New Economics Papers
on Computational Economics
Issue of 2009‒12‒11
nine papers chosen by

  1. The Economic Partnership Agreement between Uganda and the EU: Trade and Poverty Impacts By Ole Boysen; Alan Matthews
  2. Diffusion Processes on Complex Networks By Natalie Svarcova; Petr Svarc
  3. Early exercise boundary for American type of floating strike Asian option and its numerical approximation By Tomas Bokes; Daniel Sevcovic
  4. Forecasting Realized Volatility with Linear and Nonlinear Models By McAleer, M.; Medeiros, M.C.
  5. About Some Applications of Kolmogorov Equations to the Simulation of Financial Institutions Activity By Mikhail I. Rumyantsev
  6. The Vehicle Rescheduling Problem By Spliet, R.; Gabor, A.F.; Dekker, R.
  7. Risk Minimizing Strategies for Revenue Management Problems with Target Values By Matthias Koenig; Joern Meissner
  8. Advantages of Fixed Exchange Rate Regime from a General Equilibrium Perspective By Viktors Ajevskis; Kristine Vitola
  9. On the manipulability of approval voting and related scoring rules By Peters Hans; Roy Souvik; Storcken Ton

  1. By: Ole Boysen (Institute for International Integration Studies, Trinity College Dublin; Department of Economics, Trinity College Dublin); Alan Matthews (Institute for International Integration Studies, Trinity College Dublin; Department of Economics, Trinity College Dublin)
    Abstract: This paper analyses the poverty impacts of an economic partnership agreement (EPA) between Uganda and the EU. As Ugandan exports are also eligible for duty-free access to the EU under the Everything But Arms scheme the main EPA-induced change will be the requirement to liberalise EU exporters' access to the Ugandan market. Fears have been raised that this could threaten the livelihoods of poor people through lower prices for agricultural commodities, crowding out of vulnerable industries, and loss of government revenue. In an attempt to address these concerns, we assess the impact potential of an EPA using descriptive statistics of Ugandan trade, social accounting matrix, and household budget survey data. Subsequently, we quantify the impacts on the economy and poverty, in particular, by conducting a simulation study based on a combined CGE-microsimulation model. The descriptive analysis suggests very limited scope for trade liberalisation with the EU and that the poor, in particular, have only weak links to formal markets. The results from the simulation of alternative EPA scenarios show minor but positive macroeconomic impacts indicating potentially low economic adjustment costs. Whether the very small poverty effects emerge positive or not depends on the selection of sensitive products in the EPA. Nevertheless, the very poorest appear to lose under all scenarios.
    Keywords: economic partnership agreements, Uganda, poverty, CGE, microsimulation
    JEL: D31 D58 F13 F14 I32 O55
    Date: 2009–11
  2. By: Natalie Svarcova (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Petr Svarc (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: In this paper we apply agent-based methodology on an issue that is fundamental for economic prosperity and growth: the diffusion of innovations. The diffusion of innovations is one of the topics where agent-based simulation is an extremely fruitful method allowing not only the observation of stable states but also the process and development of the diffusion. Furthermore, empirical studies revealed that the topological structure of interactions among individuals importantly influences the diffusion’s course and outcomes. We analyze diffusion outcomes for five different topologies, assuming markets where individuals are highly influenced by the adoption decision of their peers and innovations are introduced into the markets in two different ways: mass media campaigns and seeding procedures. Our results indicate that the topology of the relations among individuals importantly influences the speed and development of the diffusion process as well as final market penetration. Scale free topology seems to promote fast innovation diffusion, at the same time being characterized by the high uncertainty of the diffusion outcomes. Less heterogeneous networks (small worlds, two-dimensional lattice and ring) yield a much slower diffusion of the innovation, at the same time being much less unpredictable than scale free topology.
    Keywords: innovation diffusion, complex networks, scale-free networks
    JEL: O31 O33
    Date: 2009–12
  3. By: Tomas Bokes; Daniel Sevcovic
    Abstract: In this paper we generalize and analyze the model for pricing American-style Asian options due to (Hansen and Jorgensen 2000) by including a continuous dividend rate $q$ and a general method of averaging of the floating strike. We focus on the qualitative and quantitative analysis of the early exercise boundary. The first order Taylor series expansion of the early exercise boundary close to expiry is constructed. We furthermore propose an efficient numerical algorithm for determining the early exercise boundary position based on the front fixing method. Construction of the algorithm is based on a solution to a nonlocal parabolic partial differential equation for the transformed variable representing the synthesized portfolio. Various numerical results and comparisons of our numerical method and the method developed by (Dai and Kwok 2006) are presented.
    Date: 2009–12
  4. By: McAleer, M.; Medeiros, M.C. (Erasmus Econometric Institute)
    Abstract: In this paper we consider a nonlinear model based on neural networks as well as linear models to forecast the daily volatility of the S&P 500 and FTSE 100 indexes. As a proxy for daily volatility, we consider a consistent and unbiased estimator of the integrated volatility that is computed from high frequency intra-day returns. We also consider a simple algorithm based on bagging (bootstrap aggregation) in order to specify the models analyzed in the paper.
    Keywords: financial econometrics;volatility forecasting;neural networks;nonlinear models;realized volatility;bagging
    Date: 2009–11–24
  5. By: Mikhail I. Rumyantsev
    Abstract: The goal of this article is to describe the concepts of system dynamics and its applications to the simulation modeling of financial institutions daily activity. The hybrid method of the re-engineering of banking business processes based upon combination of system dynamics, queuing theory and tools of ordinary differential equations (Kolmogorov equations) is offered.
    Date: 2009–12
  6. By: Spliet, R.; Gabor, A.F.; Dekker, R. (Erasmus Econometric Institute)
    Abstract: The capacitated vehicle routing problem is to find a routing schedule describing the order in which geographically dispersed customers are visited to satisfy demand by supplying goods stored at the depot, such that the traveling costs are minimized. In many practical applications, a long term routing schedule has to be made for operational purposes, often based on average demand estimates. When demand substantially differs, constructing a new schedule is beneficial. The vehicle rescheduling problem is to find a new schedule that not only minimizes the total traveling costs but also minimizes the costs of deviating from the original schedule. In this paper two mathematical programming formulations of the rescheduling problem are presented as well as two heuristic methods, a two-phase heuristic and a modified savings heuristic. Computational and analytical results show that for sufficiently high deviation costs, the two-phase heuristic generates a schedule that is on average close to optimal or even guaranteed optimal, for all considered problem instances. The modified savings heuristic generates schedules of constant quality, however the two-phase heuristic produces schedules that are on average closer to the optimum.
    Keywords: vehicle routing;vehicle rescheduling problem;operational planning
    Date: 2009–11–26
  7. By: Matthias Koenig (Department of Management Science, Lancaster University Management School); Joern Meissner (Department of Management Science, Lancaster University Management School)
    Abstract: Consider a risk-averse decision maker in the setting of a single-leg dynamic revenue management problem with revenue controlled by limiting capacity for a fixed set of prices. Instead of focussing on maximizing the expected revenue, the decision maker has the main objective of minimizing the risk of failing to achieve a given target revenue. Interpreting the revenue management problem in the framework of finite Markov decision processes, we augment the state space of the risk-neutral problem definition and change the objective function to the probability of failing a certain specified target revenue. This enables us to obtain a dynamic programming solution which generates the policy minimizing the risk of not attaining this target revenue. We compare this solution with recently proposed risk-sensitive policies in a numerical study and discuss advantages and limitations.
    Keywords: capacity control, revenue management, multi-period, risk, target level criterion
    JEL: C61
    Date: 2009–11
  8. By: Viktors Ajevskis; Kristine Vitola
    Abstract: In this paper we estimate a small open economy DSGE model for Latvia following Lubik and Schorfheide (2007) using Bayesian methods. The estimates of the structural parameters fall within plausible ranges. Simulation results suggest that under inflation targeting inflation turns out to be more volatile than under the peg in the case of Latvia. Additional concern for output stabilisation accounts for lower inflation variability while it is still higher than under existing exchange rate regime with ±1% fluctuation bands. The model results therefore support the existing exchange rate policy.
    Keywords: DSGE, small open economy, exchange rate policy, Bayesian estimation
    JEL: C11 C3 C51 D58 E58 F41
    Date: 2009–11–25
  9. By: Peters Hans; Roy Souvik; Storcken Ton (METEOR)
    Abstract: We characterize all preference profiles at which the approval (voting) rule is manipulable, under three extensions of preferences to sets of alternatives: by comparison of worstalternatives, best alternatives, or by comparison based on stochastic dominance. We perform a similar exercise for $k$-approval rules, where voters approve of a fixed number $k$ of alternatives. These results can be used to compare ($k$-)approval rules with respect to their manipulability. Analytical results are obtained for the case of two voters, specifically, the values of $k$ for which the $k$-approval rule is minimally manipulable -- has the smallest number of manipulable preference profiles -- under the various preference extensions are determined. For the number of voters going to infinity, an asymptotic result is that the $k$-approval rule with $k$ around half the number of alternatives is minimally manipulable among all scoring rules. Further results are obtained by simulation and indicate that $k$-approval rules may improve on the approval rule as far as manipulability is concerned.
    Keywords: public economics ;
    Date: 2009

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