A fuzzy attractiveness of market entry (FAME) model for market selection decisions

A Fuzzy Attractiveness of Market Entry (FAME) model is developed to address the decision-making problem of product introduction into alternative markets. FAME is a market entry selection model that is specifically designed to handle situations when information is limited and/or ambiguous, and a high level of uncertainty exists. As such, the FAME model is an easy to implement tool that supports a reasoning approach to market selection decisions. The model uses expert opinions regarding four factors: (1) fit of the firm's marketing mix in each market; (2) the fit of its key competitor's marketing mix in each market; (3) environmental conditions in each market; and (4) the strategic importance of each market to the firm. Application of the model algorithm is conducted for a small, Bulgarian winery's market selection decision. Ease of use is relevant for small to mid-size companies since a spreadsheet is sufficient to complete the algorithmic calculations.     

A continuous model for production–distribution system design

The production–distribution system design problem (PDSDP) involves decisions concerning the structure of a firm's supply chain. An overwhelming majority of the literature uses mixed integer programming formulations in representing such facility design decisions. In this paper, we present an alternative modeling framework, which is based on the use of continuous functions to represent spatial distributions of cost and customer demand. The proposed continuous model allows the derivation of a number of insights about the impact of problem parameters on facility design decisions. It is proposed that discrete and continuous modeling approaches complement each other.     

An investigation of stock price dynamics in emerging markets

The emergence of stock markets in former centrally planned economies poses a significant problem to financial economists and policy makers in that price movements in these markets are not well explained by conventional capital theory. The opening of stock markets brings about a new equilibrium value P̂ for the firm. Shares are floated on an estimate of P̂, and buyers of these shares and individuals trading in the secondary market are also obliged to do so on the basis of their estimates of this magnitude. At any time, the market price of the firm's shares then reflects the market's best guess of what its value would be in the new equilibrium, and information on which to calculate estimates become more readily available as the stock market matures. This paper presents a stochastic price model which takes all of these factors into consideration. The model also provides a theoretical foundation underlying the pronounced trends of prices in emerging stock markets, and explains why they appear to be so volatile. © 1998 John Wiley & Sons, Ltd.     

Strategic financial risk management and operations research

Risk management has become a vital topic for financial institutions in the 1990s. Strategically, asset/liability management systems are important tools for controlling a firm's financial risks. They manage these risks by dynamically balancing the firm's asset and liabilities to achieve the firm's objectives. We discuss such leading international firms as Towers Perrin, Frank Russell, and Falcon Asset Management, which apply asset/liability management for efficiently managing risk over extended time periods. Three components of asset/liability management are described: 1) a multi-stage stochastic program for coordinating the asset/liability decisions; 2) a scenario generation procedure for modeling the stochastic parameters; and 3) solution algorithms for solving the resulting large-scale optimization problem.     

注意力视角下媒体报道对股价的影响模型研究

鉴于中国A股市场个人投资者比例相对较高但其理性程度相对较低的实际情况,在拓展Tetlock模型的基础上构建了一个两资产三阶段的理性期望模型。研究发现:首先,被报道股票的价格受到注意力效应的影响,存在正向注意力溢价;其次,注意力交易者对被报道股票的交易量在媒体报道后放大,且存在买卖不平衡性;最后,作为对有限理性的补偿,注意力受媒体报道的影响程度越高,其收益越低。论文在统一的分析框架之内考察了媒体报道对缓解信息不对称和引发投资者注意力效应两方面的影响,有助于在理论上为进一步探索媒体报道对股票市场的影响机理、在实践中为监管层更好地利用媒体力量促进股市健康发展提供理论启示。     

Impact of demographic and economic variables on financial policy purchase timing decisions

This paper investigates the extent to which consumers' demographic factors influence their financial policy purchasing behaviours and also explores how the external economic environment affects consumers' propensities to purchase financial products. The Cox proportional hazard model is used to explore these issues. The results suggest that consumer decisions on the timing of financial product purchases are largely explained by changes in the economic environment in terms of stock market, the housing market, average earnings, consumer confidence, and interest rates. The influence of customer demographic factors is also important but secondary.     

Optimal inventory and insurance decisions for a supply chain financing system with downside risk control

This research considers a supply chain financing system consisting of a capital‐constrained retailer, a supplier and a risk‐averse bank. The retailer may be subject to credit limit because of the bank's downside risk control, and hence, credit insurance should be needed to enhance his financing ability. This paper develops a mathematical optimization model by incorporating insurance policy into the well‐known newsvendor financing model. The optimal inventory and insurance decisions under different scenarios, that is, no insurance, insurance with symmetric information and insurance with asymmetric information, are derived. This work also discusses how the retailer's capital level, the bank's risk aversion, and the insurer's loading factor affect the optimal inventory and insurance decisions. The results show that the retailer will use credit insurance if he is sufficiently capital‐constrained or the insurer's risk loading factor is low enough. Moreover, credit insurance can bring Pareto improvement to the supply chain financing system, which verifies the prevalence of credit insurance in practice. Several numerical experiments are presented to examine the sensitivities of key parameters. Copyright © 2016 John Wiley & Sons, Ltd.     

Stochastic equity volatility related to the leverage effect II: valuation of European equity options and warrants

We propose a general framework to assess the value of the financial claims issued by the firm, European equity options and warrantsin terms of the stock price. In our framework, the firm's asset is assumed to follow a standard stationary lognormal process with constant volatility. However, it is not the case for equity volatility. The stochastic nature of equity volatility is endogenous, and comes from the impact of a change in the value of the firm's assets on the financial leverage. In a previous paper we studied the stochastic process for equity volatility, and proposed analytic approximations for different capital structures. In this companion paper we derive analytic approximations for the value of European equity options and warrants for a firm financed by equity, debt and warrants. We first present the basic model, which is an extension of the Black-Scholes model, to value corporate securities either as a function of the stock price, or as a function of the firm's total assets. Since stock prices are observable, then for practical purposes, traders prefer to use the stock as the underlying instrument, we concentrate on valuation models in terms of the stock price. Second, we derive an exact solution for the valuation in terms of the stock price of (i) a European call option on the stock of a levered firm, i.e. a European compound call option on the total assets of the firm, (ii) an equity warrant for an all-equity firm, and (iii) an equity warrant for a firm financed by equity and debt. Unfortunately, to compute these solutions we need to specify the function of the stock price in terms of the firm's assets value. In general we are unable to specify this expression, but we propose tight bounds for the value of these options which can be easily computed as a function of the stock price. Our results provide useful extensions of the Black-Scholes model.     

Optimal input substitution of a firm facing an environmental constraint

In this paper we consider the dynamic behavior of a firm subject to environmental regulation. As a social planner the government wants to reduce the level of pollution. To reach that aim it can, among others, set an upper limit on polluting emissions of the firm. The paper determines how this policy instrument influences the firm's decisions concerning investments, abatement efforts, and the choice whether to leave some capacity unused or not. The abatement process is modeled as input substitution rather than end-of-pipe. Using standard control theory in determining the firm's optimal dynamic investment decisions it turns out that it is always optimal to approach a long run optimal level of capital. In some cases, this equilibrium is reached within finite time, but usually it will be approached asymptotically. Different scenarios are considered, ranging from attractive clean input to unattractive clean input, and from a mild emission limit to a very tight one. It is shown that for large capital stocks and/or when marginal cash flow per unit of emissions is larger for the dirty input than for the clean input, it can be optimal to actually leave some production capacity unused. Also, since the convex installation costs suggest to spread investments over time, it can happen that investment in productive capital is positive although capacity remains unused.     

A generalized inefficiency model with input and output dependence

In this paper we propose a general inefficiency model, in the sense that technical inefficiency is, simultaneously, a function of all inputs, outputs, and contextual variables. We recognize that change in inefficiency is endogenous or rational, and we propose an adjustment costs model with firm-specific but unknown adjustment cost parameters. When inefficiency depends on inputs and outputs, the firm's optimization problem changes as the first order conditions must take into account the dependence of inefficiency on the endogenous variables of the problem. The new formulation introduces statistical challenges which are successfully resolved. The model is estimated using Maximum Simulated Likelihood and an empirical application to U.S. banking is provided.     

在线网络借贷投资决策模型及实证研究

P2P网络借贷作为电子商务在金融领域的延伸与应用,近年来得到广大学者的关注.但是目前的理论研究中,鲜有从投资者信息挖掘的角度进行投资决策分析.本文提出一个新颖的方法,即投资者构成分析方法,通过分析贷款的众多投资者信息遴选出最有价值的投资,辅助投资者进行投资决策.首先从投资者的历史投资收益率、风险偏好以及投资经验三个维度构建投资者档案(investor profile),进而基于投资者档案构建投资者构成分析模型,最后通过美国最大的在线网络借贷网站Prosper的数据,对本文提出的构想及模型进行了实证研究.实验结果表明本文提出的利用投资者构成分析的方法辅助投资者进行投资决策是可行的,文中构建的模型表现出良好的预测能力,能够有效地筛选出有价值的投资.     

Some two-echelon style-goods inventory models with asymmetric market information

A “two-echelon” newsboy problem considers the interactive decisions between the “manufacturer” and the “retailer” – now recognized as two separate entities. Earlier papers on this problem assumed that the two parties share the same market information. We extend this problem by studying the situation in which the retailer has better market information than the manufacturer. Presented are several decision models that should be useful for guiding a manufacturer's decisions. Moreover, solutions to these models lead to various unexpected and interesting conclusions. For example, we found that improved retailer's market-knowledge always benefits the manufacturer and the system, though not necessarily the retailer himself. In contrast, improved manufacturer's knowledge benefits only the manufacturer himself at the expense of the retailer and of the system.     

The effect of lifetime buys on warranty repair operations

Lifetime buys are a common practice in the electronics and telecommunication industries. Under this practice, manufacturers procure their repair parts inventory in one order to support the spare part needs of a product for the duration of its warranty repair period. In this paper, we consider a repair operation in which defective items under warranty are returned to a manufacturer who either repairs these items using its spare parts inventory or replaces each defective unit with a new product. We show how fixed repair capability costs, variable repair costs, inventory holding costs, and replacement costs affect a firm's optimal repair and replacement decisions. The model is used to gain insights for products from a major mobile device manufacturer in the United States.     

Security design and firm dynamics under long‐term moral hazard

This paper addresses a moral hazard problem in which the agent's actions affect the future profits of the firm. The optimal contract can be implemented through the issuance of variable coupon debt and purchase of fixed‐coupon debt. Consequently, the resulting capital structure acts as a hedge for the firm, reducing underinvestment costs in bad states of nature and controlling overinvestment incentives in good ones. However, owing to asymmetric information between the firm's manager and investors, this hedge is only partial. The firm's investments vary with cash flows, disclosing the agent's asymmetric information to the principal. Copyright © 2016 John Wiley & Sons, Ltd.     

Capacity augmentation of a supply chain for a short lifecycle product: A system dynamics framework

For an innovative product characterized by short product lifecycle and high demand uncertainty, investment in capacity buildup has to be done cautiously. Otherwise either the product’s market diffusion is impeded or the manufacturer is left with unutilized capacity. Using the right information for making capacity augmentation decisions is critical in facing this challenge. In this paper, we propose a method for identifying critical information flows using the system dynamics model of a two-echelon supply chain. The fundamental premise of system dynamics methodology is that (system) structure determines (its) behavior. Using loop dominance analysis method we study the feedback loop structure of the supply chain system. The outcome is a set of dominant loops that determine the dynamics of capacity growth. It is revealed that the delivery delay information has little effect while the loop that connects retail sales with production order affects the dynamics significantly. Modifying this loop yields appropriate capacity augmentation decisions resulting in higher performance. What-if analyses bring out effects of modifying other structural elements. In conclusion, we claim that the information feedback based methodology is general enough to be useful in designing decision support systems for capacity augmentation. The limitations of the model are also discussed and possible extensions identified.     

Modelling and measuring the irrational behaviour of agents in financial markets: Discovering the psychological soliton

Following a Geometrical Brownian Motion extension into an Irrational fractional Brownian Motion model, we re-examine agent behaviour reacting to time dependent news on the log-returns thereby modifying a financial market evolution. We specifically discuss the role of financial news or economic information positive or negative feedback of such irrational (or contrarian) agents upon the price evolution. We observe a kink-like effect reminiscent of soliton behaviour, suggesting how analysts' forecasts errors induce stock prices to adjust accordingly, thereby proposing a measure of the irrational force in a market.     

货市与股市波动的超前滞后关系 ——基于复主成分分析法

在传统主成分分析的基础上,复数希尔伯特主成分分析通过将希尔伯特变换与随机矩阵理论相结合获取滤噪经济数据的频域信息,为揭示股票市场与货币市场波动的超前滞后关系提供了途径.实证研究结果显示,在样本区间内,中国股票市场指标相对于货币市场指标来说大部分呈现出超前的变化,而在货币市场中,数量型指标波动较为靠前,价格型指标的反应则较为滞后.此外,股票价格与货币供应量的波动之间存在反馈效应.探索两市场间这样一种动态关系能为政府对金融市场的监管工作提供相应的政策建议.     

Closed Form Approximations for Spread Options

Abstract

Market mechanisms are increasingly being used as a tool for allocating somewhat scarce but unpriced rights and resources, and the European Emission Trading Scheme is an example. By means of dynamic optimization in the contest of firms covered by such environmental regulations, this article generates endogenously the price dynamics of emission permits under asymmetric information, allowing inter-temporal banking and borrowing. In the market, there are a finite number of firms and each firm's pollution emission follows an exogenously given stochastic process. We prove the discounted permit price is a martingale with respect to the relevant filtration. The model is solved numerically. Finally, a closed-form pricing formula for European-style options is derived.     

An advertising game with multiplicative interference

Two competing manufacturers provide a homogeneous market with substitutable products and want to maximize their profits. Each firm may advertise its brand, with a positive effect on its own brand and negative on the competitor's one. Moreover, each firm may choose an advertising medium to use among several available media. We assume that the advertising effect on demand is mediated by the goodwill variable and that a competitor's interference may be represented as a proportional reduction of the virtual goodwill. We model the manufacturers' problem as a noncooperative game under complete information and discuss the existence and features of its Nash equilibria.     

Learning-by-doing may not be enough to sustain competitiveness in a market

The economic order quantity model and its variants are the oldest reported scientific inventory models in the literature. They are mathematically simple to use and understand. This characteristic contributed to their popularity. However, they have limitations that restrict their application in practice. Researchers have extended those models by relaxing some of their restrictive assumptions. One of the main limitations of the EOQ model is the estimation of its cost parameters, such as setup and holding costs, which include some hidden (or difficult to estimate) components. Emerging research proposes using the second law of thermodynamics when to measure the hidden (entropy) costs of inventory systems. Another research stream focuses on learning-by-doing, which reduces the unit cost of a product, thus reducing its price and enhancing a firm's competitiveness. This paper assumes that a buyer receives a shipment from its vendor following the EOQ model. The buyer invests in the vendor's process to accelerate learning (mainly workers training, among other things). The buyer's unit purchase cost reduces because of learning at the vendor's side. The buyer's competitors also learn, increasing competitiveness. For this purpose, we develop an EOQ model where price-dependent demand is analogous to a heat transfer equation, which is used to determine the entropy cost. It accounts for improvement by learning as a result of the buyer's investment to compete in a market. The implementation and management of improvement programs are not usually smooth, resulting in disorder quantified by an entropy cost function. The developed EOQ model is investigated with and without entropy costs. Numerical results representing different scenarios are provided to illustrate the behavior of the models and identify the factors affecting the decision variables and, subsequently, the buyer's profitability. The results showed that in a competitive market, the buyer has to maintain a learning rate faster than those of its competitors to ensure a prolonged, but indefinite, profitability. The results also showed that investment in learning is meaningful when the competition is fierce.