nep-cmp New Economics Papers
on Computational Economics
Issue of 2016‒03‒23
twelve papers chosen by

  1. Network Calibration and Metamodeling of a Financial Accelerator Agent Based Model By Leonardo Bargigli; Luca Riccetti; Alberto Russo; Mauro Gallegati
  2. Liquidity costs: a new numerical methodology and an empirical study By Christophe Michel; Victor Reutenauer; Denis Talay; Etienne Tanré
  3. Complexity and Model Comparison in Agent Based Modeling of Financial Markets By Alexandru Mandes; Peter Winker
  4. Solution and Estimation Methods for DSGE Models By Jesús Fernández-Villaverde; Juan F. Rubio Ramírez; Frank Schorfheide
  5. Linking consumer opinions with reservation prices in an agent-based model of innovation diffusion By Anna Kowalska-Pyzalska; Karolina Cwik; Arkadiusz Jedrzejewski; Katarzyna Sznajd-Weron
  6. Assessment of Post-merger Coordinated Effects: Characterization by Simulations By Ivaldi, Marc; Lagos, Vicente
  7. Exploring Lin Kernighan neighborhoods for the indexing problem By Ghosh, Diptesh
  8. Valuing American options using fast recursive projections By Antonio Cosma; Stefano Galluccio; Paola Pederzoli; Olivier Scaillet
  9. A heuristic for real-time crew rescheduling during small disruptions By Verhaegh, T.; Huisman, D.; Fioole, P-J.; Vera, J.C.
  10. Congestion management in power systems - Long-term modeling framework and large-scale application By Bertsch, Joachim; Hagspiel, Simeon; Just, Lisa
  11. Forecasting Trends in Disability in a Super-Aging Society: Adapting the Future Elderly Model to Japan By Brian K. Chen; Hawre Jalal; Hideki Hashimoto; Sze-Chuan Suen; Karen Eggleston; Michael Hurley; Lena Schoemaker; Jay Bhattacharya
  12. Analysis of the nonlinear option pricing model under variable transaction costs By Daniel Sevcovic; Magdalena Zitnanska

  1. By: Leonardo Bargigli (Dipartimento di Scienze per l'Economia e l'Impresa); Luca Riccetti; Alberto Russo; Mauro Gallegati
    Abstract: We allow firms and banks to entertain multiple credit connections in a financially constrained production framework, resorting to a random network model whose parameters are calibrated with real data. The calibration is successful since the network model is able to reproduce the degree and strength (debt and loan) distributions of the Japanese credit market. We run simulations over the parameter space using an efficient design, and compare a number of alternative statistical metamodels in order to select the best specification for the relationship between the parameters and a set of endogenous variables of the model. We show that the metamodeling approach can be usefully extended to economic models in order to bridge the gap between micro and macro variables through a rigorous statistical analysis of ABMs, without imposing unrealistic restrictions on the micro model such as the representative agent hypothesis.
    Date: 2016
  2. By: Christophe Michel (FIM - Service Interest Rates and Hybrid Quantitative Research - CALYON); Victor Reutenauer (Fotonower); Denis Talay (TOSCA - TO Simulate and CAlibrate stochastic models - CRISAM - Inria Sophia Antipolis - Méditerranée - INRIA - IECL - Institut Élie Cartan de Lorraine - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique); Etienne Tanré (TOSCA - TO Simulate and CAlibrate stochastic models - CRISAM - Inria Sophia Antipolis - Méditerranée - INRIA - IECL - Institut Élie Cartan de Lorraine - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique)
    Abstract: We consider rate swaps which pay a fixed rate against a floating rate in presence of bid-ask spread costs. Even for simple models of bid-ask spread costs, there is no explicit optimal strategy minimizing a risk measure of the hedging error. We here propose an efficient algorithm, based on the stochas-tic gradient method, to obtain an approximate optimal strategy without solving a stochastic control problem. We validate our algorithm by numer-ical experiments. We also develop several variants of the algorithm and discuss their performances in terms of the numerical parameters and the liquidity cost.
    Keywords: Optimization optimisation,Stochastic Algorithms,Interest rates derivatives
    Date: 2016
  3. By: Alexandru Mandes (University of Giessen); Peter Winker (University of Giessen)
    Abstract: Agent based models of financial markets follow different approaches and might be categorized according to major building blocks used. Such building blocks include agent design, agent evolution, and the price finding mechanism. The performance of agent based models in matching key features of real market processes depends on how these building blocks are selected and combined. For model comparison, both, measures of model fit and model complexity are required. Some suggestions are made on how to measure complexity of agent based models. An application for the foreign exchange market illustrates the potential of this approach.
    Keywords: Agent based modeling, model selection, complexity
    JEL: C63 C18 C58 G17
    Date: 2015
  4. By: Jesús Fernández-Villaverde; Juan F. Rubio Ramírez; Frank Schorfheide
    Abstract: This paper provides an overview of solution and estimation techniques for dynamic stochastic general equilibrium (DSGE) models. We cover the foundations of numerical approximation techniques as well as statistical inference and survey the latest developments in the field.
    JEL: C11 C13 C32 C52 C61 C63 E32 E52
    Date: 2016–01
  5. By: Anna Kowalska-Pyzalska; Karolina Cwik; Arkadiusz Jedrzejewski; Katarzyna Sznajd-Weron
    Abstract: We extend a recently developed agent-based model of innovation diffusion by linking the opinions of potential consumers with their market behavior via the concept of reservation prices. Through a dynamic mechanism that takes into account social influence, the agents in our model can both increase or decrease their product appraisal. Considering complete graph network structures and using mean-field treatment we find that the model can exhibit a plethora of scenarios, observed empirically but not attainable within the classical Bass model. We also show the existence of a critical market price above which the innovation cannot diffuse.
    Keywords: Word-of-mouth; Innovation diffusion; Agent-based model
    JEL: C63 O33 Q55
    Date: 2016–03–10
  6. By: Ivaldi, Marc; Lagos, Vicente
    Abstract: This paper aims to evaluate the coordinated effects of horizontal mergers by simulating its impact on firms’ critical discount factors. The simulation setting considers a model with a random coefficient discrete choice demand and heterogeneous price-setting firms on the supply side. The results suggest that mergers strengthen the incentives to collude among merging parties, but weaken the incentives of non-merging parties. In addition, while the magnitude of this impact is moderate for the latter, it can be substantial for merging parties. Finally, general policy lessons regarding the assessment of the magnitude of these effects can be drawn from the results.
    Keywords: Assessment - Collusion - Coordinated effects - Critical Discount Factor - Merger Simulation
    Date: 2016–03
  7. By: Ghosh, Diptesh
    Abstract: The indexing problem in automated machining environments aims to arrange tools in tool slots of a tool magazine for faster processing of jobs. This problem is called the indexing problem and has been widely studied in the literature. We present heuristics using Lin Kernighan neighborhood structures to solve the indexing problem. Two of the heuristics are local search heuristics and one is a tabu search heuristic. To the best of our knowledge this is one of the first implementations of tabu search on a Lin Kernighan neighborhood structure.
  8. By: Antonio Cosma (CREA, Université de Luxembourg); Stefano Galluccio (Incipit Capital, London); Paola Pederzoli (University of Geneva and Swiss Finance Institute); Olivier Scaillet (University of Geneva and Swiss Finance Institute)
    Abstract: We introduce a fast and widely applicable numerical pricing method that uses recursive projections. We characterize its convergence speed. We find that the early exercise boundary of an American call option on a discrete dividend paying stock is higher under the Merton and Heston models than under the Black-Scholes model, as opposed to the continuous dividend case. A large database of call options on stocks with quarterly dividends shows that adding stochastic volatility and jumps to the Black-Scholes benchmark reduces the amount foregone by call holders failing to optimally exercise by 25%. Transaction fees cannot fully explain the suboptimal behavior.
    Keywords: Option pricing, American option, Bermudan option, discrete transform, discrete dividend paying stock, suboptimal non-exercise, numerical techniques
    JEL: G13 C63
    Date: 2015
  9. By: Verhaegh, T.; Huisman, D.; Fioole, P-J.; Vera, J.C.
    Abstract: Due to unforeseen problems, disruptions occur at railway passenger operators. Proper real-time crew management is needed to prevent disruptions to spread over space and time. Netherlands railways (NS) has algorithmic support from a solver to obtain good crew rescheduling solutions during big disruptions. However, small disruptions are still manually solved by human dispatchers who have limited solving capacity. In this paper the rescheduling for crews during small disruptions is modeled as an iterative-deepening depth-first search in a tree, which is combined with several OR techniques, obtaining a heuristic method. The heuristic focuses on real-life usability and uses the up- dated rolling-stock schedule as input. Testing the heuristic on about 5,000 test instances shows that the heuristic delivers good and desirable rescheduling solutions within fraction of seconds, outperforming other well-known methods from the literature.
    Keywords: railways, real-time crew rescheduling
    Date: 2016–02–23
  10. By: Bertsch, Joachim (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI)); Hagspiel, Simeon (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI)); Just, Lisa (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI))
    Abstract: In liberalized power systems, generation and transmission services are unbundled, but remain tightly inter-linked. Congestion management in the transmission network is of crucial importance for the efficiency of these inter-linkages. Different regulatory designs have been suggested, analyzed and followed, such as uniform zonal pricing with redispatch or nodal pricing. However, the literature has either focused on the short-term efficiency of congestion management or specific issues of timing investments. In contrast, this paper presents a generalized and flexible economic modeling framework based on a decomposed inter-temporal equilibrium model including generation, transmission, as well as their inter-linkages. Short and long-term effects of different congestion management designs can hence be analyzed. Specifically, we are able to identify and isolate implicit frictions and sources of inefficiencies in the different regulatory designs, and to provide a comparative analysis including a benchmark against a first-best welfare-optimal result. To demonstrate the applicability of our framework, we calibrate and numerically solve our model for a detailed representation of the Central Western European (CWE) region, consisting of 70 nodes and 174 power lines. Analyzing six different congestion management designs until 2030, we show that compared to the first-best benchmark, i.e., nodal pricing, inefficiencies of up to 4.6% arise. Inefficiencies are mainly driven by the approach of determining cross-border capacities as well as the coordination of transmission system operators' activities.
    Keywords: power system economics; unbundling; congestion management; transmission pricing; inter-temporal equilibrium model;
    JEL: C61 C63 E61 L50 Q40
    Date: 2016–06–09
  11. By: Brian K. Chen; Hawre Jalal; Hideki Hashimoto; Sze-Chuan Suen; Karen Eggleston; Michael Hurley; Lena Schoemaker; Jay Bhattacharya
    Abstract: Japan has experienced pronounced population aging, and now has the highest proportion of elderly adults in the world. Yet few projections of Japan’s future demography go beyond estimating population by age and sex to forecast the complex evolution of the health and functioning of the future elderly. This study adapts to the Japanese population the Future Elderly Model (FEM), a demographic and economic state-transition microsimulation model that projects the health conditions and functional status of Japan’s elderly population in order to estimate disability, health, and need for long term care. Our FEM simulation suggests that by 2040, over 27 percent of Japan’s elderly will exhibit 3 or more limitations in IADLs and social functioning; almost one in 4 will experience difficulties with 3 or more ADLs; and approximately one in 5 will suffer limitations in cognitive or intellectual functioning. Since the majority of the increase in disability arises from the aging of the Japanese population, prevention efforts that reduce age-specific disability (or future compression of morbidity among middle-aged Japanese) may have only a limited impact on reducing the overall prevalence of disability among Japanese elderly.
    JEL: I1 J1 J11 J14
    Date: 2016–01
  12. By: Daniel Sevcovic; Magdalena Zitnanska
    Abstract: In this paper we analyze a nonlinear Black--Scholes model for option pricing under variable transaction costs. The diffusion coefficient of the nonlinear parabolic equation for the price $V$ is assumed to be a function of the underlying asset price and the Gamma of the option. We show that the generalizations of the classical Black--Scholes model can be analyzed by means of transformation of the fully nonlinear parabolic equation into a quasilinear parabolic equation for the second derivative of the option price. We show existence of a classical smooth solution and prove useful bounds on the option prices. Furthermore, we construct an effective numerical scheme for approximation of the solution. The solutions are obtained by means of the efficient numerical discretization scheme of the Gamma equation. Several computational examples are presented.
    Date: 2016–03

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