Volatility Modeling and Dependence Structure of ESG and Conventional Investments

The question of whether environmental, social, and governance investments outperform or underperform other conventional financial investments has been debated in the literature. In this study, we compare the volatility of rates of return of selected ESG indices and conventional ones and investigate dependence between them. Analysis of tail dependence is important to evaluate the diversification benefits between conventional investments and ESG investments, which is necessary in constructing optimal portfolios. It allows investors to diversify the risk of the portfolio and positively impact the environment by investing in environmentally friendly companies. Examples of institutions that are paying attention to ESG issues are banks, which are increasingly including products that support sustainability goals in their offers. This analysis could be also important for policymakers. The European Banking Authority (EBA) has admitted that ESG factors can contribute to risk. Therefore, it is important to model and quantify it. The conditional volatility models from the GARCH family and tail-dependence coefficients from the copula-based approach are applied. The analysis period covered 2007 until 2019. The period of the COVID-19 pandemic has not been analyzed due to the relatively short time series regarding data requirements from models’ perspective. Results of the research confirm the higher dependence of extreme values in the crisis period (e.g., tail-dependence values in 2009–2014 range from 0.4820/0.4933 to 0.7039/0.6083, and from 0.5002/0.5369 to 0.7296/0.6623), and low dependence of extreme values in stabilization periods (e.g., tail-dependence values in 2017–2019 range from 0.1650 until 0.6283/0.4832, and from 0.1357 until 0.6586/0.5002). Diversification benefits vary in time, and there is a need to separately analyze crisis and stabilization periods.

On the Zero-Outage Secrecy-Capacity of Dependent Fading Wiretap Channels

It is known that for a slow fading Gaussian wiretap channel without channel state information at the transmitter and with statistically independent fading channels, the outage probability of any given target secrecy rate is non-zero, in general. This implies that the so-called zero-outage secrecy capacity (ZOSC) is zero and we cannot transmit at any positive data rate reliably and confidentially. When the fading legitimate and eavesdropper channels are statistically dependent, this conclusion changes significantly. Our work shows that there exist dependency structures for which positive zero-outage secrecy rates (ZOSR) are achievable. In this paper, we are interested in the characterization of these dependency structures and we study the system parameters in terms of the number of observations at legitimate receiver and eavesdropper as well as average channel gains for which positive ZOSR are achieved. First, we consider the setting that there are two paths from the transmitter to the legitimate receiver and one path to the eavesdropper. We show that by introducing a proper dependence structure among the fading gains of the three paths, we can achieve a zero secrecy outage probability (SOP) for some positive secrecy rate. In this way, we can achieve a non-zero ZOSR. We conjecture that the proposed dependency structure achieves maximum ZOSR. To better understand the underlying dependence structure, we further consider the case where the channel gains are from finite alphabets and systematically and globally solve the ZOSC. In addition, we apply the rearrangement algorithm to solve the ZOSR for continuous channel gains. The results indicate that the legitimate link must have an advantage in terms of the number of antennas and average channel gains to obtain positive ZOSR. The results motivate further studies into the optimal dependency structures.

Adoption of deep learning Markov model combined with copula function in portfolio risk measurement

In order to accurately describe the risk dependence structure and correlation between financial variables, carry out scientific financial risk assessment, and provide the basis for accurate financial decision-making, first the basic theory of Copula function is established and the mixed Copula model is constructed. Then the hybrid Copula model is nested in a hidden Markov model (HMM), the risk dependences among banking, insurance, securities and trust industries are analysed, and the Copula–Garch model is constructed for empirical analysis of investment portfolio. Finally, the deep learning Markov model is adopted to predict the financial index. The results show that the mixed Copula model based on HMM is more effective than the single Copula and the mixed Copula models. The empirical structure shows that among the four major financial industries in China, the banking and insurance industries have strong interdependence and high probability of risk contagion. The investment failure rate under 95%, 97.5% and 99% confidence intervals calculated by Copula–Garch model are 4.53%, 2.17% and 1.08%, respectively. Moreover, the errors of deep learning Markov model in stock price prediction of Shanghai Pudong Development Bank (sh600000), Guizhou Moutai (sh600519) and China Ping An Insurance (sh601318) are 2.56%, 2.98% and 3.56% respectively, which indicates that the four major financial industries in China have strong interdependence and risk contagion, so that the macro or systemic risks may arise, and the deep-learning Markov model can be adopted to predict the stock prices.

Assessing the dependence structure between oceanographic, fluvial, and pluvial flooding drivers along the United States coastline

Flooding is of particular concern in low-lying coastal zones that are prone to flooding impacts from multiple drivers, such as oceanographic (storm surge and wave), fluvial (excessive river discharge), and/or pluvial (surface runoff). In this study, we analyse, for the first time, the compound flooding potential along the contiguous United States (CONUS) coastline from all flooding drivers, using observations and reanalysis data sets. We assess the overall dependence from observations by using Kendall's rank correlation coefficient (τ) and tail (extremal) dependence (χ). Geographically, we find the highest dependence between different drivers at locations in the Gulf of Mexico, southeastern, and southwestern coasts. Regarding different driver combinations, the highest dependence exists between surge–waves, followed by surge–precipitation, surge–discharge, waves–precipitation, and waves–discharge. We also perform a seasonal dependence analysis (tropical vs. extra-tropical season), where we find higher dependence between drivers during the tropical season along the Gulf and parts of the East Coast and stronger dependence during the extra-tropical season on the West Coast. Finally, we compare the dependence structure of different combinations of flooding drivers, using observations and reanalysis data, and use the Kullback–Leibler (KL) divergence to assess significance in the differences of the tail dependence structure. We find, for example, that models underestimate the tail dependence between surge–discharge on the East and West coasts and overestimate tail dependence between surge–precipitation on the East Coast, while they underestimate it on the West Coast. The comprehensive analysis presented here provides new insights on where the compound flooding potential is relatively higher, which variable combinations are most likely to lead to compounding effects, during which time of the year (tropical versus extra-tropical season) compound flooding is more likely to occur, and how well reanalysis data capture the dependence structure between the different flooding drivers.

Does Financial Development Raise Tourism Demand? A Cross-Country Panel Evidence

This study examines the effects of bank and stock market development on three tourism demand indicators: number of tourist arrivals, expenditure to gross domestic product ratio, and expenditure per arrival. We analyze annual data spanning the period 1995-2018 for a sample of 207 countries. The theoretical contribution of this study is threefold: first, we assess a variety of financial development indicators; second, we employ cross-sectionally augmented distributed lags estimator that produces estimates robust to the dependence structure in the data; third, using data on a wide assortment of countries, we generalize the findings of several country-specific case studies. We observe that financial development affects both tourist arrivals and tourism expenditure positively. However, the gains in tourist arrivals are more significant relative to those in tourism expenditure. Furthermore, we find the responsiveness of tourism demand to financial development to vary with the income level.

Stochastic Analysis of Hourly to Monthly Potential Evapotranspiration with a Focus on the Long-Range Dependence and Application with Reanalysis and Ground-Station Data

The stochastic structures of potential evaporation and evapotranspiration (PEV and PET or ETo) are analyzed using the ERA5 hourly reanalysis data and the Penman–Monteith model applied to the well-known CIMIS network. The latter includes high-quality ground meteorological samples with long lengths and simultaneous measurements of monthly incoming shortwave radiation, temperature, relative humidity, and wind speed. It is found that both the PEV and PET processes exhibit a moderate long-range dependence structure with a Hurst parameter of 0.64 and 0.69, respectively. Additionally, it is noted that their marginal structures are found to be light-tailed when estimated through the Pareto–Burr–Feller distribution function. Both results are consistent with the global-scale hydrological-cycle path, determined by all the above variables and rainfall, in terms of the marginal and dependence structures. Finally, it is discussed how the existence of, even moderate, long-range dependence can increase the variability and uncertainty of both processes and, thus, limit their predictability.

A genetic algorithm for resizing and sampling reduction of non-stationary soil chemical attributes optimizing spatial prediction

Aim of study: To evaluate the influence of the parameters of the geostatistical model and the initial sample configuration used in the optimization process; and to propose and evaluate the resizing of a sample configuration, reducing its sample size, for simulated data and for the study of the spatial variability of soil chemical attributes under a non-stationary with drift process from a commercial soybean cultivation area. Area of study: Cascavel, Brazil Material and methods: For both, the simulated data and the soil chemical attributes, the Genetic Algorithm was used for sample resizing, maximizing the overall accuracy measure. Main results: The results obtained from the simulated data showed that the practical range did not influence in a relevant way the optimization process. Moreover, the local variations, such as variance or sampling errors (nugget effect), had a direct relationship with the reduction of the sample size, mainly for the smaller nugget effect. For the soil chemical attributes, the Genetic Algorithm was efficient in resizing the sampling configuration, since it generated sampling configurations with 30 to 35 points, corresponding to 29.41% to 34.31% of the initial configuration, respectively. In addition, comparing the optimized and initial configurations, similarities were obtained regarding spatial dependence structure and characterization of spatial variability of soil chemical attributes in the study area. Research highlights: The optimization process showed that it is possible to reduce the sample size, allowing for lesser financial investments with data collection and laboratory analysis of soil samples in future experiments.

Some Resultats on Optimal Allocation of Policy Limits and Deductibles: Mixture Model

The main purpose of this paper is to introduce and investigate stochastic orders of scalar products of random vectors. We study the problem of finding maximal expected utility for some functional on insurance portfolios involving some additional (independent) randomization. Furthermore, applications in policy limits and deductible are obtained, we consider the scalar product of two random vectors which separates the severity effect and the frequency effect in the study of the optimal allocation of policy limits and deductibles. In that respect, we obtain the ordering of the optimal allocation of policy limits and deductibles when the dependence structure of the losses is unknown. Our application is a further study of [1 − 6].