1,721,738 research outputs found
Immunization in an affine term structure framework
No full textIn this work I deal with affine term structure models (ATSM), namely models where the valuation function P of a default-free zero-coupon bond (ZCB) is exponentially affine in a vector of stochastic state variables (or risk factors). After a short introduction to ATSMs, I will deal with ZCB's portfolio multifactor immunization. Non trivial problems arise. No special difficulties appears in finding a suitable immunization strategy in one factor models, but all become hard to deal withas soon as the dimensions of the model grow. The problem may admit no solution even with two factors only
A Rényi-type quasimetric with random interference detection
No full textThis paper introduces a new dissimilarity measure between two discrete and finite probability distributions. The followed approach is grounded jointly on mixtures of probability distributions and an optimization procedure. We discuss the clear interpretation of the constitutive elements of the measure under an information-theoretical perspective by also highlighting its connections with the Renyi divergence of infinite order. Moreover, we show how the measure describes the inefficiency in assuming that a given probability distribution coincides with a benchmark one by giving formal writing of the random interference between the considered probability distributions. We explore the properties of the considered tool, which are in line with those defining the concept of quasimetric-i.e. a divergence for which the triangular inequality is satisfied. As a possible usage of the introduced device, an application to rare events is illustrated. This application shows that our measure may be suitable in cases where the accuracy of the small probabilities is a relevant matter
A characterization of S-shaped utility functions displaying loss aversion
Full text linkThis paper deals with utility (or value) function for reference dependent models. A new characterization of S-shaped utility functions displaying loss aversion is put forward. Then it is used to analyze some standard forms commonly used in the literature. It is shown that, unless some parameters' restrictions are imposed, power and exponential S-shaped utilities can lead to prefer fair symmetric games to the status quo and do not display loss aversion. Finally two new examples of simple S-shaped utility functions exhibiting loss aversion are presented
Classes of probability measures built on the properties of Benford’s law
No full textBenford’s law is a particular discrete probability distribution that is often satisfed
by the signifcant digits of a dataset. The nonconformity with Benford’s law suggests
the possible presence of data manipulation. This paper introduces two novel generalized versions of Benford’s law that are less restrictive than the original Benford’s
law—hence, leading to more probable conformity of a given dataset. Such generalizations are grounded on the existing mathematical relations between Benford’s
law probability distribution elements. Moreover, one of them leads to a set of probability distributions that is a proper subset of that of the other one. We show that the
considered versions of Benford’s law have a geometric representation on the threedimensional Euclidean space. Through suitable optimization models, we show that
all the probability distributions satisfying the more restrictive generalization exhibit
at least acceptable conformity with Benford’s law, according to the most popular
distance measures. We also present some examples to highlight the practical usefulness of the introduced devices
Loss aversion and perceptual risk aversion
No full textWe prove that, in cumulative prospect theory, the weak loss aversion for S-shaped value functions is equivalent to a notion of risk aversion that we define from the perceptual point of view. No additional assumption or condition on the probability distortion is needed.
It is demonstrated that a power S-shaped value function does not satisfy weak loss aversion, i.e., a decision maker is risk seeking with respect to some mixed sign lotteries
Proposed Coal Power Plants and Coal-To-Liquids Plants: Which Ones Survive and Why?
No full textThe increase of oil and natural gas prices since the year 2000 stimulated the planning and construction of new coal-fired electricity generating plants and coal-to-liquids (CTL) plants in the US. However, many of these projects have been canceled or abandoned since 2007. Using a set of 145 proposed coal power plants and 25 CTL plants, the determinants that influence the decision to abandon a project or to proceed with it are examined using binary data models and 20 regressors. In the case of coal power plants, the number of searches performed on Google relating to coal power plants, the project duration and the prices of alternative fuels for electricity generation are found to be statistically significant at the 5% level. As for CTL plants, the political affiliation of the state governor is the only variable significant at the 5% level across several model specifications. An out-of-sample exercise confirms these findings. These results also hold with robustness checks considering alternative Google search keywords, the potential effects of the recession between 2008 and 2009 and the inclusion of the two dimensions of the Dynamic-Weighted Nominate (DWN) database
Discretete-time affine term structure models: an econometric formulation
No full textDiscrete-time Affine Term Structure Models can be expressed in
AR (1)-ARCH form, but it is not possible to get a non-negative vari-
ance equations simply by restricting the parameters. In this paper
we resort to a distribution assumption in order to assure the variance
to be non-negative. We present a complete formulation for one-factor
and multi-factor models with Gamma conditional noise distribution.
This way we get a well defined volatility process that avoids any prob-
lem both in generating processes and in computing the conditional
likelihoods of observations. The log-likelihood function is derived
for one- and multi-factor specifications. Moreover, we implement a
one-factor estimation both with simulated and US interest rate data.
Finally, we compare the estimation results with a standard ATSM
with Gaussian disturbances
A simple method for unconstrained optimization without using derivatives
No full textA simple derivative free optimization method is presented. Some examples are provided showing the speed and the accuracy of the method
Risky choices and emotion-based learning
Full text linkThe paper offers a comprehensive analysis of causes and consequences of the accumulation of emotional experience, measured via skin conductance response, when taking risky choices. A large experimental data set was obtained from a psycho-physiological task conducted with 645 bank customers and financial professionals. With respect to causes, we found that the individual emotional response to gains/losses is trend-dependent and influenced by habituation, as well as by anchoring/framing due to the external layout of risky alternatives. With respect to consequences, we found evidence that the somatic reinforcement experience is able to guide asset picking, but within a long-term strategy. Consequently, selection behaviors were observed in a portfolio mean–variance framework, revealing that somatic markers lead individuals to pursue a long-term ‘psycho-economic’ efficiency that integrates factual information (monetary outcomes) with the implicit subjective experience
Investment-driven mixed firms: partial privatization by local governments
No full textWe analyze partial privatization by local governments, driven by investment and credit constraints, and provide a theory of monopolistic mixed firms based on strategic interaction between local politicians and private shareholders. Minority participation by private investors—as empirically observed—arises endogenously in the model to prevent investment expropriation. We consider the example of water
supply with perfectly inelastic demand and fixed-price regulation, coupled with price discretion at a local level. Welfare-maximizing local governments face a trade-off between the increase in consumers’ surplus and the reduction in costly public funds.
Therefore, private shareholders choose investment to keep the government share at a threshold such that the politician always sticks to the price-cap and dividends are then maximized. To consider normative issues, we compare investment by mixed firms and by a social planner
- …
