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on Computational Economics |
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Issue of 2011‒12‒13
fifteen papers chosen by |
| By: | Ian Iscoe; Asif Lakhany |
| Abstract: | Recent years have seen an increased level of interest in pricing equity options under a stochastic volatility model such as the Heston model. Often, simulating a Heston model is difficult, as a standard finite difference scheme may lead to significant bias in the simulation result. Reducing the bias to an acceptable level is not only challenging but computationally demanding. In this paper we address this issue by providing an alternative simulation strategy -- one that systematically decreases the bias in the simulation. Additionally, our methodology is adaptive and achieves the reduction in bias with "near" minimum computational effort. We illustrate this feature with a numerical example. |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1111.6067&r=cmp |
| By: | Julia Lechner |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wiwsre:sre-disc-2011_04&r=cmp |
| By: | Llop Llop, Maria; Ponce Alifonso, Xavier |
| Abstract: | Water scarcity is a long-standing problem in Catalonia, as there are significant differences in the spatial and temporal distribution of water through the territory. There has consequently been a debate for many years about whether the solution to water scarcity must be considered in terms of efficiency or equity, the role that the public sector must play and the role that market-based instruments should play in water management. The aim of this paper is to use a Computable General Equilibrium (CGE) model to analyze the advantages and disadvantages associated with different policy instruments, from both a supply and a demand viewpoint, which can be applied to water management in Catalonia. We also introduce an ecological sector in our CGE model, allowing us to analyze the environmental impact of the alternative policies simulated. The calibration of the exogenous variables of the CGE model is performed by using a Social Accounting Matrix (SAM) for the Catalan economy with 2001 data. The results suggest that taking into account the principle of sustainability of the resource, the policy debate between supply and demand in water policies is obsolete, and a new combination of policies is required to respect the different values associated with water. Keywords: Water Policies; Computable General Equilibrium Model; Economic Effects; Environmental Effects. |
| Keywords: | Aigua -- Polítiques de gestió, 33 - Economia, |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:urv:wpaper:2072/152139&r=cmp |
| By: | John Schoenmakers; Junbo Huang; Jianing Zhang |
| Abstract: | In this paper we introduce and study the concept of optimal and surely optimal dual martingales in the context of dual valuation of Bermudan options, and outline the development of new algorithms in this context. We provide a characterization theorem, a theorem which gives conditions for a martingale to be surely optimal, and a stability theorem concerning martingales which are near to be surely optimal in a sense. Guided by these results we develop a framework of backward algorithms for constructing such a martingale. In turn this martingale may then be utilized for computing an upper bound of the Bermudan product. The methodology is pure dual in the sense that it doesn't require certain (input) approximations to the Snell envelope. In an It\^o-L\'evy environment we outline a particular regression based backward algorithm which allows for computing dual upper bounds without nested Monte Carlo simulation. Moreover, as a by-product this algorithm also provides approximations to the continuation values of the product, which in turn determine a stopping policy. Hence, we may obtain lower bounds at the same time. In a first numerical study we demonstrate a backward dual regression algorithm in a Wiener environment that is easy to implement and is regarding accuracy comparable with the method of Belomestny et. al. (2009). |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1111.6038&r=cmp |
| By: | A. M. Avdeenko |
| Abstract: | Flexible algorithm of multicurrency trade on Forex market has been built on the grounds of non-linear stochastic wavelets (NSW) model. Probability of the loss-free trade has been evaluated. Results of the algorithm's real-time testing and issues of the algorithm's development are discussed. |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1111.5726&r=cmp |
| By: | Stefania VITALI (Universit… Politecnica delle Marche, Dipartimento di Scienze Economiche e Sociali); Gabriele TEDESCHI (Universit… Politecnica delle Marche, Dipartimento di Scienze Economiche e Sociali) |
| Abstract: | In this paper, we study innovation processes and technological change in an agent-based model. By including a behavioral switching among heterogeneous innovative firms, which can endogenously change among three different classes (single innovators, collaborative innovators and imitators) on the base of their R&D expenditures, the model is able to replicate, via simulations, well known industrial dynamic and growth type stylized facts. Moreover, we focus the analysis on the impact of these three innovation categories on micro, meso and macro aggregates. We find that collaborative companies are those having the highest positive impact on the economic system. The model is then used to study the effect that different innovation policies have on macroeconomic performance. |
| Keywords: | Computational economics, business cycle, innovation policy, technology, |
| JEL: | C63 E32 E6 O3 O4 |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:anc:wpaper:370&r=cmp |
| By: | Gonzalo, Julio A. (Departamento de Física de Materiales. Universidad Autónoma de Madrid.); Muñoz, Félix (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid.); Santos,David J. (Escuela Politécnica Superior, Universidad San Pablo CEU) |
| Abstract: | According to UN statistical data and projections world population will begin to decrease by the middle of this century. This paper uses rate equations (fully analogous to those employed in condensed matter physics) to simulate the time evolution of world population, making use of UN population data in the time interval 1900-2010, and to extrapolate the evolution of world population into the near future. This approach has not been used in economics and population dynamics. The simulation predicts a population decline by mid-century. The economic consequences of population decline would be far reaching. |
| Keywords: | rate equations; demographic transition; population trend simulation; world population decline. |
| JEL: | C65 J11 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:uam:wpaper:201107&r=cmp |
| By: | Michael Pickhardt; Goetz Seibold |
| Abstract: | We analyze income tax evasion dynamics in a standard model of statistical mechanics, the Ising model of ferromagnetism. However, in contrast to previous research, we use an inhomogeneous multi-dimensional Ising model where the local degrees of freedom (agents) are subject to a specific social temperature and coupled to external fields which govern their social behavior. This new modeling frame allows for analyzing large societies of four different and interacting agent types. As a second novelty, our model may reproduce results from agent-based models that incorporate standard Allingham and Sandmo tax evasion features as well as results from existing two-dimensional Ising based tax evasion models. We then use our model for analyzing income tax evasion dynamics under different enforcement scenarios and point to some policy implications. |
| Date: | 2011–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1112.0233&r=cmp |
| By: | Westin, Jonas (KTH); Kågeson, Per (KTH) |
| Abstract: | The purpose of this paper is to analyze the climate benefit of investments in high speed rail-way lines given uncertainty in future transport demand, technology and power production. To capture the uncertainty of estimated parameters, distributions for the annual traffic emissions reduction required to compensate for the embedded emissions from the construction of infrastructure are calculated using Monte Carlo simulation. In order to balance the annualized emissions from the railway construction, traffic volumes of more than 10 million annual one-way trips are usually required. Most of the traffic diverted from other modes must come from aviation and the project cannot involve the extensive use of tunnels. In sparsely populated regions it may be, from a climate point of view, better to upgrade existing lines and to try to make people substitute air travel by modern telecommunications, rather than investing large amounts of resources in enabling people to travel faster and more often. |
| Keywords: | High-speed rail; CO2 emissions; Embedded emissions; Infrastructure investment; Monte Carlo simulation; Sensitivity analysis |
| JEL: | Q54 R42 |
| Date: | 2011–12–06 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:ctswps:2011_016&r=cmp |
| By: | Bucher, Raphael; Guelden Sterzl, Jasmin |
| Abstract: | The aim of this paper is to gain insights from studying adaptation to natural disasters in the past in order to analyze optimal adaptation in Switzerland in the future. Most adaptation measures already undertaken in Switzerland are so-called reactive measures. They may be eective, but not necessarily ecient. We propose that future climate change asks for proactive measures to combat market damages in an ecient way. We come up with modeling adaptation as a cumulative stock in a computable general equilibrium (CGE) model called ADAPT-CH. We nd that with an investment of up to 0.9% of the GDP, a little more than 58% of the exogenously given climate damages in Switzerland can be prevented until 2060. |
| Keywords: | Adaptation; Climate Change; Dynamic CGE Model; Switzerland; Natural Disasters |
| JEL: | C68 D91 D58 E21 |
| Date: | 2011–03–31 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:34237&r=cmp |
| By: | Georg, Co-Pierre |
| Abstract: | This paper proposes a dynamic multi-agent model of a banking system with central bank. Banks optimize a portfolio of risky investments and riskless excess reserves according to their risk, return, and liquidity preferences. They are linked via interbank loans and face stochastic deposit supply. Evidence is provided that the central bank stabilizes interbank markets in the short-run only. Comparing different interbank network structures, it is shown that money-center networks are more stable than random networks. Systemic risk via contagion is compared to common shocks and it is shown that both forms of systemic risk require different optimal policy responses. -- |
| Keywords: | systemic risk,contagion,common shocks,multi-agent simulations |
| JEL: | C63 E52 G01 G21 |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp2:201112&r=cmp |
| By: | Nicolas Della Penna; Mark D. Reid |
| Abstract: | We propose a flexible framework for profit-seeking market making by combining cost function based automated market makers with bandit learning algorithms. The key idea is to consider each parametrisation of the cost function as a bandit arm, and the minimum expected profits from trades executed during a period as the rewards. This allows for the creation of market makers that can adjust liquidity and bid-asks spreads dynamically to maximise profits. |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1112.0076&r=cmp |
| By: | Nielsen, Hannah; Lofgren, Hans |
| Abstract: | The Republic of Congo, an oil rich country in Central Africa, has made substantial progress in the past decade in stabilizing the economy and achieving high growth rates. However, despite reaching middle-income country status in 2006, the economy is not diversified, poverty remains pervasive, and social indicators are well below the average for countries with a similar income level. This paper analyzes aspects of an ambitious investment program on which the government has embarked to improve the provision of basic services and promote private sector development. The success of this program, however, is questionable given the low absorptive capacity of the country and in particular the poor efficiency of public investment management. The analysis is based on simulations with an economy-wide model for analysis of development strategies and government policies, MAMS (Maquette for MDG Simulations). The results of the simulations show that slightly delaying large investment projects, while simultaneously improving the efficiency of the investment program, would lead to significantly higher growth rates and lower poverty levels. The analysis therefore confirms the importance of efficient public investment management for the optimal use of the country's resources. |
| Keywords: | Economic Theory&Research,Labor Policies,Debt Markets,Access to Finance,Non Bank Financial Institutions |
| Date: | 2011–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:5901&r=cmp |
| By: | Grove, Nico; Baumann, Oliver |
| Abstract: | With the emergence of pure internet-based service providers, the business landscape of fully integrated telecommunications providers - industry incumbents that provide services on their own infrastructure - has changed massively. While various pure service providers exhibit successful business models and high performance, the services offered by the integrated telecommunication firms are not able to compete on neither price nor user experience. To shed light on this issue, we build upon work that has applied a complex systems perspective on performance - how firms manage to configure a large set of interdependent activities affects the performance of the overall activity system. We develop a simulation model to illustrate the effects of a) configuring only interdependent service-related activities, while building on an existing (external) infrastructure, and b) configuring both infrastructure-related and service-related activities at the same time. Our results point to a mechanism that helps explain the underperformance of the fully integrated operators. Pure service providers can improve the performance of their services speedily, as they can focus on optimizing only the service-related activities and adapting them to an existing infrastructure. Fully integrated operators, in contrast, will likely be concerned with both infrastructure and service components, taking into account also the interdependencies between these two domains. While this approach can help reap synergy effects and yield a performance advantage in the long run, it requires more time and results in a lower performance in the short run. Put differently, the objective of the integrated operators to integrate their bitpipe and service business puts these firms at a disadvantage when compared to their specialized competitors. We illustrate this mechanism with two case studies that show how fully integrated operators adapted their infrastructure in response to their service activities, which in return triggered further adaptations and coordination effort. -- |
| Keywords: | Telecommunication industry,complex systems,organizational search |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:itsp11:52308&r=cmp |
| By: | Blundell, Richard (University College London); Low, Hamish (University of Cambridge); Preston, Ian (University College London) |
| Abstract: | We develop a new approach to the decomposition of income risk within a nonstationary model of intertemporal choice. The approach allows for changes in income risk over the life-cycle and with the business cycle. It requires only repeated cross-section data and can allow for mixtures of persistent and transitory components in the dynamic process for income. Evidence from a stochastic simulation of consumption choices in a nonstationarity environment is used to show the robustness of the method for decomposing income risk. The approach is used to investigate the changes in income risk in Britain across the inequality growth period from the late 1970s to the late 1990s. Peaks in the variance of permanent shocks are shown to occur in the middle of the 1980s and the early 1990s. |
| Keywords: | income risk, consumption, nonstationarity, inequality |
| JEL: | C30 D52 D91 |
| Date: | 2011–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp6125&r=cmp |