New Economics Papers
on Computational Economics
Issue of 2012‒02‒27
eight papers chosen by

  1. Combining Monte Carlo Simulations and Options to Manage the Risk of Real Estate Portfolios By Amédée-Manesme, Charles-Olivier; Baroni, Michel; Barthélémy, Fabrice; Dupuy, Etienne
  2. Impacts of border carbon adjustments on ChinaÕs sectoral emissions: simulations with a dynamic computable general equilibrium model By Qin Bao; Ling Tang; Zhongxiang Zhang; Han Qiao; Shouyang Wang
  3. 温室効果ガス排出規制の地域間CGE分析 By Shirai, Daichi; Takeda, Shiro; Ochiai, Katsuaki
  4. A General Computation Scheme for a High-Order Asymptotic Expansion Method By Akihiko Takahashi; Kohta Takehara; Masashi Toda
  5. Macroprudential policies in an agent-based artificial economy By Marco Raberto; Andrea Teglio; Silvano Cincotti
  6. The trend is not your friend! Why empirical timing success is determined by the underlying's price characteristics and market efficiency is irrelevant By Scholz, Peter; Walther, Ursula
  7. Assessing the Resilience of ASEAN Banking Systems: The Case of the Philippines By Albert, Jose Ramon; Ng, Thiam Hee
  8. Active margin system for margin loans and its application in Chinese market: using cash and randomly selected stock as collateral By Guanghu Huang; Wenting Xin; Weiqing Gu

  1. By: Amédée-Manesme, Charles-Olivier (THEMA, Université de Cergy-Pontoise); Baroni, Michel (ESSEC Business School); Barthélémy, Fabrice (THEMA, Université de Cergy-Pontoise); Dupuy, Etienne (BNP-PARIBAS REAL ESTATE INVESTMENT SERVICES)
    Abstract: This paper aims to show that the accuracy of real estate portfolio valuations can be improved through the simultaneous use of Monte Carlo simulations and options theory. Our method considers the options embedded in Continental European lease contracts drawn up with tenants who may move before the end of the contract. We combine Monte Carlo simulations for both market prices and rental values with an optional model that takes into account a rational tenant’s behavior. We analyze to what extent the options exercised by the tenant significantly affect the owner’s income. Our main findings are that simulated cash flows which take account of such options are more reliable that those usually computed by the traditional method of discounted cash flow. Moreover, this approach provides interesting metrics, such as the distribution of cash flows. The originality of this research lies in the possibility of taking the structure of the lease into account. In practice this model could be used by professionals to improve the relevance of their valuations: the output as a distribution of outcomes should be of interest to investors. However, some limitations are inherent to our model: these include the assumption of the rationality of tenant’s decisions, and the difficulty of calibrating the model, given the lack of data. After a brief literature review of simulation methods used for real estate valuation, the paper describes the suggested simulation model, its main assumptions, and the incorporation of tenant’s decisions regarding break options influencing the cash flows. Finally, using an empirical example, we analyze the sensitivity of the model to various parameters, test its robustness and note some limitations.
    Keywords: Monte Carlo Simulations; Real Estate Portfolio Valuation; Break options; Lease Structure; Options
    Date: 2012–02–17
  2. By: Qin Bao (Academy of Sciences, Beijing, China); Ling Tang (Institute of Policy and Management, Chinese Academy of Sciences, Beijing, China); Zhongxiang Zhang (East-West Center, Honolulu, Hawaii, USA); Han Qiao (College of Economics, Qingdao University, Qingdao, China); Shouyang Wang (Institute of Systems Science, Academy of Mathematics and Systems Science, Chinese Academy of Sciences, Beijing, China)
    Abstract: Carbon-based border tax adjustments (BTAs) have recently been proposed by some OECD countries to level the carbon playing field and target major emerging economies. This paper applies a multi-sector dynamic computable general equilibrium (CGE) model to estimate the impacts of the BTAs implemented by US and EU on ChinaÕs sectoral carbon emissions. The results indicate that BTAs will cut down export prices and transmit the effects to the whole economy, reducing sectoral output-demands from both supply side and demand side. On the supply side, sectors might substitute away from exporting toward domestic market, increasing sectoral supply; while on the demand side, the domestic income may be strikingly cut down due to the decrease in export price, decreasing sectoral demand. Furthermore, such shrinkage of demand may similarly reduce energy prices, which leads to energy substitution effect and somewhat stimulates carbon emissions. Depending on the relative strength of the output-demand effect and energy substitution effect, sectoral carbon emissions and energy demands will vary across sectors, with increasing, decreasing or moving in a different direction. These results suggest that an incentive mechanism to encourage the widespread use of environment-friendly fuels and technologies will be more effective.
    JEL: D58 F18 Q43 Q48 Q52 Q54 Q5 Q58
    Date: 2012–02
  3. By: Shirai, Daichi; Takeda, Shiro; Ochiai, Katsuaki
    Abstract: Although many CGE models have already been developed for analyzing the climate policy in Japan, most of them only investigate national level impacts. However, impacts of emissions regulations are likely to vary considerably by region because there are large regional differences in household expenditure pattern and industry structure. To investigate regional impacts of greenhouse gas (GHG) emissions regulations in Japan, we construct a new multi-regional CGE model with 9 regions in Japan and estimate regional GHG emissions. We analyze impacts of 10% reduction of GHG on regional GDP, welfare and production. Our simulation shows that regions with the higher share of energy-intensive industries and thermal power generation incur the larger loss in GDP.
    Keywords: 応用一般均衡分析 地域間産業連関表 日本の温暖化対策 地域経済
    JEL: R13 D58 Q54
    Date: 2011–12–19
  4. By: Akihiko Takahashi (Faculty of Economics, The University of Tokyo); Kohta Takehara (The University of Tsukuba); Masashi Toda (Faculty of Economics, The University of Tokyo)
    Abstract: This paper presents a new computational scheme for an asymptotic expansion method of an arbitrary order. The asymptotic expansion method in finance initiated by Kunitomo and Takahashi [1992], Yoshida [1992b] and Takahashi [1995], [1999] is a widely applicable methodology for an analytic approximation of expectation of a certain functional of diffusion processes. Hence, not only academic researchers but also many practitioners have used the methodology for a variety of financial issues such as pricing or hedging complex derivatives under high-dimensional underlying stochastic environments. In practical applications of the expansion, a crucial step is calculation of conditional expectations for a certain kind of Wiener functionals. [1995], [1999] and Takahashi and Takehara [2007] provided explicit formulas for those conditional expectations necessary for the asymptotic expansion up to the third order. This paper presents the new method for computing an arbitrary-order expansion in a general diffusion-type stochastic environment, which is powerful especially for high-order expansions: We develops a new calculation algorithm for computing coefficients of the expansion through solving a system of ordinary differential equations that is equivalent to computing the conditional expectations directly. To demonstrate its effectiveness, the paper gives numerical examples of the approximation for a lambda-SABR model up to the fifth order.
    Date: 2012–02
  5. By: Marco Raberto (University of Genova (Genova, Italy)); Andrea Teglio (Department of Economics, Universitat Jaume I (Castellón, Spain)); Silvano Cincotti (University of Genova (Genova, Italy))
    Abstract: Basel III is a recently-agreed regulatory standard for bank capital adequacy with focus on the macroprudential dimension of banking regulation, i.e., the system-wide implications of banks' lending and risk. An important Basel III provision is to reduce procyclicality of present banking regulation and promote countercyclical capital buffers for banks. The Eurace agent-based macroeconomic model and simulator has been recently showed to be able to reproduce a credit-fueled boom-bust dynamics where excessive bank leverages, while benefitting in the short term, have destabilizing effects in the medium-long. In this paper. we employ the Eurace model to test regulatory policies providing time varying capital requirements for banks, based on mechanisms that enforce banks to build up or release capital buffers, according to the overall conditions of the economy. As conditioning variables for these dynamic policies, both the unemployment rate and the aggregate credit growth have been considered. Results show that the dynamic regulation of capital requirements is generally more successful than fixed tight capital requirements in stabilizing the economy and improving the macroeconomic performance.
    Keywords: Basel III, macroprudential regulation, agent-based models and simulation
    Date: 2012
  6. By: Scholz, Peter; Walther, Ursula
    Abstract: The often reported empirical success of trend-following technical timing strategies remains to be puzzling. In previous academic research, many authors admit some prediction power but struggle to substantiate their findings by referring vaguely to insufficient market effciency or unknown hidden patterns in asset price processes. We claim that empirical timing success is possible even in perfectly efficient markets but does not indicate prediction power. We prove this by systematically tracing back timing success to the statistical characteristics of the underlying asset price time series, which is modeled by standard stochastic processes. Five major impact factors are studied: return autocorrelation, trend, volatility and its clustering as well as the degree of market efficiency. We use trading rules based on different intervals of the simple moving average (SMA) as an example. These strategies are applied to simulated asset price data to allow for systematic parameter variations. Subsequently, we test the same strategies on real market data using non-parametric historical simulations and compare the results. Evaluation is done by an extensive selection of statistical-, return-, risk-, and performance figures calculated from the simulated return distributions. --
    Keywords: bootstrapping,market efficiency,market timing,parameterized simulation,performance analysis,return distribution,technical analysis,technical trading
    JEL: G11 G14
    Date: 2011
  7. By: Albert, Jose Ramon (Philippine Institute for Development Studies); Ng, Thiam Hee (Asian Development Bank)
    Abstract: Since the global financial crisis in 2008/09 there has been heightened concern about the resilience of banking systems in Southeast Asia. This paper proposes a methodology that uses a macroprudential perspective to assess the resilience of banking systems in member countries of the Association of Southeast Asian Nations. It then proceeds to apply this methodology to examine the resilience of the Philippine banking system. Data on financial soundness in the Philippine banking system are utilized in a vector autoregression model to study the dynamic relationships that exist among financial and macroeconomic indicators. Using impulse response functions, a simulation of financial ratios in the banking system is conducted by assuming unlikely but plausible stress scenarios to determine whether banking system credit and capital could withstand the impact of such circumstances. In the stress scenarios, the estimated impact of macroeconomic shocks on nonperforming loan and capital adequacy ratios is generally minimal. The results, however, do suggest that the Philippine banking system has some vulnerability to interest rate and stock market shocks. The results of such stress testing provide a better understanding of the level of preparedness required for managing risks in the financial system, especially in the wake of continuing global economic uncertainty.
    Keywords: Banking System; Macroprudential; Stress Testing; Philippines; Panel VAR
    JEL: C33 E44 G21
    Date: 2012–02–01
  8. By: Guanghu Huang; Wenting Xin; Weiqing Gu
    Abstract: An active margin system for margin loans is proposed for Chinese margin lending market, which uses cash and randomly selected stock as collateral. The conditional probability of negative return(CPNR) after a forced sale of securities from under-margined account in a falling market is used to measure the risk faced by the brokers, and the margin system is chosen under the constraint of the risk measure. In order to calculate CPNR, a recursive algorithm is proposed under a Markov chain model, which is constructed by sample learning method. The resulted margin system is an active system, which is able to adjust actively with respect to the changes of stock prices and the changes of different collateral. The resulted margin system is applied to 30,000 margin loans of 150 stocks listed on Shanghai Stock Exchange. The empirical results show the number of margin calls and the average costs of the loans under the proposed margin system are less than their counterparts under the system required by SSE and SZSE.
    Date: 2012–02

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.