click here for Yn Ynnyd Chegney on Google Maps

Speaker: Dr Ben Fairfax

Abstract (subject to change): Consider the pricing and risk analysis of structured products and other listed derivatives, whereby perhaps not pure arbitrage but at least model dependent arbitrage opportunities occur of a limited capacity and for a limited time period. I will illustrate and detail some of the pricing models and then go on to work through some particular examples. This topic is of particular interest to me at present since the extreme lack of liquidity (cash) and general bank sector distress, has resulted in clear model driven arbitrage opportunities occurring in the (secondary) structured product and securitized derivative markets. There are instances of structured products trading at approximately 15% under their embedded (OTC) derivative prices (using JP Morgan models and calibration), with this value is certain to be captured within 4 years at maturity. By carefully bundling such products with uncorrelated and negatively correlated risk parameters, and hedging any residue risk one can construct (statically) a portfolio with a risk profile slightly above cash with an expected yield of up to 10 per cent.

Aim: The presentation will provide an insiders explanation of how protected equity products are constructed, priced and distributed. We will also consider a robust framework in which quantitatively consistent judgements of at least the relative value of various (retail and institutional) structured investment products can be made.

About the Speaker: Ben is originally from England and was educated at the Universities of London, Cambridge and MIT (US). After completing his PhD is 1999, he established WebCab Components (http://www.webcabcomponents.com) which provides quantitative finance solutions to banks and investment managers including RBS, Goldman Sachs, Barclays,…. Since 1996, Ben has been an active quantitatively driven investor within credit, equity and derivative markets, and has also worked (2001-2002) as a quantitative analyst on an investment bank derivatives trading floor. Since 2002 he has managed accounts for family members and in March 2007 established an IoM based multi-family office Foresight Capital Partners Limited which manages funds for family members and third parties within equity, structured product and near cash mandates.

Directions: The presentation will take place at Yn Ynnyd Chegney, which is the Department of Education Language facility on Old Church Road, Crosby. From Douglas take the main road to Peel and turn left immediately after Crosby Post office. Follow the road up the hill YYC is the first building on the right towards the top of the hill.

Click here for Yn Ynnyd Chegney on Google Maps