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on Computational Economics |
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Issue of 2012‒12‒15
twelve papers chosen by |
| By: | Bin Li; Steven C. H. Hoi |
| Abstract: | On-line portfolio selection is a fundamental problem in computational finance, which has been extensively studied across several research communities, including finance, statistics, artificial intelligence, machine learning, and data mining, etc. This article aims to provide a comprehensive survey and a structural understanding of existing on-line portfolio selection techniques in literature. From an on-line machine learning perspective, we first formulate on-line portfolio selection as an on-line sequential decision problem, and then survey a variety of state-of-the-art approaches in literature, which are grouped into several major categories, including benchmarks, "Follow-the-Winner" approaches, "Follow-the-Loser" approaches, "Pattern-Matching" based approaches, and meta-learning algorithms. In addition to the problem formulation and related algorithms, we also discuss the relationship of these algorithms with the Capital Growth theory in order to better understand the commons and differences of their underlying trading ideas. This article aims to provide a timely and comprehensive survey for both machine learning and data mining researchers in academia and quantitative portfolio managers in financial industry to help them understand the state of the art and facilitate their research or practical applications. We also discuss some open issues and evaluate some emerging new trends for future research directions. |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1212.2129&r=cmp |
| By: | Mike Giles; Lukasz Szpruch |
| Abstract: | Since Giles introduced the multilevel Monte Carlo path simulation method [18], there has been rapid development of the technique for a variety of applications in computational finance. This paper surveys the progress so far, highlights the key features in achieving a high rate of multilevel variance convergence, and suggests directions for future research. |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1212.1377&r=cmp |
| By: | Giampaolo Arachi; Valeria Bucci; Ernesto Longobardi; Paolo Panteghini; Maria Laura Parisi; Simone Pellegrino; Alberto Zanardi |
| Abstract: | In this paper we aim to discuss the strengths and weaknesses of the fiscal consolidation package adopted recently by the Italian Government in order to achieve a balanced budget by 2013. Revenues are forecasted to increase by more than 3.3 GDP percentage points; these stem mostly from indirect and property taxation. The analysis of the Italian case is interesting since it seems to be consistent with a recent strand of the literature which, in order to foster both short and long-term economic growth, advocated a shift of the tax burden from capital and labour income to consumption and property. Through a set of micro simulation models, this paper evaluates the effects of the Italian fiscal package on households and firms. We show that, in respect of households’ income, indirect and property tax reforms are highly regressive, whilst the reform makes limited resources available for growth enhancing policies (reduction in the effective corporate tax burden). Then, we propose an alternative fiscal package. We show that a less regressive reform on households can be obtained by shifting taxation from personal and corporate income tax to indirect taxation. Our proposal allows the tax burden on firms to be reduced substantially and, in the meantime, offers lower personal income tax rates on households in the lowest deciles of income distribution since they are penalized most by the increase in indirect taxation. |
| Keywords: | tax reforms, fiscal consolidation, micro simulation models, Italy |
| JEL: | H20 D22 D31 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_3753&r=cmp |
| By: | Kano, Takashi; Nason, James M. |
| Abstract: | We study the implications of internal consumption habit for new Keynesian dynamic stochastic general equilibrium (NKDSGE) models. Bayesian Monte Carlo methods are employed to evaluate NKDSGE model fit. Simulation experiments show that internal consumption habit often improves the ability of NKDSGE models to match the spectra of output and consumption growth. Nonetheless, the fit of NKDSGE models with internal consumption habit is susceptible to the sources of nominal rigidity, to spectra identified by permanent productivity shocks, to the choice of monetary policy rule, and to the frequencies used for evaluation. These vulnerabilities indicate that the specification of NKDSGE models is fragile. |
| Keywords: | Consumption Habit, New Keynesian, Propagation, Monetary Transmission, Posterior Predictive Analysis, Bayesian Monte Carlo |
| JEL: | E10 E20 E32 |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:hit:econdp:2012-09&r=cmp |
| By: | Edward Herbst; Frank Schorfheide |
| Abstract: | We develop a sequential Monte Carlo (SMC) algorithm for estimating Bayesian dynamic stochastic general equilibrium (DSGE) models, wherein a particle approximation to the posterior is built iteratively through tempering the likelihood. Using three examples consisting of an artificial state-space model, the Smets and Wouters (2007) model, and Schmitt-Grohe and Uribe's (2012) news shock model we show that the SMC algorithm is better suited for multi-modal and irregular posterior distributions than the widely-used random walk Metropolis-Hastings algorithm. Unlike standard Markov chain Monte Carlo (MCMC) techniques, the SMC algorithm is well suited for parallel computing. |
| Keywords: | Bayesian statistical decision theory |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:12-27&r=cmp |
| By: | Estrades, Carmen |
| Abstract: | In 2010, after several years of being stalled, negotiations between MERCOSUR (the Common Market of the Southern Cone) and the European Union (EU) to build a free-trade agreement (FTA) were resumed. This FTA is expected to have an important impact on MERCOSUR economies, especially if both blocs reach an agreement regarding the agricultural sector. This paper analyzes the impact of an FTA between MERCOSUR and EU, with a special focus on distributional impacts on Uruguay. For this we apply an improved version of MIRAGE (Modeling International Relationships in Applied General Equilibrium) with household heterogeneity. The representative agent in the standard version of the MIRAGE model is decomposed into a private and a public agent for all regions, and into a high number of households for Uruguay. Results show that a trade agreement between MERCOSUR and EU would have a significant impact on trade flows between both blocs. MERCOSUR economies would increase agriculture exports to EU and industrial imports from EU. Welfare increases in all countries participating in the agreement but is more pronounced for the two small countries of MERCOSUR: Paraguay and Uruguay. In Uruguay, welfare increases for different categories of households, but the richest households benefit the most. In spite of this, inequality decreases as a consequence of the agreement, and poverty rates decrease throughout the country. |
| Keywords: | Computable General Equilibrium (CGE) model, Trade negotiations, Sensitive products, Poverty, MERCOSUR, Free Trade Agreement, MIRAGE model, households, Inequality, |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fpr:ifprid:1219&r=cmp |
| By: | Debowicz, Dario; Segal, Paul |
| Abstract: | This paper investigates structural change in Argentina between 1935 and 1960, a period of rapid industrialization and of relative decline of the agricultural sector. This has been the subject of a long-running debate that has exercised Argentine economists throughout the twentieth century, and remains politically salient today. It has been argued that this this relative decline of agriculture was due to the policies of import-substituting industrialization (ISI). This was also the period, however, that directly followed the closing of the land frontier, resulting in a declining land-labor ratio as the population continued to grow. We use a stylized, dynamic three-sector computable general equilibrium (CGE) model of the period to analyze the respective effects of ISI policies and the observed changes in factor endowments on the structure of the economy. We find that the declining land-labor ratio was more important than ISI in explaining relative stagnation in agriculture. ISI gave a substantial boost to manufacturing but primarily at the expense of nontraded services, rather than of agriculture. |
| Keywords: | structural transformation, Computable general equilibrium (CGE), Industrialization, agricultural sector, Import substitution, Economic history, |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fpr:ifprid:1212&r=cmp |
| By: | Didier Rullière (SAF - Laboratoire de Sciences Actuarielle et Financière - Université Claude Bernard - Lyon I : EA2429); Alaeddine Faleh (SAF - Laboratoire de Sciences Actuarielle et Financière - Université Claude Bernard - Lyon I : EA2429); Frédéric Planchet (SAF - Laboratoire de Sciences Actuarielle et Financière - Université Claude Bernard - Lyon I : EA2429); Wassim Youssef (Winter & associés - Winter & associés) |
| Abstract: | We consider the problem of the global minimization of a function observed with noise. This problem occurs for example when the objective function is estimated through stochastic simulations. We propose an original method for iteratively partitioning the search domain when this area is a nite union of simplexes. On each subdomain of the partition, we compute an indicator measuring if the subdomain is likely or not to contain a global minimizer. Next areas to be explored are chosen in accordance with this indicator. Con dence sets for minimizers are given. Numerical applications show empirical convergence results, and illustrate the compromise to be made between the global exploration of the search domain and the focalization around potential minimizers of the problem. |
| Keywords: | Golbal Optimisation; Simplex; Branch-and-Bound; Kriging |
| Date: | 2012–10–23 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-00759677&r=cmp |
| By: | Femenia, Fabienne |
| Abstract: | Currently, there is increased focus on the methods in which public interventions stabilize agricultural markets. The subsidization of private storage is one of the options advocated. However, the efficiency of such an instrument is still being discussed and has not yet been explored in the context of imperfect information. Nevertheless, this is one of the potential sources of market fluctuations and one of the arguments in favor of a public intervention on agricultural markets. To fill this gap, our main objective in this paper is to simulate the effects of a subsidization of storage costs, aimed at stimulating private storage at the world level, on markets fluctuations following Common Agricultural Policy (CAP) reforms, so as to stimulate private storage at the world level, and to study the welfare effects of this public intervention. |
| Keywords: | Dynamic Computable General Equilibrium (DCGE), subsidies, Agricultural policy, volatility, Price stabilization, |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fpr:ifprid:1205&r=cmp |
| By: | Sandrine Jacob Leal; (CEREFIGE - ICN Business School Nancy-Metz (France)); ; |
| Abstract: | This paper investigates whether the observed “momentum effect” in individual stocks, caused by positive serial correlations in returns over short horizons, can be explained by fundamentalists’ heterogeneous beliefs when chartists are present in the market. For this purpose, we propose a heterogeneous agent model wherein agents follow different strategies and where information about asset fundamentals diffuses slowly. Computer-based simulations reveal that the interplay of fundamentalists and chartists can robustly generate positive serial correlations in returns over short horizons. Especially, short-term momentum is explained by trend-following strategies and slow diffusion of information. Furthermore, our model is able to simultaneously generate the momentum effect in individual stock returns, asset price overreaction and misalignments often observed in real financial time series. |
| Keywords: | momentum effect, return predictability, bounded rationality, trading strategies, computer-based simulations |
| JEL: | E30 E32 E44 E47 F47 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fie:wpaper:1202&r=cmp |
| By: | Elisa Alòs; Rafael De Santiago; Josep Vives |
| Abstract: | Using a suitable Hull and White type formula we develop a methodology to obtain a second order approximation to the implied volatility for very short maturities. Using this approximation we accurately calibrate the full set of parameters of the Heston model. One of the reasons that makes our calibration for short maturities so accurate is that we also take into account the term-structure for large maturities. We may say that calibration is not "memoryless", in the sense that the option's behavior far away from maturity does influence calibration when the option gets close to expiration. Our results provide a way to perform a quick calibration of a closed-form approximation to vanilla options that can then be used to price exotic derivatives. The methodology is simple, accurate, fast, and it requires a minimal computational cost. |
| JEL: | G13 |
| Date: | 2012–10 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1346&r=cmp |
| By: | Dirk Schoenmaker (Duisenberg School of Finance, VU University Amsterdam); Arjen Siegmann (VU University Amsterdam) |
| Abstract: | Cross‐border banking needs cross‐border recapitalisation mechanisms. Each mechanism, however, suffers from the financial trilemma, which is that cross‐border banking, national financial autonomy and financial stability are incompatible. In this paper, we study the efficiency of different burdensharing agreements for the recapitalisation of the 30 largest banks in Europe. We consider bank bailouts for these banks in a simulation framework with stochastic country‐specific bailout benefits. Among the burden sharing rules, we find that the majority and qualified‐majority voting rules come close to the efficiency of a bailout mechanism with a supranational authority. Even a unanimous voting rule works better than home‐country bailouts, which are very inefficient. |
| Keywords: | Financial Stability; Public Good; International Monetary Arrangements; International |
| JEL: | F33 G28 H41 |
| Date: | 2012–10–24 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20120111&r=cmp |