Essays on Financial Markets
type: CreativeWork
description: This thesis consists of five empirical essays dealing with different issues related to financial markets. Chapter 2 studies a new multivariate technique, Orthogonal GARCH, of forecasting large covariance matrices based on GARCH models. Orthogonal GARCH is built on principal component analysis and makes the creation of positive definite covariance matrices of arbitrary size possible. An important drawback with Orthogonal GARCH is that it builds on assumptions that sometimes break down when some of the assets we model behave differently than the other assets, or when the time period considered is very volatile. For that reason, I have chosen to apply the Orthogonal GARCH model to the highly volatile Nordic stock markets during the Asian Crisis 1997-1998, using a number of different forecast evaluation techniques. The results from the different evaluation methods all indicate a better performance of the Orthogonal GARCH model compared to traditional unconditional forecasting techniques. Chapter 3 investigates the first multinational power exchange in the world, ''Nord Pool''. Nord Pool has existed since 1996 and has participants from Norway, Sweden, Finland, Denmark, and England. Both spot and futures are traded on the exchange and in this thesis, I investigate whether the futures contracts can be used to hedge short-term positions in the underlying spot market. This question is of particular interest in the electricity market, both because electricity cannot be stored, and because of the high volatility in the electricity markets compared to other financial markets. Minimum variance hedges are estimated in a number of different ways, and standard unconditional hedges are compared to conditional GARCH and moving average hedges in an out-of-sample fashion. The empirical results indicate some gains from hedging with futures, despite the lack of straightforward arbitrage possibilities in the electricity market. Chapter 4 searches for evidence of chaos and other nonlineari…
abstract: This thesis consists of five empirical essays dealing with different issues related to financial markets. Chapter 2 studies a new multivariate technique, Orthogonal GARCH, of forecasting large covariance matrices based on GARCH models. Orthogonal GARCH is built on principal component analysis and makes the creation of positive definite covariance matrices of arbitrary size possible. An important drawback with Orthogonal GARCH is that it builds on assumptions that sometimes break down when some of the assets we model behave differently than the other assets, or when the time period considered is very volatile. For that reason, I have chosen to apply the Orthogonal GARCH model to the highly volatile Nordic stock markets during the Asian Crisis 1997-1998, using a number of different forecast evaluation techniques. The results from the different evaluation methods all indicate a better performance of the Orthogonal GARCH model compared to traditional unconditional forecasting techniques. Chapter 3 investigates the first multinational power exchange in the world, ''Nord Pool''. Nord Pool has existed since 1996 and has participants from Norway, Sweden, Finland, Denmark, and England. Both spot and futures are traded on the exchange and in this thesis, I investigate whether the futures contracts can be used to hedge short-term positions in the underlying spot market. This question is of particular interest in the electricity market, both because electricity cannot be stored, and because of the high volatility in the electricity markets compared to other financial markets. Minimum variance hedges are estimated in a number of different ways, and standard unconditional hedges are compared to conditional GARCH and moving average hedges in an out-of-sample fashion. The empirical results indicate some gains from hedging with futures, despite the lack of straightforward arbitrage possibilities in the electricity market. Chapter 4 searches for evidence of chaos and other nonlineari…
author: Byström, Hans
language: eng
keywords: Economics, Electricity Futures, Option Pricing, Compass Rose, Covariance Matrix, Chaos, Stochastic Volatility, Financial Markets, GARCH, Financial science, Finansiering
date published: 2000
date modified: 2026-07-24T03:00:02Z
provider: University of Lund
publisher: Networked Digital Library of Theses and Dissertations
type: WebPage
source organization: Department of Economics, Lund University