Operations Research
http://lists.repec.orgmailman/listinfo/nep-ore
Operations Research
2017-02-26
Aggregate Density Forecasting from Disaggregate Components Using Large VARs
http://d.repec.org/n?u=RePEc:pra:mprapa:76849&r=ore
When it comes to point forecasting there is a considerable amount of literature that deals with ways of using disaggregate information to improve aggregate accuracy. This includes examining whether producing aggregate forecasts as the sum of the component’s forecasts is better than alternative direct methods. On the contrary, the scope for producing density forecasts based on disaggregate components remains relatively unexplored. This research extends the bottom-up approach to density forecasting by using the methodology of large Bayesian VARs to estimate the multivariate process and produce the aggregate forecasts. Different specifications including both fixed and time-varying parameter VARs and allowing for stochastic volatility are considered. The empirical application with GDP and CPI data for Germany, France and UK shows that VARs can produce well calibrated aggregate forecasts that are similar or more accurate than the aggregate univariate benchmarks.
Cobb, Marcus P A
Density Forecasting; Bottom-up forecasting; Hierarchical forecasting; Bayesian VAR; Forecast calibration
2017-02
Testing for volatility co-movement in bivariate stochastic volatility models
http://d.repec.org/n?u=RePEc:ucm:doicae:1710&r=ore
The paper considers the problem of volatility co-movement, namely as to whether two financial returns have perfectly correlated common volatility process, in the framework of multivariate stochastic volatility models and proposes a test which checks the volatility co-movement. The proposed test is a stochastic volatility version of the co-movement test proposed by Engle and Susmel (1993), who investigated whether international equity markets have volatility co-movement using the framework of the ARCH model. In empirical analysis we found that volatility co-movement exists among closelylinked stock markets and that volatility co-movement of the exchange rate markets tends to be found when the overall volatility level is low, which is contrasting to the often-cited finding in the financial contagion literature that financial returns have co-movement in the level during the financial crisis.
Jinghui Chen
Masahito Kobayashi
Michael McAleer
Lagrange multiplier test, Volatility co-movement, Stock markets, Exchange rate Markets, Financial crisis.
2017-02
RiskAnalytics: an R package for real time processing of Nasdaq and Yahoo finance data and parallelized quantile lasso regression methods
http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2017-006&r=ore
In order to integrate and facilitate the research, calculation and analysis methods around the Financial Risk Meter (FRM) project, the R package RiskAnalytics has been developed. Its main goal is to provide data processing and parallelized quantile lasso regression methods for risk analysis based on NASDAQ data, Yahoo Finance data and some macro variables. The derived “Risk Analytics” can help to forecast and evaluate the systemic risk for the corresponding markets. The visualization and the up-to-date FRM can be found on http://frm.wiwi.hu-berlin.de. Supplementary R codes are published on www.quantlet.de with the keyword FRM. The RiskAnalytics package is a convenient tool with the purpose of integrating lasso penalized quantile regression methods with full solution paths and cluster computing support around the topic “Risk Analytics and FRM”.
Lukas Borke
Risk Analytics, FRM, Data Analytics, Systemic Risk, Quantile Regression, Lasso, Value at Risk, Parallel and Cluster Computing, EDA, Data Visualization
2017-02
It's never too LATE: A new look at local average treatment effects with or without defiers
http://d.repec.org/n?u=RePEc:hhs:sdueko:2017_002&r=ore
In heterogeneous treatment effect models with endogeneity, identification of the LATE typically relies on the availability of an exogenous instrument monotonically related to treatment participation. We demonstrate that a strictly weaker local monotonicity condition identifies the LATEs on compliers and on defiers. We propose simple estimators that are potentially more efficient than 2SLS, even under circumstances where 2SLS is consistent. Additionally, when easing local monotonicity to local stochastic monotonicity, our identification results still apply to subsets of compliers and defiers. Finally, we provide an empirical application, rejoining the endeavor of estimating returns to education using the quarter of birth instrument.
Dahl, Christian M.
Huber, Martin
Mellace, Giovanni
Instrumental variable; treatment effects; LATE; local monotonicity
2017-02-14
Representation and Social Regret in Risk-Taking
http://d.repec.org/n?u=RePEc:pra:mprapa:77008&r=ore
Representing others brings responsibility and fear of letting others down (social regret). We incorporate these phenomena in a theoretical model and provide a psychological perspective to explain the individual-group discontinuity in risk-taking activities. A representative makes a state-wise comparison of the consequences of her decision and an unchosen advice given by a group member. Social regret-aversion renders extreme utility differences salient and allows both risky and cautious shifts.
İriş, Doruk
Social representation; Social regret-aversion; Risk-taking; Individual-group discontinuity; Risky shift; Cautious shift.
2017-02-22
Equilibria in Infinite Games of Incomplete Information
http://d.repec.org/n?u=RePEc:rut:rutres:201702&r=ore
The notion of communication equilibrium extends Aumann’s [3] correlated equilibrium concept for complete information games to the case of incomplete information. This paper shows that this solution concept has the following property: for the class of incomplete information games with compact metric type and action spaces and payoff functions jointly measurable and continuous in actions, limits of Bayes-Nash equilibria of finite approximations to an infinite game are communication equilibria (and in general not Bayes-Nash equilibria) of the limit game. Another extension of Aumann’s [3] solution concept to the case of incomplete information fails to satisfy this condition.
Oriol Carbonell-Nicolau
infinite games of incomplete information, Bayes-Nash equilibrium, communication equilibrium, correlated equilibrium, strategic approximation of an infinite game
2017-02-20
Price and Network Dynamics in the European Carbon Market
http://d.repec.org/n?u=RePEc:mse:cesdoc:17010&r=ore
This paper presents an analysis of the European Emission Trading System as a transaction network. It is shown that, given the lack of a centralized market place, industrial actors had to resort to local connections and financial intermediaries to participate in the market. This gave rise to a hierarchical structure in the transaction network. To empirically relate networks statistics to market outcomes a PLS-PM modeling technique is introduced. It is shown that the asymmetries in the network induced market inefficiencies (e.g. increased bid-ask spread). Albeit the efficiency of the market has improved from the beginning of Phase II, the asymmetry persists, imposing unnecessary additional costs on agents and reducing the effectiveness of the market as a mitigation instrument
Andreas Karpf
Antoine Mandel
Stefano Battiston
carbon market; network; climate economics
2017-02
FRM: a Financial Risk Meter based on penalizing tail events occurrence
http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2017-003&r=ore
In this paper we propose a new measure for systemic risk: the Financial Risk Meter (FRM). This measure is based on the penalization parameter () of a linear quantile lasso regression. The FRM is calculated by taking the average of the penalization parameters over the 100 largest US publicly traded financial institutions. We demonstrate the suitability of this risk measure by comparing the proposed FRM to other measures for systemic risk, such as VIX, SRISK and Google Trends. We find that mutual Granger causality exists between the FRM and these measures, which indicates the validity of the FRM as a systemic risk measure. The implementation of this project is carried out using parallel computing, the codes are published on www.quantlet.de with keyword FRM. The R package RiskAnalytics is another tool with the purpose of integrating and facilitating the research, calculation and analysis methods around the FRM project. The visualization and the up-to-date FRM can be found on http://frm.wiwi.hu-berlin.de.
Lining Yu
Wolfgang Karl Härdle
Lukas Borke
Thijs Benschop
Systemic Risk, Quantile Regression, Value at Risk, Lasso, Parallel Computing
2017-01
Robust Inference and Testing of Continuity in Threshold Regression Models
http://d.repec.org/n?u=RePEc:cep:stiecm:590&r=ore
This paper is concerned with inference in regression models with either a kink or a jump at an unknown threshold, particularly when we do not know whether the kink or jump is the true specification. One of our main results shows that the statistical properties of the estimator of the threshold parameter are substantially different under the two settings, with a slower rate of convergence under the kink design, and more surprisingly slower than if the correct kink specification were employed in the estimation. We thus propose two testing procedures to distinguish between them. Next, we develop a robust inferential procedure that does not require prior knowledge on whether the regression model is kinky or jumpy. Furthermore, we propose to construct confidence intervals for the unknown threshold by the bootstrap test inversion, also known as grid bootstrap. Finite sample performances of the bootstrap tests and the grid bootstrap confidence intervals are examined and compared against tests and confidence intervals based on the asymptotic distribution through Monte Carlo simulations. Finally, we implement our procedure to an economic empirical application
Javier Hidalgo
Jungyoon Lee
Myung Hwan Seo
2017-02