Research Experiences For Undergraduates (REU)

REU 2010 Projects

Conditioning the Capital Asset Pricing Model to Incorporate Macro-Economic Based Variables

Sponsor: State Street Global Advisors
Advisor: Prof. Marcel Blais


Maria Jansen		Maria Casandra Rusti

Time variations in expected returns are related to business cycle. Evidence shows that expected returns are higher in economic recessions, since investors are less willing to hold risky assets, and lower in economic booms. This suggests that time variations in equity premiums should be accounted for by variables related to business cycle. We will develop a conditional macroeconomic variable that captures time variation in risk premium across business cycles and test predictive power of this variable for future market returns. More specifically we will be looking at the following macro-economic variables: dividend yield, term spread, default spread, short-term interest rate, and consumption.

Sharpe Ratio Versus the Information Ratio: Capturing Minimum Variance Portfolios

Sponsor: State Street Global Advisors
Advisor: Prof. Marcel Blais


Alexa Atamanchuk		Zack Liu

Traditional portfolio theory predicts that if a stock carries additional risk it also promises higher levels of expected returns. Clark, de Silva, and Thorley (2006) and Blitz and Vliet (2007) show that in regional and global contexts low volatility stocks outperform high volatility stocks and have a higher realized Sharpe ratio. The Sharpe and Information ratios are measures of excess return per unit of risk relative to the risk-free rate or one's investment universe benchmark, respectively. We construct a variety of portfolios based on ratio rankings and compare future returns. Ultimately, the performance of these portfolios will help test whether the customary focus on benchmark-driven performance within delegated asset-management creates exploitable investment opportunities.

Mathematical Modeling of Cobbling Instabilities In Steel Rod Fabrication

Sponsor: Morgan Construction
Advisor: Prof. Burt Tilley


Emily Cody		Matthew Lapa		Kevin Park		Maia Valcarce

In the manufacture of steel rod and bar, a steel billet (with cross-section area of approximately 200 - 250 cm²) get heated to more than 1000�C (1830�F) and then passed through a series of rolling stands. These stands have pairs of rollers with shaped grooves that deform the billet such that the cross-sectional area is reduced, while elongating it into a very long and relatively narrow workpiece. To maintain high productivity of the steel mill, the processing lines should run smoothly, with each billet running in a continuous manner. However, there are instances when the workpiece tangles within the equipment, causing the operation to stop and possibly damaging the rolling equipment. These failures are called "cobbles" in the industry. This project is focused on developing mathematical models in highly nonlinear geometries in order to help identify the dominant mechanisms of cobbling under different operating conditions.

Minimum Bias Approach to Determining Automobile Insurance Premiums

Sponsor: Hanover Insurance
Advisor: Prof. Jon Abraham


Erica Choi		Robert Lang		Jackie Micheller		James Phillips

The goal of the project was to assist Hanover's development of updated insurance premiums for various automobile insurance coverages within Massachusetts. Historical premiums and paid losses were trended to current levels, so that an apples-to-apples experience study could be performed. The experience was sorted by numerous driver/vehicle/coverage attributes in order to determine the best predictors of risk. A minimum bias approach was employed to achieve a "best fit" to historical data. Regulatory constraints were overlaid on these results, and from this, a set of "indicated premiums" was presented to Hanover's management for their consideration.

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Last modified: Jan 02, 2015, 23:22 UTC