New Economics Papers
on Computational Economics
Issue of 2011‒07‒21
seven papers chosen by

  1. Adjoints and Automatic (Algorithmic) Differentiation in Computational Finance By Cristian Homescu
  2. Toward an Autonomous-Agents Inspired Economic Analysis By Shu-Heng Chen; Tina Yu
  3. DSGE And Beyond – Computable And Constructive Challenges By K. Vela Velupillai
  4. A Cellular Automata Simulation of the 1990s Russian Housing Privatization Decision By Maria Plotnikova; Chokri Dridi
  5. Implied Volatility Surface: Construction Methodologies and Characteristics By Cristian Homescu
  6. Budgetary Policies in a DSGE Model with Finite Horizons By Barbara Annicchiarico; Nicola Giammaroli; Alessandro Piergallini
  7. Agent-Based Modeling of the Prediction Markets By Tongkui Yu; Shu-Heng Chen

  1. By: Cristian Homescu
    Abstract: Two of the most important areas in computational finance: Greeks and, respectively, calibration, are based on efficient and accurate computation of a large number of sensitivities. This paper gives an overview of adjoint and automatic differentiation (AD), also known as algorithmic differentiation, techniques to calculate these sensitivities. When compared to finite difference approximation, this approach can potentially reduce the computational cost by several orders of magnitude, with sensitivities accurate up to machine precision. Examples and a literature survey are also provided.
    Date: 2011–07
  2. By: Shu-Heng Chen; Tina Yu
    Abstract: This paper demonstrates the potential role of autonomous agents in economic theory. We first dispatch autonomous agents, built by genetic programming, to double auction markets. We then study the bargaining strategies discovered by them, and from there an autonomous-agent-inspired economic theory with regard to the optimal procrastination is derived.
    Keywords: Agent-Based Double Auction Markets, Autonomous Agents, Genetic Programming, Bargaining Strategies, Monopsony, Procrastination Strategy
    Date: 2011
  3. By: K. Vela Velupillai
    Abstract: The genesis and the path towards what has come to be called the DSGE model is traced, from its origins in the Arrow-Debreu General Equilibrium model (ADGE), via Scarf's Computable General Equilibrium model (CGE) and its applied version as Applied Computable General Equilibrium model (ACGE), to its ostensible dynamization as a Recursive Competitive Equilibrium (RCE). An outline of a similar nature, albeit very briefly, of the development and structure of Agent-Based Economics (ABE) is also included. It is shown that these transformations of the ADGE model are computably and constructively untenable. Suggestions for going 'beyond DSGE and ABE' are, then, outlined on the basis of a framework that is underpinned -from the outset- by computability and constructivity consideration
    Keywords: Computable General Equilibrium, Dynamic Stochastic General Equilibrium, Computability, Constructivity, Classical Behavioural Economics
    JEL: C02 C62 C68 D58 E61
    Date: 2011
  4. By: Maria Plotnikova (Department of Economics, University of Reading); Chokri Dridi (Department of Rural Economy, University of Alberta)
    Abstract: The study uses a computational approach to study the phenomenon of housing privatization in Russia in the 1990s. As part of the housing reform flats in multi-family buildings were offered to their residents free of payment. Nevertheless rapid mass housing privatization did not take place. While this outcome admits a number of explanations this analysis emphasizes the fact that the environment in which the decision-making households were operating had a high degree of uncertainty and imposed a high information-processing requirement on the decision-makers. Using the bounded rationality paradigm, the study builds a case for a cellular automata simulation of household decision-making in the context of housing privatization reforms in Russia in the 1990s. Cellular automata is then used to simulate a household’s decision to become the owner of its dwelling.
    Keywords: cellular automata, complex systems, housing reform, Russia, simulation
    JEL: C45 C63 P21 R21
    Date: 2010–08–01
  5. By: Cristian Homescu
    Abstract: The implied volatility surface (IVS) is a fundamental building block in computational finance. We provide a survey of methodologies for constructing such surfaces. We also discuss various topics which can influence the successful construction of IVS in practice: arbitrage-free conditions in both strike and time, how to perform extrapolation outside the core region, choice of calibrating functional and selection of numerical optimization algorithms, volatility surface dynamics and asymptotics.
    Date: 2011–07
  6. By: Barbara Annicchiarico (Faculty of Economics, University of Rome "Tor Vergata"); Nicola Giammaroli (International Monetary Fund); Alessandro Piergallini (Faculty of Economics, University of Rome "Tor Vergata")
    Abstract: This paper presents a dynamic stochastic general equilibrium model with nominal rigidities, capital accumulation and finite horizons. Our New Keynesian framework exhibits intergenerational wealth effects and is intended to investigate the macroeconomic implications of fiscal policy, which is specified by either a debt-based tax rule or a balanced-budget rule allowing for temporary deficits. The model predicts that fiscal expansions generate a tradeoff in output dynamics between short-term gains and medium-term losses. It is shown that the effects of fiscal shocks crucially depend upon the conduct of monetary policy. Simulation analysis suggests that balanced-budget requirements enhance the determinacy properties of feedback interest rate rules by guaranteeing inflation stabilization.
    Keywords: Fiscal Policy; Monetary Policy; Nominal Rigidities; Capital Accumulation;Finite Horizons; Simulations.
    JEL: E52 E58 E63
    Date: 2011–07–12
  7. By: Tongkui Yu; Shu-Heng Chen
    Abstract: We propose a simple agent-based model of the political election prediction market which reflects the intrinsic feature of the prediction market as an information aggregation mechanism. Each agent has a vote, and all agents’ votes determine the election result. Some of the agents participate in the prediction market. Agents form their beliefs by observing their neighbors’ voting disposition, and trade with these beliefs by following some forms of the zero-intelligence strategy. In this model, the mean price of the market is used as a forecast of the election result. We study the effect of the radius of agents’ neighborhood and the geographical distribution of information on the prediction accuracy. In addition, we also identify one of the mechanisms which can replicate the favorite-longshot bias, a stylized fact in the prediction market. This model can then provide a framework for further analysis on the prediction market when market participants have more sophisticated trading behavior.
    Keywords: Prediction market, Agent-based simulation, Information aggregation mechanism, Prediction accuracy, Zero-intelligence agents, Favorite-longshot bias
    Date: 2011

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