Lionel Martellini - Academia.edu (original) (raw)

Papers by Lionel Martellini

While smart beta equity indices are often perceived as a threat for traditional active managers, ... more While smart beta equity indices are often perceived as a threat for traditional active managers, this paper argues that they can also be regarded as an opportunity when used as efficient building blocks in active factor allocation strategies. We first show that substantial value can be added by time-varying strategic factor allocation decisions, where the focus is on efficiently reacting to changes in risk parameter estimates for various factor indices. In a second step, we show that additional value can be added by tactical factor allocation decisions based on an economic and statistical analysis of the conditional performance of smart factor indices for different types of market environment. Finally, we show that the strategically or tactically managed portfolio of smart factor indices can be used as an underlying satellite portfolio within a dynamic coresatellite strategy designed to generate a substantial access to the benefits of smart beta equity benchmarks with limited downsi...

A butterfly, which is a combination of a barbell and a bullet, is one of the most common active f... more A butterfly, which is a combination of a barbell and a bullet, is one of the most common active fixed-income strategies used by practitioners. While being neutral to small parallel shifts of the yield curve, a butterfly is purposely exposed to specific bets on particular changes of the yield curve. There exist four different types of butterflies, the cash-and durationneutralweightingbutterfly,thefifty−fiftyweightingregression,theregressionweightingbutterflyandthematurityweightingbutterfly.Inthispaper,weshowthattheygenerateapositivepay−offwhentheparticularflatteningorsteepeningmoveoftheyieldcurvetheywerestructuredforcapturingoccurs.Wealsoarguethatonesuitablewaytodetecttheopportunitytoenteraspecificbutterflyistousespreadindicators.Finally,weshowthatthecurvatureduration neutral weighting butterfly, the fifty-fifty weighting regression, the regression weighting butterfly and the maturity weighting butterfly. In this paper, we show that they generate a positive pay-off when the particular flattening or steepening move of the yield curve they were structured for capturing occurs. We also argue that one suitable way to detect the opportunity to enter a specific butterfly is to use spread indicators. Finally, we show that the curvature durationneutralweightingbutterfly,thefifty−fiftyweightingregression,theregressionweightingbutterflyandthematurityweightingbutterfly.Inthispaper,weshowthattheygenerateapositivepay−offwhentheparticularflatteningorsteepeningmoveoftheyieldcurvetheywerestructuredforcapturingoccurs.Wealsoarguethatonesuitablewaytodetecttheopportunitytoenteraspecificbutterflyistousespreadindicators.Finally,weshowthatthecurvatureduration obtained from the Nelson and Siegel (1987) model can

Implementing portfolio optimization techniques is a challenging task because of the presence of e... more Implementing portfolio optimization techniques is a challenging task because of the presence of estimation risk in expected return and covariance parameters. This paper provides an empirical analysis of the tradeoff between estimation risk, which is the risk of imperfectly estimating the parameters required for optimization, and optimality risk, which is the risk of selecting a weighting scheme that is a priori inferior to the maximum Sharpe ratio (MSR) portfolio but requires fewer parameter estimates, and as such is less impacted by the presence of estimation risk. We first show that if parameters were perfectly known, all weighting schemes would involve a substantial loss of efficiency with respect to the MSR portfolio. We also find that the risk parity portfolio involves the lowest efficiency loss amongst all analyzed weighting schemes. The introduction of estimation risk does not alter the domination of the MSR portfolio if the true underlying asset pricing model is known to the...

On February 16th, 2012, the European Commission published a White Paper entitled "An Agenda for A... more On February 16th, 2012, the European Commission published a White Paper entitled "An Agenda for Adequate, Safe and Sustainable Pensions". It proposes a series of measures related to information and monitoring, European harmonisation and portability, and pension design. After a short summary of some of the main challenges facing European pension systems, this paper discusses the Commission's proposals point by point.

The purpose of this study is to review the risk management techniques that are applicable to asse... more The purpose of this study is to review the risk management techniques that are applicable to asset and asset-liability management, in particular with regard to the implementation of the IFRS and the future prudential regulations, Solvency II, as well as the challenges facing managers in the scope of this implementation procedure. The work presented herein is the result of academic research and, as such, it is important to note that: • the opinions expressed in this study are those of the authors and do not engage the responsibility of either EDHEC Business School or AXA Investment Managers; • the conclusions reached in this study in no way engage operational decisions and are in no way linked to the positions that the AXA Group has adopted or will adopt with regard to the structure of the IFRS and Solvency II in the future.

This paper addresses the problem of option hedging and pricing when a futures contract, written e... more This paper addresses the problem of option hedging and pricing when a futures contract, written either on the underlying asset or on some imperfectly correlated substitute for the underlying asset, is used in the dynamic replication of the option payoff. In the presence of unspanned basis risk modeled as a Brownian bridge process, which explicitly accounts for the convergence of the basis to zero as the futures contract approaches maturity, we are able to obtain an analytical expression for the optimal hedging strategy and corresponding option price. Empirical analysis suggests that the hedging demand against basis risk is an important ingredient of the hedging strategy. For reasonable parameter values, we also find the replication error implied by the optimal strategy to be substantially lower than that implied by heuristic strategies routinely used in practice. JEL code: G13. This research has benefited from the support of the Chair "Produits Structurés et Produits Dérivés", Fédération Bancaire Française. It is a pleasure to thank Michel Crouhy, Stephen Figlewski, Terry Marsh, Mark Rubinstein, Stephane Tyc and Branko Urosevic for very useful comments, Romain Deguest and Andrea Tarelli for excellent research assistance, and Hilary Till for her help in collecting index futures return data. All errors are, of course, the authors' sole responsibility. EDHEC is one of the top five business schools in France. Its reputation is built on the high quality of its faculty and the privileged relationship with professionals that the school has cultivated since its establishment in 1906. EDHEC Business School has decided to draw on its extensive knowledge of the professional environment and has therefore focused its research on themes that satisfy the needs of professionals. EDHEC pursues an active research policy in the field of finance. EDHEC-Risk Institute carries out numerous research programmes in the areas of asset allocation and risk management in both the traditional and alternative investment universes.

Physical Review Letters, 2019

We analyze the impact of a proposed tidal instability coupling p-modes and g-modes within neutron... more We analyze the impact of a proposed tidal instability coupling p-modes and g-modes within neutron stars on GW170817. This non-resonant instability transfers energy from the orbit of the

The Astrophysical Journal, 2019

We present a search for prompt gamma-ray counterparts to compact binary coalescence gravitational... more We present a search for prompt gamma-ray counterparts to compact binary coalescence gravitational wave (GW) candidates from Advanced LIGO's first observing run (O1). As demonstrated by the multimessenger observations of GW170817/GRB 170817A, electromagnetic and GW observations provide complementary information about the astrophysical source, and in the case of weaker candidates, may strengthen the case for an astrophysical origin. Here we investigate low-significance GW candidates from the O1 compact binary coalescence searches using the Fermi Gamma-Ray Burst Monitor (GBM), leveraging its all sky and broad energy coverage. Candidates are ranked and compared to background to measure the significance. Those with false alarm rates (FARs) of less than 10 −5 Hz (about one per day, yielding a total of 81 candidates) are used as the search sample for gamma-ray follow-up. No GW candidates were found to be coincident with gamma-ray transients independently identified by blind searches of the GBM data. In addition, GW candidate event times were followed up by a separate targeted search of GBM data. Among the resulting GBM events, the two with the lowest FARs were the gamma-ray transient GW150914-GBM presented in Connaughton et al. and a solar flare in chance coincidence with a GW candidate.

Journal of Corporate Finance, 2018

This paper provides a joint quantitative analysis of capital structure decisions (debt versus equ... more This paper provides a joint quantitative analysis of capital structure decisions (debt versus equity) and debt structure decisions (fixed-rate debt versus floating-rate debt or inflationlinked debt) in a continuous-time setting. We show that optimizing the debt structure has an impact on capital structure decisions, and leads to increases in leverage ratios compared to a pure fixed-rate debt program. We also find that for realistic parameter values, jointly optimizing the debt and capital structures generates a significant increase in firm value with respect to a situation where only the capital structure is optimized.

Physical review letters, Jan 2, 2018

The LIGO Scientific and Virgo Collaborations have announced the event GW170817, the first detecti... more The LIGO Scientific and Virgo Collaborations have announced the event GW170817, the first detection of gravitational waves from the coalescence of two neutron stars. The merger rate of binary neutron stars estimated from this event suggests that distant, unresolvable binary neutron stars create a significant astrophysical stochastic gravitational-wave background. The binary neutron star component will add to the contribution from binary black holes, increasing the amplitude of the total astrophysical background relative to previous expectations. In the Advanced LIGO-Virgo frequency band most sensitive to stochastic backgrounds (near 25 Hz), we predict a total astrophysical background with amplitude Ω_{GW}(f=25 Hz)=1.8_{-1.3}^{+2.7}×10^{-9} with 90% confidence, compared with Ω_{GW}(f=25 Hz)=1.1_{-0.7}^{+1.2}×10^{-9} from binary black holes alone. Assuming the most probable rate for compact binary mergers, we find that the total background may be detectable with a signal-to-noise-ra...

Physical review letters, Jan 6, 2017

On August 14, 2017 at 10∶30:43 UTC, the Advanced Virgo detector and the two Advanced LIGO detecto... more On August 14, 2017 at 10∶30:43 UTC, the Advanced Virgo detector and the two Advanced LIGO detectors coherently observed a transient gravitational-wave signal produced by the coalescence of two stellar mass black holes, with a false-alarm rate of ≲1 in 27 000 years. The signal was observed with a three-detector network matched-filter signal-to-noise ratio of 18. The inferred masses of the initial black holes are 30.5_{-3.0}^{+5.7}M_{⊙} and 25.3_{-4.2}^{+2.8}M_{⊙} (at the 90% credible level). The luminosity distance of the source is 540_{-210}^{+130} Mpc, corresponding to a redshift of z=0.11_{-0.04}^{+0.03}. A network of three detectors improves the sky localization of the source, reducing the area of the 90% credible region from 1160 deg^{2} using only the two LIGO detectors to 60 deg^{2} using all three detectors. For the first time, we can test the nature of gravitational-wave polarizations from the antenna response of the LIGO-Virgo network, thus enabling a new class of pheno...

The Journal of Portfolio Management, 2017

This paper analyses the question of the feasibility and desirability for a liability-driven inves... more This paper analyses the question of the feasibility and desirability for a liability-driven investor to hold an equity portfolio engineered to exhibit enhanced liability-hedging properties versus holding a broad equity index. We first show within a continuous-time dynamic portfolio selection model that investor welfare is not only increasing in the Sharpe ratio of the performance portfolio and in the correlation of the liability-hedging portfolio with the liabilities, as suggested by the fund separation theorem, but it is also increasing in the correlation between the performance portfolio and the liabilities. The practical implication of this fund interaction theorem is that liabilitydriven investors will in general benefit from improving hedging characteristics of their performance portfolio, unless this improvement is associated with an exceedingly large opportunity cost in terms of performance. In a second part of the paper, we report empirical evidence of the presence of strong cross-sectional dispersion in liability-hedging characteristics of individual stocks within the S&P500 universe. We also demonstrate that liability-driven investors may derive substantial welfare benefits from the joint selection of low volatility and high dividend yield stocks, a procedure that is found to lead to economically and statistically significant improvements in liability hedging benefits compared to the use of a broad equity market index. These benefits are further enhanced when the selected stocks are combined with variance minimizing weights, a weighting mechanism that contributes to a marginal improvement in hedging benefits and a substantial increase in riskadjusted performance. Our findings are robust with respect to changes in the sample period, in the number of stocks used in the selection procedure, in the duration of the liabilities, and in the presence of inflation-indexation in the liability streams. * Guillaume Coqueret and Romain Deguest are senior research engineers at EDHEC-Risk Institute.

Physical Review D, 2016

We report on a comprehensive all-sky search for periodic gravitational waves in the frequency ban... more We report on a comprehensive all-sky search for periodic gravitational waves in the frequency band 100-1500 Hz and with a frequency time derivative in the range of [−1.18, +1.00] × 10 −8 Hz/s. Such a signal could be produced by a nearby spinning and slightly non-axisymmetric isolated neutron star in our galaxy. This search uses the data from the Initial LIGO sixth science run and covers a larger parameter space with respect to any past search. A Loosely Coherent detection pipeline was

Physical Review D, 2016

We present the high-energy-neutrino follow-up observations of the first gravitational wave transi... more We present the high-energy-neutrino follow-up observations of the first gravitational wave transient GW150914 observed by the Advanced LIGO detectors on Sept. 14 th , 2015. We search for coincident neutrino candidates within the data recorded by the IceCube and Antares neutrino detectors. A possible joint detection could be used in targeted electromagnetic follow-up observations, given the significantly better angular resolution of neutrino events compared to gravitational waves. We find no neutrino candidates in both temporal and spatial coincidence with the gravitational wave event. Within ±500 s of the gravitational wave event, the number of neutrino candidates detected by IceCube and Antares were three and zero, respectively. This is consistent with the expected atmospheric background, and none of the neutrino candidates were directionally coincident with GW150914. We use this non-detection to constrain neutrino emission from the gravitational-wave event.

Physical Review Letters, 2016

The LIGO detection of the gravitational wave transient GW150914, from the inspiral and merger of ... more The LIGO detection of the gravitational wave transient GW150914, from the inspiral and merger of two black holes with masses 30 M , suggests a population of binary black holes with relatively high mass. This observation implies that the stochastic gravitational-wave background from binary black holes, created from the incoherent superposition of all the merging binaries in the Universe, could be higher than previously expected. Using the properties of GW150914, we estimate the energy density of such a background from binary black holes. In the most sensitive part of the Advanced LIGO/Virgo band for stochastic backgrounds (near 25 Hz), we predict ΩGW(f = 25 Hz) = 1.1 +2.7 −0.9 × 10 −9 with 90% confidence. This prediction is robustly demonstrated for a variety of formation scenarios with different parameters. The differences between models are small compared to the statistical uncertainty arising from the currently poorly constrained local coalescence rate. We conclude that this background is potentially measurable by the Advanced LIGO/Virgo detectors operating at their projected final sensitivity.

Physical Review D, 2015

Under standard assumptions including stationary and serially uncorrelated Gaussian gravitational ... more Under standard assumptions including stationary and serially uncorrelated Gaussian gravitational wave stochastic background signal and noise distributions, as well as homogenous detector sensitivities, the standard cross-correlation detection statistic is known to be optimal in the sense of minimizing the probability of a false dismissal at a fixed value of the probability of a false alarm. The focus of this paper is to analyze the comparative efficiency of this statistic, versus a simple alternative statistic obtained by cross-correlating the squared measurements, in situations that deviate from such standard assumptions. We find that differences in detector sensitivities have a large impact on the comparative efficiency of the cross-correlation detection statistic, which is dominated by the alternative statistic when these differences reach one order of magnitude. This effect holds even when both the signal and noise distributions are Gaussian. While the presence of non-Gaussian signals has no material impact for reasonable parameter values, the relative inefficiency of the cross-correlation statistic is less prominent for fat-tailed noise distributions but it is magnified in case noise distributions have skewness parameters of opposite signs. Our results suggest that introducing an alternative detection statistic can lead to noticeable sensitivity gains when noise distributions are possibly non-Gaussian and/or when detector sensitivities exhibit substantial differences, a situation that is expected to hold in joint detections from Advanced LIGO

Advanced Bond Portfolio Management, 2012

Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best ef... more Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

The Journal of Alternative Investments, 2003

While smart beta equity indices are often perceived as a threat for traditional active managers, ... more While smart beta equity indices are often perceived as a threat for traditional active managers, this paper argues that they can also be regarded as an opportunity when used as efficient building blocks in active factor allocation strategies. We first show that substantial value can be added by time-varying strategic factor allocation decisions, where the focus is on efficiently reacting to changes in risk parameter estimates for various factor indices. In a second step, we show that additional value can be added by tactical factor allocation decisions based on an economic and statistical analysis of the conditional performance of smart factor indices for different types of market environment. Finally, we show that the strategically or tactically managed portfolio of smart factor indices can be used as an underlying satellite portfolio within a dynamic coresatellite strategy designed to generate a substantial access to the benefits of smart beta equity benchmarks with limited downsi...

A butterfly, which is a combination of a barbell and a bullet, is one of the most common active f... more A butterfly, which is a combination of a barbell and a bullet, is one of the most common active fixed-income strategies used by practitioners. While being neutral to small parallel shifts of the yield curve, a butterfly is purposely exposed to specific bets on particular changes of the yield curve. There exist four different types of butterflies, the cash-and durationneutralweightingbutterfly,thefifty−fiftyweightingregression,theregressionweightingbutterflyandthematurityweightingbutterfly.Inthispaper,weshowthattheygenerateapositivepay−offwhentheparticularflatteningorsteepeningmoveoftheyieldcurvetheywerestructuredforcapturingoccurs.Wealsoarguethatonesuitablewaytodetecttheopportunitytoenteraspecificbutterflyistousespreadindicators.Finally,weshowthatthecurvatureduration neutral weighting butterfly, the fifty-fifty weighting regression, the regression weighting butterfly and the maturity weighting butterfly. In this paper, we show that they generate a positive pay-off when the particular flattening or steepening move of the yield curve they were structured for capturing occurs. We also argue that one suitable way to detect the opportunity to enter a specific butterfly is to use spread indicators. Finally, we show that the curvature durationneutralweightingbutterfly,thefifty−fiftyweightingregression,theregressionweightingbutterflyandthematurityweightingbutterfly.Inthispaper,weshowthattheygenerateapositivepay−offwhentheparticularflatteningorsteepeningmoveoftheyieldcurvetheywerestructuredforcapturingoccurs.Wealsoarguethatonesuitablewaytodetecttheopportunitytoenteraspecificbutterflyistousespreadindicators.Finally,weshowthatthecurvatureduration obtained from the Nelson and Siegel (1987) model can

Implementing portfolio optimization techniques is a challenging task because of the presence of e... more Implementing portfolio optimization techniques is a challenging task because of the presence of estimation risk in expected return and covariance parameters. This paper provides an empirical analysis of the tradeoff between estimation risk, which is the risk of imperfectly estimating the parameters required for optimization, and optimality risk, which is the risk of selecting a weighting scheme that is a priori inferior to the maximum Sharpe ratio (MSR) portfolio but requires fewer parameter estimates, and as such is less impacted by the presence of estimation risk. We first show that if parameters were perfectly known, all weighting schemes would involve a substantial loss of efficiency with respect to the MSR portfolio. We also find that the risk parity portfolio involves the lowest efficiency loss amongst all analyzed weighting schemes. The introduction of estimation risk does not alter the domination of the MSR portfolio if the true underlying asset pricing model is known to the...

On February 16th, 2012, the European Commission published a White Paper entitled "An Agenda for A... more On February 16th, 2012, the European Commission published a White Paper entitled "An Agenda for Adequate, Safe and Sustainable Pensions". It proposes a series of measures related to information and monitoring, European harmonisation and portability, and pension design. After a short summary of some of the main challenges facing European pension systems, this paper discusses the Commission's proposals point by point.

The purpose of this study is to review the risk management techniques that are applicable to asse... more The purpose of this study is to review the risk management techniques that are applicable to asset and asset-liability management, in particular with regard to the implementation of the IFRS and the future prudential regulations, Solvency II, as well as the challenges facing managers in the scope of this implementation procedure. The work presented herein is the result of academic research and, as such, it is important to note that: • the opinions expressed in this study are those of the authors and do not engage the responsibility of either EDHEC Business School or AXA Investment Managers; • the conclusions reached in this study in no way engage operational decisions and are in no way linked to the positions that the AXA Group has adopted or will adopt with regard to the structure of the IFRS and Solvency II in the future.

This paper addresses the problem of option hedging and pricing when a futures contract, written e... more This paper addresses the problem of option hedging and pricing when a futures contract, written either on the underlying asset or on some imperfectly correlated substitute for the underlying asset, is used in the dynamic replication of the option payoff. In the presence of unspanned basis risk modeled as a Brownian bridge process, which explicitly accounts for the convergence of the basis to zero as the futures contract approaches maturity, we are able to obtain an analytical expression for the optimal hedging strategy and corresponding option price. Empirical analysis suggests that the hedging demand against basis risk is an important ingredient of the hedging strategy. For reasonable parameter values, we also find the replication error implied by the optimal strategy to be substantially lower than that implied by heuristic strategies routinely used in practice. JEL code: G13. This research has benefited from the support of the Chair "Produits Structurés et Produits Dérivés", Fédération Bancaire Française. It is a pleasure to thank Michel Crouhy, Stephen Figlewski, Terry Marsh, Mark Rubinstein, Stephane Tyc and Branko Urosevic for very useful comments, Romain Deguest and Andrea Tarelli for excellent research assistance, and Hilary Till for her help in collecting index futures return data. All errors are, of course, the authors' sole responsibility. EDHEC is one of the top five business schools in France. Its reputation is built on the high quality of its faculty and the privileged relationship with professionals that the school has cultivated since its establishment in 1906. EDHEC Business School has decided to draw on its extensive knowledge of the professional environment and has therefore focused its research on themes that satisfy the needs of professionals. EDHEC pursues an active research policy in the field of finance. EDHEC-Risk Institute carries out numerous research programmes in the areas of asset allocation and risk management in both the traditional and alternative investment universes.

Physical Review Letters, 2019

We analyze the impact of a proposed tidal instability coupling p-modes and g-modes within neutron... more We analyze the impact of a proposed tidal instability coupling p-modes and g-modes within neutron stars on GW170817. This non-resonant instability transfers energy from the orbit of the

The Astrophysical Journal, 2019

We present a search for prompt gamma-ray counterparts to compact binary coalescence gravitational... more We present a search for prompt gamma-ray counterparts to compact binary coalescence gravitational wave (GW) candidates from Advanced LIGO's first observing run (O1). As demonstrated by the multimessenger observations of GW170817/GRB 170817A, electromagnetic and GW observations provide complementary information about the astrophysical source, and in the case of weaker candidates, may strengthen the case for an astrophysical origin. Here we investigate low-significance GW candidates from the O1 compact binary coalescence searches using the Fermi Gamma-Ray Burst Monitor (GBM), leveraging its all sky and broad energy coverage. Candidates are ranked and compared to background to measure the significance. Those with false alarm rates (FARs) of less than 10 −5 Hz (about one per day, yielding a total of 81 candidates) are used as the search sample for gamma-ray follow-up. No GW candidates were found to be coincident with gamma-ray transients independently identified by blind searches of the GBM data. In addition, GW candidate event times were followed up by a separate targeted search of GBM data. Among the resulting GBM events, the two with the lowest FARs were the gamma-ray transient GW150914-GBM presented in Connaughton et al. and a solar flare in chance coincidence with a GW candidate.

Journal of Corporate Finance, 2018

This paper provides a joint quantitative analysis of capital structure decisions (debt versus equ... more This paper provides a joint quantitative analysis of capital structure decisions (debt versus equity) and debt structure decisions (fixed-rate debt versus floating-rate debt or inflationlinked debt) in a continuous-time setting. We show that optimizing the debt structure has an impact on capital structure decisions, and leads to increases in leverage ratios compared to a pure fixed-rate debt program. We also find that for realistic parameter values, jointly optimizing the debt and capital structures generates a significant increase in firm value with respect to a situation where only the capital structure is optimized.

Physical review letters, Jan 2, 2018

The LIGO Scientific and Virgo Collaborations have announced the event GW170817, the first detecti... more The LIGO Scientific and Virgo Collaborations have announced the event GW170817, the first detection of gravitational waves from the coalescence of two neutron stars. The merger rate of binary neutron stars estimated from this event suggests that distant, unresolvable binary neutron stars create a significant astrophysical stochastic gravitational-wave background. The binary neutron star component will add to the contribution from binary black holes, increasing the amplitude of the total astrophysical background relative to previous expectations. In the Advanced LIGO-Virgo frequency band most sensitive to stochastic backgrounds (near 25 Hz), we predict a total astrophysical background with amplitude Ω_{GW}(f=25 Hz)=1.8_{-1.3}^{+2.7}×10^{-9} with 90% confidence, compared with Ω_{GW}(f=25 Hz)=1.1_{-0.7}^{+1.2}×10^{-9} from binary black holes alone. Assuming the most probable rate for compact binary mergers, we find that the total background may be detectable with a signal-to-noise-ra...

Physical review letters, Jan 6, 2017

On August 14, 2017 at 10∶30:43 UTC, the Advanced Virgo detector and the two Advanced LIGO detecto... more On August 14, 2017 at 10∶30:43 UTC, the Advanced Virgo detector and the two Advanced LIGO detectors coherently observed a transient gravitational-wave signal produced by the coalescence of two stellar mass black holes, with a false-alarm rate of ≲1 in 27 000 years. The signal was observed with a three-detector network matched-filter signal-to-noise ratio of 18. The inferred masses of the initial black holes are 30.5_{-3.0}^{+5.7}M_{⊙} and 25.3_{-4.2}^{+2.8}M_{⊙} (at the 90% credible level). The luminosity distance of the source is 540_{-210}^{+130} Mpc, corresponding to a redshift of z=0.11_{-0.04}^{+0.03}. A network of three detectors improves the sky localization of the source, reducing the area of the 90% credible region from 1160 deg^{2} using only the two LIGO detectors to 60 deg^{2} using all three detectors. For the first time, we can test the nature of gravitational-wave polarizations from the antenna response of the LIGO-Virgo network, thus enabling a new class of pheno...

The Journal of Portfolio Management, 2017

This paper analyses the question of the feasibility and desirability for a liability-driven inves... more This paper analyses the question of the feasibility and desirability for a liability-driven investor to hold an equity portfolio engineered to exhibit enhanced liability-hedging properties versus holding a broad equity index. We first show within a continuous-time dynamic portfolio selection model that investor welfare is not only increasing in the Sharpe ratio of the performance portfolio and in the correlation of the liability-hedging portfolio with the liabilities, as suggested by the fund separation theorem, but it is also increasing in the correlation between the performance portfolio and the liabilities. The practical implication of this fund interaction theorem is that liabilitydriven investors will in general benefit from improving hedging characteristics of their performance portfolio, unless this improvement is associated with an exceedingly large opportunity cost in terms of performance. In a second part of the paper, we report empirical evidence of the presence of strong cross-sectional dispersion in liability-hedging characteristics of individual stocks within the S&P500 universe. We also demonstrate that liability-driven investors may derive substantial welfare benefits from the joint selection of low volatility and high dividend yield stocks, a procedure that is found to lead to economically and statistically significant improvements in liability hedging benefits compared to the use of a broad equity market index. These benefits are further enhanced when the selected stocks are combined with variance minimizing weights, a weighting mechanism that contributes to a marginal improvement in hedging benefits and a substantial increase in riskadjusted performance. Our findings are robust with respect to changes in the sample period, in the number of stocks used in the selection procedure, in the duration of the liabilities, and in the presence of inflation-indexation in the liability streams. * Guillaume Coqueret and Romain Deguest are senior research engineers at EDHEC-Risk Institute.

Physical Review D, 2016

We report on a comprehensive all-sky search for periodic gravitational waves in the frequency ban... more We report on a comprehensive all-sky search for periodic gravitational waves in the frequency band 100-1500 Hz and with a frequency time derivative in the range of [−1.18, +1.00] × 10 −8 Hz/s. Such a signal could be produced by a nearby spinning and slightly non-axisymmetric isolated neutron star in our galaxy. This search uses the data from the Initial LIGO sixth science run and covers a larger parameter space with respect to any past search. A Loosely Coherent detection pipeline was

Physical Review D, 2016

We present the high-energy-neutrino follow-up observations of the first gravitational wave transi... more We present the high-energy-neutrino follow-up observations of the first gravitational wave transient GW150914 observed by the Advanced LIGO detectors on Sept. 14 th , 2015. We search for coincident neutrino candidates within the data recorded by the IceCube and Antares neutrino detectors. A possible joint detection could be used in targeted electromagnetic follow-up observations, given the significantly better angular resolution of neutrino events compared to gravitational waves. We find no neutrino candidates in both temporal and spatial coincidence with the gravitational wave event. Within ±500 s of the gravitational wave event, the number of neutrino candidates detected by IceCube and Antares were three and zero, respectively. This is consistent with the expected atmospheric background, and none of the neutrino candidates were directionally coincident with GW150914. We use this non-detection to constrain neutrino emission from the gravitational-wave event.

Physical Review Letters, 2016

The LIGO detection of the gravitational wave transient GW150914, from the inspiral and merger of ... more The LIGO detection of the gravitational wave transient GW150914, from the inspiral and merger of two black holes with masses 30 M , suggests a population of binary black holes with relatively high mass. This observation implies that the stochastic gravitational-wave background from binary black holes, created from the incoherent superposition of all the merging binaries in the Universe, could be higher than previously expected. Using the properties of GW150914, we estimate the energy density of such a background from binary black holes. In the most sensitive part of the Advanced LIGO/Virgo band for stochastic backgrounds (near 25 Hz), we predict ΩGW(f = 25 Hz) = 1.1 +2.7 −0.9 × 10 −9 with 90% confidence. This prediction is robustly demonstrated for a variety of formation scenarios with different parameters. The differences between models are small compared to the statistical uncertainty arising from the currently poorly constrained local coalescence rate. We conclude that this background is potentially measurable by the Advanced LIGO/Virgo detectors operating at their projected final sensitivity.

Physical Review D, 2015

Under standard assumptions including stationary and serially uncorrelated Gaussian gravitational ... more Under standard assumptions including stationary and serially uncorrelated Gaussian gravitational wave stochastic background signal and noise distributions, as well as homogenous detector sensitivities, the standard cross-correlation detection statistic is known to be optimal in the sense of minimizing the probability of a false dismissal at a fixed value of the probability of a false alarm. The focus of this paper is to analyze the comparative efficiency of this statistic, versus a simple alternative statistic obtained by cross-correlating the squared measurements, in situations that deviate from such standard assumptions. We find that differences in detector sensitivities have a large impact on the comparative efficiency of the cross-correlation detection statistic, which is dominated by the alternative statistic when these differences reach one order of magnitude. This effect holds even when both the signal and noise distributions are Gaussian. While the presence of non-Gaussian signals has no material impact for reasonable parameter values, the relative inefficiency of the cross-correlation statistic is less prominent for fat-tailed noise distributions but it is magnified in case noise distributions have skewness parameters of opposite signs. Our results suggest that introducing an alternative detection statistic can lead to noticeable sensitivity gains when noise distributions are possibly non-Gaussian and/or when detector sensitivities exhibit substantial differences, a situation that is expected to hold in joint detections from Advanced LIGO

Advanced Bond Portfolio Management, 2012

Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best ef... more Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

The Journal of Alternative Investments, 2003