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Story - antoq - 10/23/2010 - 06:28 - 0 comments - 0 attachments
Researchers and clinicians use food diaries, 24 hour recalls, and food frequency questionnaires to gain a deeper understanding of what people consume. Unfortunately, these methods assume the participant has high literacy and memory recall skills. Furthermore, researchers must invest a significant amount of time in administration and evaluation of the results.
We work with chronic kidney disease (CKD) stage 5 patients who must rigorously monitor their fluid and nutrient consumption. In general, patients must limit themselves to one to two liters of fluid, three grams of sodium, three grams of potassium, and limit phosphorus intake. Many people in our user group cannot perform simple calculations and have varying literacy levels. We recruit from an urban, public dialysis facility where most patients are from low socioeconomic families. Thus, traditional methods for nutrition monitoring are difficult to administer in this user group.
The relation between liquidity and asset prices has received considerable attention recently. However, much less is known about liquidity effects in derivative markets. This paper provides a theoretical model of liquidity effects in derivative markets and estimates this model for the credit default swap market. Recent market developments suggest that the credit default swap (CDS) market is subject to shocks in liquidity. In the subprime crisis of summer 2007, not only credit spreads increased substantially, but liquidity also dropped dramatically.
Our paper makes three contributions. Our first contribution is a theoretical asset pricing model for derivatives that incorporates liquidity risk. This model extends the ‘Liquidity-CAPM’ of Acharya and Pedersen (2005), who only consider investors with long positions in assets that are in positive net supply, in which case illiquidity always leads to lower asset prices. For derivative securities, which are in zero net supply, the effect of liquidity is much more complicated and can be zero, positive or negative. We propose an equilibrium framework where heterogenous investors use derivatives to hedge a fixed (credit) risk exposure. Transaction costs for derivatives vary systematically over time. We derive that under fairly mild conditions, the expected return on the derivative asset can be decomposed into market risk premia, an expected liquidity component, and one liquidity risk premium. This result differs from the result for a positive net supply market as in Acharya and Pedersen (2005) where there are three liquidity risk premia. In particular, our model predicts that the liquidity exposure of a derivative to derivative-market liquidity is not priced. We show that sign of the liquidity effects depends on heterogeneity in investors’ risk exposures, risk aversion and wealth. Our model is related to work on hedging pressures in futures markets (De Roon, Nijman and Veld, 2000) and option markets (Garleanu, Pedersen and Poteshman, 2006).
This paper discusses the macroeconomic role of risk in a small open economy, using a stochastic CGE model of an open economy. The stochastic properties of the model derive from uncertainty about the rate of return to foreign bonds and to domestic capital. The return to domestic capital depends on labor productivity shocks and is not perfectly correlated with the return on foreign bonds. Households therefore have a diversification motive to adjust their portfolio so that the same stochastic discount factor applies to both bond returns and equity returns. The uncertain return on the portfolio generates a risk premium that depends on the level of wealth and affects the saving decisions of risk-averse households. Households choose their consumption of goods and leisure to optimally smooth consumption over time. The utility function is of the non-expected utility form, so that the smoothing incentive may differ from the diversification incentive. Because the return to capital is volatile, and potentially negative, households that issue debt to finance the purchase of equity run the risk of not being able to repay the debt. I assume that an insurance market for this risk does not exist, which implies that poor households are liquidity constrained.
