nep-cmp New Economics Papers
on Computational Economics
Issue of 2012‒05‒22
thirteen papers chosen by
Stan Miles
Thompson Rivers University

  1. Incentive Design and Manager Performances: an ABM Approach By Concetta Sorropago
  2. Three essays on product differentiation: computational tools for applied research, evaluating model behavior, and geographic demand. By Skrainka, B.S.
  3. Numerische Simulation von thermo-hydro-mechanisch-chemisch (THM/C) gekoppelten Prozessen By Görke, Uwe-Jens; Kolditz, Olaf; Park, Chan-Hee; Shao, Haibing; Singh, Ashok Kumar; Wang, Wenqing
  4. Estimating financial institutions’ intraday liquidity risk: a Monte Carlo simulation approach By Carlos León
  5. Integration of intermittent renewable power supply using grid-connected vehicles: A 2030 case study for California and Germany By Dallinger, David; Schubert, Gerda; Wietschel, Martin
  6. The impact of changes in second pension pillars on public finances in Central and Eastern Europe By Balázs Égert
  7. Social Measuring Social Security Proposals by More than Solvency: Impacts on Poverty, Progressivity, Horizontal Equity, and Work Incentives By Melissa M. Favreault; C. Eugene Steuerle
  8. The Smart Grid, Entry, and Imperfect Competition in Electricity Markets By Hunt Allcott
  9. Bayesian Analysis of Graphical Models of Marginal Independence for Three Way Contingency Tables By Claudia Tarantola; Ioannis Ntzoufras
  10. Behavioural breaks in the heterogeneous agent model: the impact of herding, overconfidence, and market sentiment By Ji\v{r}\'i Kuka\v{c}ka; Jozef Barunik
  11. Weighted-indexed semi-Markov models for modeling financial returns By Guglielmo D'Amico; Filippo Petroni
  12. Extending Unobserved Heterogeneity - A Strategy for Accounting for Respondent Perceptions in the Absence of Suitable Data By Timothy A. Weterings; Mark N. Harris; Bruce Hollingsworth
  13. A hierarchical model of tail dependent asset returns for assessing portfolio credit risk By Puzanova, Natalia

  1. By: Concetta Sorropago (University of Roma "Tor vergata", Italy)
    Abstract: We present a simplified model to provide a virtual laboratory to test the effects of the use of different performance evaluation measures to design manager’s incentives in a project-based professional service organization. Our company’s owner has to cope with the scheduling of multiple resource constraint projects in real time (RCMPSP), and with the design of the production manager incentive, whose variable wage is tied to some measures of the performance, which are proxies of the original owner’s goal. We propose an agent based model approach where the agents’ intelligence lies in the choice of the scheduling sequences. A discrete event simulator (DES) executes the projects, allocating in real time, the limited resources available. A Genetic Algorithm, evolving the sequence, randomly generated, uses the DES to simulate the effect and ranks the solutions. In this way, we investigate the incentive alignment problem as a resource allocation problem, comparing the results deriving from their respective "good solutions".
    Keywords: Complex System Dynamics, Resource constrained multi project scheduling, Incentive Design, Performance Evaluation Measures, Genetic Algorithm
    JEL: C63 D23 L2 M12
    Date: 2012–05
  2. By: Skrainka, B.S.
    Abstract: This thesis develops computational and applied tools to study differentiated products. The core of the thesis focuses on Berry, Levinsohn, and Pakes’s [1995] (BLP hereafter) model of differentiated products. First, I examine how polynomial-based methods for multi-dimensional numerical integration improve the performance of the model. Unlike Monte Carlo integration, these rules produce reliable point estimates and standard errors as well as increasing the accuracy and execution speed of the estimation software. Next, I conduct a large scale simulation study to investigate both the asymptotic and finite sample behavior of the BLP model using the traditional instruments formed from characteristics of rival goods and also supply-side cost shifters, which are necessary for asymptotic identification. The final part of the thesis evaluates the 2003 merger of Morrisons and Safeway by combining a discrete/continuous choice model of demand with census data to construct a geographic distribution of demand. I use this distribution to model the interaction between the location of consumers and stores, focusing on the welfare implications of the merger.
    Date: 2012–02–28
  3. By: Görke, Uwe-Jens; Kolditz, Olaf; Park, Chan-Hee; Shao, Haibing; Singh, Ashok Kumar; Wang, Wenqing
    Abstract: --
    Date: 2012
  4. By: Carlos León
    Abstract: The most recent financial crisis unveiled that liquidity risk is far more important and intricate than regulation have conceived. The shift from bank-based to market-based financial systems and from Deferred Net Systems to liquidity-demanding Real-Time Gross Settlement of payments explains some of the shortcomings of traditional liquidity risk management. Although liquidity regulations do exist, they still are in an early stage of development and discussion. Moreover, no all connotations of liquidity are equally addressed. Unlike market and funding liquidity, intraday liquidity has been absent from financial regulation, and has appeared only recently, after the crisis. This paper addresses the measurement of Large-Value Payment System’s intraday liquidity risk. Based on the generation of bivariate Poisson random numbers for simulating the minute-by-minute arrival of received and executed payments, each financial institution’s intraday payments time-varying volume and degree of synchrony (i.e. timing) is modeled. To model intraday payments’ uncertainty allows for (i) overseeing participants’ intraday behavior; (ii) assessing their ability to fulfill intraday payments at a certain confidence level; (iii) identifying participants non-resilient to changes in payments’ timing mismatches; (iv) estimating intraday liquidity buffers. Vis-à-vis the increasing importance of liquidity risk as a source of systemic risk, and the recent regulatory amendments, results are useful for financial authorities and institutions.
    Keywords: Payments Systems, Intraday, Liquidity Risk, Bivariate Poisson process, Monte Carlo Simulation, Liquidity Buffer, Oversight. Classification JEL: C15, C63, E47, G17, D81.
    Date: 2012–04
  5. By: Dallinger, David; Schubert, Gerda; Wietschel, Martin
    Abstract: This paper describes a method to characterize the fluctuating electricity generation of renewable energy sources (RES) in a power system and compares the different parameters for California and Germany. Based on this method describing the fluctuation and residual load, the potential contribution of grid-connected vehicles to balancing generation from renewable energy sources is analyzed for a 2030 scenario using the agent-based simulation model PowerACE. The analysis reveals that integrating fluctuating RES is possible with less effort in California because of a higher correlation between RES generation and the load curve here. In addition, RES capacity factors are higher for California and therefore the ratio of installed capacity to peak load is lower. Germany, on the other hand, faces extreme residual load changes between periods with and without supply from RES. In both power system scenarios, grid-connected vehicles play an important role in reducing residual load fluctuation if smart charging is used. Uncontrolled charging or static time-of-use tariffs do not significantly improve the grid integration of RES. --
    Date: 2012
  6. By: Balázs Égert
    Abstract: This paper studies the impact of recent changes in second pension pillars of three Central and Eastern European Countries on the deficit and implicit debt of their full pension systems. The paper seeks to answer the following questions: i) what is the impact on the sustainability of Poland’s pension system of the decrease in the pension contribution going to the second pension pillar from 7.3% to 2.3% in 2011; ii) what are the implications of the recent changes on gross replacement rates; iii) does the weakening of the Polish second pension system have a different impact on pension system sustainability than a similar move in a Hungarian-style pension system with a defined-benefit first pillar and iv) how does Estonia’s temporary decrease in pension contributions compensated by temporarily higher future rates affect pension sustainability in that country. The simulation results show that in our baseline scenario the Polish move would permanently lower future pension-system debt, chiefly as a result of a cut in replacement rates. But using a combination of pessimistic assumptions including strong population ageing, low real wage growth and a high indexation of existing pension benefits, coupled with bringing in tax expenditures related to the third voluntary pension pillar and an increase in the share of minimum pensions leads to higher pension system deficits and eventually more public debt at a very long horizon. The simulations also suggest that the Hungarian pension reversal reduces deficit and debt only temporarily, mainly because of Hungary’s costly defined-benefit first pension pillar: the weakening of the second pillar is tantamount to swapping low current replacement rates (in the defined-contribution second pillar) against high future replacement rates in the defined-benefit first pension pillar. Finally, results show that the Estonian move will increase public debt only very moderately in the long run, even though this result is sensitive to the effective interest rate on public debt.
    Keywords: pension system; pension reversal; defined benefit; defined contribution; public finances; Central and Eastern Europe
    JEL: H55 J32
    Date: 2012
  7. By: Melissa M. Favreault; C. Eugene Steuerle
    Abstract: As interest in proposals to restore Social Security solvency rises, it’s timely to examine whether current policy analyses provide adequate information on important distributional questions. This project explores measures of changes in Social Security benefits’ adequacy, horizontal equity, and efficiency under different proposals. We apply the measures to simulation output from the Urban Institute’s Dynamic Simulation of Income Model under the National Commission on Fiscal Responsibility and Reform Social Security proposal. A series of exhibits illustrates how they work and could inform policymakers about the relative merits of varied options to restore the program’s long-run solvency and meet other objectives.
    Date: 2012–05
  8. By: Hunt Allcott
    Abstract: Most US consumers are charged a near-constant retail price for electricity, despite substantial hourly variation in the wholesale market price. The Smart Grid is a set of emerging technologies that, among other effects, will facilitate "real-time pricing" for electricity and increase price elasticity of demand. This paper simulates the effects of this increased demand elasticity using counterfactual simulations in a structural model of the Pennsylvania-Jersey-Maryland electricity market. The model includes a different approach to the problem of multiple equilibria in multi-unit auctions: I non-parametrically estimate unobservables that rationalize past bidding behavior and use learning algorithms to move from the observed equilibrium counterfactual bid functions. This routine is nested as the second stage of a static entry game that models the Capacity Market, an important element of market design in some restructured electricity markets. There are three central results. First, I find that an increase in demand elasticity could actually increase wholesale electricity prices in peak hours, contrary to predictions from short run models, while decreasing Capacity Market prices and total entry. Second, although the increased demand elasticity from the Smart Grid reduces producers' market power, in practice this would be a small channel of efficiency gains relative to forestalled entry. Third, I find that the gross welfare gains from moving a typical consumer to the Smart Grid, under the assumed demand parameters and before subtracting out the initial infrastructure costs, are about 10 percent of the consumer's total wholesale electricity costs.
    JEL: D24 D43 D44 L10 L51 L94 Q4 Q41
    Date: 2012–05
  9. By: Claudia Tarantola (Department of Economics and Business, University of Pavia); Ioannis Ntzoufras (Department of Statistics, Athens University of Economics and Business)
    Abstract: This paper deals with the Bayesian analysis of graphical models of marginal independence for three way contingency tables. Each marginal independence model corresponds to a particular factorization of the cell probabilities and a conjugate analysis based on Dirichlet prior can be performed. We illustrate a comprehensive Bayesian analysis of such models, involving suitable choices of prior parameters, estimation, model determination, as well as the allied computational issues. The posterior distributions of the marginal log-linear parameters is indirectly obtained using simple Monte Carlo schemes. The methodology is illustrated using two real data sets.
    Keywords: graphical models, marginal log-linear parameterization, Monte Carlo computation, order decomposability, power prior approach.
    Date: 2012–05
  10. By: Ji\v{r}\'i Kuka\v{c}ka; Jozef Barunik
    Abstract: The main aim of this work is to incorporate selected findings from behavioural finance into a Heterogeneous Agent Model using the Brock and Hommes (1998) framework. In particular, we analyse the dynamics of the model around the so-called `Break Point Date', when behavioural elements are injected into the system and compare it to our empirical benchmark sample. Behavioural patterns are thus embedded into an asset pricing framework, which allows to examine their direct impact. Price behaviour of 30 Dow Jones Industrial Average constituents covering five particularly turbulent U.S. stock market periods reveals interesting pattern. To replicate it, we apply numerical analysis using the Heterogeneous Agent Model extended with the selected findings from behavioural finance: herding, overconfidence, and market sentiment. We show that these behavioural breaks can be well modelled via the Heterogeneous Agent Model framework and they extend the original model considerably. Various modifications lead to significantly different results and model with behavioural breaks is also able to partially replicate price behaviour found in the data during turbulent stock market periods.
    Date: 2012–05
  11. By: Guglielmo D'Amico; Filippo Petroni
    Abstract: In this paper we propose a new stochastic model based on a generalization of semi-Markov chains to study the high frequency price dynamics of traded stocks. We assume that the financial returns are described by a weighted indexed semi-Markov chain model. We show, through Monte Carlo simulations, that the model is able to reproduce important stylized facts of financial time series as the first passage time distributions and the persistence of volatility. The model is applied to data from Italian and German stock market from first of January 2007 until end of December 2010.
    Date: 2012–05
  12. By: Timothy A. Weterings; Mark N. Harris; Bruce Hollingsworth
    Abstract: This research proposes that, in cases where threshold covariates are either unavailable or difficult to observe, practitioners should treat these characteristics as latent, and use simulated maximum likelihood techniques to control for them. Two econometric frameworks for doing so in a more flexible manner are proposed. The finite sample performance of these new specifications are investigated with the use of Monte Carlo simulation. Applications of successively more flexible models are then given, with extensive post-estimation analysis utilised to better assess the likely implications of model choice on conclusions made in empirical research.
    Keywords: Ordered Choice Modeling, Unobserved Heterogeneity, Simulated Maximum Likelihood
    JEL: C01 C23 C52
    Date: 2012–05
  13. By: Puzanova, Natalia
    Abstract: This paper introduces a multivariate pure-jump Lévy process which allows for skewness and excess kurtosis of single asset returns and for asymptotic tail dependence in the multivariate setting. It is termed Variance Compound Gamma (VCG). The novelty of my approach is that, by applying a two-stage stochastic time change to Brownian motions, I derive a hierarchical structure with different properties of inter- and intra-sector dependence. I investigate the properties of the implied static copula families and come to the conclusion that they are ordered with respect to their parameters and that the lower-tail dependence of the intra-sector copula is increasing in the absolute values of skewness parameters. Furthermore, I show that the joint characteristic function of the VCG asset returns can be explicitly given as a nested Archimedean copula of their marginal characteristic functions. Applied to credit portfolio modelling, the framework introduced results in a more conservative tail risk assessment than a Gaussian framework with the same linear correlation structure, as I show in a simulation study. To foster the simulation efficiency, I provide an Importance Sampling algorithm for the VCG portfolio setting. --
    Keywords: Portfolio Credit Risk,Stochastic Time Change,Brownian Subordination,Jumps,Tail Dependence,Hierarchical Dependence Structure
    JEL: C46 C63 G12 G21
    Date: 2011

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