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on Computational Economics |
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Issue of 2016‒10‒02
fifteen papers chosen by |
| By: | Yongxin Yang; Yu Zheng; Timothy M. Hospedales |
| Abstract: | We propose a neural network approach to price EU call options that significantly outperforms some existing pricing models and comes with guarantees that its predictions are economically reasonable. To achieve this, we introduce a class of gated neural networks that automatically learn to divide-and-conquer the problem space for robust and accurate pricing. We then derive instantiations of these networks that are 'rational by design' in terms of naturally encoding a valid call option surface that enforces no arbitrage principles. This integration of human insight within data-driven learning provides significantly better generalisation in pricing performance due to the encoded inductive bias in the learning, guarantees sanity in the model's predictions, and provides econometrically useful byproduct such as risk neutral density. |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1609.07472&r=cmp |
| By: | Wolski, Marcin; van de Leur, Michiel |
| Abstract: | This study develops a novel agent-based model of the interbank market with endogenous credit risk formation mechanisms. We allow banks to exchange funds through unsecured and secured transactions in order to facilitate the flow of funds to the most profitable investment projects. Our model confirms basic stylized facts on (i) bank balance sheet distributions, (ii) interbank interest rates and (iii) interbank lending volumes, for both the secured and the unsecured market segments. We also find that network structures within the secured market segment are characterized by the presence of dealer banks, while we do not observe similar patterns in the unsecured market. Finally, we illustrate the usefulness of our model for analysing a number of policy scenarios. JEL Classification: C63, E17, E47, E58 |
| Keywords: | agent-based models, collateral, interbank lending, networks, repo |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20161959&r=cmp |
| By: | L. Walters; H.R. Bohlmann; M.W. Clance |
| Abstract: | This paper analyses the effects of the COMESA-EAC-SADC Tripartite Free Trade Agreement (TFTA) on the South African economy using a global Computable General Equilibrium (CGE) model. Simulation results show that South Africa’s economy gains from the implementation of the trade agreement with GDP rising by more than 1 per cent relative to the baseline. This win in overall economic activity occurs on the back of a terms of trade increase and a surge in regional trade, which allows for higher levels of both exports and imports. The boost to exports stimulates local industries, whilst relatively cheaper imports lead to welfare gains for local consumers. Increased trade and industry activity causes higher demand for endowments, including skilled and unskilled labour, capital and land, pushing up wages and capital rentals. |
| Keywords: | Computable General Equilibrium (CGE) Modelling, Free Trade Agreement, South Africa |
| JEL: | C68 F13 O55 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:635&r=cmp |
| By: | Montagna, Mattia; Kok, Christoffer |
| Abstract: | In this paper, we develop an agent-based multi-layered interbank network model based on a sample of large EU banks. The model allows for taking a more holistic approach to interbank contagion than is standard in the literature. A key finding of the paper is that there are material non-linearities in the propagation of shocks to individual banks when taking into account that banks are related to each other in various market segments. The contagion effects when considering the shock propagation simultaneously across multiple layers of interbank networks can be substantially larger than the sum of the contagion-induced losses when considering the network layers individually. In addition, a bank “systemic importance” measure based on the multi-layered network model is developed and is shown to outperform standard network centrality indicators. The finding of non-linear contagion effects when accounting for the interaction between the different layers of banks’ interlinkages have important policy implications. For example, it provides an argument for separating banks’ trading activities from their other intermediation activities. JEL Classification: C45, C63, D85, G21 |
| Keywords: | Financial contagion, interbank market, network theory |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20161944&r=cmp |
| By: | Dan Pirjol; Lingjiong Zhu |
| Abstract: | We present a rigorous study of the short maturity asymptotics for Asian options with continuous-time averaging, under the assumption that the underlying asset follows a local volatility model. The asymptotics for out-of-the-money, in-the-money, and at-the-money cases are derived, considering both fixed strike and floating strike Asian options. The asymptotics for the out-of-the-money case involves a non-trivial variational problem which is solved completely. We present an analytical approximation for Asian options prices, and demonstrate good numerical agreement of the asymptotic results with the results of Monte Carlo simulations and benchmark test cases in the Black-Scholes model for option parameters relevant in practical applications. |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1609.07559&r=cmp |
| By: | Benček, David |
| Abstract: | In recent years, a number of Western industrialized nations have experienced a notable polarization of political ideologies, and growing numbers of individuals seemingly support extreme positions. As a result, established political parties have moved to the left or right and new parties have appeared on the fringes. But why are people with extreme political views this visible in the public debate, and how are they able to move party positions further to the margins when they should be outnumbered by a moderate majority? Contradictory to the classic literature that focuses on collective action problems, this paper studies emerging effects from informational asymmetries. It extends a spatial voting model to include incompletely informed candidates and knowledgeable voters. Agent-based simulations suggest that only fringe voters benefit from distorting their opinions and dominating political discourse. At the same time, better informed candidates have a competitive advantage in elections no matter how strongly voters distort their positions. |
| Keywords: | spatial voting,heterogeneous actors,extreme opinions,agent-based modelling |
| JEL: | C63 D02 D72 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwkwp:2047&r=cmp |
| By: | Leonardo Monasterio |
| Abstract: | Este trabalho apresenta um método de classificação da ancestralidade dos sobrenomes dos brasileiros nas seguintes classes: ibérica, italiana, japonesa, alemã e leste europeia. A partir de fontes históricas diversas, montou-se uma base de dados da ancestralidade dos sobrenomes. Essas informações formam a base para a aplicação de algoritmos de classificação de fuzzy matching e de machine learning nos mais de 46 milhões de trabalhadores da Relação Anual de Informações Sociais (Rais) Migra de 2013. A imensa maioria (96,4%) dos sobrenomes únicos da Rais foi identificada com o processo de fuzzy matching e os demais com o método proposto por Cavnar e Trenkle (1994). A comparação dos resultados do procedimento com dados sobre estrangeiros no Censo Demográfico de 1920 e a distribuição geográfica dos sobrenomes não ibéricos reforçam a acurácia do procedimento. This paper presents a method for classifying the ancestry of Brazilian surnames based on historical sources. The information obtained forms the basis for applying fuzzy matching and machine learning classification algorithms to more than 46 million workers in five categories: Iberian, Italian, Japanese, German and East European. The vast majority (96.4%) of the single surnames were identified using a fuzzy matching and the rest using a method proposed by Cavnar and Trenkle (1994). A comparison of the results of the procedures with data on foreigners in the 1920 Census and with the geographic distribution of non-Iberian surnames underscores the accuracy of the procedure. |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:ipe:ipetds:2229&r=cmp |
| By: | Loumrhari, Ghizlan |
| Abstract: | The objective of this article is to estimate the effects of the population aging on the financial viability of the pension system and the macroeconomic evolution in a general way. To do it, we built a computational OLG model. The results show that the current ageing and which will accelerate in the 2030s will have dramatic consequences both on the financial and economic plans. The increase of the rate of contribution and the reduction in retirement pensions if they can assure the financial balance of pension funds seem impossible to be implemented economically and socially. Indeed, to maintain the balance of pension funds, the government should increase the rate of contributions of 20 points or to lower the benefits of practically 30 %. Certainly, it is always possible to combine these two reforms with an increase of two years the retirement age and the introduction of a dose of capitalization but it seems insufficient. |
| Keywords: | Vieillissement démographiques, systèmes de retraite, modèles à générations imbriquées, Maroc |
| JEL: | C68 E24 H55 J26 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:74077&r=cmp |
| By: | Dan Pirjol; Lingjiong Zhu |
| Abstract: | The discrete sum of geometric Brownian motions plays an important role in modeling stochastic annuities in insurance. It also plays a pivotal role in the pricing of Asian options in mathematical finance. In this paper, we study the probability distributions of the infinite sum of geometric Brownian motions, the sum of geometric Brownian motions with geometric stopping time, and the finite sum of the geometric Brownian motions. These results are extended to the discrete sum of the exponential L\'evy process. We derive tail asymptotics and compute numerically the asymptotic distribution function. We compare the results against the known results for the continuous time integral of the geometric Brownian motion up to an exponentially distributed time. The results are illustrated with numerical examples for life annuities with discrete payments, and Asian options. |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1609.07558&r=cmp |
| By: | Laura Roa Castro (IRT SystemX, LGI - Laboratoire Génie Industriel - EA 2606 - CentraleSupélec); Julie Stal-Le Cardinal (LGI - Laboratoire Génie Industriel - EA 2606 - CentraleSupélec); Martine Callot (EADS CCR - EADS Corporate Research Center - Airbus Groups Innovations) |
| Abstract: | Over the last few years, vehicle industry has been looking for a better preparation of test and certification phases of their complex products. In this context, Modelling and Simulation (M&S) technics have grown in importance for these companies. Since M&S technics are growing on, the number of people performing those technics have risen exponentially, making their teams work harder to accomplish the simulation objectives. Different alternatives supporting collaborative simulation have been proposed. Nevertheless, most of those alternatives deal only with Information and Technical (IT) problems. This paper proposes the considered solutions, based on a use case from aircraft industry, aiming at develop an adaptive model for collaborative simulation. The results include a holistic view of collaborative problems in simulation processes, distinguished between three different phases: initialization, collaboration and return of experience. In addition, the model combines also three main parts for a successful collaboration: the actors, the process and the objects to exchange. The adaptive model developed gives a clear idea of dynamic interactions between the different phases. Future work will consider a cooperative model based on game theory in order to establish the actors behavior model |
| Keywords: | Concurrent engineering,Collaborative simulation,actor based approach,simulation model exchange |
| Date: | 2015–11–02 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-01356853&r=cmp |
| By: | Finn Roar Aune; Kristine Grimsrud; Lars Lindholt; Knut Einar Rosendahl; Halvor Briseid Storrøsten (Statistics Norway) |
| Abstract: | This paper studies the oil market effects of phasing out oil consumption subsidies in the transport sector. Welfare effects in different countries are also examined. We investigate potential feedback mechanisms of oil subsidy removal via lower oil prices in the global oil market, which may stimulate oil consumption in other regions. An intertemporal numerical model of the international oil market is applied, where OPEC-Core producers have market power. The major subsidizers of oil are OPEC countries, and we find that the effects of subsidy removal here are quite pronounced. Consumption of oil in the transport sector of OPEC countries declines significantly. As a result, the global oil price falls slightly, and other regions increase their oil consumption to some degree. Although OPEC consumers are worse off by the subsidy removal, total welfare in OPEC increases due to higher profits from oil production. |
| Keywords: | Fossil fuel subsidies; transport; oil market; market power; distribution; feedback mechanisms |
| JEL: | D42 Q54 R48 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:ssb:dispap:846&r=cmp |
| By: | Christian Tilk (Johannes Gutenberg-University Mainz, Germany) |
| Abstract: | Many governments worldwide have imposed hours of service regulations for truck drivers to ensure that break and rest periods are regularly taken. Transport companies have to take these into account and plan the routes and schedules of their truck drivers simultaneously. This problem is called vehicle routing and truck driver scheduling problem (VRTDSP). With their paper “An exact method for vehicle routing and truck driver scheduling problems” [Technical Report No. 33, Jacobs University, School of Engineering and Science, Bremen, Germany] Goel and Irnich presented the ?rst exact approach to the VRTDSP.They include hours of service regulations in a vehicle routing problem with time windows and use a branch-and-price algorithm to solve it. The main contribution of the paper at hand is to present a sophisticated branch-and-price-and-cut algorithm for the VRTDSP that is based on the parameter-free auxiliary network and the resource extension functions (REFs) de?ned in the work of Goel and Irnich. Their labeling algorithm is extended by means of de?ning backward REFs in order to build a bidirectional labeling. Feasible routes are constructed by a non-trivial merge procedure. Di?erent acceleration techniques are used to speed up the solution process of the pricing problem. In addition, several classes of known valid inequalities are used to further strengthen the LP-relaxation of the master program. We present a detailed computational study to analyze the impact of the di?erent techniques. The resulting algorithm is able to solve all VRTDSP benchmark instances with 25 customers and 44 out of 56 instances with 50 customers in two hours of computation time to proven optimality. |
| Keywords: | truck driver, routing and scheduling, branch-and-price-and-cut |
| Date: | 2016–08–04 |
| URL: | http://d.repec.org/n?u=RePEc:jgu:wpaper:1616&r=cmp |
| By: | Kazufumi Yamana (Policy Research Institute, Ministry of Finance,Japan) |
| Abstract: | The analysis of household nance has non-negligible implications in asset pricing literature and other areas, but empirical research on this topic is a challenging task. I construct the model to consider two kinds of heterogeneity: incomplete market and limited participation, and implement the density matching approximate Bayesian computation algorithm with the cross-sectional household portfolio survey data. I nd that the estimate of relative risk aversion parameter takes a plausible value. This outcome implies that the equity premium puzzle can be due to upward bias from a speci cation error associated with the representative agent economy. |
| Keywords: | Approximate Bayesian Computation, Sequential Monte Carlo, Structural Estimation, Household Portfolio |
| JEL: | G11 C10 C80 |
| URL: | http://d.repec.org/n?u=RePEc:mof:wpaper:ron279&r=cmp |
| By: | Ann-Kathrin Rothenbächer (Johannes Gutenberg-University Mainz, Germany); Michael Drexl (Johannes Gutenberg-University Mainz, Germany); Stefan Irnich (Johannes Gutenberg-University Mainz, Germany) |
| Abstract: | In this paper, we present a new branch-and-price-and-cut algorithm to solve the truck-and-trailer routing problem with time windows (TTRPTW) and two real-world extensions. In all TTRPTW variants, the ?eet consists of one or more trucks that may attach a trailer. Some customers are not accessible with a truckand-trailer combination, but can however be serviced by one if the trailer is previously detached and parked atasuitablelocation. Inthe?rstextension, the planning horizon comprises twodays and customers maybe visited either on both days or only once, in which case twice the daily supply must be collected. The second extension incorporates load transfer times depending on the quantity moved from a truck to its trailer. The exact branch-and-price-and-cut algorithm for the standard variant and the two new extensions is based on a set-partitioning formulation in which columns are routes describing the movement of a truck and its associated trailer. Linear relaxations of this formulation are solved by column generation where new routes are generated with a dynamic programming labeling algorithm. The e?ectiveness of this pricing procedure can be attributed to the adaptation of techniques such as bidirectional labeling, the ng-neighbourhood, and heuristic pricing using dynamically reduced networks and relaxed dominance. The cutting component of the branch-and-price-and-cut adds violated subset-row inequalities to strengthen the linear relaxation. Computational studies show that our algorithm outperforms existing approaches on TTRP and TTRPTW benchmark instances used in the literature. |
| Keywords: | Vehicle Routing, Truck-and-Trailer Routing, Branch-and-Price-and-Cut |
| Date: | 2016–09–15 |
| URL: | http://d.repec.org/n?u=RePEc:jgu:wpaper:1617&r=cmp |
| By: | VARGA, ATTILA; HAU-HORVÁTH, ORSOLYA; SZABÓ, NORBERT; JÁROSI, PÉTER |
| Abstract: | This study introduces and applies a modelling system that is suitable for the impact assessment of environmental innovations referred to as “Blue Economy” innovations. The paper’s contribution to the literature is threefold. First, the building of a multi-sector computable general equilibrium (CGE) model, which provides the theoretical framework for studying the economic impacts of using waste as a production input. Second, the creation of an empirical methodology through which new Blue Economy technologies can be concretely accounted for in regional input-output tables. Since Blue Economy innovations are mostly built on local inputs, their effects are primarily local. Third, given that interregional spillovers of local impacts might also be significant, through interregional trade or migration, a modelling approach that can follow complex spatial processes is applied. The broader model framework chosen is the GMR-Europe model. |
| Keywords: | GMR model, Blue Economy, computable general equilibrium models, TFP, innovation. |
| JEL: | C5 O3 O30 Q5 R1 |
| Date: | 2015–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:73953&r=cmp |