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on Computational Economics |
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Issue of 2013‒01‒26
fourteen papers chosen by |
| By: | Ankit Dangi |
| Abstract: | Financial portfolio optimization is a widely studied problem in mathematics, statistics, financial and computational literature. It adheres to determining an optimal combination of weights associated with financial assets held in a portfolio. In practice, it faces challenges by virtue of varying math. formulations, parameters, business constraints and complex financial instruments. Empirical nature of data is no longer one-sided; thereby reflecting upside and downside trends with repeated yet unidentifiable cyclic behaviours potentially caused due to high frequency volatile movements in asset trades. Portfolio optimization under such circumstances is theoretically and computationally challenging. This work presents a novel mechanism to reach an optimal solution by encoding a variety of optimal solutions in a solution bank to guide the search process for the global investment objective formulation. It conceptualizes the role of individual solver agents that contribute optimal solutions to a bank of solutions, a super-agent solver that learns from the solution bank, and, thus reflects a knowledge-based computationally guided agents approach to investigate, analyse and reach to optimal solution for informed investment decisions. Conceptual understanding of classes of solver agents that represent varying problem formulations and, mathematically oriented deterministic solvers along with stochastic-search driven evolutionary and swarm-intelligence based techniques for optimal weights are discussed. Algorithmic implementation is presented by an enhanced neighbourhood generation mechanism in Simulated Annealing algorithm. A framework for inclusion of heuristic knowledge and human expertise from financial literature related to investment decision making process is reflected via introduction of controlled perturbation strategies using a decision matrix for neighbourhood generation. |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1301.4194&r=cmp |
| By: | Luca Barone (University of Torino, Italy) |
| Abstract: | The link between micro and macro level has always been difficult to trace, even when variables have strong homogeneous characteristics. What happens when heterogeneous components and random factors interact is even more difficult to define. By adopting an agent-based approach we found a result that does not reflects the classical methods of quantification of an economy. This can be interpreted as an alarm bell signaling a wrong description of the economic framework we want to explain. We illustrate the effectiveness of the "agent-based reasoning machine" and we derive a model to compare with classical methods of aggregation. A more comprehensible description of the model is given by "Unified Modeling Language (UML)" and "ODD standard protocol", allowing us to clarify the internal processes of our model. |
| Keywords: | Aggregation, NetLogo, Simulations, Micro-Macro link, Agent Based Models (ABMs), Unified Modeling Language (UML), ODD standard protocol |
| JEL: | C63 D04 O47 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:tur:wpapnw:016&r=cmp |
| By: | Joseph Francois; Olga Pindyuk |
| Abstract: | This study examines the economic impact on Austria of three possible new EU free trade agreements: (1) an EU-US agreement; (2) an EU-Canada agreement; and (3) an EUArmenia/Georgia/Moldova agreement. This is done with a computational model of the global economy. The trade agreements are modeled as a mix of preferential tariff reductions and reductions in non-tariff measures that affect both goods and services. The primary impact follows from NTM reduction rather than tariff reductions. Of the three agreements, a potential agreement with the US is by far the most important. This follows from the size of the US economy. The US accounts for roughly one-quarter of extra-EU Austrian exports. Overall, the combined impact of the FTAs studied is positive. Most of the impact follows from investment response. Productivity gains from NTM reduction mean a combination of increased national income, higher wages, and employment, and increased capital stocks for the Austrian economy. |
| Keywords: | Free trade agreements, EU, Canada, USA, CGE modeling |
| JEL: | C68 F15 F17 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:wsr:ecbook:2013:i:iv-003&r=cmp |
| By: | Yongyang Cai; Kenneth L. Judd; Greg Thain; Stephen J. Wright |
| Abstract: | We implement a dynamic programming algorithm on a computational grid consisting of loosely coupled processors, possibly including clusters and individual workstations. The grid changes dynamically during the computation, as processors enter and leave the pool of workstations. The algorithm is implemented using the Master-Worker library running on the HTCondor grid computing platform. We implement value function iteration for several large dynamic programming problems of two kinds: optimal growth problems and dynamic portfolio problems. We present examples that solve in hours on HTCondor but would take weeks if executed on a single workstation. The use of HTCondor can increase a researcher’s computational productivity by at least two orders of magnitude. |
| JEL: | C61 C63 G11 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18714&r=cmp |
| By: | Qasim Nasar-Ullah |
| Abstract: | We describe a high performance parallel implementation of a derivative pricing model, within which we introduce a new parallel method for the calibration of the industry standard SABR (stochastic-\alpha \beta \rho) stochastic volatility model using three strike inputs. SABR calibration involves a non-linear three dimensional minimisation and parallelisation is achieved by incorporating several assumptions unique to the SABR class of models. Our calibration method is based on principles of surface intersection, guarantees convergence to a unique solution and operates by iteratively refining a two dimensional grid with local mesh refinement. As part of our pricing model we additionally present a fast parallel iterative algorithm for the creation of dynamically sized cumulative probability lookup tables that are able to cap maximum estimated linear interpolation error. We optimise performance for probability distributions that exhibit clustering of linear interpolation error. We also make an empirical assessment of error propagation through our pricing model as a result of changes in accuracy parameters within the pricing model's multiple algorithmic steps. Algorithms are implemented on a GPU (graphics processing unit) using Nvidia's Fermi architecture. The pricing model targets the evaluation of spread options using copula methods, however the presented algorithms can be applied to a wider class of financial instruments. |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1301.3118&r=cmp |
| By: | Chen, Shu-Heng; Chang, Chia-Ling; Wen, Ming-Chang |
| Abstract: | We construct an agent-based New Keynesian DSGE model with different social network structures to investigate the significance of network topologies to macroeconomic stability. According to our simulation results, we find that the more liquid the information flow, the higher the stability of the economy. Furthermore, the speed of information dissemination and the degree of clustering among agents may give rise to an adverse effect on economic stability. Finally, we find that the scale-free network will lead to the most dramatic economic fluctuations. The result is ascribed to the scale-free network's high centrality. It indicates that the opinion leaders may bring about a conglomerate effect that will cause fluctuations in the economy. -- |
| Keywords: | New Keynesian DSGE models,macroeconomic stability,social networks,Information dissemination,herding effect,agent-based model |
| JEL: | D84 E12 C63 E3 E32 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:20134&r=cmp |
| By: | Yongyang Cai; Kenneth L. Judd; Rong Xu |
| Abstract: | We apply numerical dynamic programming to multi-asset dynamic portfolio optimization problems with proportional transaction costs. Examples include problems with one safe asset plus two to six risky stocks, and seven to 360 trading periods in a finite horizon problem. These examples show that it is now tractable to solve such problems. |
| JEL: | C61 C63 G11 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18709&r=cmp |
| By: | Fabio Farinosi (Fondazione Eni Enrico Mattei, Euro-Mediterranean Center for Climate Change, “Ca’ Foscari” University); Lorenzo Carrera (Fondazione Eni Enrico Mattei, “Ca’ Foscari” University, Italy); Alexandros Maziotis (Fondazione Eni Enrico Mattei, Euro-Mediterranean Center for Climate Change); Jaroslav Mysiak (Fondazione Eni Enrico Mattei, Euro-Mediterranean Center for Climate Change); Fabio Eboli (Fondazione Eni Enrico Mattei, Euro-Mediterranean Center for Climate Change); Gabriele Standardi (Fondazione Eni Enrico Mattei, Euro-Mediterranean Center for Climate Change, Italy) |
| Abstract: | This paper estimates the direct and indirect socio-economic impacts of the 2000 flood that took place in the Po river basin (Italy) using a combination of Computable General Equilibrium (CGE) model and Spatial and Multi-Criteria Analysis. A risk map for the whole basin is generated as a function of hazard, exposure and vulnerability. The indirect economic losses are assessed using the CGE model, whereas the direct social and economic impacts are estimated with spatial analysis tools combined with Multi-Criteria Analysis. The social impact is expressed as a function of physical characteristics of the extreme event, social vulnerability and adaptive capacity. The results indicate that the highest risk areas are located in the mountainous and in the most populated portions of the basin, which are consistent with the high values of hazard and vulnerability. Considerably economic damages occurred to the critical infrastructure of all the sectors with the industry/commercial sector having the biggest impact. A negative variation in the country and industry Gross Domestic Product (GDP) was also reported. Our study is of great interest to those who are interested in estimating the economic impact of flood events. It can also assist decision makers in pinpointing factors that threaten the sustainability and stability of a risk-prone area and more specifically, to help them understand how to reduce social vulnerability to flood events. |
| Keywords: | Risk Assessment, Flood, Economic Impacts, Social Impact, Impact Assessment |
| JEL: | Q2 Q25 |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2012.87&r=cmp |
| By: | Sumit Kunnumkal; Kalyan Talluri |
| Abstract: | The choice network revenue management model incorporates customer purchase behavior as a function of the offered products, and is the appropriate model for airline and hotel network revenue management, dynamic sales of bundles, and dynamic assortment optimization. The optimization problem is a stochastic dynamic program and is intractable. A certainty-equivalence relaxation of the dynamic program, called the choice deterministic linear program (CDLP) is usually used to generate dyamic controls. Recently, a compact linear programming formulation of this linear program was given for the multi-segment multinomial-logit (MNL) model of customer choice with non-overlapping consideration sets. Our objective is to obtain a tighter bound than this formulation while retaining the appealing properties of a compact linear programming representation. To this end, it is natural to consider the affine relaxation of the dynamic program. We first show that the affine relaxation is NP-complete even for a single-segment MNL model. Nevertheless, by analyzing the affine relaxation we derive a new compact linear program that approximates the dynamic programming value function better than CDLP, provably between the CDLP value and the affine relaxation, and often coming close to the latter in our numerical experiments. When the segment consideration sets overlap, we show that some strong equalities called product cuts developed for the CDLP remain valid for our new formulation. Finally we perform extensive numerical comparisons on the various bounds to evaluate their performance. |
| Keywords: | Optimization Techniques; Programming Models; Dynamic Analysis; Air Transportation ; Sports; Gambling; Recreation; Tourism; Production Management |
| JEL: | C61 L93 L83 M11 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1349&r=cmp |
| By: | Charles L. Byrne and Abdellatif Moudafi (Department of Mathematical Sciences, University of Massachusetts; Ceregmia-Département Scientifique Interfacultaire) |
| Abstract: | The convex feasibility problem (CFP) is to find a member of the intersection of finitely many closed convex sets in Euclidean space. When the intersection is empty, one can minimize a proximity function to obtain an approximate solution to the problem. The split feasibility problem (SFP) and the split equality problem (SEP) are generalizations of the CFP. The approximate SFP (ASFP) and approximate SEP (ASEP) involve finding only approximate solutions to the SFP and SEP, respectively. We present here the SSEA, a simultaneous iterative algorithm for solving the ASEP. When this algorithm is applied to the ASFP it resembles closely, but is not equivalent to, the CQ algorithm. The SSEA involves orthogonal projection onto the given closed convex sets. The relaxed SSEA (RSSEA) is an easily implementable variant of the SSEA that uses orthogonal projection onto half-spaces at each step to solve the SEP. The perturbed version of the SSEA (PSSEA) is similar to the RSSEA, but uses orthogonal projection onto a sequence of epi-convergent closed convex sets. |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:crg:wpaper:dt2013-01&r=cmp |
| By: | Carlo Carraro (Ca’ Foscari University of Venice, FEEM and CMCC); Lorenza Campagnolo (Ca’ Foscari University of Venice, FEEM and CMCC); Fabio Eboli (FEEM and CMCC); Elisa Lanzi (FEEM and CMCC); Ramiro Parrado (FEEM and CMCC); Elisa Portale (World Bank) |
| Abstract: | This paper proposes a new tool to assess sustainability and make the concept of sustainable development operational. It considers its multi-dimensional structure combining the information deriving from a selection of relevant sustainability indicators belonging to economic, social and environmental pillars. It reproduces the dynamics of these indicators over time and countries. Then, it aggregates these indicators using a new approach based on Choquet’s integrals. The main novelties of this approach are indeed: (i) the modelling framework, a recursive-dynamic computable general equilibrium used to calculate the evolution of all indicators over time throughout the world, and (ii) the aggregation methodology to reconcile them in one aggregate index to measure overall sustainability. The former allows capturing the sector and regional interactions and higher-order effects driven by background assumptions on relevant variables to depict future scenarios. The latter makes it possible to compare sustainability performances, under alternative scenarios, across countries and over time. Main results show that the current sustainability at world level differs from what the traditional measure of well-being, the GDP, depicts, highlighting the trade-offs among different components of sustainability. Moreover, in the next decade a slight decrease in world sustainability may occur, in spite of an expected increase in world domestic product. Finally, dedicated policies increase overall sustainability, showing that social and environmental benefits may be greater than the correlated economic costs. |
| Keywords: | Sustainable Development, Sustainable Indicators, Computable General Equilibrium, Millennium Development Goals, Climate Change |
| JEL: | Q54 Q56 C68 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2012.94&r=cmp |
| By: | Lion Hirth (Potsdam-Institute for Climate Impact Research, Vattenfall GmbH); Falko Ueckerdt (Potsdam-Institute for Climate Impact Research) |
| Abstract: | Energy and climate policies are usually seen as measures to internalize externalities. However, as a side effect, these policies redistribute wealth between consumers and producers, and within these groups. While redistribution is seldom the focus of the academic literature in energy economics, it plays a central role in real world policy debates. This paper compares the redistribution effects of two major electricity policies: support schemes for renewable energy sources, and CO2 pricing. We find that the redistribution effects of both policies are large, and they work in opposed directions: while renewables support transfers wealth from producers to consumers, carbon pricing does the opposite. More specifically, we show that moderate amounts of wind subsidies leave consumers better off even if they bear the costs of subsidies. In the case of CO2 pricing, we find that while suppliers as a whole benefit even without free allocation of emission certificates, large amounts of producer surplus are redistributed between different types of producers. These findings are derived from an analytical model of electricity markets, and a calibrated numerical model of the Northwestern European integrated power system. Our findings imply that a society with a preference for avoiding large redistribution might prefer a mix of policies, even if CO2 pricing alone is the first best climate policy in terms of allocative efficiency. |
| Keywords: | Carbon Tax, Emission Trading, Redistribution, Consumer Surplus, Producer Surplus, Wind Power Generation, Electricity Market Modelling |
| JEL: | Q42 Q48 L94 H23 D61 D62 C61 C63 |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2012.82&r=cmp |
| By: | Jean Pisani-Ferry; Erkki Vihriälä; Guntram B. Wolff |
| Abstract: | Europe has responded to the crisis with strengthened budgetary and macroeconomic surveillance, the creation of the European Stability Mechanism, liquidity provisioning by resilient economies and the European Central Bank and a process towards a banking union. However, a monetary union requires some form of budget for fiscal stabilisation in case of shocks, and as a backstop to the banking union. This paper compares four quantitatively different schemes of fiscal stabilisation and proposes a new scheme based on GDP-indexed bonds. The options considered are: (i) A federal budget with unemployment and corporate taxes shifted to euro-area level; (ii) a support scheme based on deviations from potential output;(iii) an insurance scheme via which governments would issue bonds indexed to GDP, and (iv) a scheme in which access to jointly guaranteed borrowing is combined with gradual withdrawal of fiscal sovereignty. Our comparison is based on strong assumptions. We carry out a preliminary, limited simulation of how the debt-to-GDP ratio would have developed between 2008-14 under the four schemes for Greece, Ireland, Portugal, Spain and an â??averageâ?? country.The schemes have varying implications in each case for debt sustainability. |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:bre:polcon:765&r=cmp |
| By: | Canofari Paolo; Di Bartolomeo Giovanni; Piersanti Giovanni |
| Abstract: | This paper analyzes strategic interactions and contagion effects in countries joined to a monetary union. Using game theory and a cost-benefit analysis, the paper determines the set of equilibrium solutions under which country-specific shocks are transmitted to other member countries giving rise to contagion. Numerical simulations, obtained by a simple calibration of the model on some key Mediterranean countries of the Euro Zone, show the probabilities of contagion from Greece to Spain and Italy. |
| Keywords: | Shadow exchange rate, currency crisis, monetary unions, contagion, Nash equilibria |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:ter:wpaper:0098&r=cmp |