Insider behavior under different market structures: experimental evidence on trading patterns,manipulation, and profitability

Central European Journal of Operations Research - We conduct laboratory experiments incorporating different market structures and insiders who compete with imperfectly informed traders. The...     

奈特不确定下资产收益率发生紊乱的最优投资策略

在部分信息且市场利率非零的情形下,应用α-极大极小期望效用(α-MEU)模型区别投资者的含糊和含糊态度,研究资产预期收益率发生紊乱(disorder)时的投资组合问题.首先,利用倒向随机微分方程理论刻画了α-MEU.其次,给出紊乱时刻的后验概率过程满足的随机微分方程(SDE),以及价值过程所满足的倒向随机微分方程(BSDE).最后,应用鞅论解出指数效用时的最优交易策略和价值过程的明确表达式.     

Optimal investment and reinsurance for an insurer under Markov-modulated financial market

This study examines optimal investment and reinsurance policies for an insurer with the classical surplus process. It assumes that the financial market is driven by a drifted Brownian motion with coefficients modulated by an external Markov process specified by the solution to a stochastic differential equation. The goal of the insurer is to maximize the expected terminal utility. This paper derives the Hamilton–Jacobi–Bellman (HJB) equation associated with the control problem using a dynamic programming method. When the insurer admits an exponential utility function, we prove that there exists a unique and smooth solution to the HJB equation. We derive the explicit optimal investment policy by solving the HJB equation. We can also find that the optimal reinsurance policy optimizes a deterministic function. We also obtain the upper bound for ruin probability in finite time for the insurer when the insurer adopts optimal policies.     

Optimal quota-share and stop-loss reinsurance from the perspectives of insurer and reinsurer

Reinsurance plays a vital role in the insurance activities. The insurer and the reinsurer, which have conflicting interests, compose the two parties of a reinsurance contract. In this paper, we extend the results achieved by Tan et al. (N Am Actuar J 13(4):459–482, 2009) to the case in which the perspectives of both the insurer and the reinsurer are considered. We study the optimal quota-share and stop-loss reinsurance models by minimizing the convex combination of the VaR risk measures of the insurer’s cost and the reinsurer’s cost. Furthermore, as many as 16 reinsurance premium principles are investigated. The results show that optimal quota-share and stop-loss reinsurance may or may not exist depending on the chosen principles. Moreover, we establish the sufficient and necessary conditions for the existence of the nontrivial optimal reinsurance.     

Changing market conditions and advertising strategies: theory and evidence

Using a modified continuous Lanchester model of advertising competition and following a game theoretic approach, this paper investigates analytically the sensitivity of optimal advertising to changes in model parameters in the cases of symmetric and semi-symmetric competition. The theoretical results show that non-dominant firms in both market structures behave similarly whereas the dominant firm in the latter structure behaves considerably differently.We estimate a modified Lanchester model using ready-to-eat cereal data. Based on the obtained estimated parameters, we conduct an empirical analysis to assess the robustness of the theoretical estimated results. In the reported application, we demonstrate that when the model parameters change, non-dominant competitors as well as the dominant rival behave in a manner consistent with the theoretical results related to the semi-symmetric competitive structure.     

Effects of monetary policy on the long memory in interest rates: Evidence from an emerging market

We study the presence of long memory in a variety of interest rates in Turkey by time-varying generalized Hurst exponent. We reveal that adopting inflation targeting cause a sudden and considerable decrease in the long memory in interest rates. The improvement lasts till the collapse of Lehman Brothers in 2008 which is followed with an increased persistence in interest rates. Moreover, degree of long memory increases with maturity which is in contrast to economic theory.     

Transition from spiral wave to target wave and other coherent structures in the networks of Hodgkin-Huxley neurons

Transition of spiral wave in the regular networks of Hodgkin-Huxley (H-H) neurons is simulated and discussed in detail when the effect of membrane temperature and forcing current is considered. Neurons are distributed in the sites of two-dimensional array, neurons are connected with complete nearest-neighbor connections, no-flux boundary conditions, appropriate initial values and physiological parameters are used to develop a stable rotating spiral wave. A statistic factor of synchronization is defined to discuss the transition and development of spiral wave in the two parameters space (membrane temperature T and forcing current I), and it is found that spiral wave keeps alive due to positive current forcing and the spiral wave can be removed completely when the temperature is increased to a threshold about T = 22.3 °C at a fixed current intensity. Periodical forcing current is imposed on the networks of neurons globally and locally, respectively. It is found that spiral wave could be suppressed by the new generated traveling wave or target wave when periodical forcing current is imposed on the border of networks of neurons, and the most effective frequency of the external forcing current is close to the intrinsic frequency of the spiral wave of the networks.     

Dual sourcing using capacity reservation and spot market: Optimal procurement policy and heuristic parameter determination

This contribution focuses on the cost-effective management of the combined use of two procurement options: the short-term option is given by a spot market with random price, whereas the long-term alternative is characterized by a multi period capacity reservation contract with fixed purchase price and reservation level. A reservation cost, proportional with the reservation level, has to be paid for the option of receiving any amount per period up to the reservation level. A long-term decision has to be made regarding the reserved capacity level, and then it has to be decided – period by period – which quantities to procure from the two sources. Considering the multi-period problem with stochastic demand and spot price, the structure of the optimal combined purchasing policy is derived using stochastic dynamic programming. Exploiting these structural properties, an advanced heuristic is developed to determine the respective policy parameters. This heuristic is compared with two rolling-horizon approaches which use the one-period and two-period optimal solution. A comprehensive numerical study reveals that the approaches based on one-period and two-period solutions have considerable drawbacks, while the advanced heuristic performs very well compared to the optimal solution. Finally, by exploiting our numerical results we give some insights into the system’s behavior under problem parameter variations.     

Target market selection and marketing effort under uncertainty: The selective newsvendor

We consider a firm that markets, procures, and delivers a good with a single selling season in a number of different markets. The price for the good is market-dependent, and each market has an associated demand distribution, with parameters that depend on the amount of marketing effort applied. Given long procurement lead-times, the firm must decide which markets it will serve prior to procuring the good. We develop a profit maximizing model to address the firm’s integrated market selection, marketing effort, and procurement decisions. The model implicitly accounts for inventory pooling across markets, which reduces safety stock costs but increases model complexity. The resulting model is a nonlinear integer optimization problem, for which we develop specialized solution methods. For the case in which budget constraints exist, we provide a novel solution approach that uses a tailored branch-and-bound algorithm. Our approach solves a broad range of 3000 test instances in an average of less than 2 seconds, significantly outperforming a leading commercial global optimization solver.     

Privatization and performance: evidence from telecommunications sector

There is a continuing debate on whether or not ownership changes accompanying privatization of state-owned enterprises (SOEs) lead to performance improvements of such firms. Since profitability measures alone are possibly inappropriate for SOEs, we address this very significant current question using a novel approach. We test the performance of a large sample of telecommunication firms around the world, 4 years before and 4 years after privatization, using two parallel measures namely financial performance measures and production performance measures. Our purpose is to identify if both approaches could corroborate stronger evidence for or against maintained hypothesis of performance improvements after privatization. The overall finding for this industry indicates significant improvements in both financial and production performance after privatization. Further research is warranted to extend this parallel-methods approach to firms in other industries.     

Optimal exit and valuation under demand uncertainty: A real options approach

This paper considers both the optimal exit strategy and the valuation of stochastic cash flows of a firm facing demand uncertainty and potential excess supply. By relying on the standard theory of linear diffusions and ordinary nonlinear programming, we derive the value of the rationally managed firm, and state the necessary condition for optimal exit. In contrast to the standard approaches in the real options literature, our analysis is completely independent of both dynamic programming and the smooth-fit principle. I demonstrate that irreversible exit is optimal only when the value of the future productive opportunities becomes smaller than the value of irreversibly exercising the option to exit and in this way avoid further cumulative losses. I also present the comparative static properties of the optimal exit threshold and demonstrate that increased uncertainty may increase or decrease the optimal exit threshold depending on the sign of the net convenience yield.     

Optimal budgetary and monetary policies under uncertainty: A stochastic control approach

In this paper, we determine optimal budgetary and monetary policies for Austria using a small macroeconometric model. We use a Keynesian model of the Austrian economy, called FINPOL1, estimated by ordinary least squares, which relates the main objective variables of Austrian economic policies, such as the growth rate of real gross domestic product, the rate of unemployment, the rate of inflation, the balance of payments, and the ratio of the federal budget deficit to GDP, to fiscal and monetary policy instruments, namely expenditures and revenues of the federal budget and money supply. Optimal fiscal and monetary policies are calculated for the model under a quadratic objective function using the algorithm OPTCON for the optimum control of nonlinear stochastic dynamic systems. Several control experiments are performed in order to assess the influence of different kinds of uncertainty on optimal budgetary and monetary policies. Apart from deterministic optimization runs, different assumptions about parameter uncertainties are introduced; the results of these different stochastic optimum control experiments are compared and interpreted.     

Market efficiency of Brazilian exchange rate: Evidence from variance ratio statistics and technical trading rules

This study utilizes the variance ratio test to examine the behavior of Brazilian exchange rate. We show that adjustments for multiple tests and a bootstrap methodology must be employed in order to avoid size distortions. We propose a block bootstrap scheme and show that it has much nicer properties than the traditional Chow–Denning [Chow, K.V., Denning, K.C., 1993. A simple multiple variance ratio test. Journal of Econometrics 58 (3), 385–401] multiple variance ratio tests. Overall, the method proposed in the paper provides evidence refuting the random walk behavior for the Brazilian exchange rate for long investment horizon, but consistent with the random walk hypothesis for short-run horizon. Additionally, we also test for the predictive power of variable moving average (VMA) and trading range break (TRB) technical rules and find evidence of forecasting ability for these rules. Nonetheless, the excess return that can be obtained from such rules is not significant, suggesting that such predictability is not economically significant.     

Bifurcations and competing coherent structures in the cubic-quintic Ginzburg–Landau equation I: Plane wave (CW) solutions

Singularity theory is used to comprehensively investigate the bifurcations of the steady-states of the traveling wave ODEs of the cubic-quintic Ginzburg–Landau equation (CGLE). These correspond to plane waves of the PDE. In addition to the most general situation, we also derive the degeneracy conditions on the eight coefficients of the CGLE under which the equation for the steady states assumes each of the possible quartic (the quartic fold and an unnamed form), cubic (the pitchfork and the winged cusp), and quadratic (four possible cases) normal forms for singularities of codimension up to three. Since the actual governing equations are employed, all results are globally valid, and not just of local applicability. In each case, the recognition problem for the unfolded singularity is treated. The transition varieties, i.e. the hysteresis, isola, and double limit curves are presented for each normal form. For both the most general case, as well as for various combinations of coefficients relevant to the particular cases, the bifurcation curves are mapped out in the various regions of parameter space delimited by these varieties. The multiplicities and interactions of the plane wave solutions are then comprehensively deduced from the bifurcation plots in each regime, and include features such as regimes of hysteresis among co-existing states, domains featuring more than one interval of hysteresis, and isola behavior featuring dynamics unrelated to the primary solution branch in limited ranges of parameter space.     

Optimal trade execution under endogenous pressure to liquidate: Theory and numerical solutions

We study optimal liquidation of a trading position (so-called block order or meta-order) in a market with a linear temporary price impact (Kyle, 1985). We endogenize the pressure to liquidate by introducing a downward drift in the unaffected asset price while simultaneously ruling out short sales. In this setting the liquidation time horizon becomes a stopping time determined endogenously, as part of the optimal strategy. We find that the optimal liquidation strategy is consistent with the square-root law which states that the average price impact per share is proportional to the square root of the size of the meta-order (Bershova & Rakhlin,2013; Farmer et?al., 2013; Donier et?al., 2015; Tóth (2016).Mathematically, the Hamilton–Jacobi–Bellman equation of our optimization leads to a severely singular and numerically unstable ordinary differential equation initial value problem. We provide careful analysis of related singular mixed boundary value problems and devise a numerically stable computation strategy by re-introducing time dimension into an otherwise time-homogeneous task.     

Network DEA pitfalls: Divisional efficiency and frontier projection under general network structures

Data envelopment analysis (DEA) is a method for measuring the efficiency of peer decision making units (DMUs). Recently network DEA models been developed to examine the efficiency of DMUs with internal structures. The internal network structures range from a simple two-stage process to a complex system where multiple divisions are linked together with intermediate measures. In general, there are two types of network DEA models. One is developed under the standard multiplier DEA models based upon the DEA ratio efficiency, and the other under the envelopment DEA models based upon production possibility sets. While the multiplier and envelopment DEA models are dual models and equivalent under the standard DEA, such is not necessarily true for the two types of network DEA models. Pitfalls in network DEA are discussed with respect to the determination of divisional efficiency, frontier type, and projections. We point out that the envelopment-based network DEA model should be used for determining the frontier projection for inefficient DMUs while the multiplier-based network DEA model should be used for determining the divisional efficiency. Finally, we demonstrate that under general network structures, the multiplier and envelopment network DEA models are two different approaches. The divisional efficiency obtained from the multiplier network DEA model can be infeasible in the envelopment network DEA model. This indicates that these two types of network DEA models use different concepts of efficiency. We further demonstrate that the envelopment model’s divisional efficiency may actually be the overall efficiency.     

Scale economies and input substitution under a ray-homogeneous technology: additional cross-section evidence

Panik{at}mail.hartford.edu This paper posits a ray-homogeneous production function havingelasticities of scale and substitution that are not constantbut dependent upon the input mix. An estimable form is derivedas a local approximation near the point at which the magnitudeof the input vector is unity (the homogeneous Cobb-Douglas case).Evidence of both increasing and decreasing returns to scaleemerges along with the finding that the elasticity of substitutionlies significantly below unity in the majority of cases.     

Representational disfluency in algebra: evidence from student gestures and speech

In this investigation, we analyzed US middle school students’ (grades 6–8) gestures and speech during interviews to understand students’ reasoning while interpreting quantitative patterns represented by Cartesian graphs. We studied students’ representational fluency, defined as their abilities to work within and translate among representations. While students translated across representations to address task demands, they also translated to a different representation when reaching an impasse, where the initial representation could not be used to answer a task. During these impasse events, which we call representational disfluencies, three categories of behavior were observed. Some students perceived the graph to be bounded by its physical and numerical limits, and these students were categorized as physically grounded. A second, related, disfluency was categorized as spatially grounded. Students who were classified as spatially grounded exhibited a bounded view of the graph that limited their ability to make far predictions until they physically altered the spatial configuration of the graph by rescaling or extending the axes. Finally, students who recovered from one or more of these disfluencies by translating the quantitative information to alternative but equivalent representations (i.e., exhibiting representational fluency), while retaining the connection back to the linear pattern as graphed, were categorized as interpretatively grounded. Understanding the causes and varieties of representational fluency and disfluency contributes directly to our understanding of mathematics knowledge, learning and adaptive forms of reasoning. These findings also provide implications for mathematics instruction and assessment.