nep-cmp New Economics Papers
on Computational Economics
Issue of 2010‒05‒15
thirteen papers chosen by
Stan Miles
Thompson Rivers University

  1. Tabu Search Heuristics for the Order Batching Problem in Manual Order Picking Systems By Sebastian Henn; Gerhard Wäscher
  2. A Multi Agent Model for the Limit Order Book Dynamics By Marco Bartolozzi
  3. An Advanced Heuristic for Multiple-Option Spare Parts Procurement after End-of-Production By Karl Inderfurth; Rainer Kleber
  4. Intelligent Personalized Trading Agents that facilitate Real-time Decisionmaking for Auctioneers and Buyers in the Dutch Flower Auctions By Ketter, W.; Heck, H.W.G.M. van; Zuidwijk, R.A.
  5. Simulation and Estimation of Loss Given Default By Stefan Hlawatsch; Sebastian Ostrowski
  6. Alternative Basic Income Mechanisms: An Evaluation Exercise with a Microeconometric Model By Ugo Colombino; Marilena Locatelli; Edlira Narazani; Cathal O’Donoghue
  7. Oil revenues for public investment in Africa: targeting urban or rural areas? By Marcus Böhme; Clemens Breisinger; Rainer Schweickert; Manfred Wiebelt
  8. A model-based analysis of the impact of Cohesion Policy expenditure 2000-06: simulations with the QUEST III endogenous R&D model By Janos Varga; Jan in 't Veld
  9. Labor Market and Income Effects of a Legal Minimum Wage in Germany By Kai-Uwe Müller; Viktor Steiner
  10. Economic Growth, Energy demand and Atmospheric Pollution: Challenges and Opportunities for China in the future 30 years By Jie He; David Roland-Holst
  11. Political economics of higher education finance By Jordi Jofre-Monseny; Martin Wimbersky
  12. Stable-1/2 Bridges and Insurance: a Bayesian approach to non-life reserving By Edward Hoyle; Lane P. Hughston; Andrea Macrina
  13. Delta Hedging in Financial Engineering: Towards a Model-Free Approach By Michel Fliess; Cédric Join

  1. By: Sebastian Henn (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Gerhard Wäscher (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)
    Abstract: In manual order picking systems, order pickers walk or ride through a distribution warehouse in order to collect items requested by (internal or external) customers. In order to perform these operations efficiently, it is usually required that customer orders are combined into (more substantial) picking orders of limited size. The Order Batching Problem considered in this paper deals with the question of how a given set of customer orders should be combined such that the total length of all tours necessary to collect all items is minimized. For the solution of this problem the authors suggest two approaches based on the tabu search principle. The first one is a straightforward classic Tabu Search algorithm (TS), the second one is the Attribute-Based Hill Climber (ABHC). In a series of extensive numerical experiments, the newly developed approaches are benchmarked against different solution methods from literature. It is demonstrated that the proposed methods are superior to existing methods and provide solutions which may allow for operating distribution warehouses significantly more efficiently.
    Keywords: Logistics, Warehouse Management, Order Batching, Tabu Search, Attribute-Based Hill Climber
    Date: 2010–02
  2. By: Marco Bartolozzi
    Abstract: In the present work we introduce a novel multi-agent model with the aim to reproduce the dynamics of a double auction market at microscopic time scale through a faithful simulation of the matching mechanics in the limit order book. The model follows a "zero intelligence" approach where the actions of the traders are related to a stochastic variable, the market sentiment, which we define as a mixture of public and private information. The model, despite the parsimonious approach, is able to reproduce several empirical features of the high-frequency dynamics of the market microstructure not only related to the price movements but also to the deposition of the orders in the book.
    Date: 2010–05
  3. By: Karl Inderfurth (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Rainer Kleber (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)
    Abstract: After-sales service is a major profit generator for more and more OEMs in industries with durable products. Successful engagement in after-sales service improves customer loyalty and allows for competitive differentiation through superior service like an extended service period after end of production during which customers are guaranteed to be provided with service parts. In order to fulfill the service guarantee in these cases, an effective and efficient spare parts management has to be implemented, which is challenging due to the high uncertainty concerning spare parts demand over such a long time horizon. The traditional way of spare parts acquisition for the service phase is to set up a huge final lot at the end of regular production of the parent product which is sufficient to fulfill demand up to the end of the service time. This strategy results in extremely high inventory levels over a long period and generates major holding costs and a high level of obsolescence risk. With increasing service time more flexible options for spare parts procurement after end of production gain more and more importance. In our paper we focus on the two most relevant ones, namely extra production and remanufacturing. Managing all three options leads to a complicated stochastic dynamic decision problem. For that problem type, however, a quite simple combined decision rule with order-up-to levels for extra production and remanufacturing turns out to be very effective. We propose a heuristic procedure for parameter determination which accounts for the main stochastic and dynamic interactions between the different order-up-to levels, but still consists of quite simple calculations so that it can be applied to problem instances of arbitrary size. In a numerical study we show that this heuristic performs extremely well under a wide range of conditions so that it can be strongly recommended as a decision support tool for the multi-option spare parts procurement problem.
    Keywords: Spare Parts, Inventory Management, Reverse Logistics, Final Order
    JEL: C61 M11
    Date: 2010–01
  4. By: Ketter, W. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University); Heck, H.W.G.M. van (Erasmus Research Institute of Management (ERIM), RSM Erasmus University); Zuidwijk, R.A. (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: In this case the Dutch Flower Auctions (DFA) are discussed. The DFA are part of the supply network in which flowers are produced, stocked, and then sold through either mediation or auctioning. This case focuses on the buyers’ and auctioneers’ positions when flowers are traded through auctions. This case deals with the application of personalized agents as part of a Decision Support System which empowers the decision maker. The decision makers discussed in this case are the auctioneers who control the auction process, and the buyers who bid at the clock auction. Agents are defined as software programs that sense their environment and react autonomously on their environment in order to maximize a certain outcome. The agents, as envisioned in this case, are able to determine users’ preferences and based on these preferences agents can proactively make recommendations. Agents as applied to the auction process could empower the auctioneers in their decisions. Another type of agent could empower the buyer, since buyers have the high-pressure task of buying at the clock auction.
    Keywords: business intelligence;dutch flower auctions (dfa);decision support systems;learning agents;smart business networks;teaching case
    Date: 2010–05–02
  5. By: Stefan Hlawatsch (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Sebastian Ostrowski (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)
    Abstract: The aim of our paper is the development of an adequate estimation model for the loss given default, which incorporates the empirically observed bimodality and bounded nature of the distribution. Therefore we introduce an adjusted Expectation Maximization algorithm to estimate the parameters of a univariate mixture distribution, consisting of two beta distributions. Subsequently these estimations are compared with the Maximum Likelihood estimators to test the efficiency and accuracy of both algorithms. Furthermore we analyze our derived estimation model with estimation models proposed in the literature on a synthesized loan portfolio. The simulated loan portfolio consists of possibly loss-influencing parameters that are merged with loss given default observations via a quasi-random approach. Our results show that our proposed model exhibits more accurate loss given default estimators than the benchmark models for different simulated data sets comprising obligor-specific parameters with either high predictive power or low predictive power for the loss given default.
    Keywords: Bimodality, EM Algorithm, Loss Given Default, Maximum Likelihood, Mixture Distribution, Portfolio Simulation
    JEL: C01 C13 C15 C16 C5
    Date: 2010–03
  6. By: Ugo Colombino; Marilena Locatelli; Edlira Narazani; Cathal O’Donoghue
    Abstract: We develop and estimate a microeconometric model of household labour supply in four European countries representative of different economies and welfare policy regimes: Denmark, Italy, Portugal and the United Kingdom. We then simulate, under the constraint of constant total net tax revenue (fiscal neutrality), the effects of various hypothetical tax-transfer reforms which include alternative versions of a Basic Income policy: Guaranteed Minimum Income, Work Fare, Participation Basic Income and Universal Basic Income. We produce indexes and criteria according to which the reforms can be ranked and compared to the current tax-transfer systems. The exercise can be considered as one of empirical optimal taxation, where the optimization problem is solved computationally rather than analytically. It turns out that many versions of the Basic Income policies would be superior to the current system. The most successful policies are those involving non means-tested versions of basic income (Universal or Participation Basic Income) and adopting progressive tax-rules. If – besides the fiscal neutrality constraint – also other constraints are considered, such as the implied top marginal top tax rate or the effect on female labour supply, the picture changes: unconditional policies remain optimal and feasible in Denmark and the UK; instead in Italy and Portugal universal policies appear to be too costly in terms of implied top marginal tax rates and in terms of adverse effects on female participation, and conditional policies such as Work-Fare, emerge as more desirable.
    Keywords: Minimum Guaranteed Income, Work Fare, Participation Basic Income, Universal Basic Income, Models of Labour Supply, Tax Reforms, Welfare Evaluation, Optimal Taxation
    JEL: C25 H24 H31 I38
    Date: 2010–02
  7. By: Marcus Böhme; Clemens Breisinger; Rainer Schweickert; Manfred Wiebelt
    Abstract: This paper investigates the effects of oil financed public investment on poverty using a dynamic multisectoral general equilibrium model featuring inter-temporal productivity spillovers, which may exhibit a sector-specific and regional bias. In general, the results bear out the expectation that a surge of oil revenues leads to a real appreciation, distorting incentives which favor nontradable activities over export agriculture and manufacturing thereby increasing rural and national poverty. Whereas this result is familiar from other recent studies, the simulations show that beyond the short run, when conventional demand-side Dutch disease effects are present, the relationship between resource-rent flows and real exchange rates, output growth, and poverty is less straightforward than simple models of the "resource curse" suggest. Taking Ghana as a stylized agriculture-based economy with poverty most pronounced in a region with home biased agricultural production, a policy mix of smoothing the real exchange rate shock and an allocation of infrastructure spending in rural areas seems to be the most promising public investment strategy to enhance growth and reduce poverty
    Keywords: oil revenue, public investment, productivity, Africa, agricultural development, poverty
    JEL: H4 O5 Q3
    Date: 2010–05
  8. By: Janos Varga; Jan in 't Veld
    Abstract: More than a third of the EU budget is devoted to Cohesion Policy with the objective to foster economic and social cohesion in the European Union. Large-scale fiscal transfers are used to support investment in infrastructure, R&D and human capital. This paper provides a model-based assessment of the potential macro-economic impact of these fiscal transfers using a DSGE model with semi-endogenous growth (Jones, 1995) and endogenous human capital accumulation. The simulations show the potential benefits of Structural Funds with significant output gains in the long run due to sizeable productivity improvements.
    Keywords: A Model-based Analysis of the Impact of Cohesion Policy Expenditure 2000-06, Cohesion Policy, endogenous growth, dynamic general equilibrium modelling, Varga, in 't Veld,
    JEL: C53 E62 O30 O41
    Date: 2009–10
  9. By: Kai-Uwe Müller; Viktor Steiner
    Abstract: In view of rising wage and income inequality, the introduction of a legal minimum wage has recently become an important policy issue in Germany. We analyze the distributional effects of a nationwide legal minimum wage of 7.50 € per hour on the basis of a microsimulation model which accounts for the complex interactions between individual wages, the tax-benefit system and net household incomes, also taking into account potential employment effects as well as indirect effects on consumption. Simulation results show that the minimum wage would be rather ineffective in raising net household incomes and reducing income inequality, even if it led to a substantial increase in hourly wages at the bottom of the wage distribution. The ineffectiveness of a minimum wage in Germany is mainly due to the existing system of means-tested income support and the position of minimum wage earners in the income distribution.
    Keywords: minimum wage, wage distribution, employment effects, income distribution, inequality, microsimulation
    JEL: I32 H31 J32
    Date: 2010
  10. By: Jie He (GREDI, Faculte d'administration, Université de Sherbrooke); David Roland-Holst (Mills College, UC Berkeley, and RDRC)
    Abstract: This paper uses a dynamic CGE model, calibrated to detailed Chinese emissions data, to assess two important questions. What can we reasonably expect Chinese emissions trends to look like over the next three decades? Secondly, what would be the appropriate policy interventions to flatten Chinese emissions trajectories and reduce the risk of local, regional, and even global adversity? This research is original in its direct use of the new industrial sector-level emissions and energy using data from China to estimate the energy-specific emission effluent rate and its detailed treatment of policies taking account of the three main determinants of pollution intensity: growth, output composition, and technological change. Our results indicate that, without further effective emission control measures, China’s economic growth over the next two decades will contribute significantly to SO2 emission problems, in which the emission firstly increase from the rapid expansion of the transportation service sectors until 2018, then from the heavy industrialization process after 2018. With the potential technical progress, the emission burden will be centralized back to two energy sectors: electricity generation and petrol and coke refining during these two periods. Detailed examination of the structural and technological components of pollution shows that efficient pollution mitigation can be realized by focused abatement activities, cleaner production, and advances in cleaner fuel products and their use technologies.
    Keywords: China, Global warming, CGE modeling
    JEL: Q53 D58 Q54 Q58
    Date: 2010–04–26
  11. By: Jordi Jofre-Monseny (University of Passau); Martin Wimbersky (University of Munich)
    Abstract: We study voting over higher education finance in an economy with risk averse households who are heterogeneous in income. We compare four different systems and analyse voters' choices among them: a traditional subsidy scheme, a pure loan scheme, income contingent loans and graduate taxes. Using numerical simulations, we find that majorities for income contingent loans or graduate taxes become more likely as the income distribution gets more equal. We also perform sensitivity analyses with respect to risk aversion and the elasticity of substitution between high skilled and low skilled workers.
    Keywords: Voting, higher education, financing scheme
    JEL: H52 H42 D72
    Date: 2010
  12. By: Edward Hoyle; Lane P. Hughston; Andrea Macrina
    Abstract: We develop a non-life reserving model using a stable-1/2 random bridge to simulate the accumulation of paid claims, allowing for an arbitrary choice of a priori distribution for the ultimate loss. Taking a Bayesian approach to the reserving problem, we derive the process of the conditional distribution of the ultimate loss. The `best-estimate ultimate loss process' is given by the conditional expectation of the ultimate loss. We derive explicit expressions for the best-estimate ultimate loss process, and for expected recoveries arising from aggregate excess-of-loss reinsurance treaties. Use of a deterministic time change allows for the matching of any initial (increasing) development pattern for the paid claims. We show that these methods are well-suited to the modelling of claims where there is a non-trivial probability of catastrophic loss. The generalized inverse-Gaussian (GIG) distribution is shown to be a natural choice for the a priori ultimate loss distribution. For particular GIG parameter choices, the best-estimate ultimate loss process can be written as a rational function of the paid-claims process. We extend the model to include a second paid-claims process, and allow the two processes to be dependent. The results obtained can be applied to the modelling of multiple lines of business or multiple origin years. The multidimensional model has the attractive property that the dimensionality of calculations remains low, regardless of the number of paid-claims processes. An algorithm is provided for the simulation of the paid-claims processes.
    Date: 2010–05
  13. By: Michel Fliess (INRIA Saclay - Ile de France - ALIEN - INRIA - Polytechnique - X - Ecole Centrale de Lille - CNRS : UMR8146, LIX - Laboratoire d'informatique de l'école polytechnique - CNRS : UMR7161 - Polytechnique - X); Cédric Join (INRIA Saclay - Ile de France - ALIEN - INRIA - Polytechnique - X - Ecole Centrale de Lille - CNRS : UMR8146, CRAN - Centre de recherche en automatique de Nancy - CNRS : UMR7039 - Université Henri Poincaré - Nancy I - Institut National Polytechnique de Lorraine - INPL)
    Abstract: Delta hedging, which plays a crucial rôle in modern financial engineering, is a tracking control design for a "risk-free" management. We utilize the existence of trends in financial time series (Fliess M., Join C.: A mathematical proof of the existence of trends in financial time series, Proc. Int. Conf. Systems Theory: Modelling, Analysis and Control, Fes, 2009. Online: in order to propose a model-free setting for delta hedging. It avoids most of the shortcomings encountered with the now classic Black-Scholes-Merton framework. Several convincing computer simulations are presented. Some of them are dealing with abrupt changes, i.e., jumps.
    Keywords: Financial engineering; delta hedging; dynamic hedging; trends; quick fluctuations; abrupt changes; jumps; tracking control; model-free control
    Date: 2010

This nep-cmp issue is ©2010 by Stan Miles. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.