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- Conditional models in performance evaluation of investment funds in Portugal: selectivity and market timing (daily vs. monthly analysis)Publication . Afonso, Osvaldo; Rodrigues, Paulo M. M.; Viegas, CristinaInvestment funds’ performance evaluation is one area of finance which has observed many developments over the past 40 years. In this field, traditional techniques of evaluation have not made use of models of conditional returns. These approaches do not allow for the temporal dependence of expected returns. To overcome this problem, Ferson and Schadt (1996) developed a new conditional performance evaluation approach. The present work applies the methodology of Ferson and Schadt (1996) on a sample of 32 Portuguese investment funds observed from 31 December 2005 to 31 December 2013, with the objective to evaluate the performance of these investment funds, in the terms of selectivity and market timing, based on daily and monthly data.
- On the relationship between soveregn bonds and credit default swaps in PortugalPublication . Andraz, Jorge Miguel; Viegas, Cristina; Norte, NéliaThis paper aims at identifying the relationship between government bonds spreads and credit default swaps premiums in Portugal for long and short maturities, covering a period that includes the beginning of the 2008 international financial crisis. We estimate Autoregressive Distributed Lag error correction models for the sub periods prior and after the moment crisis started. Results reveal the absence of cointegration over the sample period, with important differences prior and after 2010 in both maturities. There is no evidence of long-run relationship between both markets in both maturities, as the 2007 crisis has interrupted the long run relationship that was observed in the 5-year segment, and enacted a long run relationship in shorter maturities. The credit default swaps market performs a leading role on price determination in short-and long-run before the crisis but the role of the bond spread as a credit risk information has increased during the crisis.
- Mortgage valuation: a quasi-closed form solutionPublication . Viegas, Cristina; Azevedo Pereira, JoséThe main objective of this study consists in developing a quasi-analytical solution for the valuation of commercial mortgages. We consider the existence of a single source of risk - the risk of defaulting on a mortgage - and therefore, the existence of a single state variable - the value of the mortgaged property. The value of the mortgage corresponds to the present value of the future payments on the loan, minus the value of the embedded American default option. The major difficulty in designing such a model consists in calculating the value of this option, since for that purpose it is necessary to determine the lowest property price below which it must be immediately exercised, i.e. the critical value of the property.
- Introduction of weather-derivative concepts: perspectives for PortugalPublication . Ghiulnara, Alieva; Viegas, CristinaPurpose - The purpose of this paper is to present an overview of weather derivatives markets and to highlight the importance of the contributing factors for weather risk management such as weather sensitivity, weather forecast, and economic growth. In this paper, the prospective of using weather derivatives in Portugal and why Portugal should use such instruments as well as the potential of Portugal's enterprises are presented. Design/methodology/approach - This paper attempts to distinguish the reasons for the appearance of a weather derivatives market and the growth potential of the European weather market. Findings - Successful development of a Portuguese weather derivatives market will require three things. For the successful development of weather derivatives market, a legal and economic framework is needed, as well as the development of new weather products, training of qualified specialists for working with these instruments and attracting companies interested in hedging their profits. A combination of these factors will help growth and will accelerate the development of a weather derivatives market in Portugal. Originality/value - The paper identifies some conditions that could allow the progress of the weather derivatives market in Portugal.
- A quasi-closed-form solution for the valuation of American put optionsPublication . Viegas, Cristina; Azevedo-Pereira, JoséThis study develops a quasi-closed-form solution for the valuation of an American put option and the critical price of the underlying asset. This is an important area of research both because of a large number of transactions for American put options on different underlying assets (stocks, currencies, commodities, etc.) and because this type of evaluation plays a role in determining the value of other financial assets such as mortgages, convertible bonds or life insurance policies. The procedure used is commonly known as the method of lines, which is considered to be a formulation in which time is discrete rather than continuous. To improve the quality of the results obtained, the Richardson extrapolation is applied, which allows the convergence of the outputs to be accelerated to values close to reality. The model developed in this paper derives an explicit formula of the finite-maturity American put option. The results obtained, besides allowing us to quickly determine the option value and the critical price, enable the graphical representation—in two and three dimensions—of the option value as a function of the other components of the model.