nep-cmp New Economics Papers
on Computational Economics
Issue of 2014‒12‒19
eight papers chosen by
Stan Miles
Thompson Rivers University

  1. Financial Symmetry and Moods in the Market By Roberto Savona; Maxence Soumare; Jørgen Vitting Andersen
  2. Farmers’ Switchgrass Adoption Decision Under A Single-Procurer Market: An Agent Based Simulation Approach By Li, Haoyang; Ross, Brent R.
  3. Exploring the Implications of Oil Prices for Global Biofuels, Food Security, and GHG Mitigation By Cai, Yongxia; Beach, Robert H.; Zhang, Yuquan
  4. Price Dynamics, financial fragility and aggregate volatility By Antoine Mandel; Simone Landini; Mauro Gallegati; Herbert Gintis
  5. Indirect Land Use Effects of Corn Ethanol in the U.S: Implications for the Conservation Reserve Program By Chen, Xiaoguang; Khanna, Madhu
  6. An FBSDE Approach to American Option Pricing with an Interacting Particle Method By Masaaki Fujii; Seisho Sato; Akihiko Takahashi
  7. Family matters: Concurrent capital buffers in a banking group By Michal Skorepa
  8. A Model of the Topology of the Bank-Firm Credit Network and Its Role as Channel of Contagion By Lux, Thomas

  1. By: Roberto Savona (Department of Economics and Management - Università degli studi di Brescia); Maxence Soumare (Laboratoire Jean-Alexandre Dieudonné - Université de Nice-Sophia Antipolis); Jørgen Vitting Andersen (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne)
    Abstract: This paper introduces a theoretical framework for collective decision making to describe fluctuations and transitions in financial markets. Investors are assumed to be boundedly rational, using a limited set of information including past price history and expectation on future dividends. Investment strategies are dynamically changed based on realized returns within a game theoretical scheme with Nash equilibria. In such a setting, markets behave as complex systems whose payoff reflect an intrinsic financial symmetry that guarantees equilibrium in price dynamics (fundamentalist state) until the symmetry is broken leading to bubble or anti-bubble scenarios (speculative state). We model such two-phase transition in a micro-to-macro scheme through a Ginzburg-Landau-based power expansion leading to a market temperature parameter which modulates the state transitions in the market. Via simulation we prove that complex market dynamics can be phenomenologically explained by the number of traders, the strategies used by agents and the past price history, all included in our market temperature parameter.
    Keywords: Agent-based modelling; Game theory; Ginzburg-Landau theory; financial symmetry
    Date: 2014–03
  2. By: Li, Haoyang; Ross, Brent R.
    Abstract: Recently, a number of pilot and demonstration scale advanced biofuel facilities have been established, but commercial scale facilities are yet to become operational. To make informed decisions about this emerging industry, potential biorefinery entrepreneurs and regional policy makers need analysis of how farmers are willing to adopt these feedstocks and how will they switch land into bio-feedstock use to ensure a stable feedstock supply. This paper develops an agent-based simulation model to study farmers’ switchgrass adoption decisions over time within a specific agricultural region. We explicitly examine the effect of various contractual terms across market scenarios and consider the potential for contractual hold-ups. Results show that a contract with a payment of $175/acre plus $50/ton could make both biorefinery and farmer profitable during the simulation period. It is also shown that alfalfa, but not annual crops will be the mostly affected crop (replaced) by the introduction of switchgrass in the region of North Michigan.
    Keywords: agent based simulation, contract hold-up, ethanol price, switchgrass, Agribusiness, Industrial Organization, Land Economics/Use, L10, L11, L14,
    Date: 2014
  3. By: Cai, Yongxia; Beach, Robert H.; Zhang, Yuquan
    Abstract: Efforts to satisfy global energy demand and improve food security while simultaneously taking action to mitigate climate change pose many key challenges for the world. In this study, the Applied Dynamic Analysis of the Global Economy (ADAGE), a computable general equilibrium (CGE) model, is applied to examine the impact of oil price on biofuel expansion, and subsequently, on food supply/price, land use change and climate mitigation potential, when both first and second generation biofuel feedstocks are considered. The results indicate despite a continued increase in land productivity and energy efficiency, increases in population and economic growth lead to a global increase in agriculture production, rising food, agriculture, biofuels, and energy prices, and land conversion from the other four land types to cropland in the REF scenario from 2010 to 2040. Oil price plays an important role in biofuel expansion. Globally, higher oil price leads to the expansion of biofuel production, increasing its share in total liquid fuel consumption in the private transportation sector. Consequently, more land is allocated for biofuel production, reducing global agriculture output and increasing agricultural consumption prices. Although emissions from land-use change increase, the overall emissions including fossil fuel emissions decreases. Regions display different patterns on biofuel expansions, land-use change, prices for food/agriculture and energy/biofuels, and GHG emissions.
    Keywords: Biofuels, Computable General Equilibrium, Oil Price, Food security, GHG Mitigation, Agricultural and Food Policy, Environmental Economics and Policy, Food Security and Poverty, Resource /Energy Economics and Policy,
    Date: 2014–08
  4. By: Antoine Mandel (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Simone Landini (Socioeconomic Research Institute of Piedmont - Socioeconomic Research Institute of Piedmont); Mauro Gallegati (Università Politecnica delle Marche - UNIVPM); Herbert Gintis (Santa Fe Institute - Santa Fe Institute, Central European University - CEU - Central European University)
    Abstract: Within a standard framework à la Arrow-Debreu, we investigate the dynamics emerging from the interactions of heterogeneous households and firms that are adaptive price setters and financially constrained. We show that depending on the stringency of the financial constraints the model can settle in two very different regimes: one characterized by equilibrium, the other by disequilibrium and financial fragility. We then investigate how the structure of the production network affects the emergence of aggregate volatility from micro-level price and financial shocks, hence providing a dynamical counterpart to recent results of Acemoglu and al (2012).
    Keywords: Agent-based modeling; financial fragility; price dynamics; general equilibrium; production networks
    Date: 2013–11
  5. By: Chen, Xiaoguang; Khanna, Madhu
    Abstract: We developed an integrated model of U.S agricultural and transportation sectors to examine the impacts of corn ethanol production on the reduction in CRP enrollment and grassland conversion during the period 2007-2012. We also examine the extent to which ethanol production raised the budgetary cost of maintaining the CRP program at the 2007 level. Our simulation analysis shows that by raising crop prices and increasing opportunity costs of marginal lands, corn ethanol production led to additional 1.6 million acres reduction in CRP enrollment and grassland conversion relative to a no-biofuel policy baseline scenario. In order to maintain the CRP enrollment at the 2007 levels, a net present value of government expenditure of $1.85 billion on reenrollment would be needed under the baseline scenario for the period 2007-2012. Government expenditure will increase to $2.07 billion with the booming of corn ethanol industry.
    Keywords: Biofuels, Conservation Reserve Program, Maintenance Cost, Grassland Conversion, Agricultural and Food Policy, Environmental Economics and Policy, Land Economics/Use, Resource /Energy Economics and Policy,
    Date: 2014
  6. By: Masaaki Fujii (The University of Tokyo); Seisho Sato (The University of Tokyo); Akihiko Takahashi (The University of Tokyo)
    Abstract: In the paper, we propose a new calculation scheme for American options in the framework of a forward backward stochastic di erential 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 & Takahashi (2012c), 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 e ectiveness of the particle method.
    Date: 2014–10
  7. By: Michal Skorepa (Czech National Bank)
    Abstract: We simulate how the probability of failure of a subsidiary and the group changes after a capital buffer is imposed on the group as a whole and/or the subsidiary. The simulation takes into account the relative sizes of the parent and the subsidiary, the parent’s share in the subsidiary, the similarity between the business models of the parent and the subsidiary, and the preparedness of the parent to support the subsidiary if the latter is in danger of failing.
    Keywords: capital, buffers, Basel III, probability of bank failure, banking group, parent, subsidiary, regulatory consolidation
    JEL: F23 G21 G28
    Date: 2014–07
  8. By: Lux, Thomas
    Abstract: This paper proposes a stochastic model of a bipartite credit network between banks and the non-bank corporate sector that encapsulates basic stylized facts found in comprehensive data sets for bank-firm loans for a number of countries. When performing computational experiments with this model, we find that it shows a pronounced non-linear behavior under shocks: The default of a single unit will mostly have practically no knock-on effects, but might lead to an almost full-scale collapse of the entire system in a certain number of cases. The dependency of the overall outcome on firm characteristics like size or number of loans seems fuzzy. Distinguishing between contagion due to interbank credit and due to joint exposures to counterparty risk via loans to firms, the later channel appears more important for contagious spread of defaults.
    Keywords: credit network,contagion,interbank network
    JEL: D85 G21 D83
    Date: 2014

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