New Economics Papers
on Computational Economics
Issue of 2012‒12‒10
seven papers chosen by

  1. A Study on the Dynamics of Interest Rate By LI, Wu
  2. Money creation and financial instability: An agent-based credit network approach By Lengnick, Matthias; Krug, Sebastian; Wohltmann, Hans-Werner
  3. Effects of international climate policy for India: Evidence from a national and global CGE model By Matthias Weitzel; Joydeep Ghosh; Sonja Peterson; Basanta K. Pradhan
  4. Application of simplest random walk algorithms for pricing barrier options By M. Krivko; M. V. Tretyakov
  5. An FBSDE Approach to American Option Pricing with an Interacting Particle Method By Masaaki Fujii; Seisho Sato; Akihiko Takahashi
  6. Optimal portfolio model based on WVAR By Tianyu Hao
  7. Optimal portfolio for a robust financial system By Yoshiharu Maeno; Satoshi Morinaga; Hirokazu Matsushima; Kenichi Amagai

  1. By: LI, Wu
    Abstract: By integrating the fiat money into the structural growth model in [1], this paper presents a dynamic model for the simulation study of interest rate. And the model is illustrated with a numerical example. The equilibria of the numerical example are also computed by the method in [2]. The monetary policies of controlling the interest rate and controlling the money supply are simulated.
    Keywords: interest rate; money supply; general equilibrium; price
    JEL: C68 C63 D58 C67
    Date: 2012–06
  2. By: Lengnick, Matthias; Krug, Sebastian; Wohltmann, Hans-Werner
    Abstract: We pick up the standard textbook approach of money creation and develop a simple agent-based alternative. We show that our model is well suited to explain the endogenous creation of money. Although more general, our model still contains the standard results as a limiting case. We also uncover a potential instability that is hidden in the standard approach but easily recognized within a strict individual-based and stock-flow consistent version. We show in detail how individual interactions build up systemic risk and how banking crises are triggered by the maturity mismatch of different cash-flows and spread by the depreciation of non-performing loans (e.g. interbank- or government debt). --
    Keywords: financial instability,endogenous money,agent-based macroeconomics,stock-flow consistency,disequilibrium analysis
    JEL: C63 E42 E51 G01
    Date: 2012
  3. By: Matthias Weitzel; Joydeep Ghosh; Sonja Peterson; Basanta K. Pradhan
    Abstract: In order to reach the two degree target it is necessary to control CO2 emissions also in fast growing emerging economies such as India. The question is how the Indian economy would be affected by e.g. including the country into an international climate regime. Existing analyses with either a global model or a single country computable general equilibrium model miss important aspects such as distributional issues or international repercussions. By soft-linking models of these two classes, we provide a more detailed view on these issues. In particular, we analyze different options of transferring revenues from domestic carbon taxes and international transfers to different household types and how different assumptions on exchange rates affect transfer payments. We also show effects stemming from international price repercussions. Our analysis focusses on how these transmission channels affect welfare of nine different household types
    Keywords: Computable General Equilibrium Model, International Climate Policy, India
    JEL: C68 O53 Q54 Q56
    Date: 2012–11
  4. By: M. Krivko; M. V. Tretyakov
    Abstract: We demonstrate effectiveness of the first-order algorithm from [Milstein, Tretyakov. Theory Prob. Appl. 47 (2002), 53-68] in application to barrier option pricing. The algorithm uses the weak Euler approximation far from barriers and a special construction motivated by linear interpolation of the price near barriers. It is easy to implement and is universal: it can be applied to various structures of the contracts including derivatives on multi-asset correlated underlyings and can deal with various type of barriers. In contrast to the Brownian bridge techniques currently commonly used for pricing barrier options, the algorithm tested here does not require knowledge of trigger probabilities nor their estimates. We illustrate this algorithm via pricing a barrier caplet, barrier trigger swap and barrier swaption.
    Date: 2012–11
  5. By: Masaaki Fujii; Seisho Sato; Akihiko Takahashi
    Abstract: In the paper, we propose a new calculation scheme for American options in the framework of a forward backward stochastic differential equation (FBSDE). The well-known decomposition of an American option price with that of a European option of the same maturity and the remaining early exercise premium can be cast into the form of a decoupled non-linear FBSDE. We numerically solve the FBSDE by applying an interacting particle method recently proposed by Fujii and Takahashi (2012d), which allows one to perform a Monte Carlo simulation in a fully forward-looking manner. We perform the fourth-order analysis for the Black-Scholes (BS) model and the third-order analysis for the Heston model. The comparison to those obtained from existing tree algorithms shows the effectiveness of the particle method.
    Date: 2012–11
  6. By: Tianyu Hao
    Abstract: This article is focused on using a new measurement of risk-- Weighted Value at Risk to develop a new method of constructing initiate from the TVAR solving problem, based on MATLAB software, using the historical simulation method (avoiding income distribution will be assumed to be normal), the results of previous studies also based on, study the U.S. Nasdaq composite index, combining the Simpson formula for the solution of TVAR and its deeply study; then, through the representation of WVAR formula discussed and indispensable analysis, also using the Simpson formula and the numerical calculations, we have done the empirical analysis and review test. this paper is based on WVAR which possesses better properties, taking the idea of portfolio into the multi-index comprehensive evaluation, to build innovative WVAR based portfolio selection under the framework of a theoretical model; in this framework, a description of risks is designed by WVAR, its advantage is no influence by income distribution, meanwhile various optimization problems have a unique solution; then take AHP weights to different indicators deal on this basis, after that we put a nonlinear satisfaction portfolio selected model forward and conduct tests of empirical analysis, finally we use weighted linear approach to convert the portfolio model into a single-objective problem, which is easier to solve, then we use the data of two ETFs to construct portfolio, and compare the performance of portfolio constructed by Mean-Weighted V@R and by Mean-Variance.
    Date: 2012–11
  7. By: Yoshiharu Maeno; Satoshi Morinaga; Hirokazu Matsushima; Kenichi Amagai
    Abstract: This study presents an ANSeR model (asset network systemic risk model) to quantify the risk of financial contagion which manifests itself in a financial crisis. The transmission of financial distress is governed by a heterogeneous bank credit network and an investment portfolio of banks. Bankruptcy reproductive ratio of a financial system is computed as a function of the diversity and risk exposure of an investment portfolio of banks, and the denseness and concentration of a heterogeneous bank credit network. An analytic solution of the bankruptcy reproductive ratio for a small financial system is derived and a numerical solution for a large financial system is obtained. For a large financial system, Large diversity among banks in the investment portfolio makes financial contagion more damaging on the average. But large diversity is essentially effective in eliminating the risk of financial contagion in the worst case of financial crisis scenarios. A bank-unique specialization portfolio is more suitable than a uniform diversification portfolio and a system-wide specialization portfolio in strengthening the robustness of a financial system.
    Date: 2012–11

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