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on Computational Economics |
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Issue of 2009‒04‒18
twelve papers chosen by |
| By: | Michaela Vlasáková Baruníková (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic) |
| Abstract: | In this article we evaluate the pricing performance of the rather simple but revolutionary Black-Scholes model and one of the more complex techniques (neural networks) on the European-style S&P Index call and put options over the period of 1.6.2006 till 8.6.2007. Our results on call options show that generally Black-Scholes model performs better than simple generalized feed-forward networks. On the other hand neural networks performance is improving as the option goes deep in the money and as days to expiration increase, compared to the worsening performance of the BS models. Neural networks seem to correct for the well-known Black-Scholes model moneyness and maturity biases. |
| Keywords: | option pricing, neural networks |
| JEL: | C45 G13 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2009_16&r=cmp |
| By: | Klein, Achim; Urbig, Diemo; Kirn, Stefan |
| Abstract: | Introduction. The objects of investigation of this work are micro-level behaviors in stock markets. We aim at better understanding which strategies of market participants drive stock markets. The problem is that micro-level data from real stock markets are largely unobservable. We take an estimation perspective to obtain daily time series of fractions of chartists and fundamentalists among market participants. We estimate the heterogeneous agent-based financial market model introduced by Lux and Marchesi [1] to the S&P 500. This model has more realistic time series properties compared to less complex econometric and other agent-based models. Such kinds of models have a rather complex dependency between micro and macro parameters that have to be mapped to empirical data by the estimation method. This poses heavy computational burdens. Our contribution to this field is a new method for indirectly estimating time-varying micro-parameters of highly complex agent-based models at high frequency. Related work. Due to the high complexity, few authors have published on this topic to date (e.g., [2], [3], and [4]). Recent approaches in directly estimating agent-based models are restricted to simpler models, make simplifying assumptions on the estimation procedure, estimate only non-time varying parameters, or estimate only low frequency time series. Approach and computational methods. The indirect estimation method we propose is based on estimating the inverse model of a rich agent-based model that derives realistic macro market behavior from heterogeneous market participants’ behaviors. Applying the inverse model, which maps macro parameters back to micro parameters, to widely available macro-level financial market data, allows for estimating time series of aggregated real world micro-level strategy data at daily frequency. To estimate the inverse model in the first place, a neural network approach is used, as it allows for a large degree of freedom concerning the structure of the mapping to be represented by the neural network. As basis for learning the mapping, micro and macro time series of the market model are generated artificially using a multi-agent simulation based on RePast [5]. After applying several pre-processing and smoothing methods to these time series, a feed-forward multilayer perceptron is trained using a variant of the Levenberg-Marquardt algorithm combined with Bayesian regularization [6]. Finally, the trained network is applied to the S&P 500 to estimate daily time series of fractions of strategies used by market participants. Results. The main contribution of this work is a model-free indirect estimation approach. It allows estimating micro-parameter time series of the underlying agent-based model of high complexity at high frequency. No simplifying assumptions concerning the model or the estimation process have to be applied. Our results also contribute to the understanding of theoretical models. By investigating fundamental dependencies in the Lux and Marchesi model by means of sensitivity analysis of the resulting neural network inverse model, price volatility is found to be a major driver. This provides additional support to findings in [1]. Some face validity for concrete estimation results obtained from the S&P 500 is shown by comparing to results of Boswijk et al. [3]. This is the work which comes closest to our approach, albeit their model is simpler and estimation frequency is yearly. We find support for Boswijk et al.’s key finding of a large fraction of chartists during the end of 1990s price bubble in technology stocks. Eventually, our work contributes to understanding what kind of micro-level behaviors drive stock markets. Analyzing correlations of our estimation results to historic market events, we find the fraction of chartists being large at times of crises, crashes, and bubbles. See also <a href="http://www.whodrivesthemarket.com">http://www.whodrivesthemarket.com</a> for continuously updated and derived live-results. |
| Keywords: | stock market; heterogeneous agent-based models; indirect estimation; inverse model; trading strategies; chartists; fundamentalists; neural networks |
| JEL: | C32 G12 C45 C81 C15 |
| Date: | 2008–06–24 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:14433&r=cmp |
| By: | Ericson, Peter (Sim Solution); Flood, Lennart (Göteborg University); Wahlberg, Roger (Göteborg University) |
| Abstract: | The purpose of SWEtaxben is to evaluate the impact of changes in the tax/benefit systems on households as well as the central governmental budget. Relating to the micro simulation literature this model can be labeled a static micro simulation model with behavioral changes. This behavioral change takes two different forms and use two different types of models; first binary models that describe mobility in/out from non-work states such as old age pension, disability, unemployment, long term sickness and second models that describe change in working hours and welfare participation. Thus, apart from the choice to work or not to work, working hours conditional on working as well as welfare participation are treated as endogenous variables. As an application the model is used to evaluate the recent Swedish "make work pay" reform, effective from 2007 and further reinforced in 2008 and 2009. The key characteristic of this reform is an in-work tax credit and decreased state tax rate. Simulations performed by SWEtaxben show increased working hours at both the intensive as well as extensive margin. The tax decrease together with dynamic changes results in a strong increase in household's incomes but also a reduction in income inequality. However, even considering the increase in hours of work, the reform is far from being self-financed. |
| Keywords: | micro simulation, tax-benefit system, in-work tax credit reform |
| JEL: | C8 D31 H24 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp4106&r=cmp |
| By: | Briones, Roehlano M. |
| Abstract: | For the Philippines, quantitative policy analysis should incorporate regional differences in welfare and economic structure, which arise partly from geographic constraints. However, existing CGE models offer limited analysis of regional effects or national impacts of region-specific interventions, owing to the absence of key regional data. This study formulates a regional CGE model that overcomes these limitations. Applications of the model yield the following results: i) completion of the tariff reform program in agriculture will contract some import-competing sectors in lagging regions, but improve welfare across all regions; ii) massive investments in marketing infrastructure promise bigger pay-offs, though with a trade-off between the size and spread of welfare gains across regions; iii) combining trade reform with marketing infrastructure investments mitigate some of the contractionary effects from the former; however the absence of welfare synergies suggest that the two sets of policies can be pursued independently. |
| Keywords: | trade liberalization, computable general equilibrium (CGE), regional economics, agricultural development, marketing infrastructure, welfare impact |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:phd:dpaper:dp_2009-03&r=cmp |
| By: | Yan Dong; John Whalley |
| Abstract: | This paper presents both analytics and numerical simulation results relevant to proposals for carbon motivated regional trade agreements summarized in Dong & Whalley(2008). Unlike traditional regional trade agreements, by lowing tariffs on participant’s low carbon emission goods and setting penalties on outsiders to force them to join such agreements , carbon motivated regional trade agreements reflect an effective merging of trade and climate change regimes, and are rising in profile as part of the post 2012 Copenhagen UNFCC negotiation. By adding country energy extraction cost functions, we develop a multi-region general equilibrium structure with endogenously determined energy supply. We calibrate our model to business as usual scenarios for the period 2006-2036. Our results show that carbon motivated regional agreements can reduce global emissions, but the effect is very small and even with penalty mechanisms used, the effects are still small. This supports the basic idea in our previous policy paper that trade policy is likely to be a relatively minor consideration in climate change containment. |
| JEL: | F13 Q54 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14880&r=cmp |
| By: | McArthur, David Philip (Stord/Haugesund University College); Thorsen, Inge (Stord/Haugesund University College); Ubøe, Jan (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration) |
| Abstract: | Traffic congestion and the policies to combat it have been studied extensively. However, most studies neglect the labour market impacts of congestion. Many also fail to account for the simultaneity between commuting and migration. This paper models impacts such as unemployment disparities, changes in commuting flows and changes in the flow of migrants by adopting an agent based simulation approach. This approach has the strength that it allows the simultaneous consideration of commuting, migration and labour force participation decisions. The results obtained have important theoretical and policy implications and show how an "optimal" charge may, in fact, be sub-optimal. |
| Keywords: | Congestion; Road pricing; Agent-based approach; Spatial interaction; Infrastructure investment |
| JEL: | J61 R12 R23 R41 R48 |
| Date: | 2009–04–14 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhhfms:2009_003&r=cmp |
| By: | John Mc Breen (LET - Laboratoire d'économie des transports - CNRS : UMR5593 - Université Lumière - Lyon II - Ecole Nationale des Travaux Publics de l'Etat, IXXI - Institut rhône-alpin des systèmes complexes - INRIA - Ecole Normale Supérieure de Lyon - ENS Lyon - Institut National des Sciences Appliquées de Lyon - Université Claude Bernard - Lyon I - Ecole Normale Supérieure Lettres et Sciences Humaines - Université Joseph Fourier - Grenoble I - CNRS - IRD, Phys-ENS - Laboratoire de Physique de l'ENS Lyon - CNRS : UMR5672 - Ecole Normale Supérieure de Lyon - ENS Lyon); Florence Goffette-Nagot (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines); Pablo Jensen (LET - Laboratoire d'économie des transports - CNRS : UMR5593 - Université Lumière - Lyon II - Ecole Nationale des Travaux Publics de l'Etat, IXXI - Institut rhône-alpin des systèmes complexes - INRIA - Ecole Normale Supérieure de Lyon - ENS Lyon - Institut National des Sciences Appliquées de Lyon - Université Claude Bernard - Lyon I - Ecole Normale Supérieure Lettres et Sciences Humaines - Université Joseph Fourier - Grenoble I - CNRS - IRD, Phys-ENS - Laboratoire de Physique de l'ENS Lyon - CNRS : UMR5672 - Ecole Normale Supérieure de Lyon - ENS Lyon) |
| Abstract: | We simulate a closed rental housing market with search and matching frictions, in which both landlord and tenant agents are imperfectly informed. Homogeneous landlords set rents to maximise revenue, using information on the market to estimate the relationship between posted rent and time-on-the-market (TOM). Tenants, heterogeneous in income, engage in undirected search accepting residences based on their idiosyncratic tastes for housing and a disagreement point derived from information on the distribution of offers. The steady state to which the simulation evolves shows price dispersion, nonzero search times and vacancies.The main results concern the effects of increasing information on either side of the market. When tenants see a greater percentage of the distribution of offers, tenants learn to refuse high rents and so the population rises and tenants' utilities rise as does overall welfare. Conversely, when landlords have less information, their utility can rise as over estimations in best posting rent move the market to higher rents. |
| Keywords: | Real estate; Rental markets; Search; Information; Simulation; Multi-agent systems |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:halshs-00374157_v1&r=cmp |
| By: | Arief Anshory Yusuf (Department of Economics, Padjadjaran University) |
| Abstract: | This research is an attempt to further understand the social and environmental dimension of sustainable development focusing on the impact of environmental reforms, such as pollution reduction and energy pricing policy, has on inequality and poverty for the case of Indonesia. A multi-sector, multi-household, Computable General Equilibrium (CGE) model is used to provide the basis for two important empirical case studies: (i) the effects of a carbon tax, and (ii) energy pricing reforms. The main finding from the carbon tax study suggests that in contrast to most studies from developed countries, the introduction of a carbon tax in Indonesia would not necessarily be regressive. It is shown to be strongly progressive in rural areas, and either neutral or slightly progressive in urban areas, with overall progressive distributional effect nationwide. The industries that experience the largest contraction are generally more energy intensive. The owners of factors of production in these industries are largely concentrated among higher income households and people living in the cities. For the analysis of counter factual scenarios on energy price reforms, the results suggest recognizing the difference between urban and rural household's income and expenditure patterns are crucial in the attempt to minimize the adverse distributional impacts of the energy pricing reform. In general, this study shows there is not necessarily a conflict between environmental and equity objectives, especially when the policies or reforms to achieve environmental goals are carefully designed. |
| Keywords: | Carbon tax, Climate change, Indonesia |
| JEL: | Q58 Q54 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:eep:report:rr2008101&r=cmp |
| By: | Tomoaki Yamada |
| Abstract: | In this paper, using an OLG model with heterogeneous households, we investigate economic inequality in the recent decades in Japan. We decompose the causes of economic inequality into macroeconomic factors and a demographic factor, and demonstrate that the earning inequality in the model replicates the actual evolution of inequality in Japan. Based on a counterfactual simulation, we demonstrate that time-varying macroeconomic factors play an important role in the evolution of economic inequality. In particular, we show that the low growth rate of total factor productivity in the 1990s in Japan limited the dispersion of economic inequality. |
| Keywords: | Income risk, Consumption inequality, Population aging |
| JEL: | E21 D11 D31 D91 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:hst:ghsdps:gd08-041&r=cmp |
| By: | Katja Hanewald; Thomas Post; Helmut Gründl |
| Abstract: | Motivated by a recent demographic study establishing a link between macroeconomic fluctuations and the mortality index kt in the Lee-Carter model, we assess the impact of macroeconomic fluctuations on the solvency of a life insurance company. Liabilities in our stochastic simulation framework are driven by a GDP-linked variant of the Lee-Carter mortality model. Furthermore, interest rates and stock prices are allowed to react to changes in GDP, which itself is modeled as a stochastic process. Our results show that insolvency probabilities are significantly higher when the reaction of mortality rates to changes in GDP is incorporated. |
| Keywords: | Life insurance, asset-liability management, stochastic mortality, Lee-Carter model, business cycle |
| JEL: | G22 G23 G28 G32 E32 J11 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2009-015&r=cmp |
| By: | Selin, Håkan (Department of Economics) |
| Abstract: | Sweden reached the 2007 OECD average level of female labor force participation already in 1974. Before, but not after, 1971 the average tax rate facing the housewife was a function of the income of her husband. By exploiting a rich register based data source I utilize the exogenous variation provided by the individual tax reform to analyze the evolution of female employment in Sweden in the beginning of the 1970’s. Simulations suggest that employment among married women would have been 10 percentage points lower in 1975 if the 1969 statutory income tax system still had been in place in 1975. |
| Keywords: | Female labor supply; income tax reforms |
| JEL: | H24 J21 |
| Date: | 2009–04–08 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:uunewp:2009_004&r=cmp |
| By: | Stefan Laséen; Lars E.O. Svensson |
| Abstract: | This paper specifies how to do policy simulations with alternative instrument-rate paths in DSGE models such as Ramses, the Riksbank's main model for policy analysis and forecasting. The new element is that these alternative instrument-rate paths are anticipated by the private sector. Such simulations correspond to situations where the Riksbank transparently announces that it plans to implement a particular instrument-rate path and where this announcement is believed by the private sector. Previous methods have instead implemented alternative instrument-rate paths by adding unanticipated shocks to an instrument rule, as in the method of modest interventions by Leeper and Zha (2003). This corresponds to a very different situation where the Riksbank would nontransparently and secretly plan to implement deviations from an announced instrument rule. Such deviations are in practical simulations normally both serially correlated and large, which seems inconsistent with the assumption that they would remain unanticipated by the private sector. Simulations with anticipated instrument-rate paths seem more relevant for the transparent flexible inflation targeting that the Riksbank conducts. We provide an algorithm for the computation of policy simulations with arbitrary restrictions on nominal and real instrument-rate paths for an arbitrary number of periods after which a given policy rule, including targeting rules and explicit, implicit, or forecast-based instrument rules is implemented. When inflation projections are sufficiently sensitive to the real interest-rate path, restrictions on real interest-rate paths provide more intuitive and robust results, whereas restrictions on nominal interest-rate path may provide somewhat counter-intuitive results. |
| JEL: | E52 E58 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14902&r=cmp |