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Costanza TORRICELLI

Professore Ordinario presso: Dipartimento di Economia "Marco Biagi"


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Pubblicazioni

2020 - Collected Works of Marida Bertocchi [Recensione in Rivista]
Torricelli, Costanza
abstract

Invited Book Review


2020 - Green Finance [Voce in Dizionario o Enciclopedia]
Torricelli, Costanza
abstract

La green finance può essere definita come quella parte della finanza al servizio della green economy. Per meglio comprenderla, quindi, dobbiamo identificare la green economy che, secondo l’UNEP (United Nations Environment Programme), è un’economia con l’obiettivo di ridurre in modo significativo i rischi ambientali ed ecologici migliorando al contempo il benessere degli individui e l’equità sociale (UNEP, 2011).


2020 - Saving with a social impact: Evidence from trento province [Articolo su rivista]
Basiglio, S.; Rossi, M.; Salomone, R.; Torricelli, C.
abstract

In this paper, we investigate the determinants of investing, focusing on its potential social impact. In particular, we consider whether there is room for expanding impact investing through social savings. The increasing trend in the demand for social finance makes the topic of unique interest, particularly when data on preferences for social saving can be collected at the individual level. We investigate the determinants and drivers of saving with a social goal running a survey conducted in Trentino-Alto Adige in which respondents are asked to allocate their portfolio to possible social investments. In line with the evidence collected in the Netherlands by Riedl and Smeets (2014), our results show a strong preference for a lower return, with the condition that the return is invested in a community programme, and little interest in the monetary return of the investment. Respondents are either inclined to put their entire portfolio into saving for the community or not to invest at all. This result suggests that there is a consistent demand, only partially accommodated by the supply, for financial products investing in the community, rather than for a monetary return.


2020 - Social finance [Voce in Dizionario o Enciclopedia]
Torricelli, Costanza
abstract

Social finance è quella branca della finanza nella quale la gestione del denaro è mirata all’ottenimento sia di un ritorno economico sia di un ritorno sociale. Questa definizione porta ad escludere dall’ambito della social finance, gli interventi di carattere puramente filantropico che non richiedono la presenza di un ritorno economico.


2020 - The scars of scarcity in the short run: an empirical investigation across Europe [Articolo su rivista]
Baldini, Massimo; Gallo, Giovanni; Torricelli, Costanza
abstract

This paper tests whether a temporary experience of income scarcity in the recent past affects the current perception of financial fragility, and whether this effect varies according to the welfare system of the country of residence. Using EU-SILC (European Union Statistics on Income and Living Condition) longitudinal data in 2010–2013 period, two main results emerge. First, individuals who transited out of a short spell of scarcity tend to record higher financial fragility (as measured by the indicator “ability to make ends meet”) than those who never experienced it, even after controlling for the current level of household income. When a more objective measure of financial fragility is taken (financial burden of total housing costs), the effect is weaker and disappears once current income is accounted for. Second, the scarcity effect on perceived financial fragility differs according to the welfare system, whereby more generous welfare states (i.e. with greater incidence of social expenditure on GDP) appear to reduce the persistence of the effects of past income shocks on current well-being, while the level of targeting is not relevant. These results, which are robust to various robustness checks, support the idea that individual well-being is a multidimensional phenomenon not limited to more objective components such as income or wealth. Our results are in favour of a welfare system which ensures a more generous provision of services and does not focus only on the poorest section of a society.


2019 - Household Preferences for Socially Responsible Investments [Articolo su rivista]
Rossi, Mariacristina; Sansone, Dario; van Soest, Arthur; Torricelli, Costanza
abstract

We analyze revealed and stated household preferences for socially responsible investments (SRI). Using a questionnaire specifically designed for this purpose and administered to a Dutch representative household panel, we investigate the actual and latent demand for SRI products. Respondents reported whether they owned SRI products, the reason behind this decision, but also answered stated choice questions on traditional investments and hypothetical SR products with an explicit return penalty and/or an in-kind compensation. Our results show that social investors are willing to pay a price to be socially responsible rather than needing a little nudge, such as a gift (a book or a voucher). Highly educated individuals have a substantial latent demand that is currently unexploited. Keeping education constant, individuals who consider themselves financially literate are less interested in SR products than others. Particularly at the intensive margin, the stated demand for SRI funds is sensitive to the return penalty.


2019 - The impact of the Fundamental Review of the Trading Book: A preliminary assessment on a stylized portfolio [Working paper]
Pederzoli, C.; Torricelli, C.
abstract

The aim of this paper is to gauge the impact in terms of capital requirements of the Fundamental Review of the Trading Book (FRTB). To this end we take a stylized portfolio sensible to the risk factors mostly affected by the review and we implement the new regulation both under the Standard Approach (SA) and the Internal Model Approach (IMA). Our results provide an order of magnitude of the increase across the two regulations and the two approaches (SA and IMA), and disentangle the expected increase implied by the FRTB in its main effects both for the SA and IMA approach. Our analyses prove a very relevant increase especially under the SA and underscore possible implications of the review both in terms of regulamentary model’s choice and business strategies.


2018 - Family ties: Labor supply responses to cope with a household employment shock [Articolo su rivista]
Baldini, Massimo; Torricelli, Costanza; Urzì Brancati, Maria Cesira
abstract

We use data from the European Union Statistics on Income and Living Conditions (EU-SILC) to explore labor responses of individuals (not only the spouse) to a negative employment shock suffered by another household member. We focus on Italy where family ties other than spousal ones are particularly strong and grown up children live in their parents’ household till late, especially when they are students. Two main results emerge. First, we find strong and robust evidence that households hit by an employment shock do respond by increasing labor supply. Second, we document an added worker effect that is affecting not only wives, but also teenage children and students independently of their age, with important policy implications in terms of human capital formation. Results are robust across gender, household financial conditions and the crisis, yet they do not point to differential reactions along these dimensions.


2018 - Household preferences for Socially Responsible Investments [Working paper]
Rossi, M. C.; Sansone, D.; Torricelli, C.; van Soest, A.
abstract

We analyze revealed and stated household preferences for socially responsible investments (SRI). Using a questionnaire specifically designed for this purpose and administered to a Dutch representative household panel, we investigate the actual and latent demand for SRI products. Respondents reported whether they owned SRI products and why or why not, but also answered stated choice questions on traditional investments and hypothetical socially responsible products with an explicit return penalty and/or an in- kind compensation associated with lower return. Our results show that investors attracted by socially responsible financial products are more interested in the social product as such and show little interest in compensation. The magnitude of the penalty for investing in SRI is not diluting their investment intentions.


2018 - Individual Heterogeneity and Pension Choices: Evidence from Italy [Articolo su rivista]
Gallo, Giovanni; Torricelli, Costanza; Van Soest, Arthur
abstract

The 2007 Italian pension reform allowed transferring future severance pay contributions into a pension fund. Although this was accompanied by an information campaign advising employees to make the transfer, only a minority of them did so. We analyze the heterogeneity in employees’ choices using micro panel data from the Bank of Italy household survey. Two are the main findings. First, the decision to transfer and pension fund participation after the reform are more likely for more (financially) educated and older individuals, with high household income and wealth, and less likely for female employees, in the South, and in small firms. Second, framing the analysis within the Elaboration Likelihood Model highlights that the cognitive processes underlying the decision on pension fund participation may be quite different. The decision consciousness is lower for employees working in small firms, where employers have an incentive to stimulate workers to deny the transfer.


2017 - Individual Heterogeneity and Pension Choices How to Communicate an Effective Message? [Working paper]
Gallo, G.; Torricelli, C.; van Soest, A.
abstract

We use the Elaboration Likelihood Model (ELM) to explain how communication influences pension choices in a heterogeneous population. We exploit the 2007 Italian reform that allowed transferring future severance pay contributions into a pension fund and was accompanied by an information campaign with a clear message. According to ELM, individuals follow either a “central route” or a “peripheral route” depending on their motivation and ability to process, and eventually change or retain their initial attitude. Based on data from the Bank of Italy Survey on Household Income and Wealth, we find that not only financial literacy plays a relevant role in the employees’ elaboration process, but also the individual’s comprehension of the specific choice object, the personal relevance of the decision, cognitive skills, and contextual elements (e.g. unions, employer pressure). These considerations have policy implications for the effectiveness of information messages in the pension domain.


2017 - Past Income Scarcity and Current Perception of Financial Fragility [Working paper]
Baldini, M.; Gallo, G.; Torricelli, C.
abstract

The aim of this paper is to test whether a temporary experience of income scarcity in the recent past affects the individual’s assessment of financial fragility over time. Using EU-SILC (European Union Statistics on Income and Living Condition) longitudinal data in 2010-2013 period, our results highlight that individuals who transited out of a short spell of scarcity tend to record a lower subjective ability to make ends meet than those who never experienced it during the reference period, even after two years and controlling for the current level of household income. When a more objective measure of household financial health is taken, the effect is weaker and disappears when current income is accounted for. Our results, which are robust to various robustness checks, have implications for public policies since they question the idea that helping people to leave an objective condition of income scarcity is enough to address poverty and social exclusion.


2017 - Second homes in Italy: every household’s dream or (un)profitable investments? [Articolo su rivista]
Brunetti, Marianna; Torricelli, Costanza
abstract

The use of a second home may result in different outcomes for households, ranging from financial profit and holiday use to uses that are clearly unprofitable. We contribute to the literature on second homes by exploring the case of second homes that are not let out, representing the least profitable outcome from an economic viewpoint. The empirical investigation relies on the 2002–2012 Bank of Italy Survey on Household Income and Wealth (SHIW), which also provides extensive information on property, including the actual use. Our results highlight: a gender gap, whereby the unprofitable use of second homes tends to be more clearly associated with male decision-makers; a lack of association with the economic characteristics of the household; and a strong association with the specific characteristics of the property, with inherited property more likely to be used unprofitably. In addition to casting doubt on the effectiveness of second homes as an investment vehicle, our results may have important policy or regulatory implications for housing and rental markets.


2017 - Systemic risk measures and macroprudential stress tests - An assessment over the 2014 EBA exercise [Articolo su rivista]
Pederzoli, Chiara; Torricelli, Costanza
abstract

Regulators’ stress tests on banks, further stimulated an academic debate over systemic risk measures and their predictive content. Focusing on marked based measures, Acharya et al. (2017) provide a theoretical background to use Marginal Expected Shortfall (MES) for predicting the stress test results, and verify it on the 2009 Supervisory Capital Assessment Program of the US banking system. The aim of this paper is to further test the goodness of MES as a predictive measure, by analysing it in relation to the results of the 2014 European stress tests exercise conducted by The European Banking Authority. Our results underscore the importance of choosing the appropriate index to capture the systemic distress event. In fact MES based on a global market index does not show association with the stress test results, in contrast to Financial MES, which is based on a financial market index, and has a significant information and predictive power.


2016 - Does homeownership partly explain low participation in supplementary pension schemes? [Articolo su rivista]
Torricelli, Costanza; Urzì Brancati, Maria Cesira; Santantonio, Marco
abstract

To investigate a possible trade-off between homeownership and individual participation in a supplementary pension scheme, we use nine waves of the Bank of Italy’s Survey on Household income andWealth (1995–2012). Italy lends itself to this type of investigation because the Italian public pension system was heavily reformed in the period, providing in principle incentives for participation, and the homeownership rate is very high. The impact of homeownership is captured in two ways: by a dummy for being homeowner and by an index capturing household portfolio illiquidity due to housing. Our results show that, after controlling for a vast array of socio-economic characteristics and allowing for unobserved individual heterogeneity, both measures of homeownership are negatively associated with participation in supplementary pension schemes. Moreover such an effect persists both in boom and bust phases of the housing market and does not disappear even after tax incentives and a strong default option introduced by the 2007 reform.


2016 - Estimating the demand for new social investment in the Netherlends [Working paper]
Rossi, Mariacristina; Sansone, Dario; Torricelli, Costanza; van Soest, Arthur
abstract

In this paper we analyze actual behavior and stated preferences with respect to social responsible investments. We design a specific questionnaire targeted to a sample representative of the Dutch population. We show that there is a latent demand for these kind of investments which has not been met yet. In particular, our analysis indicates that financial institutions have not managed to monetize the strong interest shown by highly educated individuals, as well as women. We offer suggestive evidence that certain forms of ethical investments may be more (or less) effective in attracting these individuals.


2016 - Individual heterogeneity and pension choices: How to communicate an effective message? [Working paper]
Gallo, G.; Torricelli, C.; Van Soest, A.
abstract

We use the Elaboration Likelihood Model (ELM) to explain how communication influences the heterogeneity in pension choices. To this end we exploit the 2007 Italian reform that allowed transferring future severance pay contributions into a pension fund and was accompanied by an information campaign with a clear message. According to ELM, individuals follow either a “central route” or a “peripheral route” depending on their motivation and ability to think, and eventually change or retain their initial attitude. Based on Logit models and data from the Bank of Italy Survey on Household Income and Wealth, we find that the decision to transfer the severance pay into a pension fund was taken by more educated and older individuals, with high household income. Since the reform was mainly directed at low income and younger individuals, this result suggest that the information campaign was not very effective. Moreover, our findings show that generic financial literacy does not significantly affect decision consciousness, pointing at a more relevant role in the elaboration process for: the individual’s comprehension of the specific choice object (pension funds), cognitive skills, and influential contextual factors (i.e., unions and employer’s pressure).


2016 - Is Financial Fragility a Matter of Illiquidity? An Appraisal for Italian Households [Articolo su rivista]
Brunetti, Marianna; Giarda, Elena; Torricelli, Costanza
abstract

We investigate household financial fragility in Italy, providing three main contributions. First, we propose a novel characterization of financial fragility that is not necessarily linked to indebtedness, distinguishes between expected and unexpected expenses, takes portfolio composition into account, and is free of subjectivity bias. Second, we use it to assess the importance of household portfolio composition for determining the difficulties related to coping with unexpected expenditures, besides socio-economic and demographic factors. Third, we test its ability to forecast future conditions of financial distress. The empirical analysis is based on the Bank of Italy Survey on Household Income and Wealth. The results highlight the relevance of portfolio choices as determinants of financial distress, that is, they provide evidence that homeownership increases the likelihood of financial fragility while the presence of a mortgage decreases it. Moreover our measure is shown to act as an early warning indicator of distress.


2015 - A liquidity risk index as a regulatory tool for systemically important banks? An empirical assessment across two financial crises [Articolo su rivista]
Gianfelice, Gianfranco; Marotta, Giuseppe; Torricelli, Costanza
abstract

We provide an empirical assessment of the suggestion, based on Severo (2012), to use a systemic liquidity risk index (SLRI) for estimating liquidity premia that could be charged on large banks as a compensation for the implicit liquidity support obtained from public authorities (Blancher et al., 2013). To this end we compute, over the period January 2004–December 2012, a parsimonious and fully documented SLRI. We also investigate its statistical significance in explaining the level and variability of stock returns for a group of large international banks across the subprime and the Eurozone sovereign debt crises. Main findings are two: our more parsimonious SLRI is close to Severo’s but provides a stronger signal of liquidity stress and recovery episodes; we consistently fail to detect, within and across the two crises, a stable group of banks among the global systemically important ones listed by the Financial Stability Board.


2015 - Do women prefer pink? The effect of a gender stereotypical stock portfolio on investing decisions [Articolo su rivista]
Prast, Henriëtte; Rossi, Mariacristina; Torricelli, Costanza; Sansone, Dario
abstract

We investigate whether lack of familiarity with the companies in the stock market index may contribute to a gender gap in stock market participation and risk taking. We consider the Netherlands because recent reforms have reduced the generosity of mandatory pension and social security arrangements and created the need for many employees to decide on how to allocate (pension) savings. Moreover, the gender gap in pensions in the Netherlands is above that of the OECD average. We construct a «pink» portfolio with stocks that are supposed to be more familiar to women (based on ads in widely read women magazines) and a «blue» one with stocks from the market index (AEX). We then ask members of the CentERpanel how they would allocate a certain amount of pension wealth between government bonds and a stock portfolio, whereby half of respondents, randomly selected, are given the pink portfolio and half the blue one as an alternative to bonds. Based on a set of limited dependent variable models, we find that familiarity is correlated to decision time for women, but it affects risk-taking only for women over 60. We do find a strong response order effect on risk taking, which moreover is larger for women than for men, and interpret the latter as reflecting a gender gap in confidence.


2015 - Second homes: households' life dream or (wrong) investment? [Working paper]
Brunetti, M.; Torricelli, C.
abstract

While the purchase of a primary home is mainly motivated by essential consumption needs, buying a second house has been generally considered a good investment decision. However, second homes may results in many different final uses, ranging from holidays and profitable uses to definitely unprofitable ones. We contribute to the scant literature on second houses by exploring the case of second homes that remain unrented and represent the most notable unprofitable use. The empirical investigation relies on the 2002-2012 Bank of Italy Survey on Household Income and Wealth which, among other things, provides plenty of information on real estates, including the actual use. Our results on the unprofitable use of second homes highlight: a gender gap, whereby this case tends to be more clearly associated with male decision makers; no association with household’s economic characteristics; and, strong association with the specific real estate features, with inherited dwellings more likely to end up being unprofitably used. Thus our results, besides casting some doubts on the goodness of second homes as an investment decision, may have important policy implications on the housing and rental market and call for policy or regulatory interventions.


2015 - Systemic risk measures and macroprudential stress tests An assessment over the 2014 EBA exercise [Working paper]
Pederzoli, C.; Torricelli, C.
abstract

The European Banking Authority (EBA) stress tests, which aim to quantify banks’ capital shortfall in a potential future crisis (adverse economic scenario), further stimulated an academic debate over systemic risk measures and their predictive/informative content. Focusing on marked based measures, Acharya et al. (2010) provides a theoretical background to justify the use of Marginal Expected Shortfall (MES) for predicting the stress test results, and verify it on the first stress test conducted after the 2007-2008 crises on the US banking system (SCAP, Supervisory Capital Assessment Program). The aim of this paper is to further test the goodness of MES as a predictive measure, by analysing it in relation to the results of the 2014 European stress tests exercise conducted by EBA. Our results are strongly dependent on index used to capture the systemic distress event, whereby MES, based on a global market index, does not show association with EBA stress test, by contrast to F-MES, which is based on a financial market index, and has a significant information and predictive power. Our results may carry useful regulatory implication for the stress test exercises.


2015 - The pricing of convertible bonds in the presence of structured conversion clauses: the case of Cashes [Articolo su rivista]
Bertocchi, Marida; Moriggia, Vittorio; Torricelli, Costanza; Vitali, Sebastiano
abstract

The aim of this paper is to analyse the pricing of highly structured convertible bonds by taking a real world case. To this end we examine the Cashes (Convertible And Subordinated Hybrid Equity-linked Securities), which are characterized by both voluntary and mandatory conversion that depend on different triggering events, as well as floating coupons whose payment hinges on dividends and earning of the issuer. Our results highlight that prices are very sensitive to the modelling of the sources of uncertainty, both market and credit risk, and underscore the relevance of the time horizon chosen for the estimation.


2014 - Does homeownership partly explain low participation in supplementary pension schemes? [Working paper]
Santantonio, M.; Torricelli, C.; Urzì Brancati, M. C.
abstract

We used nine waves of the Bank of Italy’s Survey on Household income and Wealth (1995- 2012) to investigate a possible trade-off between homeownership and individual participation in a supplementary pension scheme. Italy lends itself to this type of investigation because the Italian public pension system has been heavily reformed in the period, providing in principle incentives for participation, and the homeownership rate is very high. The impact of homeownership is captured in two ways: by a dummy for being homeowner and by an index defined as the share of housing wealth over total wealth. Our results show that indeed, after controlling for a vast array of socio-economic characteristics and allowing for unobserved individual heterogeneity, both measures of homeownership are negatively associated with participation in supplementary pension schemes and that such an effect does not disappear even after the 2007 reform.


2014 - Family ties: occupational responses to cope with a household income shock [Working paper]
Baldini, M.; Torricelli, C.; Urzì Brancati, M. C.
abstract

In this paper we analyse household members’ reactions in case of unforeseen negative income shocks due to a transition into unemployment and/or into income support. More specifically, we estimate the impact of an income loss suffered by one household member on the probability that another household member – not necessarily the wife - transit from out of the labour force into employment or into workforce. Since in a lifecycle setting the labour supply of secondary workers is also affected by credit constraints, we take into account financial wealth and liabilities as well as a measure of household illiquidity due to housing. To perform our analyses, we use a discrete choice model and data drawn from the Bank of Italy Survey on Household Income and Wealth (SHIW) over the period 2004-2012, so as to include the effects of the Great Recession. Even after accounting for standard socio-economic controls, results show significant reactions to income shocks, especially during the recession. As for portfolio controls, we find a significant difference (mostly in terms of intercept, but also of slope) between the level of illiquidity and labour market participation for households hit/not hit by a shock.


2014 - Should football coaches wear a suit? The impact of skill and management structure on Serie A Clubs’ performance [Working paper]
Torricelli, C.; Urzì Brancati, M. C.; Mirtolen, L.
abstract

This paper implements the methodology proposed by Bell et al. (2013) for the English Premier League to test the performance of football club coaches in the Italian Serie A, so as to explore the robustness of this approach to a different setup. Our results show that, over the seasons 2011-12, 2012-13 and 2013- 14, only two coaches out of 49 outperform, three underperform, while the great majority performed as expected. It follows that conclusions about the appropriate sacking time are not easy and the final decision is determined by other circumstances. Although comparison with Premier League has to be taken with caution, our results show that, in the presence of the management structure and the tactical approach typical of Serie A, the model can pick up a few very extreme skill levels but it cannot differentiate among the great majority of coaches.


2014 - The time dimension of credit risk Modelling issues and regulatory implications [Capitolo/Saggio]
Bertocchi, M.; Torricelli, C.
abstract


2014 - Who holds the purse strings within the household? The determinants of intra-family decision making [Articolo su rivista]
Bertocchi, Graziella; M., Brunetti; Torricelli, Costanza
abstract

We study the determinants of intra-household decision-making responsibility over eco-nomic and financial choices using a direct measure provided in the 1989–2010 Bank of Italy Survey of Household Income and Wealth. We find that the probability that the wife is responsible for decisions increases as the wife’s characteristics in terms of age, education and income become closer or even higher than those of her husband’s. Thus, consistently with a bargaining approach, decision-making responsibility is associated with marriage heterogamy, and not only along strictly economic dimensions. However, in support of an alternative household production approach, we also find that the probability that the wife is responsible is lower when she is employed, which suggests the presence of a specialization pattern assigning responsibility to the spouse with more available time. Our resultsare robust to additional controls and alternative samples.


2013 - A liquidity risk index as a regulatory tool for systemically important banks? An empirical assessment across two financial crises [Working paper]
Gianfelice, G.; Marotta, G.; Torricelli, C.
abstract

We provide an assessment of the IMF suggestion, based on Severo (2012), to use an index of systemic liquidity risk (SLRI) that could help to estimate a Pigouvian tax on large banks for the externality on the international banking system out of their risk exposure. To this end we compute a parsimonious and fully documented SLRI and investigate its statistical significance in explaining level and variability of stock returns for a group of large international banks during the subprime financial and the Eurozone sovereign debt crises. The empirical investigation consistently fails to detect, within and across the two crises, a core group among the systemically important banks listed by the Financial Stability Board and thus supports a sceptical assessment of the proposal.


2013 - Efficiency and unbiasedness of corn futures markets: New evidence across the financial crisis [Articolo su rivista]
Pederzoli, Chiara; Torricelli, Costanza
abstract

Recent years witnessed commodity prices increases which have fostered research-works on their predictability and a renewed interest of practitioners and policy makers. The objective of this paper is to test the predictive ability of futures prices on the underlying spot prices by taking corn, which is one of the most important agricultural commodities in terms of trading volumes and for its role in the dietary regime of many countries. We consider the corn futures on the CBOT in the period May 1998-December 2011 so as to extend previous studies on this market and to assess a possible effect of the financial crisis. Our results do not emphasize a role for the latter and, although we do not find evidence of efficiency and unbiasedness, the futures corn price turns out to be the best predictor of the spot price if compared with most used alternatives.


2013 - Efficiency and unbiasedness of corn futures markets: New evidence across the financial crisis [Working paper]
Pederzoli, C.; Torricelli, C.
abstract

Recent years witnessed commodity prices increases which have fostered researchworks on their predictability and a renewed interest of practitioners and policy makers. The objective of this paper is to test the predictive ability of futures prices on the underlying spot prices by taking corn, which is one of the most important agricultural commodities in terms of trading volumes and for its role in the dietary regime of many countries. We consider the corn futures on the CBOT in the period May 1998-December 2011 so as to extend previous studies on this market and to assess a possible effect of the financial crisis. Our results do not emphasize a role for the latter and, although we do not find evidence of efficiency and unbiasedness, the futures corn price turns out to be the best predictor of the spot price if compared with most used alternatives.


2013 - Modelling credit risk for innovative SMEs: the role of innovation measures [Articolo su rivista]
Chiara, Pederzoli; Grid, Thoma; Torricelli, Costanza
abstract

Small-medium enterprises (SMEs) encounter financial constraints when they try to obtain credit from banks. These constraints are particularly severe for innovative SMEs. Thus, developing models for innovative SMEs that provide reliable estimates of their probabilities of default (PD) is important because the PDs can also serve as ratings. We examine the role of innovative assets such as patents in credit risk modelling due to their signaling value. Specifically, we add to a logit model two innovation-related variables in order to account for both the dimension and the value of the patent portfolio. Based on a unique data set of innovative SMEs with default years of 2005 to 2008, we show that, although the value of the patent portfolio always reduces the PD, its dimension reduces the firm’s riskiness only if coupled with an appropriate equity level.


2012 - Ia financial fragility a matter of illiqudity? An appraisal for Italian households [Working paper]
Brunetti, M.; Giarda, E.; Torricelli, C.
abstract

In this paper we investigate household financial fragility and assess the role played by the composition of the household portfolio besides standard determinants of this condition (e.g. income, indebtedness, age, gender, financial literacy). We take the case of Italy, given the very peculiar portfolio composition (high level of housing and low level of indebtedness and portfolio diversification) and provide two main contributions. First, we propose a novel definition of financial fragility. Second, based on this new measure, we use data from the 1998-2010 Bank of Italy Survey on Household Income and Wealth to investigate the determinants of this condition. Our results confirm most usual markers of financial fragility and additionally highlight the role of homeownership, which is not related to the presence of mortgages but it is rather connected to specific socio-demographic features such as age and marital status.


2012 - Is it money or brains? The determinants of intra-family decision power [Working paper]
Bertocchi, G.; Brunetti, M.; Torricelli, C.
abstract

We empirically study the determinants of intra-household decision power with respect to economic and financial choices using a direct measure provided in the 1989-2010 Bank of Italy Survey of Household Income and Wealth. Focusing on a sample of couples, we evaluate the effect of each spouse's characteristics, household characteristics, and background variables. We find that the probability that the wife is in charge is affected by household characteristics such as family size and total income and wealth, but more importantly that it increases with the difference between hers and her husband's characteristics in terms of age, education, and income. The main conclusion is that decision-making power over family economics is not only determined by strictly economic differences, as suggested by previous studies, but also by differences in human capital and experience. Finally, exploiting the time dimension of our dataset, we show that this pattern is increasing over time.


2011 - Marriage and other risky assets: a portfolio approach [Articolo su rivista]
Bertocchi, Graziella; Brunetti, Marianna; Torricelli, Costanza
abstract

We study the joint impact of gender and marital status on financial investments by testing the hypothesis that marriage represents - in a portfolio framework - a sort of safe asset and that this attribute may change over time. We show that married individuals have a higher propensity to invest in risky assets than single ones, that this marital status gap is stronger for women and that, for women only, it evolves and declines at the end of the sample period. Next we explore a number of possible explanations of the observed gender differences by controlling for background factors that capture the evolution of family and society. We find that both the higher female marital status gap and its time variability vanish for those women who are employed. Our empirical investigation is based on a dataset drawn from the 1993-2006 Bank of Italy Survey of Household Income and Wealth.


2011 - Modelling Credit Risk for Innovative Firms: The Role of Innovation Measures [Relazione in Atti di Convegno]
C., Pederzoli; G., Thoma; Torricelli, Costanza
abstract

Financial constraints are particularly severe for R&D projects of SMEs, which cannot generally rely on equity markets and, in the EU, on a sufficiently developed VC industry. If innovative SMEs have to depend on banks to finance their R&D projects, it is particularly important to develop models able to estimate their probability of default (PD) in consideration of their peculiar features. Based on the signaling value of some innovative assets, the purpose of this paper is to show the importance to include them into models which have proved to be successful for SMEs. To this end, we take a logit model and test it on a unique dataset of innovative SMEs (based on PATSTAT database, EPO BULLETIN and AMADEUS) to estimate a two-year PD with default years 2006-2008. In the regression analysis the innovation-related variables are two in order to account for R&D productivity at the level of the firm and to consider the value of the inventive output. Our analyses first address measurement issues concerning innovation-related variable and then show that, while the accounting variables and the patent value are always significant with the expected sign, the patent number per se reduces the PD only in the presence of an appropriate equity level.


2011 - Modelling credit risk for innovative firms: the role of innovation measures [Working paper]
Pederzoli, C.; Thoma, G.; Torricelli, C.
abstract

Financial constraints encountered by small-medium enterprises (SME) are particularly severe for innovative firms, which, in the EU, cannot rely on a sufficiently developed venture capital industry and have to depend on debt capital. It is thus important to develop models which, in consideration of the specific features of innovative SMEs, provide a reliable estimate of their probability of default (PD) that can also serve as a rating of the innovative firm. Based on the signaling value of innovation-related assets such as patents, this paper shows the role of innovative assets in credit risk modeling. Specifically, we include in a logit model two innovation-related variables in order to account for both the dimension and the value of the patent portfolio. Based on a unique dataset of innovative SMEs with default years 2006-2008 we show that, while the value of the patent portfolio always reduces the PD, its dimension increases the firm’s riskiness unless coupled with an appropriate equity level.


2010 - A Parsimonious Default Prediction Model for Italian SMEs [Articolo su rivista]
Pederzoli, Chiara; Torricelli, Costanza
abstract

In the light of the fundamental role played by small and medium enterprises (SMEs) in the economy of many countries, including in Italy, and of the specific treatment of this issue within the Basel II regulation, the aim of this paper is to build a default prediction model for the Italian SMEs. Specifically, we develop a logit model based on financial ratios: using the AIDA database, we focus the attention on a specific region in Italy, Emilia Romagna, where SMEs represent the majority of firms. We find that a parsimonious model based on only four explanatory variables fits well the default data and provides results consistent with structural models of the Merton type .


2010 - A parsimonious default prediction model for Italian SMEs [Working paper]
Pederzoli, C.; Torricelli, C.
abstract

In the light of the fundamental role played by small and medium enterprises (SMEs) in the economy of many countries including Italy and of the specific treatment of this issue within the Basel II regulation, the aim of this work is to build a default prediction model for the Italian SMEs. Specifically, we develop a logit model based on financial ratios: using the AIDA database, we focus the attention on a specific region in Italy, Emilia Romagna, where SMEs represent the firms’ majority . We find that a parsimonious model based on only four explanatory variables fits well the default data.


2010 - Demographics and asset returns: does the dynamics of population ageing matter? [Articolo su rivista]
Brunetti, M; Torricelli, Costanza
abstract

The empirical connection between the population age-structure and financial asset returns has been so far investigated with special focus on the US, whereby weak or disparate results are obtained. This paper aims to assess whether this connection is affected by the demographic dynamics. To this end the analysis is based on a stylized overlapping generation model and on the empirical investigation for Italy, which is experiencing one of the most pronounced ageing in the world and, specifically, steeper than the US one. Following the approach used for the US, stock returns and Government bond yields are regressed over demographic and/or control variables using annual data over 1958-2004. Results for Italy are more clear-cut and thus support the importance of the country-specific age-dynamics in explaining the impact of demographics on financial markets.


2010 - Modelli finanziari: la finanza con Excel [Edizione critica]
Torricelli, Costanza
abstract

Seconda edizione italiana del testo di Simon Benninga con traduzione ed adattamento al contesto italiano.


2010 - Population age structure and household portfolio choices in Italy [Articolo su rivista]
M., Brunetti; Torricelli, Costanza
abstract

Based on the exceptional ageing of the Italian population, this paper aims to contribute to the current debate on population ageing and financial markets. To this end, we use data taken by the Bank of Italy Survey of Household Income and Wealth (SHIW) over the over the period 1995 – 2006 and we analyse the average household portfolios in relation to age and net wealth. Our analysis rests on a clustering of assets according to risk which is different from the one used in Guiso and Jappelli (2002). We find that age has affected financial choices of Italian households over the whole decade, but the portfolio age profile has significantly evolved over time with important differences across wealth quartiles. Overall our analysis highlights a tendency toward a hump-shaped age profile of the allocation in risky assets for most net wealth levels.


2010 - Rating systems, procyclicality and Basel II: an evaluation in a general equilibrium framework [Articolo su rivista]
C., Pederzoli; Torricelli, Costanza; D. P., Tsomocos
abstract

The introduction ofBasel II has raised concerns about the potential impactof risk-sensitive capital requirements on the business cycle. Several approaches havebeen proposed to assess the procyclicality issue. In this paper, we adopt a generalequilibrium model and conduct comprehensive analysis of different proposals.We setout a model that allows to evaluate different rating systems in relation to the procyclicalityissue. Our model extends previous models by analysing the effects of differentrating systems on banks’ portfolios (as in Catarineu et al. in Econ Theory 26:537–557,2005) and the contagion effects relevant to financial stability (as in Goodhart et al. inAnn Finance 1:197–224, 2005). The paper presents comparative statics results comparinga cycle-dependent and a neutral rating system from the point of view of banksprofit maximization. Our results suggest that banks’ preferences about point in timeor through the cycle rating systems depend on the banks’ characteristics and on thebusiness cycle conditions in terms of expectations and realizations.


2010 - THE IMPACT OF POPULATION AGEING ON HOUSEHOLD PORTFOLIOS AND ASSET RETURNS [Capitolo/Saggio]
M., Brunetti; Torricelli, Costanza
abstract

The objective of this chapter is to present the evolution of the literature on household portfolios and its research perspectives. The final aim is to highlight the modelling requirements necessary to analyse the impact of population ageing on household portfolios, and ultimately on asset returns, with special focus on the financial segment of the portfolios. Recent demographic trends have given impetus to the literature with contributions that are diversified according to the approach (theoretical and/or empirical) and the perspective taken (micro vs. macro).


2010 - The interaction of financial fragility and the business cycle in determining banks' loan losses: an investigation of the Italian case [Articolo su rivista]
Pederzoli, C.; Torricelli, Costanza; Castellani, S.
abstract

The Basel II capital accord and the recent crises have fostered the debate over the financial stability of the aggregate banking sector. Since loan losses are an important factor for banking stability, this paper aims to gauge the impact of real and financial fragility on default losses of Italian banks. To this end the ratio of non-performing loans to total loans is regressed on the business cycle and indebtedness. In addition, to capture the joint effect of real and financial fragility, the analysis considers an interaction term which to our knowledge has never been applied before to Italian default data. Based on the interaction model, results show that the actual impact of financial fragility on default losses depends not only on the business cycle phase but also on the firm’s size, whereby in adverse economic conditions, small firms are more significantly affected by financial fragility.


2009 - Economic Activity and Recession Probabilities: information content and predictive power of the term spread in Italy , [Articolo su rivista]
Brunetti, M; Torricelli, Costanza
abstract

The aim of the present article is to examine the information content of the Italian term spread as for real economic growth rates and recessionprobabilities and to test its predictive power in forecasting regimeprobabilities. To this end the relationship between the term spread andeconomic growth rates is modelled as a nonlinear one and specifically the Logistic Smooth Transition model is used, while a probit model isimplemented to forecast recession probabilities. Specific to this article isthe use of the OECD business cycle chronology, which was never usedbefore to this end for the Italian case. Overall evidence supports theinformative content of the spread in Italy over the whole period (1984–2005) although results are more satisfactory as from 1992. In particular, recession forecasts are generally better than those obtained with other chronologies previously adopted for the Italian case (ISAE and ECRI).


2009 - Models for household portfolios and life-cycle allocations in the presence of labour income and longevity risk [Working paper]
Torricelli, C.
abstract

Campbell (2006) stressed the two main challenges of household finance: empirical analyses that highlight how households do invest (i.e. positive household finance) have important measurement problems, while suggestions about how investments should be made (i.e. normative household finance) encounter modelling problems. In this latter connection the final aim of this paper is to highlight the modelling requirements necessary to analyse the impact of household-specific risks on their portfolios, with special focus on the financial segment. To this end, after an overview of household portfolio theory, special emphasis is given to models incorporating two increasingly more important risks for the household: labour income and longevity risks. The paper concludes with some research directions.


2009 - On the no arbitrage condition in option implied trees [Articolo su rivista]
V., Moriggia; Muzzioli, Silvia; Torricelli, Costanza
abstract

The aim of this paper is to discuss the no-arbitrage condition in option implied trees based on forward induction and to propose a no-arbitrage test that rules out the negative probabilities problem and hence enhances the pricing performance. The no-arbitrage condition takes into account two main features: the position of the node in the tree and the relation between the dividend yield and the risk-free rate. The proposed methodology is tested in and out of sample with Italian index options data and findings support a good pricing performance.


2008 - Bank Capital in risk management and investment strategies [Curatela]
Moriggia, V; Torricelli, Costanza
abstract

Papers produced as th eresult of a research project funded by th eMinistery of the Italian University: PRIN 2005139555.


2008 - Indebtedness, macroeconomic conditions and banks' loan losses: evidence from Italy [Relazione in Atti di Convegno]
S., Castellani; C., Pederzoli; Torricelli, Costanza
abstract

The Basel II capital accord has fostered the debate over the financial stability of the aggregate banking sector. Within a large empirical literature focusing on the effects of macroeconomic disturbances on the banking system, a stream of research considers loan losses as an important factor for banking stability and aims to identify explanatory variables for this critical indicator. This paper tests the impact of both real and financial fragility on Italian banks’ default losses over the period 1990-2007. To this end the ratio of non-performing loans to total loans is regressed on the business cycle and firms’ indebtedness. The analysis considers an interaction term representing the joint effect of real and financial fragility, which to our knowledge has never been applied before to Italian default data. Based on the interaction model, the results show that the actual impact of financial fragility on default losses depends on the business cycle phase.


2008 - Indebtedness, macroeconomic conditions and banks’ loan losses: evidence from Italy [Working paper]
Castellani, S.; Pederzoli, C.; Torricelli, C.
abstract

The Basel II capital accord has fostered the debate over the financial stability of the aggregate banking sector. There is a large empirical literature focused on the effects of macroeconomic disturbances on the banking system. Specifically, loan losses are an important factor for the banking stability and a stream of research in this field aims to identify explanatory variables for this critical indicator. This paper focuses on Italian banks data over the period 1990-2007 and investigates the relationship between the ratio of non-performing loans to total loans, the business cycle and firms’ indebtedness so as to test the impact of both real and financial fragility on banks’ default losses. We use a regression model with an interaction term representing the joint effect of real and financial fragility, which to our knowledge has never been applied before to Italian default data. The results show that the impact of financial fragility on default losses is enhanced by adverse economic conditions.


2008 - Portfolio Choices, Gender and Marital Status [Articolo su rivista]
Bertocchi, Graziella; Brunetti, Marianna; Torricelli, Costanza
abstract

We study the impact of gender and marital status on financial decisions using the 1989-2006 Bank of Italy Survey of Household Income and Wealth. Controlling for several characteristics of household financial heads, we find that male and married ones are more likely to invest in risky assets than female and single ones, respectively. We also investigate the role of background socio-economic factors that capture regional differences in family structure and the organization of the labor market. Specifically, we find that higher divorce rates and female labor market participation rates are associated with a higher propensity to invest in risky assets.


2008 - Rating systems, procyclicality and Basel II: an evaluation in a general equilibrium framework [Working paper]
Pederzoli, C; Torricelli, Costanza; Tsomocos, D.
abstract

The introduction of Basel II has raised concerns about the possibleimpact of risk-sensitive capital requirement on the business cycle. Several approaches have been proposed to deal with the procyclicality issue.In this paper we take a general equilibrium one, which is an appropriateframework for a comprehensive analysis of different proposals since it allows to account for banks’ endogenous strategies in relation to the other agents’ behaviour. The aim of the present paper is to set up a model which allows to evaluate different rating systems in relation to the procyclicality issue. Our set up extends previous models so as to allow the analysis of both the effects of different rating systems on banks’ portfolios (as e.g. in Catarineu-Rabell et al. 2005) and the contagion effetcs relevant to financial stability (as e.g. in Goodhart et al. 2005). The paper presents a comparative statics analysis evluating a cycle-dependent and a neutral rating system with main focus on the banks’ point of view.


2007 - Call and put implied volatilities and the derivation of option implied trees [Articolo su rivista]
Moriggia, V; Muzzioli, Silvia; Torricelli, Costanza
abstract

The aim of this paper is to discuss the no-arbitrage condition in option implied trees based on forward induction and to propose a no-arbitrage test that rules out the negative probabilities problem and hence enhances the pricing performance. The no-arbitrage condition takes into account two main features: the position of the node in the tree and the relation between the dividend yield and the risk-free rate. The proposed methodology is tested in and out of sample with Italian index options data and findings support a good pricing performance.


2007 - Il rischio di longevità e la sua copertura: un’introduzione ai titoli mortality-linked [Working paper]
G., Loi; TORRICELLI, Costanza
abstract

Scopo del lavoro è quello di fornire una introduzione ai principali titoli derivati sulla mortalità (mortality-linked derivatives) che sono utilizzabili per la copertura del rischio di longevità. In quanto derivati, tali titoli hanno caratteristiche generali analoghe a quelle dei più famosi e diffusi derivati finanziari, ma la natura peculiare del loro sottostante (un indice di mortalità appunto) li rende alquanto diversi da quelli finanziari come ci si propone di illustrare in questa nota. In chiusura si cercherà di chiarire perché, a fronte di una letteratura ricca di proposte (vd. sezione Bibliografia), ad oggi non esiste un vero e proprio mercato di questi titoli ma solo alcune emissioni da parte di istituti bancari, che sono brevemente presentate nel lavoro. 2. La copertura del rischio di longevità coi derivati Il rischio di longevità è col rischio di catastrofe e il rischio di scarti accidentali una delle componenti del rischio demografico. Il rischio di catastrofe si riferisce sostanzialmente al rischio che nel breve periodo i tassi di mortalità siano molto maggiori del previsto: può esser gestito tramite riassicurazione (ad elevati costi) o tramite i cd. cat-bonds (bond catastrofali). Il rischio di scarti accidentali è da imputare alle normali fluttuazioni della mortalità e si può quindi gestire utilizzando una popolazione di riferimento sufficientemente ampia. In questa nota ci concentriamo sul rischio di longevità, che rappresenta il rischio che nel lungo periodo i tassi di sopravvivenza aggregati di una popolazione (coorte) di riferimento siano più alti del previsto. Naturalmente, in un contesto di popolazione che invecchia rapidamente, tale rischio gioca un ruolo fondamentale nel determinare il livello dei prezzi dei prodotti con caratteristiche previdenziali e può pertanto rappresentare un disincentivo ad una loro auspicabile diffusione. In analogia all’uso dei derivati per la copertura di altre tipologie di rischio (es. rischio di mercato, rischio di credito) i derivati mortality-indexed possono possono essere utilizzati per la copertura del rischio di longevità.3 In quasi completa analogia ai commodity o financial derivative, diversi sono i soggetti interessati alla creazioni di un loro mercato:2 Recenti studi mostrano che in UK, ogni anno di aumento nell’aspettativa di vita accresce del 3-4% gli impegni da parte degli operatori coinvolti. 3 I derivati per la copertura del rischio di longevità sono classificabili, assieme all’attività di riassicurazione, tra gli strumenti di copertura esterni all’impresa. In questo senso si aggiungono a quelli interni di tipo gestionale e assicurativo quali: caricamento di sicurezza, adeguamento dinamico delle variabili operative (es. base tecnica), flessibilità di prodotto e condivisione del rischio con l’assicurato. Non va dimenticata poi l’importanza degli strumenti di solidità patrimoniale (per approfondimenti regolamentari su Solvency II si veda ad es. Doni, 2006).


2007 - Model risk and techniques for controlling market parameters [Working paper]
Bonollo, M.; Morandi, D.; Pederzoli, C.; Torricelli, C.
abstract

The increasing use of internal market models for market risk assessment andmanagement promotes, in compliance with Basel II, better risk managementpractices but introduces at the same time the so called model risk. In the light of themany open issues connected to market risk, the aim of this paper is twofold. First, itoffers a formal analysis of model risk which is aimed to clarify quantification issuesand to illustrate the architecture of a control process for this type of risk. Animportant building block of such an architecture is the so called market parameterscontrol process, which is the focus of the present paper and consists of two differentphases: the definition of the data sources and the data retrieval forms, and thedefinition of the techniques for valuing variables (i.e. input model data) based onmarket data. Second, this paper proposes a market parameters control process and its implementation within an important Italian bank, namely Gruppo Banco Popolare.Specifically, by focusing on equity market risk, this paper illustrates the whole organization process needed to set up and implement the market parameters control techniques, which imply first controlling for integrity (existence, domain, homogeneity) and outliers and then performing benchmarking activities. Special emphasis is placed on the so-called second level parameters, which do not have official quotes and still are fundamental especially in valuing non linear positions (e.g. volatility). These activities are based on mathematical-statistical models, whose implementation has required the development of specific software and IT solutions and the adoption of an articulate organizational structure.


2007 - The Population Ageing in Italy: Facts and Impact on Households Portfolio, [Relazione in Atti di Convegno]
Brunetti, M; Torricelli, Costanza
abstract

The aim of this paper is to assess the impact of ageing on households’ portfolios in Italy and ultimately on financial markets. To this end, the analysis is carried out in two steps. First, the dimension of population ageing in Italy is assessed by means of both historical and forecast data on the structure of Italian population. Second, based on panel data of the Bank of Italy Survey of Households Income and Wealth (SHIW) over the last decade, we analyse the dynamics of Italian households’ portfolios in relation to the the demographic evolution. Two are the main findings of this analysis. First, Italy turns out ot be one of the countries most affected by ageing and this result is consistent across different demographic measures. Second, this exceptional ageing dynamics has relevant implications over household portfolios.


2007 - The internal and cross market efficiency in index option markets: an investigation of the Italian market [Articolo su rivista]
Brunetti, M; Torricelli, Costanza
abstract

The aim of the present paper is to provide evidence on the internal efficiency of the Italian index option market and to verify the consistency of the latter notion of efficiency with the cross market one. To this end a model-free approach is taken, whereby strategies involving only options are tested by means of a high frequency dataset. These strategies may provide a superior test of parity among index options since they do not involve the index replication issues and usefully complete previous studies which focused on cross-market efficiency only. The results obtained clearly support the efficiency of the Italian market and comparatively highlight a high level of consistency between internal and cross market efficiency.


2006 - Forward-looking estimation of default probabilities with Italian data [Articolo su rivista]
Marotta, Giuseppe; C., Pederzoli; Torricelli, Costanza
abstract

The solution adopted in Basel II to deal with procyclicality of capital requirements (i.e. through the cycle ratings and long-run average estimates of default probabilities) implies a reduction in the risk-sensitivity that contradicts the original spirit of the new framework.In order to preserve risk-sensitivity and to dampen procyclicality at the same time, Pederzoli and Torricelli (2005) set up a model which relies on a business cycle forecast in the estimation of the default probability and provide an application for the US. The modelling approach hinges on a forward-looking definition of capital requirements, in anticipation of the business cycle with a possible smoothing effect on the business cycle turning points.The present paper checks the robustness of the approach for the Italian case, where alternative business cycles chronologies are used and ratings have to be approximated by exploiting default data provided by the Bank of Italy. Findings suggest that the comparison between the alternative chronologies is an important issue.


2005 - Capital requirements and business cycle regimes: Forward-looking modelling of default probabilities [Articolo su rivista]
C., Pederzoli; Torricelli, Costanza
abstract

This paper proposes a forward-looking model for time-varying capital requirements, which finds application within Basel II. The model rests on the relationship between default rates and the business cycle: by positing two regimes, expansion and recession, and by forecasting the associated probabilities, the default probability for each rating class is defined as the expected value of a default rate whose distribution is a mixture of an expansion and a recession distribution. The application to US data over the forecasting period 1971-2002 provides evidence that the model makes it possible to preserve the risk sensitivity of the capital requirement and at the same time to dampen procyclicality.


2005 - The pricing of options on an interval binomial tree. An application to the DAX-index option market [Articolo su rivista]
Muzzioli, Silvia; Torricelli, Costanza
abstract

This paper implements a model setup in Muzzioli and Torricelli [Int. J. Intell. Syst. 17 (6) (2002) 577-594] for deriving implied trees and pricing options when the put-call parity is not fulfilled. The model basically extends Derman and Kani´s [Risk 7 (2) (1994) 32-39], whereby call (put) prices are also used in the lower (upper) part of the tree thus exploiting the information content of both call and put prices. The DAX-index option market is chosen for this application because it is a relatively new European market where short-selling restrictions may induce put-call parity violations and the nature of the option (European) and of the underlying (dividends reinvested in the index) avoid some estimation problems. In order to test the pricing fit of the model, a non-linear optimisation procedure is proposed to estimate a unique implied tree which allows a comparison between the model prices, Derman and Kani´s and market prices. The results suggest that the MT model improves the pricing.


2004 - A multiperiod binomial model for pricing options in a vague world [Articolo su rivista]
Muzzioli, Silvia; Torricelli, Costanza
abstract

The aim of this paper is the pricing of European options in a multiperiod binomial model characterised by ill-defined states of the world. The pricing methodology is still the risk-neutral valuation approach. However, the vagueness in the stock price movements implies that both the risk-neutral probabilities and the stock price are weighted intervals. An empirical validation of the model with DAX-index option data is also provided.


2004 - Put-Call Parity and cross-market efficiency in the Index Options Markets: evidence from the Italian market [Articolo su rivista]
Brunetti, M.; Torricelli, Costanza
abstract

The success of index option markets has fostered empirical research on their efficiency. While 12 most of the literature focuses on US markets, European markets have not received much attention.13 The aim of the present paper is to provide new evidence on the Italian index options by means of a 14 high frequency data set covering the period September 1–December 31, 2002. The methodology is 15 based on model-free tests of no-arbitrage relationships with special attention to the Put–Call parity16 (PCP). Our analysis, which in line with the literature highlights the role of frictions, supports a 17 substantial and increased efficiency of the Italian market.


2003 - Estimation and arbitrage opportunities for exchange rate baskets [Articolo su rivista]
D., Mercurio; Torricelli, Costanza
abstract

This paper analyses short-term portfolio investment opportunities in a capital market where a currency is defined as a currency basket. In line with the mean-variance hedging approach, a self-financed optimal investment strategy is determined which minimizes the expected quadratic cost function. The successful implementation of the speculative strategy requires a precise estimate of the basket weights, which are possibly non-constant over time. To this end, an adaptive non-parametric procedure is suggested which provides satisfactory results both on simulated and real data. The optimal investment strategy is applied to the case of the Thai Baht basket whereby the weights are computed by means of the adaptive estimator. A recursive estimator, a rolling estimator and the Kalman filter, are implemented and serve as benchmark models. Results are compared with the literature. The different estimators are evaluated with profit-based criteria and the performance of the adaptive estimator turns out to be the best one.


2002 - Implied trees in illiquid markets: A Choquet pricing approach [Articolo su rivista]
Muzzioli, Silvia; Torricelli, Costanza
abstract

Implied trees are necessary to implement the risk neutral valuation approach, and standard methodologies for their derivation are based on the validity of the put call parity. However, in illiquid markets the put call parity fails to hold, and the uniqueness of the artificial probabilities leaves room for an interval. The contribution of this article is twofold. First we propose a methodology for the derivation of implied trees in illiquid markets. Such a methodology, by contrast with standard ones, takes into account the information stemming both from call and put prices. Second, we set up a framework for pricing derivatives written on an underlying asset traded on an illiquid market. To this end we have extended the Choquet integral definition to account for interval payoffs of the underlying asset. The price interval we obtain may be interpreted as a bid-ask price quoted by the intermediary issuing the derivative security.


2002 - The information content in the term structure of German interest rates [Articolo su rivista]
Torricelli, Costanza; Boero, G.
abstract

This paper tes ts the Expectations Hypothesis (EH) of the term structure of interest rates using new data for Germany. The German term structure appears to forecast future short-term interes t rates surprisingly well, compared with previous studies with US data,while it has lower predictive power for long-term interes t rates . However, the directionvsuggested by the coefficient estimates is consistent with that implied by the EH, that is when the term spread widens , long rates increase. The use of ins trument al variables to deal with pos sible measurement errors in the data significantly improves regressions for the long rates . Moreover, re-estimation with proxy variables to account for the possibility of time-varying term premia confirms that the evolut ion of both short andlong rates corresponds to the predictions of the EH and that mos t of the information is in the term spread. These results are important as they sugge s t that monetar y policy in Germany could be guided by the slope of the term structure.


2002 - The information in the term structure of German interest rates [Articolo su rivista]
Boero, G.; Torricelli, C.
abstract

This paper tests the Expectations Hypothesis (EH) of the term structure of interest rates using new data for Germany. The German term structure appears to forecast future short-term interest rates surprisingly well, compared with previous studies with US data, while it has lower predictive power for long-term interest rates. However, the direction suggested by the coefficient estimates is consistent with that implied by the EH, that is when the term spread widens, long rates increase. The use of instrumental variables to deal with possible measurement errors in the data significantly improves regressions for the long rates. Moreover, re-estimation with proxy variables to account for the possibility of time-varying term premia confirms that the evolution of both short and long rates corresponds to the predictions of the EH and that most of the information is in the term spread. These results are important as they suggest that monetary policy in Germany could be guided by the slope of the term structure. © 2002, Taylor & Francis Group, LLC.


2001 - A Multiperiod Binomial Model for Pricing Options in an Uncertain World [Relazione in Atti di Convegno]
Muzzioli, Silvia; Torricelli, Costanza
abstract

The aim of this paper is to price an option in a multiperiod binomial model, when there is uncertainty on the states of the world at each node of the tree. As a consequence, also the stock price at each state takes imprecise values. Possibility distributions are used to handle this type of problems. The pricing methodology is still based on a risk neutral valuation approach, but, as a consequence of the uncertainty on the two jumps of the stock, we obtain weighted intervals for risk-neutral probabilities. The distinctive feature of our model is that it tracks back the arising of these probability intervals to the imprecision of the value of the stock price in the up and down states. This paper provides a generalization of the standard binomial option pricing model. We obtain an expected value interval for the option price within which it is possible to find a crisp representative value and an index of the uncertainty present in the model.


2001 - A model for pricing an option with a fuzzy payoff [Articolo su rivista]
Muzzioli, Silvia; Torricelli, Costanza
abstract

This paper sets up a one period model for pricing an option with a fuzzy payoff. The option is written on an underlying asset that has a fuzzy price at the end of the period, modelled by means of triangular fuzzy numbers. The pricing methodology used is the standard one for pricing derivatives, i.e. the so called risk neutral valuation. Combining the standard Binomial Option Pricing Model with a fuzzy representation of the option payoff offers some advantages. First it provides an intuitive way of looking at the future price of an asset. Second it includes the results of the Standard Binomial Model, allowing the market to have different levels of information.


2001 - A multiperiod binomial model for ricing options in an uncertain world [Abstract in Atti di Convegno]
Muzzioli, Silvia; Torricelli, Costanza
abstract

The aim of this paper is to price an option in a multiperiod binomial tree, when there is uncertainty on the states of the world at each node of the tree.


2001 - The rational expectation dynamics of a model for the term structure and monetary policy [Articolo su rivista]
Malaguti, Luisa; Torricelli, Costanza
abstract

In the present paper we set up a rational expectation model for the interaction between the expectation theory of the term structure, monetary policy and a time-varying premium. The results we obtain allow to conclude that the information content of the spread over the short/long rate depends onwhether or not the joint working of monetary policy and the time-varyingterm premium, which is peculiar to our model, exactly compensate the classicalimplication of the Expectation Theory. So our results can rationalise regression testsobtaining small or even negative values for the spread coefficient.


1999 - Pricing options on a vague asset [Relazione in Atti di Convegno]
Muzzioli, Silvia; Torricelli, Costanza
abstract

This paper deals with the problem of pricing an option in a one-period model when the price of the underlyng asset is vague. The vagueness is modelled by the use of triangular fuzzy numbers and the pricing methodlogy is based on the no-arbitrage principle. A comparison with the corresponding binomial option pricing model is provided, in particular we show that it can be viewed as a special case of our model.


1999 - Una rassegna sui metodi di stima del Value at Risk (VaR) [Working paper]
C., Pederzoli; Torricelli, Costanza
abstract

Il presente lavoro prescinde da una discussione delle problematiche teorico-finanziarie alla base del VaR e dei relativi problemi applicativi e si propone invece di offrire una rassegna dei principali metodi di stima proposti per effettuarne un confronto critico. A tal fine il lavoro è organizzato nel seguente modo. Nella prima sezione viene sinteticamente presentato il concetto di VaR e si accenna ai principali utilizzi. La seconda è dedicata alla illustrazione dei due principali metodi di stima ("local valuation" e "full valuation") e alla discussione dei problemi insiti in ciascun metodo. La terza sezione conclude tentando un confronto tra i metodi più utilizzati e accennando ai più recenti sviluppi.


1997 - Monetary policy and the term structure of interest rates: a generalization of McCallum model [Capitolo/Saggio]
Malaguti, Luisa; Torricelli, Costanza
abstract

McCallum (1994) sets up a Rational Expectation model for the interaction of monetary policy and the Expectation Theory of the term structure which rationalises some empirical failures of the latter and demonstrates the inappropriateness of usual regression tests for the information in the term structure. In the present paper, we generalize McCallum (1994) two-period model by introducing a different, finance-theoretic characterization of the term premium. Our results still account for those empirical findings which are at odds with the Expectation Theory of the term structure and yet support validity of usual regressions performed to assess the information content of the term structure. Our results depend on the relative magnitude of the relevant parameters in the model and therefore final conclusions have to be left to empirical investigations.


1996 - A comparative evaluation of alternative models of the term structure of interest rates [Articolo su rivista]
G., Boero; Torricelli, Costanza
abstract

In the paper alternative models of the term structure of interest rates are classified in two different approaches: the no-arbitrage and the general equilibrium approach. It is maintained that the general equilibrium approach is superior on a theoretical ground for two main reasons: first, relevant variables, such as the spot interest rate and the interest risk-premium, are endogenous; second, the relationship between the real and the financial side of the economy becomes a clear and important element in the understanding of the term structure. As regards the applications, however, the advantages of the general equilibrium over the no-arbitrage approach are not so clear: the major role in the empirical performance of alternative models is played by their ability to capture volatility. At the current state of the literature, there is no model that outperforms others, in particular on the empirical side.


1994 - Capital Asset Pricing Model(CAPM), Credito, Futures Markets, Intermediazione Finanziaria, Mercati a termine, Mercati Finanziari, Mercati Finanziari, Teorie delle Opzioni. [Voce in Dizionario o Enciclopedia]
Torricelli, Costanza
abstract


1994 - Futures markets and spot price volatility: a model for a storable commodity [Articolo su rivista]
Torricelli, Costanza
abstract

The influence of futures on spot prices is investigated in a two-date-one-period model with storage. The characterization of storage firms as hedgers is new in the literature and sheds light on the way futures affect spot prices in the presence of storage. The paper proves, on analytical grounds, a stabilizing influence of futures on spot priceswhen storage decisions are taken.


1992 - I mercati futures. Teorie, modelli e applicazioni [Monografia/Trattato scientifico]
Torricelli, Costanza
abstract

L'obiettivo del volume è duplice. In primo luogo si propone una sistemazione delle diverse teorie sui mercati futures. In secondo luogo presenta un contributo su una questione di grande rilevanza toerica e pratica: il legame fra prezzi futures e volatilità del prezzo sottostante. Sulla base di un modello di equilibrio di aspettative razionali, dimostra a quali condizioni i futures possona avere un effetto stabilizzante sul mercato spot.


1992 - Optimal portfolio selection as a solution to an axiomatic bargaining game [Relazione in Atti di Convegno]
Bassetti, A.; Torricelli, Costanza
abstract

A model for optimal portfolio selection based on an axiomatic bargaining game representing e.g. intrahousehold bargaining.


1992 - Strumenti matematici per le decisioni finanziarie [Monografia/Trattato scientifico]
Ricci, C.; Torricelli, Costanza
abstract

Il volume è frutto della collaborazione tra i due autori ed è articolato ini cinque capitoli. I primi due, a cura del Prof. Ricci, trattano di temi di temi di matematica finanziaria classica. Gli altri tre, a cura della Prof. Torricelli, illustrano i modelli per le scelte in condizioni di incertezza, per le scelte di portafoglio ed il Capital Asset Pricing Model.


1991 - Optimal portfolio selection as a Bargaining game [Capitolo/Saggio]
Bassetti, Antonietta; Torricelli, Costanza
abstract

The optimal portfolio is determined as the solution of a bargaining game between two personalities that are assumed to characterise an investor with different risk-aversion.


1990 - Forward trading and exchange rate variability [Relazione in Atti di Convegno]
Torricelli, Costanza
abstract

An equilibrium model for forward exchange rates.


1989 - A survey in the theory of futures markets [Articolo su rivista]
Torricelli, Costanza
abstract

Th epaper provides a survey on equilibrium models for the futures markets.