nep-cmp New Economics Papers
on Computational Economics
Issue of 2007‒03‒03
seven papers chosen by
Stan Miles
Thompson Rivers University

  1. An exact approach for single machine scheduling with quadratic earliness and tardiness penalties By Jorge M. S. Valente
  2. Gas Storage Valuation Using a Monte Carlo Method By Alexander Boogert; Cyriel de Jong
  3. Searching for Equitable Energy Price Reform for Indonesia By Yusuf, Arief Anshory; Resosudarmo, Budy P.
  4. How Best to Use the Extraordinary Hydrocarbon Revenues in Bolivia: Results from a Computable General Equilibrium Model By Lykke E. Andersen
  5. A fast and accurate FFT-based method for pricing early-exercise options under Lévy processes By Lord, Roger; Fang, Fang; Bervoets, Frank; Oosterlee, Kees
  6. "Social Accounting Matrix: A Very Short Introduction for Economic Modeling" By Haider A. Khan
  7. Natural Gas and Inequality in Bolivia after Nationalization By Lykke E. Andersen; Johann Caro; Robert Faris; Mauricio Medinaceli

  1. By: Jorge M. S. Valente (LIACC/NIAAD, Faculdade de Economia, Universidade do Porto, Portugal)
    Abstract: In this paper, we consider the single machine scheduling problem with quadratic earliness and tardiness costs, and no machine idle time. We propose two different lower bounds, as well as a lower bounding procedure that combines these two bounds. Optimal branch-and-bound algorithms are then presented. These algorithms incorporate the proposed lower bound, as well as an insertion-based dominance test. The lower bounding procedure and the branch-and-bound algorithms are tested on a wide set of randomly generated problems. The computational results show that the branch-and-bound algorithms are capable of optimally solving, within reasonable computation times, instances with up to 20 jobs.
    Keywords: scheduling, single machine, quadratic earliness and tardiness, lower bounds, branch-and-bound
    Date: 2007–02
  2. By: Alexander Boogert (School of Economics, Mathematics & Statistics, Birkbeck); Cyriel de Jong
    Abstract: Developed countries increasingly rely on gas storage for security of supply. Widespread deregulation has created markets that help assign an objective value to existing and new to build storages. Storage valuation is nevertheless a challenging task if we consider both the financial and physical aspects of storage. In this paper we develop a Monte Carlo valuation method, which can incorporate realistic gas price dynamics and complex physical constraints. In specific we extend the Least Squares Monte Carlo method for American options to storage valuation. We include numerical results and show ways to improve computational speed.
    Date: 2007–02
  3. By: Yusuf, Arief Anshory; Resosudarmo, Budy P.
    Abstract: Economic structure, households energy consumption pattern, and household's pattern of factor income in developing countries may typically be different with those of the developed countries, hence the distributional impact of energy price reforms could be. This may be portrayed using a Computable General Equilibrium (CGE) model with disaggregated households that allows for rich and accurate distributional story. Using this method, counter-factual scenarios analysis of recent energy price reform in Indonesia is carried out. The result suggests that vehicle fuels subsidy is regressive but increasing the price of domestic fuel (such as kerosene) tends to increase inequality, unless accompanied by a proper and effective compensation scheme. Distributional impact does depend on compensation scheme, its form and its effectiveness. Cash transfers to the poor with moderate ineffectiveness, for example, could not even prevent the increase in poverty nation-wide. Giving more cash to urban poor than to rural poor might have been better than a simple uniform cash transfers, due to urban poor's dependence on kerosene. The result also suggests that non-cash compensation, by subsidizing the poor's education and health spending may not be effective to mitigate the reform despite its desirability as longer-term poverty alleviation programs.
    Keywords: Energy price reform; Distribution; CGE; Indonesia
    JEL: D58 D30
    Date: 2007–01
  4. By: Lykke E. Andersen (Institute for Advanced Development Studies)
    Abstract: The high oil prices and the sharp increases in royalties mean that the natural gas boom in Bolivia has become very important for the economy, and particularly important as a source of government revenues. Using a CGE model, Andersen et al (2006) show that the natural gas boom is likely to boost GDP growth by about 1 percentage point per year. However, if the government continues with past spending and investment patterns, the boom is also likely to have a very adverse effect on the income distribution, so much so that the poorest half of the population is likely to experience absolute reductions in their real income levels compared to a scenario without gas boom. The present paper explores alternative uses of natural gas revenues in the CGE model to see if a better outcome can be engineered.
    Keywords: Natural Gas, Inequality, CGE model, Bolivia
    JEL: Q33 Q43
    Date: 2006–12
  5. By: Lord, Roger; Fang, Fang; Bervoets, Frank; Oosterlee, Kees
    Abstract: A fast and accurate method for pricing early exercise and certain exotic options in computational finance is presented. The method is based on a quadrature technique and relies heavily on Fourier transformations. The main idea is to reformulate the well-known risk-neutral valuation formula by recognising that it is a convolution. The resulting convolution is dealt with numerically by using the Fast Fourier Transform (FFT). This novel pricing method, which we dub the Convolution method, CONV for short, is applicable to a wide variety of payoffs and only requires the knowledge of the characteristic function of the model. As such the method is applicable within exponentially Lévy models, including the exponentially affine jump-diffusion models. For an M-times exercisable Bermudan option, the overall complexity is O(MN log(N)) with N grid points used to discretise the price of the underlying asset. It is shown how to price American options efficiently by applying Richardson extrapolation to the prices of Bermudan options.
    Keywords: Option pricing; Bermudan options; American options; convolution; Lévy Processes; Fast Fourier Transform
    JEL: G13 C63
    Date: 2007–02–28
  6. By: Haider A. Khan (GSIS, University of Denver)
    Abstract: The main purpose of this paper is to clarify some important links between the Social Accounting Matrix and Fixed Price Multiplier(FPM) Models. The aim is expository. It is hoped that a brief but historically accurate background and description of SAM and SAM-based fixed price multiplier models will be helpful to the increasing number of researchers who are interested in using SAMs for both FPM and CGE modelling.
    Date: 2007–02
  7. By: Lykke E. Andersen (Institute for Advanced Development Studies); Johann Caro (Institute for Advanced Development Studies); Robert Faris (Kennedy School of Government, Harvard University); Mauricio Medinaceli
    Abstract: The high oil prices and the sharp increases in royalties mean that the natural gas boom in Bolivia has become very important for the economy. This paper uses a Computable General Equilibrium (CGE) model to assess the impacts of this boom on key macroeconomic variables as well as the distribution of incomes in the society. From a macroeconomic perspective, the natural gas boom is a blessing, adding around 1 percentage point to GDP growth rates for at least a decade, and sharply increasing government revenues available for public spending and investment. However, the poorest segments of the population (rural small-holders and urban informals) suffer actual reductions in their real incomes, compared to the counterfactual scenario without the gas boom. This means that the natural gas boom not only causes an increase in inequality but also an increase in poverty. The paper finishes with some policy recommendations on how to counteract the negative side effects of the natural gas boom.
    Keywords: Natural Gas, Inequality, CGE model, Bolivia
    JEL: Q33 Q43
    Date: 2006–07

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