A Large-Scale Optimization Model for Replicating Portfolios in the Life Insurance Industry
Zeynel Ozdemir () and
I. Hakan Yetkiner
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Qunzhi Zhang: ETH Zurich
Didier Sornette: Swiss Finance Institute; ETH Zürich - Department of Management, Technology, and Economics (D-MTEC)
Rangan Gupta: University of Pretoria - Department of Economics
I. Hakan Yetkiner: Izmir University of Economics
No 16-05, Swiss Finance Institute Research Paper Series from Swiss Finance Institute
The aim of this paper is to present novel tests for the early causal diagnostic of positive and negative bubbles in the S&P 500 index and the detection of End-of-Bubble signals with their corresponding confidence levels. We use monthly S&P 500 data covering the period from August 1791 to August 2014. This study is the first work in the literature showing the possibility to develop reliable ex-ante diagnostics of the frequent regime shifts over two centuries of data. We show that the DS LPPLS (log-periodic power law singularity) approach successfully diagnoses positive and negative bubbles, constructs efficient End-of-Bubble signals for all of the well-documented bubbles, and obtains for the first time new statistical evidence of bubbles for some other events. We also compare the DS LPPLS method to the exponential curve fitting and the generalized sup ADF test approaches and find that DS LPPLS system is more accurate in identifying well-known bubble events, with significantly smaller numbers of false negatives and false positives.
Keywords: S&P 500; LPPL method; stock market bubble; forecast; bubble indicators (search for similar items in EconPapers)
JEL-codes: C32 J16 O47 (search for similar items in EconPapers)
Pages: 32 pages
New Economics Papers: this item is included in nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1605
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