Felipe Dias Paiva
2005-06-01
Full Text Available This study analyzed the Capital Asset Pricing Model CAPM as well as the Downside Capital Asset Pricing Model D-CAPM and evaluated the latter as an efficient alternative asset pricing model. The returns of 40 companies on the São Paulo Stock Exchange BOVESPA were studied between December 1996 and August 2002. To test the models the study used as variables the Interbank Deposit Certificate CDI as a risk free asset and the Index of São Paulo Stock Exchange IBOVESPA as a proxy of the market portfolio. The D-CAPM was shown to be more useful in explaining the return of the stock market than the CAPM.O objetivo deste estudo é analisar o capital asset pricing model (CAPM e o downside capital asset pricing model (D-CAPM, bem como avaliar se este último modelo é uma eficiente alternativa de modelo de precificação de ativos. Os dados da pesquisa referem-se a 40 retornos de companhias listadas na Bolsa de Valores de São Paulo, de dezembro de 1996 a agosto de 2002. O artigo utilizou, para testar os modelos, as variáveis Certificado de Depósito Interbancário (CDI, como um ativo livre de risco, e o índice da Bolsa de Valores de Sao Paulo (Ibovespa, como proxy do portfólio de mercado. Conclui-se, então, que o D-CAPM possui uma maior capacidade explicativa dos retornos dos ativos se comparado ao CAPM.
Burianová, Eva
2008-01-01
Cílem první části této bakalářské práce je - pomocí analýzy výchozích textů - teoretické shrnutí ekonomických modelů a teorií, na kterých model CAPM stojí: Markowitzův model teorie portfolia (analýza maximalizace očekávaného užitku a na něm založený model výběru optimálního portfolia), Tobina (rozšíření Markowitzova modelu ? rozdělení výběru optimálního portfolia do dvou fází; nejprve určení optimální kombinace rizikových instrumentů a následná alokace dostupného kapitálu mezi tuto optimální ...
Emre Demircioglu
2015-01-01
This study is conducted to investigate the CAPM (Capital Asset Pricing Model) in Turkey based on the sources of information from Istanbul Stock exchange emphasizing only on the Cement Sector and Power Generation...
Pinto, Rinaldo Caldeira; Parente, Virginia [Universidade de Sao Paulo (USP), SP (Brazil)], emails: rinaldo@iee.usp.br, vparente@iee.usp.br
2010-07-01
The aim of this paper is to analyse the use of Capital Asset Pricing Model (CAPM) Beta in the Brazilian electric distribution sector tariffs review. The betas applied by the Regulatory Agency are defined using data from the American, English and Brazilian markets. These betas will then be compared to the betas obtained in the domestic market. The betas were directly obtained from an economic-financial databank largely employed by the market. The sample is composed of companies' shares, priced at Sao Paulo Stock Market. Their main activity is the distribution of electric energy between July 2002 and July 2007. The results of mean betas obtained for the distribution segment, with values close to the ones applied by the regulatory agency for the cycle of tariff reviews between 2007-2010. (author)
Pinto, Rinaldo Caldeira; Parente, Virginia, E-mail: rinaldo@iee.usp.br, E-mail: vparente@iee.usp.br [Universidade de Sao Paulo (USP), SP (Brazil)
2010-07-01
The aim of this paper is to analyse the use of Capital Asset Pricing Model (CAPM) Beta in the Brazilian electric distribution sector tariffs review. The betas applied by the Regulatory Agency are defined using data from the American, English and Brazilian markets. These betas will then be compared to the betas obtained in the domestic market. The betas were directly obtained from an economic-financial databank largely employed by the market. The sample is composed of companies' shares, priced at Sao Paulo Stock Market. Their main activity is the distribution of electric energy between July 2002 and July 2007. The results of mean betas obtained for the distribution segment, with values close to the ones applied by the regulatory agency for the cycle of tariff reviews between 2007-2010. (author)
Testing the Capital Asset Pricing Model (CAPM) on the Uganda Stock Exchange
David Wakyiku
2010-01-01
This paper examines the validity of the Capital Asset Pricing Model (CAPM) on the Ugandan stock market using monthly stock returns from 10 of the 11 companies listed on the Uganda Stock Exchange (USE), for the period 1st March 2007 to 10th November 2009. Due to the absence of readily available Uganda Stock Exchange(USE) data, and the placement of daily price lists in pdf only, on the USE website: http://www.use.or.ug, the article also discusses the procedures taken to mine the data needed. Th...
KADEK MIRA PITRIYANTI; KOMANG DHARMAWAN; G.K. GANDHIADI
2015-01-01
In 1996, Fama and French developed the CAPM in Three Factor Model Fama and French (TFMFF) to analyze the relationship between risk with rate of return by adding firm size factor that is proxied by Small Minus Big (SMB) and value factor at Book to Market Ratio that is proxied by High Minus Low (HML) on the CAPM model. The aim of this research is to compare the ability of CAPM and TFMFF in estimating the returns on six types of portfolios which are formed based on firm size and BE/ME. Selected ...
KADEK MIRA PITRIYANTI
2015-11-01
Full Text Available In 1996, Fama and French developed the CAPM in Three Factor Model Fama and French (TFMFF to analyze the relationship between risk with rate of return by adding firm size factor that is proxied by Small Minus Big (SMB and value factor at Book to Market Ratio that is proxied by High Minus Low (HML on the CAPM model. The aim of this research is to compare the ability of CAPM and TFMFF in estimating the returns on six types of portfolios which are formed based on firm size and BE/ME. Selected samples are stocks of LQ-45 in period of February 2014, which have passed the selection of firm profits and ROE Warren Buffett criteria. Simple linear regression and Multiple linear regression with t test and F test statistics are used to demonstrate the influence and significance level of each variable. The results showed that TFMFF was more superior than CAPM. Market risk factor consistently affected each portfolio. SMB and HML is not always significantly effect on each portfolio, such as portfolio B/H, only market risk factor has a significant effect. However, the addition of SMB factors and HML factors could increase the coefficient of determination in each formed portfolio.
Zou, L.
2006-01-01
The issue of 'best-beta' arises as soon as potential errors in the Sharpe-Lintner-Black capital asset pricing model (CAPM) are acknowledged. By incorporating a target variable into the investor preferences, this study derives a best-beta CAPM (BCAPM) that maintains the CAPM's theoretical appeal and
Quantifying price risk of electricity retailer based on CAPM and RAROC methodology
Karandikar, R.G.; Khaparde, S.A.; Kulkarni, S.V. [Electrical Engineering Department, Indian Institute of Technology Bombay, Mumbai 400 076 (India)
2007-12-15
In restructured electricity markets, electricity retailers set up contracts with generation companies (GENCOs) and with end users to meet their load requirements at agreed upon tariff. The retailers invest consumer payments as capital in the volatile competitive market. In this paper, a model for quantifying price risk of electricity retailer is proposed. An IEEE 30 Bus test system is used to demonstrate the model. The Capital Asset Pricing Model (CAPM) is demonstrated to determine the retail electricity price for the end users. The factor Risk Adjusted Recovery on Capital (RAROC) is used to quantify the price risk involved. The methodology proposed in this paper can be used by retailer while submitting proposal for electricity tariff to the regulatory authority. (author)
Testing the CAPM and Three Factors Model in China: Evidence from the Shanghai Stock Exchange
Wang, Weixi
2015-01-01
Since inception, China’s stock market has grown rapidly and has become one of the most important emerging markets in the world. However, many popular financial media depicts China’s stock market as irrational. Besides, empirical studies on asset pricing in China’s stock market do not provide a consistent conclusion for different periods. This study tests the Capital Asset Pricing Model (CAPM) and Fama-French Three Factors Model in Shanghai Stock Exchange, China. For validity test of the CAPM,...
The application of the CAPM model on selected shares on the Croatian capital market
Zrinka Tolušić
2014-12-01
Full Text Available The Capital Asset Pricing Model is a model that describes the relationship between risk, expected return and valuation of securities. The theoretical and practical value of this model has proved unquestionable, but under ideal circumstances. The theory has been utilized by numerous researchers and it confirms the linear relationship between risk and return under the CAPM (Capital Asset Pricing Model model showing that greater exposure to risk provides higher returns. However, empirical research showed there were numerous factors that CAPM model did not take into account since it is based on assumptions which exist in reality, but are invisible. Therefore, it is very interesting to study the application of the CAPM model on selected shares on the Croatian capital market and analyze the possibilities of its application in discovering the misvalued shares. Share price changes on the Croatian capital market suggest there are some unknown factors that also influence share valuation. There is no doubt that the fundamental analysis of shares is not sufficient for evaluating the real share value in light of various invisible elements and all available information available which affect their value as well.
IS CAPM AN EFFICIENT MODEL? ADVANCED VERSUS EMERGING MARKETS
Iulian IHNATOV
2015-10-01
Full Text Available CAPM is one of the financial models most widely used by the investors all over the world for analyzing the correlation between risk and return, being considered a milestone in financial literature. However, in recently years it has been criticized for the unrealistic assumptions it is based on and for the fact that the expected returns it forecasts are wrong. The aim of this paper is to test statistically CAPM for a set of shares listed on New York Stock Exchange, Nasdaq, Warsaw Stock Exchange and Bucharest Stock Exchange (developed markets vs. emerging markets and to compare the expected returns resulted from CAPM with the actually returns. Thereby, we intend to verify whether the model is verified for Central and Eastern Europe capital market, mostly dominated by Poland, and whether the Polish and Romanian stock market index may faithfully be represented as market portfolios. Moreover, we intend to make a comparison between the results for Poland and Romania. After carrying out the analysis, the results confirm that the CAPM is statistically verified for all three capital markets, but it fails to correctly forecast the expected returns. This means that the investors can take wrong investments, bringing large loses to them.
Pasaribu, Rowland Bismark Fernando
2010-01-01
The Capital Asset Pricing Model (CAPM) has dominated finance theory for over thirty years; it suggests that the market beta alone is sufficient to explain stock returns. However evidence shows that the cross-section of stock returns cannot be described solely by the one-factor CAPM. Therefore, the idea is to add other factors in order to complete the beta in explaining the price movements in the stock exchange. The Arbitrage Pricing Theory (APT) has been proposed as the first multifactor succ...
TESTING CAPM MODEL ON THE EMERGING MARKETS OF THE CENTRAL AND SOUTHEASTERN EUROPE
Josipa Džaja
2013-02-01
Full Text Available The paper examines if the Capital Asset Pricing Model (CAPM is adequate for capital asset valuation on the Central and South-East European emerging securities markets using monthly stock returns for nine countries for the period of January 2006 to December 2010. Precisely, it is tested if beta, as the systematic risk measure, is valid on observed markets by analysing are high expected returns associated with high levels of risk, i.e. beta. Also, the efficiency of market indices of observed countries is examined.
Pfitz Cruzate, Fernando; Rodríguez Monroy, Carlos
2010-01-01
La actual crisis económica ha tenido una especial repercusión en el sector inmobiliario español. Por otra parte, el consumo energético en el sector residencial y terciario supone más del 20% del consumo energético anual a nivel nacional. Mediante la aplicación cualitativa del Capital Asset Pricing Model (CAPM), el artículo concluye que la inversión en medidas de eficiencia energética, en inmuebles en régimen de arrendamiento, se rentabiliza tanto con la reducción de los costes de explotac...
Improving the asset pricing ability of the Consumption-Capital Asset Pricing Model?
Rasmussen, Anne-Sofie Reng
This paper compares the asset pricing ability of the traditional consumption-based capital asset pricing model to models from two strands of literature attempting to improve on the poor empirical results of the C-CAPM. One strand is based on the intertemporal asset pricing model of Campbell (1993...... able to price assets conditionally as suggested by Cochrane (1996) and Lettau and Ludvigson (2001b). The unconditional C-CAPM is rewritten as a scaled factor model using the approximate log consumptionwealth ratio cay, developed by Lettau and Ludvigson (2001a), as scaling variable. The models...... are estimated on US data and the resulting pricing errors are compared using average pricing errors and a number of composite pricing error measures. The conditional C-CAPM and the two beta I-CAPM of Campbell and Vuolteenaho (2004) result in pricing errors of approximately the same size, both average...
Modelling of capital asset pricing by considering the lagged effects
Sukono; Hidayat, Y.; Bon, A. Talib bin; Supian, S.
2017-01-01
In this paper the problem of modelling the Capital Asset Pricing Model (CAPM) with the effect of the lagged is discussed. It is assumed that asset returns are analysed influenced by the market return and the return of risk-free assets. To analyse the relationship between asset returns, the market return, and the return of risk-free assets, it is conducted by using a regression equation of CAPM, and regression equation of lagged distributed CAPM. Associated with the regression equation lagged CAPM distributed, this paper also developed a regression equation of Koyck transformation CAPM. Results of development show that the regression equation of Koyck transformation CAPM has advantages, namely simple as it only requires three parameters, compared with regression equation of lagged distributed CAPM.
A Comparative Study of CAPM and Seven Factors Risk Adjusted Return Model
Madiha Riaz Bhatti
2014-12-01
Full Text Available This study is a comparison and contrast of the predictive powers of two asset pricing models: CAPM and seven factor risk-return adjusted model, to explain the cross section of stock rate of returns in the financial sector listed at Karachi Stock Exchange (KSE. To test the models daily returns from January 2013 to February 2014 have been taken and the excess returns of portfolios are regressed on explanatory variables. The results of the tested models indicate that the models are valid and applicable in the financial market of Pakistan during the period under study, as the intercepts are not significantly different from zero. It is consequently established from the findings that all the explanatory variables explain the stock returns in the financial sector of KSE. In addition, the results of this study show that addition of more explanatory variables to the single factor CAPM results in reasonably high values of R2. These results provide substantial support to fund managers, investors and financial analysts in making investment decisions.
Simplifying and generalizing some efficient frontier and CAPM related results
Ekern, Steinar
2007-01-01
This paper simplifies, generalizes, extends, surveys and unifies results related to the efficient frontier in portfolio analysis and to asset pricing formulations of the Capital Asset Pricing Model (CAPM) type. It derives the composition and properties of many central portfolios in portfolio analysis. It also discusses and provides several CAPM type formulations involving different portfolios. In particular, the tangency portfolio properties are presented in an instructive and ...
Asset pricing model selection: Indonesian Stock Exchange
Pasaribu, Rowland Bismark Fernando
2010-01-01
The Capital Asset Pricing Model (CAPM) has dominated finance theory for over thirty years; it suggests that the market beta alone is sufficient to explain stock returns. However evidence shows that the cross-section of stock returns cannot be described solely by the one-factor CAPM. Therefore, the idea is to add other factors in order to complete the beta in explaining the price movements in the stock exchange. The Arbitrage Pricing Theory (APT) has been proposed as the first multifactor succ...
CAPM and APT like models with risk measures
Balbás, Alejandro; Balbás, Beatriz; Balbás, Raquel
2009-01-01
The paper deals with optimal portfolio choice problems when risk levels are given by coherent risk measures, expectation bounded risk measures or general deviations. Both static and dynamic pricing models may be involved. Unbounded problems are characterized by new notions such as compatibility and strong compatibility between pricing rules and risk measures. Surprisingly, it is pointed out that the lack of bounded optimal risk and/or return levels arises in practice for ver...
王宜峰; 王燕鸣; 张颜江
2012-01-01
CAPM (Capital Asset Pricing Model) has been widely adopted in the finance theory. However, some studies have shown that CAPM theory is ineffective at explaining the "size effect" and the "book-to-market effect" from cross-sectional returns. Among all models to improve CAPM, Fama and French ' s three-factor model has higher explanative power for cross-sectional average returns. The CAPM was derived in a hypothetical economy in which investors live for only one period. Therefore, studies based on CAPM theory often assume that market beta ( systematic risk loading) remains constant over time. In the real world investors live for many periods. Therefore, a firm's systematic risk is likely to vary over the business cycle and the beta value to measure the systematic risk changes over time. In consideration of the reality, this paper assumes that the market portfolio is conditionally mean-variance efficient, the expected return on an asset is linear with its conditional beta in every period, and conditional beta varies with state variables. This paper has three research objectives. There are several classical pricing models in the international literatures and practices, including CAPM, consumption CAPM, three-factor model and investment-based model. The first objective is to test how these models perform in Chinese stock market. This study assumes that conditional betas vary with Shanghai Interbank Offered Rate ( L) , generalized money supply growth rate (△lnAf) , consumption growth rate ( △lnC) , fixed assets investment growth rate ( △ln/) and consumer price index ( CPI). The second objective is to explore the ability of conditional CAPM to explain the cross section of average stock returns. In the conditional CAPM setting, conditional beta is a function of state variables. Thus, the time-series of conditional betas, which reflect the varying pattern of asset systematic risks during business cycle, can be obtained from the function. The third objective is to
The Robustness of the CAPM - A Computational Approach
Herings, P.J.J.; Kubler, F.
1999-01-01
In this paper we argue that in realistically calibrated two period general equilibrium models with incomplete markets CAPM-pricing provides a good benchmark for equilibrium prices even when agents are not mean-variance optimizers and returns are not normally distributed. We numerically approximate
On CAPM and Black-Scholes differing risk-return strategies
McCauley, Joseph L.; Gunaratne, Gemunu H.
2003-11-01
In their path-finding 1973 paper, Black and Scholes presented two separate derivations of their famous option pricing partial differential equation. The second derivation was from the standpoint that was Black's original motivation, namely, the capital asset pricing model (CAPM). We show here, in contrast, that the option valuation is not uniquely determined; in particular, strategies based on the delta-hedge and CAPM provide different valuations of an option although both hedges are instantaneouly riskfree. Second, we show explicitly that CAPM is not, as economists claim, an equilibrium theory.
Risk of Rare Disasters, Euler Equation Errors and the Performance of the C-CAPM
Posch, Olaf; Schrimpf, Andreas
This paper shows that the consumption-based asset pricing model (C-CAPM) with low-probability disaster risk rationalizes large pricing errors, i.e. Euler equation errors. This result is remarkable, since Lettau and Ludvigson (2009) show that leading asset pricing models cannot explain sizeable...
Carlos A Díaz Contreras
2012-08-01
Full Text Available El modelo de valoración de activos de capital (Capital Asset Pricing Model - CAPM es uno de los modelos más utilizados en la práctica para determinar el premio por riesgo de un activo individual o cartera. El presente trabajo realiza un contraste empírico del CAPM en el mercado accionario chileno, empleando las metodologías de serie temporal y de eficiencia media-varianza, basada en la estimación por el método generalizado de momentos (MGM. El contraste se llevó a cabo usando rentabilidades mensuales de títulos individuales para el periodo 1997-2007 y usando una cartera de igual ponderación como proxy para la cartera de mercado. Los resultados de todas las metodologías empleadas muestran que el CAPM explica satisfactoriamente el corte transversal de retornos esperados en Chile.The capital asset pricing model (CAPM is one of the most used models in practice to determine the risk premium of an individual asset or portfolio. This paper tests the CAPM in the Chilean stock market using the time series methodology and the generalized method of moments to test mean-variance efficiency. This work uses monthly returns of individual stocks between 1997 and 2007 and considers an equally weighted portfolio as a proxy for the market portfolio. The results show that the CAPM explains successfully the cross section of expected stock returns in Chile.
D-CAPM: EMPIRICAL RESULTS ON THE BUCHAREST STOCK EXCHANGE
Alexandru Todea; Horia Tulai; Anita Pleşoianu
2009-01-01
The downside capital asset pricing model measures the downside beta of risk and is proposed by Estrada (2002) as an alternative to the capital asset pricing model to measure the risk of emerging market investments. The basis for this argument is that investors are not particularly worrisome of upside risk, while downside risk is always a problem. This article attempts to test the validity of D-CAPM in the case of Bucharest Stock Exchange. Research findings indicate no meaningful relationship ...
Validita modelu CAPM na akciovém trhu USA
Martin Širůček
2014-04-01
Full Text Available Purpose of the article: The present article is focused on the Capital Asset Pricing Model (CAPM and its implementation into American Stock Market. It attempts to empirically test the validity of the CAPM to estimate individual stock returns based on historical stock data of selected companies. Security Market Line (SML was used on the data collected from a wide range of investment horizons (periods of 1, 3, 5, and 10 years. The results show that the coefficient beta is incapable of explaining returns of single assets and the relation between systematic risk and expected return is weak. Methodology/methods: Empirical analysis is make on the time period 2001–2011. Selected stocks has to by trade on AMEX, NASDAQ or NYSE minimal since year 2000. Concrete 10 stock were selected with using branch analysis and were divide in two groups (a cyclic stocks and (b other (neutral-anticyclic stocks. By every stock was watch the closing price which was adjusted of dividends and contain splits. Scientific aim: The aim of this article is by using the model of Security Market Line (SML verify the validity of CAPM model by assets pricing. According to Alfa coefficient is determine how much differentiate is the yield set by CAPM model and the market yield in selected investment horizons. Findings: Selected length of investment horizon has important effect on the results. Worst results were found by the shortest length (1 year. With the growing of the investment horizon are the results better, but the Alfa coefficients is still to higher and the model inaccurate. Selected stocks with lower beta coefficient has higher yield that yield set by the CAPM model. Conclusions: For explanation of the yields by selected stocks we can´t recommend use the CAPM model nor on the biggest stock market, on US stock market. The relation between beta coefficient and stock yield is very weak. But other site CAPM model in the shape of SML curve can be recommended by using as discount
A Dozen Consistent CAPM-Related Valuation Models - So Why Use the Incorrect One?
Ekern, Steinar
2006-01-01
This paper focuses on applications of the CAPM in capital budgeting and in valuation of "mispriced" financial assets. Most textbooks in finance do not warn against a common pitfall in discounting expected cash flows by risk adjusted discount rates that are conceptually inconsistent with the CAPM. Betas computed from returns based on investment cost rather than on market value, may give systematically inappropriate discount rates and numerically incorrect present values for non-zero NPVs and "...
Conditional CAPM: Time-varying Betas in the Brazilian Market
Frances Fischberg Blank
2014-10-01
Full Text Available The conditional CAPM is characterized by time-varying market beta. Based on state-space models approach, beta behavior can be modeled as a stochastic process dependent on conditioning variables related to business cycle and estimated using Kalman filter. This paper studies alternative models for portfolios sorted by size and book-to-market ratio in the Brazilian stock market and compares their adjustment to data. Asset pricing tests based on time-series and cross-sectional approaches are also implemented. A random walk process combined with conditioning variables is the preferred model, reducing pricing errors compared to unconditional CAPM, but the errors are still significant. Cross-sectional test show that book-to-market ratio becomes less relevant, but past returns still capture cross-section variation
Contraste empírico del CAPM en el mercado accionario chileno
Carlos A Díaz Contreras; Freddy H Higuera Cartes
2012-01-01
El modelo de valoración de activos de capital (Capital Asset Pricing Model - CAPM) es uno de los modelos más utilizados en la práctica para determinar el premio por riesgo de un activo individual o cartera. El presente trabajo realiza un contraste empírico del CAPM en el mercado accionario chileno, empleando las metodologías de serie temporal y de eficiencia media-varianza, basada en la estimación por el método generalizado de momentos (MGM). El contraste se llevó a cabo usando rentabilidades...
A new test on the conditional capital asset pricing model
LI Xia-fei; CAI Zong-wu; REN Yu
2015-01-01
Testing the validity of the conditional capital asset pricing model (CAPM) is a puzzle in the finance literature. Lewellen and Nagel[14] find that the variation in betas and in the equity premium would have to be implausibly large to explain important asset-pricing anomalies. Unfortunately, they do not provide a rigorous test statistic. Based on a simulation study, the method proposed in Lewellen and Nagel[14] tends to reject the null too frequently. We develop a new test procedure and derive its limiting distribution under the null hypothesis. Also, we provide a Bootstrap approach to the testing procedure to gain a good finite sample performance. Both simulations and empirical studies show that our test is necessary for making correct inferences with the conditional CAPM.
Asset Pricing - A Brief Review
Li, Minqiang
2010-01-01
I first introduce the early-stage and modern classical asset pricing and portfolio theories. These include: the capital asset pricing model (CAPM), the arbitrage pricing theory (APT), the consumption capital asset pricing model (CCAPM), the intertemporal capital asset pricing model (ICAPM), and some other important modern concepts and techniques. Finally, I discuss the most recent development during the last decade and the outlook in the field of asset pricing.
Fractional-moment CAPM with loss aversion
Wu Yahao [Dep. of Math., South China University of Technology, Guangzhou 510640 (China); Wang Xiaotian [Dep. of Math., South China University of Technology, Guangzhou 510640 (China)], E-mail: swa001@126.com; Wu Min [Dep. of Math., South China University of Technology, Guangzhou 510640 (China)
2009-11-15
In this paper, we present a new fractional-order value function which generalizes the value function of Kahneman and Tversky [Kahneman D, Tversky A. Prospect theory: an analysis of decision under risk. Econometrica 1979;47:263-91; Tversky A, Kahneman D. Advances in prospect theory: cumulative representation of uncertainty. J. Risk Uncertainty 1992;4:297-323], and give the corresponding fractional-moment versions of CAPM in the cases of both the prospect theory [Kahneman D, Tversky A. Prospect theory: an analysis of decision under risk. Econometrica 1979;47:263-91; Tversky A, Kahneman D. Advances in prospect theory: cumulative representation of uncertainty. J. Risk Uncertainty 1992;4:297-323] and the expected utility model. The models that we obtain can be used to price assets when asset return distributions are likely to be asymmetric stable Levy distribution during panics and stampedes in worldwide security markets in 2008. In particular, from the prospect theory we get the following fractional-moment CAPM with loss aversion: E(R{sub i}-R{sub 0})=(E[(W-W{sub 0}){sub +}{sup -0.12}(R{sub i}-R{sub 0})]+2.25E[(W{sub 0}-W){sub +}{sup -0.12}(R{sub i}-R{sub 0})])/ (E[(W-W{sub 0}){sub +}{sup -0.12} (W-R{sub 0})]+2.25E[(W{sub 0}-W){sub +}{sup -0.12}(W-R{sub 0})]) .E(W-R{sub 0}), where W{sub 0} is a fixed reference point distinguishing between losses and gains.
Price returns efficiency of the Shanghai A-Shares
Long, Wang Jiang; Jaaman, Saiful Hafizah; Samsudin, Humaida Banu
2014-06-01
Beta measured from the capital asset pricing model (CAPM) is the most widely used risk to estimate expected return. In this paper factors that influence Shanghai A-share stock return based on CAPM are explored and investigated. Price data of 312 companies listed on Shanghai Stock Exchange (SSE) from the year 2000 to 2011 are investigated. This study employed the Fama-MacBeth cross-sectional method to avoid weakness of traditional CAPM. In addition, this study improves the model by adjusting missing data. Findings of this study justifies that systematic risk can explain the portfolios' returns of China SSE stock market.
Asset Pricing Model and the Liquidity Effect: Empirical Evidence in the Brazilian Stock Market
Otávio Ribeiro de Medeiros
2011-09-01
Full Text Available This paper is aims to analyze whether a liquidity premium exists in the Brazilian stock market. As a second goal, we include liquidity as an extra risk factor in asset pricing models and test whether this factor is priced and whether stock returns were explained not only by systematic risk, as proposed by the CAPM, by Fama and French’s (1993 three-factor model, and by Carhart’s (1997 momentum-factor model, but also by liquidity, as suggested by Amihud and Mendelson (1986. To achieve this, we used stock portfolios and five measures of liquidity. Among the asset pricing models tested, the CAPM was the least capable of explaining returns. We found that the inclusion of size and book-to-market factors in the CAPM, a momentum factor in the three-factor model, and a liquidity factor in the four-factor model improve their explanatory power of portfolio returns. In addition, we found that the five-factor model is marginally superior to the other asset pricing models tested.
¿Los modelos basados en el CAPM valoran adecuadamente los emprendimientos familiares?
David Ernesto Wong Cam
2017-01-01
Full Text Available El presente artículo intenta mostrar la pertinencia del modelo VPN-CAPM (valor presente neto que adopta la tasa de descuento prescrita por el capital asset pricing model para valorar emprendimientos familiares (EPF. Este análisis se realiza bajo dos ópticas: (a la revisión de los supuestos del CAPM y su adecuación a las características de los emprendimientos, y (b la eficacia en la prescripción de un conjunto de emprendimientos gestionados por graduados universitarios en un mercado emergente. De un lado, la mayoría de los supuestos del CAPM no se ajustan a las características de los EPF; además, no se dispone de un modelo teórico robusto que permita valorarlos. Por otro lado, de una muestra de 147 emprendimientos solo 3 debieron implementarse bajo el criterio del VPN-CAPM; sin embargo, 17 operaron durante dos o más años. Un caso prescrito como fracaso, después de veinte años, vende rentablemente 184 millones de dólares anuales, y algunos otros casos, después del fracaso inicial, reiniciaron un negocio diferente
Analisis Portofolio Saham dengan Metode Capm dan Markowitz
Hartiwi Prabowo
2013-05-01
Full Text Available LQ45 index is a row of 45 stocks with the largest commercial transactions in BEI. These stocks are also commonly referred to as blue-chip stocks. Stocks at LQ 45 index must meet the criteria and pass a predetermined key. The LQ 45 stocks are continuously being monitored and will be a reviewed for every 6 months (early February and August. Capital Asset Pricing Model (CAPM is used to estimate the return of a securities, while minimizing the risk to the desired level of returns in stock investing can be done by way of diversification or invest the funds into more than one type of securities (forming portfolios. The purpose of this study was to determine the expected return, and choosing the best stocks to obtain the optimal portfolio composition and profitable to invest. This study uses secondary data, ie data LQ 45, stock prices, the level of available SBI Stock Exchange, BI, and websites. To analyze the data, the writer used method of CAPM and Markowitz Portfolio. The results showed the election of 5 stocks of the most profitable for investors, namely stock UNTR, SMCB, ASII, INDF and BBRI. For companies that issue stocks should interact more with the society and the capital markets to attract more investors.
Los Modelos CAPM y APT para la valuacion de empresas de Telecomunicaciones con parametros operativos
Saldaña, J.
2007-07-01
Full Text Available One of the most important research topics in the financial area during de the last years has been the capital assets appraisal or the appraise of shares. This seeks two determine the explanatory factor of the rate of return for a specific portfolio. The CAPM (Capital Asset Pricing Model and the APT (Arbitrage Pricing Theory, both capital asset evaluation models, are hereby presented. The main characteristics of both models are the essential assumptions for their for there development, their statement and the practical test on the telecommunications portfolio using operational, financial and macroeconomics variable, and carried on with the purpose to be compare with reality.
Suripto Suripto
2017-03-01
Full Text Available This research tested the influence of characteristics of the firms and of EVA (Eco-nomic Value Added to stock of returns. This Research sample was company Self-100 ValueCreator of year 2001 until 2006. Result of research indicated that company size measure,profitability, capital structure (characteristics of the firms and EVA by stimulant had aneffect on significant to stock of returns, but by partial only characteristics company. Condi-tion of company fundamentals had an effect on significance to stock of returns. This indica-tion that investor still considered factors of fundamentals was having investment. EVA didnot have an effect on significant to stock of returns. This finding indicated that Model deter-mination of stock of returns (CAPM Irrelevant determined the level of EVA and also indicatedthat CAPM (Capital Assets Pricing Model was not relevant in determining stock of returns inIndonesian Stock Exchange.
Testing Capital Asset Pricing Model: Empirical Evidences from Indian Equity Market
Kapil CHOUDHARY
2010-11-01
Full Text Available The present study examines the Capital Asset Pricing Model (CAPM for the Indian stock market using monthly stock returns from 278 companies of BSE 500 Index listed on the Bombay stock exchange for the period of January 1996 to December 2009. The findings of this study are not substantiating the theory’s basic result that higher risk (beta is associated with higher levels of return. The model does explain, however, excess returns and thus lends support to the linear structure of the CAPM equation. The theory’s prediction for the intercept is that it should equal zero and the slope should equal the excess returns on the market portfolio. The results of the study lead to negate the above hypotheses and offer evidence against the CAPM. The tests conducted to examine the nonlinearity of the relationship between return and betas bolster the hypothesis that the expected return-beta relationship is linear. Additionally, this study investigates whether the CAPM adequately captures all-important determinants of returns including the residual variance of stocks. The results exhibit that residual risk has no effect on the expected returns of portfolios.
Internet resource pricing models
Xu, Ke; He, Huan
2013-01-01
This brief guides the reader through three basic Internet resource pricing models using an Internet cost analysis. Addressing the evolution of service types, it presents several corresponding mechanisms which can ensure pricing implementation and resource allocation. The authors discuss utility optimization of network pricing methods in economics and underline two classes of pricing methods including system optimization and entities' strategic optimization. The brief closes with two examples of the newly proposed pricing strategy helping to solve the profit distribution problem brought by P2P
Dionigi Gerace
2015-06-01
Full Text Available Despite the capital asset pricing model being one of the most inﬂuential mod¬els in modern portfolio theory, it has also been a victim of criticism in numerous academic papers. Its assumptions which seem to be rather unre¬alistic, have caused many academics to improve the model by relaxing some of its restrictive statements. In this journal article, we compare the performance of an optimal portfolio of securities in the Australian securities market by constructing two theoretical portfolios; one using the capital asset pricing model which uses a single beta throughout a static investment horizon; and another, which allows the op¬timal portfolio to be rebalanced each week with an adjusted beta. The performance of the two theoretical portfolios is compared to determine the superior model. Overall, findings showed that due to rebalancing of the portfolio, the multiple period model was the superior model based on before and after transaction cost returns.
Creator of the capital asset pricing model
Pantelić Svetlana
2014-01-01
Full Text Available Harry M. Markowite, Merton H. Miller and William F. Sharpe were awarded the Nobel Prize in Economic Sciences in 1990, for their pioneering work in the theory of financial economics. Harry Markowite gave the most significant contribution in portfolio selection, William Sharpe in establishing the equilibrium theory of capital asset pricing (CAPM, and Merton Miller in corporate finance. Their work revolutionized finance through the introduction and implementation of quantitative methods in financial analysis. Sharpe was born in 1934 in Boston, Massachusetts. He received the Bachelor of Arts degree in 1955, the Master of Arts degree in 1956, and PhD degree in Economics in 1961 at the UCLA. In his doctoral dissertation he explored a series of aspects of portfolio analysis, based on a model proposed by Markowite. He spent his working career as a lecturer and professor, taking active part in numerous research projects. He authored many scientific papers and books, having won several awards and being a member of many institutions. He established his own financial consulting firm in 1989.
Erol Muzır
2010-09-01
Full Text Available This paper is prepared to test the common opinion that the multifactor asset pricing models produce superior predictions as compared to the single factor models and to evaluate the performance of Arbitrage Pricing Theory (APT and Capital Asset Pricing Model (CAPM. For this purpose, the monthly return data from January 1996 and December 2004 of the stocks of 45 firms listed at Istanbul Stock Exchange were used. Our factor analysis results show that 68,3 % of the return variation can be explained by five factors. Although the APT model has generated a low coefficient of determination, 28,3 %, it proves to be more competent in explaining stock return changes when compared to CAPM which has an inferior explanation power, 5,4 %. Furthermore, we have observed that APT is more robust also in capturing the effects of any economic crisis on return variations.
Downside Risk And Empirical Asset Pricing
P. van Vliet (Pim)
2004-01-01
textabstractCurrently, the Nobel prize winning Capital Asset Pricing Model (CAPM) celebrates its 40th birthday. Although widely applied in financial management, this model does not fully capture the empirical riskreturn relation of stocks; witness the beta, size, value and momentum effects. These pr
Downside Risk And Empirical Asset Pricing
P. van Vliet (Pim)
2004-01-01
textabstractCurrently, the Nobel prize winning Capital Asset Pricing Model (CAPM) celebrates its 40th birthday. Although widely applied in financial management, this model does not fully capture the empirical riskreturn relation of stocks; witness the beta, size, value and momentum effects. These
Mathius Tandiontong
2017-03-01
Full Text Available Investing in the stock market is one option for investors. Investment in ordinary shares was classified as longterminvestments to be able to provide added value and the risk for fixed income. This study focused on thedifference of APTM versus CAPM, and it also focused on the sensitivity of the APTM on the stock returns. Thisstudy was based on the assumption that: there were differences in sectoral stock return volatility, volatility ofmarket risk factors, and macroeconomic risks affecting sectoral differences in the sensitivity of stock returns;there were differences in the results of testing the validity, robustness unconditional CAPM and APTMmultifactorial; and time-varying volatility referring to the phenomena of structural breaks and asymmetriceffect. The method of analysis used nested models with panel data. Data were analyzed by using secondary datafrom 2005-2012. The results of this study concluded that: there was no different sensitivity of stock returnsacross sectors, but there was different insensitivity between systematic risk factors, CAPM and APTM multifactorthat showed the inconsistency of the sectoral shares, but the proven model of unconditional CAPM wasvalid; the difference of factor risk premiums was as a result of the structural break, the financial crisis period of2008 within the period 2005-2012.
Md. Zobaer Hasan
2014-01-01
Full Text Available The objective of this paper is to present the technical efficiency of individual companies and their respective groups of Bangladesh stock market (i.e., Dhaka Stock Exchange, DSE by using two risk factors (co-skewness and co-kurtosis as the additional input variables in the Stochastic Frontier Analysis (SFA. The co-skewness and co-kurtosis are derived from the Higher Moment Capital Asset Pricing Model (H-CAPM. To investigate the contribution of these two factors, two types of technical efficiency are derived: (1 technical efficiency with considering co-skewness and co-kurtosis (WSK and (2 technical efficiency without considering co-skewness and co-kurtosis (WOSK. By comparing these two types of technical efficiency, it is noticed that the technical efficiency of WSK is higher than the technical efficiency of WOSK for the individual companies and their respective groups. As per available literature in the context Bangladesh stock market, no study has been conducted thus far to measure technical efficiency of companies and their respective groups by using the risk factors which are derived from the H-CAPM. In this research, the link between H-CAPM and SFA is established for measuring technical efficiency and it is believed that the findings of this study may be applied to other emerging stock markets.
Downside Risk And Empirical Asset Pricing
Vliet, Pim
2004-01-01
textabstractCurrently, the Nobel prize winning Capital Asset Pricing Model (CAPM) celebrates its 40th birthday. Although widely applied in financial management, this model does not fully capture the empirical riskreturn relation of stocks; witness the beta, size, value and momentum effects. These problems may be caused by the use of variance as the relevant risk measure. This study analyzes if asset pricing models that use alternative risk measures better describe the empirical riskreturn tra...
Model Penentuan Harga ( Price ) Dinamis
Laili, Erna
2012-01-01
Information about the demand curve is not available enough practically, those sellers face some constrains to get the optimal revenue. The seller’s revenue is influenced by the dynamic pricing caused by price sensitivity and the uncertainty available marketing share. The thesis aims to create mathematical model for determining the dynamic pricing by learning both properties determination model and dynamic pricing factors. The results of the research shows that for two parameter...
Modeling UK Natural Gas Prices when Gas Prices Periodically Decouple from the Oil Price
2015-01-01
When natural gas prices are subject to periodic decoupling from oil prices, for instance due to peak-load pricing, conventional linear models of price dynamics such as the Vector Error Correction Model (VECM) can lead to erroneous inferences about cointegration relationships, price adjustments and relative values. We propose the use of regime-switching models to address these issues. Our regime switching model uses price data to infer whether pricing is oil-driven (integrated) or gas-specific...
Conditional Downside Risk and the CAPM
G.T. Post (Thierry); P. van Vliet (Pim)
2004-01-01
textabstractThe mean-semivariance CAPM strongly outperforms the traditional mean-variance CAPM in terms of its ability to explain the cross-section of US stock returns. If regular beta is replaced by downside beta, the traditional risk-return relationship is restored. The downside betas of low-beta
Empirical validation of CAPM Validación empírica del modelo CAPM para Colombia 2003-2010
Maribel Serna Rodriguez
2012-06-01
Full Text Available This paper pretends to show empirical evidence of the CAPM model of Sharpe-Lintner (1964 for Colombia from 2003 to 2010, whose validation is carried out using the method of Black, Jensen and Scholes (1972 but introducing certain methodological econometric type changes associated to the requirements imposed by the used sample. Specifically, we found no empirical evidence to reject the CAPM for the Colombian economyin the period under analysis.En este trabajo se pretende mostrar una evidencia empírica para Colombia, desde el año 2003 hasta el 2010, del modelo CAPM de Sharpe –Lintner (1964, validación que se lleva a cabo utilizando el procedimiento de Black, Jensen y Scholes (1972 pero introduciendo ciertos cambios metodológicos de índole econométrico asociados a las necesidades que impone la muestra utilizada. Específicamente, se encontró que no hay evidencia empírica para rechazar el modelo CAPM para la economía colombiana en el período objeto de análisis.
THE APPLICATION OF THE CAPITAL ASSET PRICING MODEL ON THE CROATIAN CAPITAL MARKET
Bojan Tomic
2013-12-01
Full Text Available The paper describes and analyzes the application of the capital asset pricing model (CAPM and the single-index model on the Zagreb stock exchange during the drop in the total trade turnover, and mostly in the trade of equity securities. This model shows through the analysis techniques used to estimate the systematic risk per share compared to the market portfolio. Also, the model quantifies the environment in which a company and its stocks exist, expressing it as risk, or a beta coefficient. Furthermore, with respect to the market stagnation, one can also discuss the usefulness of the model, especially if the quality of the input data is questionable. In this regard, the importance of the proper application and interpretation of the results obtained based on the model during the stagnation of the market, and especially during the stagnation of the trade of equity securities, is gaining even greater importance and significance. On the other hand, the results obtained through the analysis of data point to problems arising during the application of the model. It turns out the main problem of applying the CAPM model is the market index with negative returns during the observation period.
Theoretical Explanation of Return Predictability Based on Stock Price Formulation
Guo Lei; Wu Chongfeng; Wang Xinrong
2006-01-01
To find out which factors determine stock return and to give rational explanation of return predictability, according to the principle of stock price formulation, the trend of stock price is obtained by use of option pricing method. The trend of stock price is put into reconstructing CAPM (capital asset pricing model) beta; it is concluded that the firm-specific biases and the scale biases potentially induce return predictability. In addition, through the relation between the biases structure and the intrinsic value, an appropriate theoretic explanation is supplied for three-factor pricing model proposed by Fama and French.
A Multiperiod Equilibrium Pricing Model
Minsuk Kwak
2014-01-01
Full Text Available We propose an equilibrium pricing model in a dynamic multiperiod stochastic framework with uncertain income. There are one tradable risky asset (stock/commodity, one nontradable underlying (temperature, and also a contingent claim (weather derivative written on the tradable risky asset and the nontradable underlying in the market. The price of the contingent claim is priced in equilibrium by optimal strategies of representative agent and market clearing condition. The risk preferences are of exponential type with a stochastic coefficient of risk aversion. Both subgame perfect strategy and naive strategy are considered and the corresponding equilibrium prices are derived. From the numerical result we examine how the equilibrium prices vary in response to changes in model parameters and highlight the importance of our equilibrium pricing principle.
Testing the Non-Parametric Conditional CAPM in the Brazilian Stock Market
Daniel Reed Bergmann
2014-04-01
Full Text Available This paper seeks to analyze if the variations of returns and systematic risks from Brazilian portfolios could be explained by the nonparametric conditional Capital Asset Pricing Model (CAPM by Wang (2002. There are four informational variables available to the investors: (i the Brazilian industrial production level; (ii the broad money supply M4; (iii the inflation represented by the Índice de Preços ao Consumidor Amplo (IPCA; and (iv the real-dollar exchange rate, obtained by PTAX dollar quotation.This study comprised the shares listed in the BOVESPA throughout January 2002 to December 2009. The test methodology developed by Wang (2002 and retorted to the Mexican context by Castillo-Spíndola (2006 was used. The observed results indicate that the nonparametric conditional model is relevant in explaining the portfolios’ returns of the sample considered for two among the four tested variables, M4 and PTAX dollar at 5% level of significance.
Do Flexible Durable Goods Prices Undermine Sticky Price Models?
Robert Barsky; Christopher L. House; Miles Kimball
2003-01-01
Multi-sector sticky price models have surprising implications when durable goods have flexible prices. While in actual data the production of virtually all durables exhibits strong negative responses to monetary contractions, in dynamic general equilibrium models a monetary contraction causes the output of flexibly priced durables to expand. Indeed, in the polar case in which only nondurables have sticky prices, the negative comovement of durable and nondurable production exactly offsets and ...
Implement Fama And French And Capital Asset Pricing Models In Saudi Arabia Stock Market
Abdulaziz Aldaarmi; Maysam Abbodb; Hussein Salameh
2015-01-01
... returns.The results show that Fama and French 1993 model has more explanatory power and do a better job in explaining the changes in stock returns than the CAPM, and those developed market models can...
Adriana Bruscato Bortoluzzo
Full Text Available ABSTRACT This article examines three models for pricing risky assets, the capital asset pricing model (CAPM from Sharpe and Lintner, the three factor model from Fama and French, and the four factor model from Carhart, in the Brazilian mark et for the period from 2002 to 2013. The data is composed of shares traded on the São Paulo Stock, Commodities, and Futures Exchange (BM&FBOVESPA on a monthly basis, excluding financial sector shares, those with negative net equity, and those without consecutive monthly quotations. The proxy for market return is the Brazil Index (IBrX and for riskless assets savings accounts are used. The 2008 crisis, an event of immense proportions and market losses, may have caused alterations in the relationship structure of risky assets, causing changes in pricing model results. Division of the total period into pre-crisis and post-crisis sub-periods is the strategy used in order to achieve the main objective: to analyze the effects of the crisis on asset pricing model results and their predictive power. It is verified that the factors considered are relevant in the Brazilian market in both periods, but between the periods, changes occur in the statistical relevance of sensitivities to the market premium and to the value factor. Moreover, the predictive ability of the pricing models is greater in the post-crisis period, especially for the multifactor models, with the four factor model able to improve predictions of portfolio returns in this period by up to 80%, when compared to the CAPM.
Measuring Risk Structure Using the Capital Asset Pricing Model
Zdeněk Konečný
2015-01-01
Full Text Available This article is aimed at proposing of an inovative method for calculating the shares of operational and financial risks. This methodological tool will support managers while monitoring the risk structure. The method is based on the capital asset pricing model (CAPM for calculation of equity cost, namely on determination of the beta coefficient, which is the only variable, that is dependent on entrepreneurial risk. There are combined both alternative approaches for calculation betas, which means, that there are accounting data used and there is distinguished unlevered beta and levered beta. The novelty of the proposed method is based on including of quantities for measuring operational and financial risks in beta calculation. The volatility of cash flow, as a quantity for measuring of operational risk, is included in the unlevered beta. Return on equity based on the cash flow and the indebtedness are variables used in calculation of the levered beta. This modification makes it possible to calculate the share of operational risk as the proportion of the unlevered/levered beta and the share of financial risk, which is the remainder of levered beta. The modified method is applied on companies from two sectors of the Czech economy. In the data set there are companies from one cyclical sector and from one neutral sector to find out potential differences in the risk structure. The findings show, that in both sectors the share of operational risk is over 50%, however, in the neutral sector is this more dominant.
A Limited Recourse Financing Model for BOT Projects Based on CAPM%基于CAPM的BOT项目“有限追索权”融资决策模型
吴孝灵; 周晶; 王冀宁; 洪巍
2012-01-01
为研究BOT项目有限追索权融资中贷款资金与股本资金在贷方和项目公司之间合理分配问题(即BOT最优融资结构),本文考虑项目公司和贷方根据CAPM方法进行投资决策,通过分析它们投资策略在利益上的冲突关系而建立一个BOT融资模型,并且用博弈论方法研究模型最优解的存在性及其性质.研究结果不仅为项目公司和贷方提供了对BOT项目融资决策的理论方法,而且为政府对BOT项目的管理提供了重要的理论工具.%BOT (Build-Operate-Transfer) has become a major project-financing schema since the 1980a. Investors of BOT projects generally include the right-interest investor (project company), who invests in the project by the equity, and the debt investor (creditor) , who invests in the project by the credit. However, the limited or none recourse financing under the BOT scheme can lead to investor's demand for different capital structures, which refer to the proportion between the debt capital and equity.The more debt or less equity in the capital structure is always beneficial to the right-interest investor because it can generate a higher return for successful projects, or lower loss for failure projects. In contrast, the lower debt is always beneficial to the debtor if the more debt can potential cause higher risk loss for failure projects. Therefore, how to determine a proper capital structure for the BOT project is the key to the success in the financing implementation.In this paper, a dynamic game model between the creditor and the project company is proposed under the implementation of limited recourse financing for the BOT project. The model is mainly based on the consideration that the creditor and the project company make investment in the project according to CAPM (Capital Asset Price Model), and the analysis of investment strategies. BOT project's optimal capital structure on the debt-equity allocation is studied from the game theory.Firstly, a
Modeling the Effect of Oil Price on Global Fertilizer Prices
P-Y. Chen (Ping-Yu); C-L. Chang (Chia-Lin); C-C. Chen (Chi-Chung); M.J. McAleer (Michael)
2010-01-01
textabstractThe main purpose of this paper is to evaluate the effect of crude oil price on global fertilizer prices in both the mean and volatility. The endogenous structural breakpoint unit root test, the autoregressive distributed lag (ARDL) model, and alternative volatility models, including the
Sticky Price Models and Durable Goods
Robert Barsky; Christopher L. House; Miles Kimball
2005-01-01
This paper shows that there are striking implications that stem from including durable goods in otherwise conventional sticky price models. The behavior of these models depends heavily on whether durable goods are present and whether these goods have sticky prices. If long-lived durables have sticky prices, then even small durables sectors can cause the model to behave as though most prices were sticky. Conversely, if durable goods prices are flexible then the model exhibits unwelcome behavio...
Zainul Hasan Quthbi
2017-10-01
Artikel ini bermaksud untuk menganalisis saham syariah yang tergolong efisien untuk keputusan investasi dengan menggunakan SCAPM (Shari’a Compliant Asset Pricing Model. SCAPM adalah bentuk modifikasi dari CAPM (Capital Asset Pricing Model yang bertujuan agar kerangka model analisis masih dalam kerangka syariah. Teknik pengumpulan data adalah dokumentasi dari data yang bersifat sekunder. Digunakan 13 sampel saham syariah pada penelitian ini dengan kriteria saham syariah yang konsisten masuk pada JII (Jakarta Islamic Index periode penelitian Desember 2013 hingga November 2016 dan memiliki pengembalian saham individual positif. Hasil dari penelitian menunjukkan terdapat 9 saham syariah yang tergolong efisien dan 4 sisanya tidak efisien. Saham PT. Adaro Energy memiliki nilai RVAR terbesar yang berarti memiliki kinerja saham paling baik.
Fakhri Husein
2017-03-01
Full Text Available Shariah Compliant Asset Pricing Model (SCAPM is a modification of the model Capital Asset Pricing Model (CAPM. This research is quantitative descriptive study of theories of optimal portfolio analysis applied to trading stocks, especially in stocks Jakarta Islamic Index. Sampling technique used was purposive sampling and obtained 26 shares. The analysis tool used is MatLab R2010a. The results of this study are not prove theMarkowitz portfolio theory. This is explained by the amount of Beta market (β_m a value beta below 1 indicates that the fluctuation of stocks returns do not follow the movement of market fluctuations. Investors are likely to want a high profit, the investors are advised to choose a second portfolio groups, with rate of 0.176722% and investors are likely to enjoy a substantial risk in the investment portfolio are advised to choose the first group with a great risk of 0.8501%.
Dynamic pricing models for electronic business
Y Narahari; C V L Raju; K Ravikumar; Sourabh Shah
2005-04-01
Dynamic pricing is the dynamic adjustment of prices to consumers depending upon the value these customers attribute to a product or service. Today’s digital economy is ready for dynamic pricing; however recent research has shown that the prices will have to be adjusted in fairly sophisticated ways, based on sound mathematical models, to derive the beneﬁts of dynamic pricing. This article attempts to survey different models that have been used in dynamic pricing. We ﬁrst motivate dynamic pricing and present underlying concepts, with several examples, and explain conditions under which dynamic pricing is likely to succeed. We then bring out the role of models in computing dynamic prices. The models surveyed include inventory-based models, data-driven models, auctions, and machine learning. We present a detailed example of an e-business market to show the use of reinforcement learning in dynamic pricing.
Generation unit selection via capital asset pricing model for generation planning
Romy Cahyadi; K. Jo Min; Chung-Hsiao Wang; Nick Abi-Samra [College of Engineering, Ames, IA (USA)
2003-11-01
The USA's electric power industry is undergoing substantial regulatory and organizational changes. Such changes introduce substantial financial risk in generation planning. In order to incorporate the financial risk into the capital investment decision process of generation planning, this paper develops and analyses a generation unit selection process via the capital asset pricing model (CAPM). In particular, utilizing realistic data on gas-fired, coal-fired, and wind power generation units, the authors show which and how concrete steps can be taken for generation planning purposes. It is hoped that the generation unit selection process will help utilities in the area of effective and efficient generation planning when financial risks are considered. 20 refs., 14 tabs.
Generation unit selection via capital asset pricing model for generation planning
Cahyadi, Romy; Jo Min, K. [College of Engineering, Ames, IA (United States); Chunghsiao Wang [LG and E Energy Corp., Louisville, KY (United States); Abi-Samra, Nick [Electric Power Research Inst., Palo Alto, CA (United States)
2003-07-01
The electric power industry in many parts of U.S.A. is undergoing substantial regulatory and organizational changes. Such changes introduce substantial financial risk in generation planning. In order to incorporate the financial risk into the capital investment decision process of generation planning, in this paper, we develop and analyse a generation unit selection process via the capital asset pricing model (CAPM). In particular, utilizing realistic data on gas-fired, coal-fired, and wind power generation units, we show which and how concrete steps can be taken for generation planning purposes. It is hoped that the generation unit selection process developed in this paper will help utilities in the area of effective and efficient generation planning when financial risks are considered. (Author)
Boosting the accuracy of hedonic pricing models
M.C. van Wezel (Michiel); M. Kagie (Martijn); R. Potharst (Rob)
2005-01-01
textabstractHedonic pricing models attempt to model a relationship between object attributes and the object's price. Traditional hedonic pricing models are often parametric models that suffer from misspecification. In this paper we create these models by means of boosted CART models. The method is
2014-03-01
Order Volume to Peak Size of All Different Iceberg Sell Orders in the Sample (from Esser & Monch, 2005, p.10). ............................. 28! Figure...MILDECc military deception MPT modern portfolio theory NE non-execution OPSEC operations security R-CAPM revised-CAPM Reg NMS regulation national...Much of Sharpe’s theory on the appropriate price for capital assets (i.e., equity) rotates around the notion of risk. Generically, risk is defined as
A periodic pricing model considering reference effect
Yang Hui
2016-01-01
Full Text Available The purpose of this paper is to investigate the optimal pricing strategies with reference effects in revenue management settings. We firstly propose a static pricing model with the properties of stochastic demand, finite horizon and fixed capacity, and prove the existence and uniqueness of the solution. Secondly, we extend the fixed pricing model to a periodic pricing model and incorporate a memory-based reference price in the demand function to investigate how the reference effect impacts on traditional revenue management decisions. We present numerical examples in both low demand situations and high demand situations for different levels of reference effects and different updating frequencies. The results show that the dynamic pricing strategies are superior to a static one even when reference effects are taken into consideration. We also provide some manage-rial insights including pricing directions, pricing dispersion and the optimal updating frequency for both demand situations.
Internet Resource Pricing Models, Mechanisms, and Methods
He, Huan; Liu, Ying
2011-01-01
With the fast development of video and voice network applications, CDN (Content Distribution Networks) and P2P (Peer-to-Peer) content distribution technologies have gradually matured. How to effectively use Internet resources thus has attracted more and more attentions. For the study of resource pricing, a whole pricing strategy containing pricing models, mechanisms and methods covers all the related topics. We first introduce three basic Internet resource pricing models through an Internet cost analysis. Then, with the evolution of service types, we introduce several corresponding mechanisms which can ensure pricing implementation and resource allocation. On network resource pricing methods, we discuss the utility optimization in economics, and emphasize two classes of pricing methods (including system optimization and entities' strategic optimizations). Finally, we conclude the paper and forecast the research direction on pricing strategy which is applicable to novel service situation in the near future.
An electricity price model with consideration to load and gas price effects
黄民翔; 陶小虎; 韩祯祥
2003-01-01
Some characteristics of the electricity load and prices are studied, and the relationship between electricity prices and gas (fuel) prices is analyzed in this paper. Because electricity prices are strongly dependent on load and gas prices, the authors constructed a model for electricity prices based on the effects of these two factors; and used the Geometric Mean Reversion Brownian Motion (GMRBM) model to describe the electricity load process, and a Geometric Brownian Motion(GBM) model to describe the gas prices; deduced the price stochastic process model based on the above load model and gas price model. This paper also presents methods for parameters estimation, and proposes some methods to solve the model.
Portfolio Theory for α-Symmetric and Pseudoisotropic Distributions: k-Fund Separation and the CAPM
Nils Chr. Framstad
2015-01-01
Full Text Available The shifted pseudoisotropic multivariate distributions are shown to satisfy Ross’ stochastic dominance criterion for two-fund monetary separation in the case with risk-free investment opportunity and furthermore to admit the Capital Asset Pricing Model under an embedding in Lα condition if 1<α≤2, with the betas given in an explicit form. For the α-symmetric subclass, the market without risk-free investment opportunity admits 2d-fund separation if α=1+1/(2d-1, d∈N, generalizing the classical elliptical case d=1, and we also give the precise number of funds needed, from which it follows that we cannot, except degenerate cases, have a CAPM without risk-free opportunity. For the symmetric stable subclass, the index of stability is only of secondary interest, and several common restrictions in terms of that index can be weakened by replacing it by the (no smaller indices of symmetry/of embedding. Finally, dynamic models with intermediate consumption inherit the separation properties of the static models.
Test Of Capital Asset Pricing Model On Stocks At Karachi Stock Exchange
Arbab Khalid Cheema
2010-12-01
Full Text Available This paper attempts to empirically test the single-factor CAPM developed by Sharpe (1964, Lintner (1965 and Jan Mossin (1966 and others, which proposes that the expected returns of capital assets are dependent on their risk relative to the entire market which is quantified by a correlation co-efficient between asset returns and market returns. The test of 20 stocks at Karachi Stock Exchange have shown that though, the beta co-efficients are significant, their strength is considerably weak. Therefore, other factors which are unaccounted for in this model are important in determining risk and return. In addition, betas are less relevant in a volatile emerging capital markets like the KSE. Thus, the multi-factor models are better than the classical CAPM at determining the risk-return relationship. However, the single-factor CAPM remains in practice beacause of its simplicity.
Essays on pricing dynamics, price dispersion, and nested logit modelling
Verlinda, Jeremy Alan
The body of this dissertation comprises three standalone essays, presented in three respective chapters. Chapter One explores the possibility that local market power contributes to the asymmetric relationship observed between wholesale costs and retail prices in gasoline markets. I exploit an original data set of weekly gas station prices in Southern California from September 2002 to May 2003, and take advantage of highly detailed station and local market-level characteristics to determine the extent to which spatial differentiation influences price-response asymmetry. I find that brand identity, proximity to rival stations, bundling and advertising, operation type, and local market features and demographics each influence a station's predicted asymmetric relationship between prices and wholesale costs. Chapter Two extends the existing literature on the effect of market structure on price dispersion in airline fares by modeling the effect at the disaggregate ticket level. Whereas past studies rely on aggregate measures of price dispersion such as the Gini coefficient or the standard deviation of fares, this paper estimates the entire empirical distribution of airline fares and documents how the shape of the distribution is determined by market structure. Specifically, I find that monopoly markets favor a wider distribution of fares with more mass in the tails while duopoly and competitive markets exhibit a tighter fare distribution. These findings indicate that the dispersion of airline fares may result from the efforts of airlines to practice second-degree price discrimination. Chapter Three adopts a Bayesian approach to the problem of tree structure specification in nested logit modelling, which requires a heavy computational burden in calculating marginal likelihoods. I compare two different techniques for estimating marginal likelihoods: (1) the Laplace approximation, and (2) reversible jump MCMC. I apply the techniques to both a simulated and a travel mode
Option-Based Estimation of the Price of Co-Skewness and Co-Kurtosis Risk
Christoffersen, Peter; Fournier, Mathieu; Fournier, Mathieu;
-neutral second moments, and the price of co-kurtosis risk corresponds to the spread between the physical and the risk-neutral third moments. The option-based estimates of the prices of risk lead to reasonable values of the associated risk premia. An out-of-sample analysis of factor models with co-skewness and co......-kurtosis risk indicates that the new estimates of the price of risk improve the models performance. Models with higher-order market moments also robustly outperform standard competitors such as the CAPM and the Fama-French model....
Option-Based Estimation of the Price of Co-Skewness and Co-Kurtosis Risk
Christoffersen, Peter; Fournier, Mathieu; Jacobs, Kris;
-neutral second moments, and the price of co-kurtosis risk corresponds to the spread between the physical and the risk-neutral third moments. The option-based estimates of the prices of risk lead to reasonable values of the associated risk premia. An out-of-sample analysis of factor models with co-skewness and co......-kurtosis risk indicates that the new estimates of the price of risk improve the models' performance. Models with higher-order market moments also robustly outperform standard competitors such as the CAPM and the Fama-French model....
Research on nonlinear stochastic dynamical price model
Li Jiaorui [Department of Applied Mathematics, Northwestern Polytechnical University, Xi' an 710072 (China); School of Statistics, Xi' an University of Finance and Economics, Xi' an 710061 (China)], E-mail: jiaoruili@mail.nwpu.edu.cn; Xu Wei; Xie Wenxian; Ren Zhengzheng [Department of Applied Mathematics, Northwestern Polytechnical University, Xi' an 710072 (China)
2008-09-15
In consideration of many uncertain factors existing in economic system, nonlinear stochastic dynamical price model which is subjected to Gaussian white noise excitation is proposed based on deterministic model. One-dimensional averaged Ito stochastic differential equation for the model is derived by using the stochastic averaging method, and applied to investigate the stability of the trivial solution and the first-passage failure of the stochastic price model. The stochastic price model and the methods presented in this paper are verified by numerical studies.
The Location Model with Reservation Prices
Webers, H.M.
1996-01-01
In this paper, we analyze a variant of the standard Hotelling model of spatial competition where firms first choose locations along the line and then, given these locations, compete in prices.Consumers have a finite reservation price and incur a quadratic transportation cost.We show that there exist
Modeling the Volatility in Global Fertilizer Prices
P-Y. Chen (Ping-Yu); C-L. Chang (Chia-Lin); C-C. Chen (Chi-Chung); M.J. McAleer (Michael)
2010-01-01
textabstractThe main purpose of this paper is to estimate the volatility in global fertilizer prices. The endogenous structural breakpoint unit root test and alternative volatility models, including the generalized autoregressive conditional heteroskedasticity (GARCH) model, Exponential GARCH (EGARC
A model for the effects of psychological pricing in Gabor-Granger price studies
Wedel, M; Leeflang, PSH
We present a model of consumers' price sensitivity that explicitly deals with the existence of so-called psychological price levels or odd prices, i.e. prices ending in an odd number. The model is formulated in a latent class framework, in which splines are used to model utility as a function of
A model for the effects of psychological pricing in Gabor-Granger price studies
Wedel, M; Leeflang, PSH
1998-01-01
We present a model of consumers' price sensitivity that explicitly deals with the existence of so-called psychological price levels or odd prices, i.e. prices ending in an odd number. The model is formulated in a latent class framework, in which splines are used to model utility as a function of pri
CAM Stochastic Volatility Model for Option Pricing
Wanwan Huang
2016-01-01
Full Text Available The coupled additive and multiplicative (CAM noises model is a stochastic volatility model for derivative pricing. Unlike the other stochastic volatility models in the literature, the CAM model uses two Brownian motions, one multiplicative and one additive, to model the volatility process. We provide empirical evidence that suggests a nontrivial relationship between the kurtosis and skewness of asset prices and that the CAM model is able to capture this relationship, whereas the traditional stochastic volatility models cannot. We introduce a control variate method and Monte Carlo estimators for some of the sensitivities (Greeks of the model. We also derive an approximation for the characteristic function of the model.
A Multi Period Equilibrium Pricing Model
Pirvu, Traian A
2012-01-01
In this paper, we propose an equilibrium pricing model in a dynamic multi-period stochastic framework with uncertain income streams. In an incomplete market, there exist two traded risky assets (e.g. stock/commodity and weather derivative) and a non-traded underlying (e.g. temperature). The risk preferences are of exponential (CARA) type with a stochastic coefficient of risk aversion. Both time consistent and time inconsistent trading strategies are considered. We obtain the equilibriums prices of a contingent claim written on the risky asset and non-traded underlying. By running numerical experiments we examine how the equilibriums prices vary in response to changes in model parameters.
A Price Hedging Model in Dynamic Market
Kuo-Wei Lin
2012-01-01
Full Text Available Problem statement: Pricing is a problem when a firm has to set a price for the first time. This happens when the firm develops or acquires a new product, introduces its regular product into a new distribution or geographical area, or enters bids on the new contract work. Many companies try to set the price to maximize current profits. They estimate the demand and costs associated with alternative prices and choose the price that maximizes current profit, cash flow, or rate of return on investment. There are, however, some problems associated with the current profit maximizing approach as it assumes that the firm knows its demand and cost functions; in reality, demand is difficult to estimate and is unpredictable. Approach: Due to demandâs unpredictability, we assume that it follows a lognormal random walk. Based on this, we develop a mathematical pricing processes model by stochastic calculus, which is similar to the financial process mathematical model. From Itoâs lemma, a productâs profit correlates with demand, is also unpredictable and follows a random walk. Such random behavior is the marketing risk. Results: By choosing a price strategy to eliminate randomness, called price hedging, we obtain risk-free profit determined by the Black-Scholes equation. This riskless profit, which is predictable, is the same we would get by putting the equivalent amount of cash in a risk-free interest-bearing account. Conclusion: From price hedging and the Black-Scholes equation, we determine the basic product price, which changes with time and demand.
An electricity price model with consideration to load and gas price effects
黄民翔; 陶小虎; 韩祯祥
2003-01-01
Some characteristics of the electricity load and prices are studied, and the relationship between electricity prices and gas (fnel) prices is analyzed in this paper. Because electricity prices are strongly depen-dent on load and gas prices, the authors constructed a model for electricity prices based on the effects of these two factors; and used the Geometric Mean Reversion Brownian Motion (GMRBM) model to describe the electricity load process, and a Geometric Brownian Motion(GBM) model to describe the gas prices ; deduced the price stochastic process model based on the above load model and gas price model. This paper also presents methods for parameters estimation, and proposes some methods to solve the model.
Prices and Market Shares in a Menu Cost Model
Burstein, Ariel Tomas; Hellwig, Christian
2007-01-01
Pricing complementarities play a key role in determining the propagation of monetary disturbances in sticky price models. We propose a procedure to infer the degree of firm-level pricing complementarities in the context of a menu cost model of price adjustment using data on prices and market shares at the level of individual varieties. We then apply this procedure by calibrating our model (in which pricing complementarities are based on decreasing returns to scale at the variety level) using ...
Dynamical Models For Prices With Distributed Delays
Mircea Gabriela
2015-06-01
Full Text Available In the present paper we study some models for the price dynamics of a single commodity market. The quantities of supplied and demanded are regarded as a function of time. Nonlinearities in both supply and demand functions are considered. The inventory and the level of inventory are taken into consideration. Due to the fact that the consumer behavior affects commodity demand, and the behavior is influenced not only by the instantaneous price, but also by the weighted past prices, the distributed time delay is introduced. The following kernels are taken into consideration: demand price weak kernel and demand price Dirac kernel. Only one positive equilibrium point is found and its stability analysis is presented. When the demand price kernel is weak, under some conditions of the parameters, the equilibrium point is locally asymptotically stable. When the demand price kernel is Dirac, the existence of the local oscillations is investigated. A change in local stability of the equilibrium point, from stable to unstable, implies a Hopf bifurcation. A family of periodic orbits bifurcates from the positive equilibrium point when the time delay passes through a critical value. The last part contains some numerical simulations to illustrate the effectiveness of our results and conclusions.
A model for the optimal risk management of (farm) firms
Rasmussen, Svend
Current methods of risk management focus on efficiency and do not provide operational answers to the basic question of how to optimise and balance the two objectives, maximisation of expected income and minimisation of risk. This paper uses the Capital Asset Pricing Model (CAPM) to derive...
A model for the optimal risk management of (farm) firms
Rasmussen, Svend
Current methods of risk management focus on efficiency and do not provide operational answers to the basic question of how to optimise and balance the two objectives, maximisation of expected income and minimisation of risk. This paper uses the Capital Asset Pricing Model (CAPM) to derive...
Identifying of risks in pricing using a regression model of demand on price dependence
O.I. Yashkina
2016-09-01
Full Text Available The aim of the article. The main purpose of the article is to describe scientific and methodological approaches of determining the price elasticity of demand as a regression model based on the price and risk assessment of price variations on the received model. The results of the analysis. The study is based on the assumption that the index of price elasticity of demand on high-tech innovation is not constant as it is commonly understood in the classical sense. On the stage of commodity market release and subsequent sales growth, the index of price elasticity of demand may vary within certain limits. Index value and thereafter market response are closely related to the current price. Achieving the stated purpose of the article is possible when having factual information about prices and corresponding volumes of sales of new high-tech products for a short period of time, on the basis of which types of demand and prices interrelation are modeled. Risk assessment of pricing and profit optimization by the regression of demand depending on price consists of three stages: a obtaining of a regression model of the demand on the price; b obtaining of function of demand price elasticity and risk assessment of pricing depending on behavior of the function; c determination of the price of company to receive a maximum operating profit based on the specific model of price to demand function. To receive the regression model of dependence of demand on price it is recommended to use specific reference models. The article includes linear, hyperbolic and parabolic models. The regression dependence of price elasticity of demand on price for each of the reference models of demand is obtained on the basis of the function elasticity concept in mathematical analysis. The concept of «function of price elasticity of demand» expresses this dependence. For the received functions of price elasticity of demand, the article provides intervals with the highest and lowest
Jacek Lipiec
2014-07-01
Full Text Available In this article, we test the capital asset pricing model (CAPM on the Warsaw Stock Exchange (WSE by measuring the performance of two portfolios composed of construction firms: family-controlled and nonfamily controlled. These portfolios were selected from the WIG-Construction (WIG—Warszawski Indeks Giełdowy—Warsaw Stock Exchange Index. The performance of both portfolios was measured in the period from 2006 to 2012 with respect to three sub-periods: (1 pre-crisis period: 2006–2007; (2 crisis period: 2008–2009; and (3 post-crisis period: 2010–2012. This division was constructed in this way to find out how family firms performed in crisis times in relation to nonfamily firms. In addition, the construction portfolio was chosen due to its sensitivity to recessions. When an economy faces a downturn, construction firms are among the first to be exposed to risk. The performance was measured by using the capital asset pricing model with statistical inference. We find that public family firms significantly outperformed non-family peers in the crisis times.
Muhammad Hanif
2011-12-01
Full Text Available A speedy emerging area of finance is the Shari’a compliant financial system. In first decade of 21st century Islamic financing has shown tremendous increase and global volume has reached to US $ 1,041 billion by the end of 2009. Being financial intermediaries Islamic Financial Institutions (IFIs have shown commendable progress in deposit collection under profit and loss sharing schemes however investment avenues are limited in comparison of conventional banks. Although a large number of financing modes are available to IFIs, yet maintenance of required liquidity is serious issue because money market and capital market is dominated by interest based instruments and conventional practices (some are clearly prohibited by Shari’a. Recently Al-meezan Investment Management Ltd. (AIML has started screening of Shari’a compliant stocks on KSE, and provided an avenue for Shari’a Compliant Investors/IFIs to invest in equities. This study is conducted to understand conventional asset pricing models, document any mismatching with Shari’a financial system, and suggest amendments if required. Findings suggest existing models of equity pricing (CAPM, APT/MFM are very much practicable under Shari’a framework with slight modification of risk free return because under Shari’a frame work risk free returns do not exist.
Leo Julianto
2015-09-01
Full Text Available For decades, there were many models explaining the returns earned emerged in order to fulfil the curiosity had by human. Since then, various studies and empirical findings in many countries’ stock market showedthat the empirical findings of market return explanation and the return of assets meet the different results in both clarify of model and identification of significant determinant variables.Therefore, many comparative studies between models were accomplished. In this study, the author attempts to do comparative study between two models, APT and CAPM, in Indonesian Capital Market during period 2008 until 2012. Besides, the author also attempts to find how much inflation, interest rate, and exchange rate describe the returns earned in each sector existed in Indonesia Capital Market. As the result, the author find out that CAPM has bigger explanation power than APT in Indonesian Capital Market during period 2008-2012. Besides, the author also found that among macroeconomic factors, there are only two macroeconomic factors that can affect certain samples significantly. They are change in BI rate, which affect AALI, ANTM, ASII, TLKM, UNTR, and change in exchange rate, which affect INDF and TLKM significantly.
Some Divergence Properties of Asset Price Models
Wolfgang Stummer
2001-12-01
Full Text Available Abstract: We consider asset price processes Xt which are weak solutions of one-dimensional stochastic differential equations of the form (equation (2 Such price models can be interpreted as non-lognormally-distributed generalizations of the geometric Brownian motion. We study properties of the IÃŽÂ±-divergence between the law of the solution Xt and the corresponding drift-less measure (the special case ÃŽÂ±=1 is the relative entropy. This will be applied to some context in statistical information theory as well as to arbitrage theory and contingent claim valuation. For instance, the seminal option pricing theorems of Black-Scholes and Merton appear as a special case.
An empirical behavioral model of price formation
Mike, S
2005-01-01
Although behavioral economics has demonstrated that there are many situations where rational choice is a poor empirical model, it has so far failed to provide quantitative models of economic problems such as price formation. We make a step in this direction by developing empirical models that capture behavioral regularities in trading order placement and cancellation using data from the London Stock Exchange. For order placement we show that the probability of placing an order at a given price is well approximated by a Student distribution with less than two degrees of freedom, centered on the best quoted price. This result is surprising because it implies that trading order placement is symmetric, independent of the bid-ask spread, and the same for buying and selling. We also develop a crude but simple cancellation model that depends on the position of an order relative to the best price and the imbalance between buying and selling orders in the limit order book. These results are combined to construct a sto...
Modelling and forecasting electricity price variability
Haugom, Erik
2012-07-01
The liberalization of electricity sectors around the world has induced a need for financial electricity markets. This thesis is mainly focused on calculating, modelling, and predicting volatility for financial electricity prices. The four first essays examine the liberalized Nordic electricity market. The purposes in these papers are to describe some stylized properties of high-frequency financial electricity data and to apply models that can explain and predict variation in volatility. The fifth essay examines how information from high-frequency electricity forward contracts can be used in order to improve electricity spot-price volatility predictions. This essay uses data from the Pennsylvania-New Jersey-Maryland wholesale electricity market in the U.S.A. Essay 1 describes some stylized properties of financial high-frequency electricity prices, their returns and volatilities at the Nordic electricity exchange, Nord Pool. The analyses focus on distribution properties, serial correlation, volatility clustering, the influence of extreme events and seasonality in the various measures. The objective of Essay 2 is to calculate, model, and predict realized volatility of financial electricity prices for quarterly and yearly contracts. The total variation is also separated into continuous and jump variation. Various market measures are also included in the models in order potentially to improve volatility predictions. Essay 3 compares day-ahead predictions of Nord Pool financial electricity price volatility obtained from a GARCH approach with those obtained using standard time-series techniques on realized volatility. The performances of a total of eight models (two representing the GARCH family and six representing standard autoregressive models) are compared and evaluated. Essay 4 examines whether predictions of day-ahead and week-ahead volatility can be improved by additionally including volatility and covariance effects from related financial electricity contracts
A price adjustment process in a model of monopolistic competition
J. Tuinstra
2004-01-01
We consider a price adjustment process in a model of monopolistic competition. Firms have incomplete information about the demand structure. When they set a price they observe the amount they can sell at that price and they observe the slope of the true demand curve at that price. With this informat
Conditional Density Models for Asset Pricing
Filipovic, Damir; Hughston, Lane P.; Macrina, Andrea
2010-01-01
We model the dynamics of asset prices and associated derivatives by consideration of the dynamics of the conditional probability density process for the value of an asset at some specified time in the future. In the case where the asset is driven by Brownian motion, an associated "master equation" for the dynamics of the conditional probability density is derived and expressed in integral form. By a "model" for the conditional density process we mean a solution to the master equation along wi...
Constructing Zero-Beta VIX Portfolios with Dynamic CAPM
Chen, Jiaqi; Tindall, Michael
2014-01-01
This paper focuses on actively managed portfolios of VIX derivatives constructed to reduce portfolio correlation with the equity market. We find that the best results are obtained using Kalman filter-based dynamic CAPM. The portfolio construction method is capable of constructing zero-beta portfolios with positive alpha.
A GARCH option pricing model with filtered historical simulation
Mancini, Loriano; Barone-Adesi, Giovanni; Engle, Robert
2008-01-01
We propose a new method for pricing options based on GARCH models with filtered historical innovaions. In an incomplete market framework, we allow for different distributions of historical and pricing return dynamics, which enhances the model’s flexibility to fit market option prices. An extensive empirical analysis based on S&P 500 Index options shows that our model outperforms other competing GARCH pricing models and ad hoc Black–Scholes models. We show that the flexible change of me...
Oil price dynamics and speculation. A multivariate financial approach
Cifarelli, Giulio [University of Florence, Dipartimento di Scienze Economiche, via delle Pandette 9, 50127, Florence (Italy); Paladino, Giovanna [Economics Department, LUISS University (Italy); BIIS International Division (Italy)
2010-03-15
This paper assesses empirically whether speculation affects oil price dynamics. The growing presence of financial operators in the oil markets has led to the diffusion of trading techniques based on extrapolative expectations. Strategies of this kind foster feedback trading that may cause considerable departures of prices from their fundamental values. We investigate this hypothesis using a modified CAPM following Shiller (1984) and Sentana and Wadhwani (1992). First, a univariate GARCH(1,1)-M is estimated assuming the risk premium to be a function of the conditional oil price volatility. The single factor model, however, is outperformed by the multifactor ICAPM (Merton, 1973), which takes into account a larger investment opportunity set. Analysis is then carried out using a trivariate CCC GARCH-M model with complex nonlinear conditional mean equations where oil price dynamics are associated with both stock market and exchange rate behavior. We find strong evidence that oil price shifts are negatively related to stock price and exchange rate changes and that a complex web of time-varying first and second order conditional moment interactions affects both the CAPM and feedback trading components of the model. Despite the difficulties, we identify a significant role played by speculation in the oil market, which is consistent with the observed large daily upward and downward shifts in prices - a clear evidence that it is not a fundamental-driven market. Thus, from a policy point of view - given the impact of volatile oil prices on global inflation and growth - actions that monitor speculative activities on commodity markets more effectively are to be welcomed. (author)
Space-time modeling of electricity spot prices
Abate, Girum Dagnachew; Haldrup, Niels
In this paper we derive a space-time model for electricity spot prices. A general spatial Durbin model that incorporates the temporal as well as spatial lags of spot prices is presented. Joint modeling of space-time effects is necessarily important when prices and loads are determined in a network...
Modelling the Effects of Oil Prices on Global Fertilizer Prices and Volatility
Chen, P.Y. Chen, P.Y. (Chen, P.Y.); C-L. Chang (Chia-Lin); M.J. McAleer (Michael)
2013-01-01
textabstractThe main purpose of this paper is to evaluate the effect of crude oil price on global fertilizer prices in both the mean and volatility. The endogenous structural breakpoint unit root test, ARDL model, and alternative volatility models, including GARCH, EGARCH, and GJR models, are used t
Pricing in combinatorial double auction-based grid allocation model
LI Li; LIU Yuan-an; LIU Kai-ming; MA Xiao-lei; YANG Ming
2009-01-01
This article proposes a novel grid resource allocation model, in which the users and the grid service providers participate in the combinatorial double auction for the resource allocation. To obtain the detailed resource allocation status and the price information, a novel pricing algorithm is designed for the allocation model. Simulation results demonstrate that the proposed algorithm completes the resource allocation and pricing efficiently, and exhibits incentive compatible characteristic. Moreover,users with the higher average price and providers with the lower average price get compensation during the pricing process.
Dharmawan, Komang
2017-03-01
It has been claimed in many literatures that the prices of some agriculture commodities tend to follow mean reversion. However, when dealing with the prices of agriculture commodities, is mean-reversion realistic enough without incorporating seasonality and jump diffusion? This research tries to answer the question. The combination between mean-reversion feature, jump and seasonal components are applied to model the behavior of agriculture commodity prices. A jump and seasonal components are added to the standard mean-reverting process in order to reproduce the spiky or jump behaviors. This model has been well applied on simulating the electricity prices but it has not been applied to investigate the behavior of agriculture commodity prices yet. This paper discusses the performance of the model when it is used to price European call options. First, the deterministic seasonality part is calibrated using the least square method. The second stage is to calibrate the stochastic part based on historical prices. The parameters are calibrated by discretizing the model. Hence, the discretized model allows us to perform Monte Carlo simulation on the commodity price under real-word probability. The analysis is conducted using 2 future price of Crude Palm Oil and Coffee Bean on standard payoff functions, a Basket, a Spread, Best of Call, and Worst of Call Options.
The Earnings/Price Risk Factor in Capital Asset Pricing Models
Rafael Falcão Noda
2015-01-01
Full Text Available This article integrates the ideas from two major lines of research on cost of equity and asset pricing: multi-factor models and ex ante accounting models. The earnings/price ratio is used as a proxy for the ex ante cost of equity, in order to explain realized returns of Brazilian companies within the period from 1995 to 2013. The initial finding was that stocks with high (low earnings/price ratios have higher (lower risk-adjusted realized returns, already controlled by the capital asset pricing model's beta. The results show that selecting stocks based on high earnings/price ratios has led to significantly higher risk-adjusted returns in the Brazilian market, with average abnormal returns close to 1.3% per month. We design asset pricing models including an earnings/price risk factor, i.e. high earnings minus low earnings, based on the Fama and French three-factor model. We conclude that such a risk factor is significant to explain returns on portfolios, even when controlled by size and market/book ratios. Models including the high earnings minus low earnings risk factor were better to explain stock returns in Brazil when compared to the capital asset pricing model and to the Fama and French three-factor model, having the lowest number of significant intercepts. These findings may be due to the impact of historically high inflation rates, which reduce the information content of book values, thus making the models based on earnings/price ratios better than those based on market/book ratios. Such results are different from those obtained in more developed markets and the superiority of the earnings/price ratio for asset pricing may also exist in other emerging markets.
Food Prices and Climate Extremes: A Model of Global Grain Price Variability with Storage
Otto, C.; Schewe, J.; Frieler, K.
2015-12-01
Extreme climate events such as droughts, floods, or heat waves affect agricultural production in major cropping regions and therefore impact the world market prices of staple crops. In the last decade, crop prices exhibited two very prominent price peaks in 2007-2008 and 2010-2011, threatening food security especially for poorer countries that are net importers of grain. There is evidence that these spikes in grain prices were at least partly triggered by actual supply shortages and the expectation of bad harvests. However, the response of the market to supply shocks is nonlinear and depends on complex and interlinked processes such as warehousing, speculation, and trade policies. Quantifying the contributions of such different factors to short-term price variability remains difficult, not least because many existing models ignore the role of storage which becomes important on short timescales. This in turn impedes the assessment of future climate change impacts on food prices. Here, we present a simple model of annual world grain prices that integrates grain stocks into the supply and demand functions. This firstly allows us to model explicitly the effect of storage strategies on world market price, and thus, for the first time, to quantify the potential contribution of trade policies to price variability in a simple global framework. Driven only by reported production and by long--term demand trends of the past ca. 40 years, the model reproduces observed variations in both the global storage volume and price of wheat. We demonstrate how recent price peaks can be reproduced by accounting for documented changes in storage strategies and trade policies, contrasting and complementing previous explanations based on different mechanisms such as speculation. Secondly, we show how the integration of storage allows long-term projections of grain price variability under climate change, based on existing crop yield scenarios.
Thamrongsrisook, Chuti
2011-01-01
Rapid transit systems often create city developments and raise the property values. Basically, residential property price is characterised by number of characteristics including the transportations attributes. Empirical studies have drawn impacts of transportation in different ways. This thesis studies the hedonic price model to better understand the influence of mass rapid transit systems on the prices of condominium in Bangkok. The research question is "How the accessibility of rapid transi...
Application of Markov Model in Crude Oil Price Forecasting
Nuhu Isah
2017-08-01
Full Text Available Crude oil is an important energy commodity to mankind. Several causes have made crude oil prices to be volatile. The fluctuation of crude oil prices has affected many related sectors and stock market indices. Hence, forecasting the crude oil prices is essential to avoid the future prices of the non-renewable natural resources to rise. In this study, daily crude oil prices data was obtained from WTI dated 2 January to 29 May 2015. We used Markov Model (MM approach in forecasting the crude oil prices. In this study, the analyses were done using EViews and Maple software where the potential of this software in forecasting daily crude oil prices time series data was explored. Based on the study, we concluded that MM model is able to produce accurate forecast based on a description of history patterns in crude oil prices.
Equilibrium Price Dispersion in a Matching Model with Divisible Money
Kamiya, K.; Sato, T.
2002-01-01
The main purpose of this paper is to show that, for any given parameter values, an equilibrium with dispersed prices (two-price equilibrium) exists in a simple matching model with divisible money presented by Green and Zhou (1998).We also show that our two-price equilibrium is unique in certain envi
House Price Risk Models for Banking and Insurance Applications
Katja Hanewald; Michael Sherris
2011-01-01
The recent international credit crisis has highlighted the significant exposure that banks and insurers, especially mono-line credit insurers, have to residential house price risk. This paper provides an assessment of risk models for residential property for applications in banking and insurance including pricing, risk management, and portfolio management. Risk factors and heterogeneity of house price returns are assessed at a postcode-level for house prices in the major capital city of Sydne...
Modeling spot markets for electricity and pricing electricity derivatives
Ning, Yumei
Spot prices for electricity have been very volatile with dramatic price spikes occurring in restructured market. The task of forecasting electricity prices and managing price risk presents a new challenge for market players. The objectives of this dissertation are: (1) to develop a stochastic model of price behavior and predict price spikes; (2) to examine the effect of weather forecasts on forecasted prices; (3) to price electricity options and value generation capacity. The volatile behavior of prices can be represented by a stochastic regime-switching model. In the model, the means of the high-price and low-price regimes and the probabilities of switching from one regime to the other are specified as functions of daily peak load. The probability of switching to the high-price regime is positively related to load, but is still not high enough at the highest loads to predict price spikes accurately. An application of this model shows how the structure of the Pennsylvania-New Jersey-Maryland market changed when market-based offers were allowed, resulting in higher price spikes. An ARIMA model including temperature, seasonal, and weekly effects is estimated to forecast daily peak load. Forecasts of load under different assumptions about weather patterns are used to predict changes of price behavior given the regime-switching model of prices. Results show that the range of temperature forecasts from a normal summer to an extremely warm summer cause relatively small increases in temperature (+1.5%) and load (+3.0%). In contrast, the increases in prices are large (+20%). The conclusion is that the seasonal outlook forecasts provided by NOAA are potentially valuable for predicting prices in electricity markets. The traditional option models, based on Geometric Brownian Motion are not appropriate for electricity prices. An option model using the regime-switching framework is developed to value a European call option. The model includes volatility risk and allows changes
The impact of liquidity and size premium on equity price formation in Serbia
Minović Jelena
2012-01-01
Full Text Available The goal of this paper is to examine the impact of an overall market factor, the factor related to the firm size, the factor related to the ratio of book to market value of companies, and the factor of liquidity risk on expected asset returns in the Serbian market. For this market we estimated different factor models: Capital Asset Pricing Model (CAPM by Sharpe, 1964, Fama-French (FF model (1992, 1993, Liquidity-augmented CAPM (LCAPM by Liu (2006, and combination LCAPM with FF factors. We used daily data for the period from 2005 to 2009. Using a demanding methodology and complex dataset, we found that liquidity and firm size had a significant impact on equity price formation in Serbia. On the other hand, our results suggest that the factor related to the ratio of book to market value of companies does not have an important role in asset pricing in Serbia. We found that Liu’s two factor LCAPM model performs better in explaining stock returns than the standard CAPM and the Fama-French three factor model. Additionally, Liu’s LCAPM may indeed be a good tool for realistic assessment of the expected asset returns. The combination of the Fama-French model and the LCAPM could improve the understanding of equilibrium in the Serbian equity market. Even though previous papers have mostly dealt with examining different factor models of developed or emerging markets worldwide, none of them has tested factor models on the countries of former Yugoslavia. This paper is the first to test the FF model and LCAPM with FF factors in the case of Serbia and the area of ex-Yugoslavia. [Projekat Ministarstva nauke Republike Srbije, br. 179015: Challenges and Prospects of Structural Changes in Serbia: Strategic Directions for Economic Development and Harmonization With EU Requirements
Spatial Data Web Services Pricing Model Infrastructure
Ozmus, L.; Erkek, B.; Colak, S.; Cankurt, I.; Bakıcı, S.
2013-08-01
most important law with related NSDI is the establishment of General Directorate of Geographic Information System under the Ministry of Environment and Urbanism. due to; to do or to have do works and activities with related to the establishment of National Geographic Information Systems (NGIS), usage of NGIS and improvements of NGIS. Outputs of these projects are served to not only public administration but also to Turkish society. Today for example, TAKBIS data (cadastre services) are shared more than 50 institutions by Web services, Tusaga-Aktif system has more than 3800 users who are having real-time GPS data correction, Orthophoto WMS services has been started for two years as a charge of free. Today there is great discussion about data pricing among the institutions. Some of them think that the pricing is storage of the data. Some of them think that the pricing is value of data itself. There is no certain rule about pricing. On this paper firstly, pricing of data storage and later on spatial data pricing models in different countries are investigated to improve institutional understanding in Turkey.
Comparative Performance of Volatility Models for Oil Price
Afees A. Salisu
2012-07-01
Full Text Available In this paper, we compare the performance of volatility models for oil price using daily returns of WTI. The innovations of this paper are in two folds: (i we analyse the oil price across three sub samples namely period before, during and after the global financial crisis, (ii we also analyse the comparative performance of both symmetric and asymmetric volatility models for the oil price. We find that oil price was most volatile during the global financial crises compared to other sub samples. Based on the appropriate model selection criteria, the asymmetric GARCH models appear superior to the symmetric ones in dealing with oil price volatility. This finding indicates evidence of leverage effects in the oil market and ignoring these effects in oil price modelling will lead to serious biases and misleading results.
Francis M HUTABARAT
2016-08-01
Full Text Available The industry in Indonesia is an interesting business to capitalize. In Indonesia many companies were established since it is profitable. The capital market serves as an economic pillar in most countries. Indonesia is a rich country, rich in many ways especially in natural resources. However, the industry has its ups and downs in the stock market. It is interesting to see the performance of the companies listed in the Indonesia Stock Exchange. This study aimed to measure and analyze companies listed in Pefindo25 at Indonesian Stock Exchange using Capital Asset Pricing Model. The sample used is 25 companies listed at Pefindo25 index. Based on the results of the study, it can conclude that after analyzing the companies listed in the Indonesian Stock Exchange using Capital Asset Pricing Model that based on Beta analysis, the companies have the type of stocks that are aggressive and defensive. With positive and negative return. The company with aggressive beta shows that the company tend to face higher risk, as JPFA find itself with positif return 15.47% expected return. And companies with defensive type of stocks tend to have positive return such as: FISH, STTP, AISA, APLN, and others since they are not sensitive to market changes. It is recommended for further research to look on this CAPM method in analyzing the stock investment.
Optimal pricing decision model based on activity-based costing
王福胜; 常庆芳
2003-01-01
In order to find out the applicability of the optimal pricing decision model based on conventional costbehavior model after activity-based costing has given strong shock to the conventional cost behavior model andits assumptions, detailed analyses have been made using the activity-based cost behavior and cost-volume-profitanalysis model, and it is concluded from these analyses that the theory behind the construction of optimal pri-cing decision model is still tenable under activity-based costing, but the conventional optimal pricing decisionmodel must be modified as appropriate to the activity-based costing based cost behavior model and cost-volume-profit analysis model, and an optimal pricing decision model is really a product pricing decision model construc-ted by following the economic principle of maximizing profit.
An Empirical Comparison of Default Swap Pricing Models
P. Houweling (Patrick); A.C.F. Vorst (Ton)
2002-01-01
textabstractAbstract: In this paper we compare market prices of credit default swaps with model prices. We show that a simple reduced form model with a constant recovery rate outperforms the market practice of directly comparing bonds' credit spreads to default swap premiums. We find that the model
A comparative analysis of pricing models for enterprise cloud platforms
Mvelase, P
2013-09-01
Full Text Available virtual enterprise (VE)-enabled cloud enterprise architecture for small medium and micro enterprises (SMMEs) against EC2 pricing model to prove that our pricing model is more suitable for small medium and micro enterprises (SMMEs). This model is based...
Gulnara REJEPOVA
2007-01-01
Full Text Available This article attempts to test the validity of CAPM (Capital Asset Pricing Model in Turkey by regressing the weekly risk premiums (rj - rf against the beta coefficients of 20 portfolios, each including 10 stocks, over the period of 1995-2004.ISE 100 index and US T-Bill rate, adjusted for the difference between Turkish and US inflation rates were used as the proxies to the market portfolio, and the risk-free rate respectively. Following an in-depth literature survey, Fama and MacBeth (1973, and Pettengil et. al. (1995 approaches were selected as two alternative methods to be used in the research. Research findings based on Fama&MacBeth approach indicated no meaningful relationship between beta coefficients and ex-post risk premiums of the selected portfolios. With Pettengill et al. methodology, on the other hand, strong beta-risk premium relationships were discovered.
Dynamic Hybrid Model for Short-Term Electricity Price Forecasting
Marin Cerjan
2014-05-01
Full Text Available Accurate forecasting tools are essential in the operation of electric power systems, especially in deregulated electricity markets. Electricity price forecasting is necessary for all market participants to optimize their portfolios. In this paper we propose a hybrid method approach for short-term hourly electricity price forecasting. The paper combines statistical techniques for pre-processing of data and a multi-layer (MLP neural network for forecasting electricity price and price spike detection. Based on statistical analysis, days are arranged into several categories. Similar days are examined by correlation significance of the historical data. Factors impacting the electricity price forecasting, including historical price factors, load factors and wind production factors are discussed. A price spike index (CWI is defined for spike detection and forecasting. Using proposed approach we created several forecasting models of diverse model complexity. The method is validated using the European Energy Exchange (EEX electricity price data records. Finally, results are discussed with respect to price volatility, with emphasis on the price forecasting accuracy.
Hot topics flashcards for passing the PMP and CAPM exams
Mulcahy, Rita
2013-01-01
If you are looking for a way to prepare for the PMP or the CAPM exam that fits into your busy schedule, these flashcards are it. Now you can study at the office, on a plane or even in your car with RMC's portable and extremely valuable Hot Topics Exam Flashcards-in hard copy or audio CD format. Over 300 of the most important and difficult to recall PMP® and CAPM® exam-related terms and concepts are now available for study as you drive, fly or take your lunch break. Order them both!
Pricing Model of Multiattribute Derivatives Based on Mixed Process
无
2000-01-01
By Analyzing the behavior and character of derivative security, the authorsestablished a pricing model of multiattribute derivative security whose underlying asset pricingprocess is a mixed process, and obtained a new model for option pricing of multiattribute derivatives based on mixed process, and improved some original results.
Pricing equity warrants with a promised lowest price in Merton's jump-diffusion model
Xiao, Weilin; Zhang, Xili
2016-09-01
Motivated by the empirical evidence of jumps in the dynamics of firm behavior, this paper considers the problem of pricing equity warrants in the presence of a promised lowest price when the price of the underlying asset follows the Merton's jump-diffusion process. Using the Martingale approach, we propose a valuation model of equity warrants based on the firm value, its volatility, and parameters of the jump component, which are not directly observable. To implement our pricing model empirically, this paper also provides a promising estimation method for obtaining these desired variables based on observable data, such as stock prices and the book value of total liability. We conduct an empirical study to ascertain the performance of our proposed model using the data of Changdian warrant collected from 25 May 2006 (the listing date) to 29 January 2007 (the expiration date). Furthermore, the comparison of traditional models (such as the Black-Scholes model, the Noreen-Wolfson model, the Lauterbach-Schultz model, and the Ukhov model) with our model is presented. From the empirical study, we can see that the mean absolute error of our pricing model is 16.75%. By contrast, the Black-Scholes model, the Noreen-Wolfson model, the Lauterbach-Schultz model, and the Ukhov model applied to the same warrant produce mean absolute errors of 92.24%, 45.38%, 87.34%, 76.12%, respectively. Thus both the dilution effect and the jump feature cannot be ignored in determining the valuation of equity warrants.
Forecasting Model for Crude Oil Price Using Artificial Neural Networks and Commodity Futures Prices
Kulkarni, Siddhivinayak
2009-01-01
This paper presents a model based on multilayer feedforward neural network to forecast crude oil spot price direction in the short-term, up to three days ahead. A great deal of attention was paid on finding the optimal ANN model structure. In addition, several methods of data pre-processing were tested. Our approach is to create a benchmark based on lagged value of pre-processed spot price, then add pre-processed futures prices for 1, 2, 3,and four months to maturity, one by one and also altogether. The results on the benchmark suggest that a dynamic model of 13 lags is the optimal to forecast spot price direction for the short-term. Further, the forecast accuracy of the direction of the market was 78%, 66%, and 53% for one, two, and three days in future conclusively. For all the experiments, that include futures data as an input, the results show that on the short-term, futures prices do hold new information on the spot price direction. The results obtained will generate comprehensive understanding of the cr...
Robust Portfolio Optimization using CAPM Approach
mohsen gharakhani
2013-08-01
Full Text Available In this paper, a new robust model of multi-period portfolio problem has been developed. One of the key concerns in any asset allocation problem is how to cope with uncertainty about future returns. There are some approaches in the literature for this purpose including stochastic programming and robust optimization. Applying these techniques to multi-period portfolio problem may increase the problem size in a way that the resulting model is intractable. In this paper, a novel approach has been proposed to formulate multi-period portfolio problem as an uncertain linear program assuming that asset return follows the single-index factor model. Robust optimization technique has been also used to solve the problem. In order to evaluate the performance of the proposed model, a numerical example has been applied using simulated data.
Principles of the Proposed Czech Postal Sector Price Control Model
Libor Švadlenka
2009-01-01
Full Text Available The paper deals with the postal sector control. It resultsfrom the control theory and proves the justifiability of control inthe postal sector. Within the price control it results from E U Directive97!67/EC requirements on this control and states individualtypes of price control focusing on ineffective price controlcurrently used in the Czech postal sector (especially withindomestic services and proposes a more effective method ofprice control. The paper also discusses the principles of the proposedmethod of price control of the Czech postal sector. It describesconcrete fulfilment of the price control model resultingfrom the price-cap and tariff formula RP I-X and concentrateson its quantitative expression. The application of the proposedmodel is carried out for a hypothetical period in the past (in orderto compare it with the current control system for letteritems tariff basket.
A characterization of oil price behavior. Evidence from jump models
Gronwald, Marc [Munich Univ. (Germany). Ifo Institute - Leibniz Institute for Economic Research
2011-11-15
This paper is concerned with the statistical behavior of oil prices in two ways. It, firstly, applies a combined jump GARCH in order to characterize the behavior of daily, weekly as well as monthly oil prices. Secondly, it relates its empirical results to implications of Hotelling-type resource extraction models. The empirical analysis shows that oil prices are characterized by GARCH as well as conditional jump behavior and that a considerable portion of the total variance is triggered by sudden extreme price movements. This finding implies that, first, oil price signals are not reliable and, as a consequence, both finding optimal extraction paths and decisions regarding the transmission to alternative technologies are likely to be compromised. Second, this behavior is in stark contrast to the notion of deterministic trends in the price of oil. (orig.)
On a Boltzmann-type price formation model
Burger, Martin
2013-06-26
In this paper, we present a Boltzmann-type price formation model, which is motivated by a parabolic free boundary model for the evolution of price presented by Lasry and Lions in 2007. We discuss the mathematical analysis of the Boltzmann-type model and show that its solutions converge to solutions of the model by Lasry and Lions as the transaction rate tends to infinity. Furthermore, we analyse the behaviour of the initial layer on the fast time scale and illustrate the price dynamics with various numerical experiments. © 2013 The Author(s) Published by the Royal Society. All rights reserved.
Time series ARIMA models for daily price of palm oil
Ariff, Noratiqah Mohd; Zamhawari, Nor Hashimah; Bakar, Mohd Aftar Abu
2015-02-01
Palm oil is deemed as one of the most important commodity that forms the economic backbone of Malaysia. Modeling and forecasting the daily price of palm oil is of great interest for Malaysia's economic growth. In this study, time series ARIMA models are used to fit the daily price of palm oil. The Akaike Infromation Criterion (AIC), Akaike Infromation Criterion with a correction for finite sample sizes (AICc) and Bayesian Information Criterion (BIC) are used to compare between different ARIMA models being considered. It is found that ARIMA(1,2,1) model is suitable for daily price of crude palm oil in Malaysia for the year 2010 to 2012.
Latent Utility Shocks in a Structural Empirical Asset Pricing Model
Christensen, Bent Jesper; Raahauge, Peter
We consider a random utility extension of the fundamental Lucas (1978) equilibriumasset pricing model. The resulting structural model leads naturally to a likelihoodfunction. We estimate the model using U.S. asset market data from 1871 to2000, using both dividends and earnings as state variables....... We find that current dividendsdo not forecast future utility shocks, whereas current utility shocks do forecastfuture dividends. The estimated structural model produces a sequence of predictedutility shocks which provide better forecasts of future long-horizon stock market returnsthan the classical...... dividend-price ratio.KEYWORDS: Randomutility, asset pricing, maximumlikelihood, structuralmodel,return predictability...
Price manipulation in a market impact model with dark pool
Florian Kl\\"ock; Alexander Schied; Yuemeng Sun
2012-01-01
For a market impact model, price manipulation and related notions play a role that is similar to the role of arbitrage in a derivatives pricing model. Here, we give a systematic investigation into such regularity issues when orders can be executed both at a traditional exchange and in a dark pool. To this end, we focus on a class of dark-pool models whose market impact at the exchange is described by an Almgren--Chriss model. Conditions for the absence of price manipulation for all Almgren--C...
Formation of an Integrated Stock Price Forecast Model in Lithuania
Audrius Dzikevičius
2016-12-01
Full Text Available Technical and fundamental analyses are widely used to forecast stock prices due to lack of knowledge of other modern models and methods such as Residual Income Model, ANN-APGARCH, Support Vector Machine, Probabilistic Neural Network and Genetic Fuzzy Systems. Although stock price forecast models integrating both technical and fundamental analyses are currently used widely, their integration is not justified comprehensively enough. This paper discusses theoretical one-factor and multi-factor stock price forecast models already applied by investors at a global level and determines possibility to create and apply practically a stock price forecast model which integrates fundamental and technical analysis with the reference to the Lithuanian stock market. The research is aimed to determine the relationship between stock prices of the 14 Lithuanian companies listed in the Main List by the Nasdaq OMX Baltic and various fundamental variables. Based on correlation and regression analysis results and application of c-Squared Test, ANOVA method, a general stock price forecast model is generated. This paper discusses practical implications how the developed model can be used to forecast stock prices by individual investors and suggests additional check measures.
Implementing a stochastic model for oil futures prices
Cortazar, Gonzalo [Departamento de Ingenieria Industrial y de Sistemas, Escuela de Ingenieria, Pontificia Universidad Catolica de Chile, Vicuna Mackenna 4860, Santiago (Chile); Schwartz, Eduardo S. [Anderson School at UCLA, 110 Westwood Plaza, Los Angeles, CA 90095-1481 (United States)
2003-05-01
This paper develops a parsimonious three-factor model of the term structure of oil futures prices that can be easily estimated from available futures price data. In addition, it proposes a new simple spreadsheet implementation procedure. The procedure is flexible, may be used with market prices of any oil contingent claim with closed form pricing solution, and easily deals with missing data problems. The approach is implemented using daily prices of all futures contracts traded at the New York Mercantile Exchange between 1991 and 2001. In-sample and out-of-sample tests indicate that the model fits the data extremely well. Though the paper concentrates on oil, the approach can be used for any other commodity with well-developed futures markets.
Shanghai Stock Prices as Determined by the Present Value Model
Gregory C. Chow
2003-01-01
Derived from the present-value model of stock prices, our model implies that the log stock price is a linear function of expected log dividends and the expected rate of growth of dividends where expectations are formed adaptively. The model explains very well the prices of 47 stocks traded on the Shanghai Stock Exchange observed at the beginning of 1996, 1997, and 1998. The estimated parameters are remarkably similar to those reported for stocks traded on the Hong Kong Stock Exchange and the ...
Real Exchange Rate and Commodity Prices in a Neoclassical Model
Reinhart, Carmen
1988-01-01
This paper represents a neoclassical model that explains the observed empirical relationship between government spending and world commodity supplies and the real exchange rate and real commodity prices. It is shown that fiscal expansion and increasing world commodity supplies simultaneously lead to an appreciation of the real exchange rate and a decline in relative commodity prices. The structural model is estimated and its forecasting performance is compared to a variety of models. We fin...
European option pricing model in a stochastic and fuzzy environment
LIU Wen-qiong; LI Sheng-hong
2013-01-01
The primary goal of this paper is to price European options in the Merton’s frame-work with underlying assets following jump-diff usion using fuzzy set theory. Owing to the vague fluctuation of the real financial market, the average jump rate and jump sizes cannot be recorded or collected accurately. So the main idea of this paper is to model the rate as a triangular fuzzy number and jump sizes as fuzzy random variables and use the property of fuzzy set to deduce two diff erent jump-diff usion models underlying principle of rational expectations equilibrium price. Unlike many conventional models, the European option price will now turn into a fuzzy number. One of the major advantages of this model is that it allows investors to choose a reasonable European option price under an acceptable belief degree. The empirical results will serve as useful feedback information for improvements on the proposed model.
A Consistent Pricing Model for Index Options and Volatility Derivatives
Cont, Rama; Kokholm, Thomas
options on the underlying asset. The model has the convenient feature of decoupling the vanilla skews from spot/volatility correlations and allowing for different conditional correlations in large and small spot/volatility moves. We show that our model can simultaneously fit prices of European options......We propose and study a flexible modeling framework for the joint dynamics of an index and a set of forward variance swap rates written on this index, allowing options on forward variance swaps and options on the underlying index to be priced consistently. Our model reproduces various empirically...... on S&P 500 across strikes and maturities as well as options on the VIX volatility index. The calibration of the model is done in two steps, first by matching VIX option prices and then by matching prices of options on the underlying....
A Consistent Pricing Model for Index Options and Volatility Derivatives
Kokholm, Thomas
on the underlying asset. The model has the convenient feature of decoupling the vanilla skews from spot/volatility correlations and allowing for different conditional correlations in large and small spot/volatility moves. We show that our model can simultaneously fit prices of European options on S&P 500 across......We propose and study a flexible modeling framework for the joint dynamics of an index and a set of forward variance swap rates written on this index, allowing options on forward variance swaps and options on the underlying index to be priced consistently. Our model reproduces various empirically...... strikes and maturities as well as options on the VIX volatility index. The calibration of the model is done in two steps, first by matching VIX option prices and then by matching prices of options on the underlying....
Applications of the Likelihood Theory in Finance: Modelling and Pricing
Janssen, Arnold
2012-01-01
This paper discusses the connection between mathematical finance and statistical modelling which turns out to be more than a formal mathematical correspondence. We like to figure out how common results and notions in statistics and their meaning can be translated to the world of mathematical finance and vice versa. A lot of similarities can be expressed in terms of LeCam's theory for statistical experiments which is the theory of the behaviour of likelihood processes. For positive prices the arbitrage free financial assets fit into filtered experiments. It is shown that they are given by filtered likelihood ratio processes. From the statistical point of view, martingale measures, completeness and pricing formulas are revisited. The pricing formulas for various options are connected with the power functions of tests. For instance the Black-Scholes price of a European option has an interpretation as Bayes risk of a Neyman Pearson test. Under contiguity the convergence of financial experiments and option prices ...
A Consistent Pricing Model for Index Options and Volatility Derivatives
Kokholm, Thomas
We propose a flexible modeling framework for the joint dynamics of an index and a set of forward variance swap rates written on this index. Our model reproduces various empirically observed properties of variance swap dynamics and enables volatility derivatives and options on the underlying index...... to be priced consistently, while allowing for jumps in volatility and returns. An affine specification using Lévy processes as building blocks leads to analytically tractable pricing formulas for volatility derivatives, such as VIX options, as well as efficient numerical methods for pricing of European options...
A Consistent Pricing Model for Index Options and Volatility Derivatives
Cont, Rama; Kokholm, Thomas
2013-01-01
We propose a flexible modeling framework for the joint dynamics of an index and a set of forward variance swap rates written on this index. Our model reproduces various empirically observed properties of variance swap dynamics and enables volatility derivatives and options on the underlying index...... to be priced consistently, while allowing for jumps in volatility and returns. An affine specification using Lévy processes as building blocks leads to analytically tractable pricing formulas for volatility derivatives, such as VIX options, as well as efficient numerical methods for pricing of European options...
A Consistent Pricing Model for Index Options and Volatility Derivatives
Kokholm, Thomas
We propose a flexible modeling framework for the joint dynamics of an index and a set of forward variance swap rates written on this index. Our model reproduces various empirically observed properties of variance swap dynamics and enables volatility derivatives and options on the underlying index...... to be priced consistently, while allowing for jumps in volatility and returns. An affine specification using Lévy processes as building blocks leads to analytically tractable pricing formulas for volatility derivatives, such as VIX options, as well as efficient numerical methods for pricing of European options...
Modelo de valoración de activos CAPM
Reboredo Nogueira, Juan Carlos
2013-01-01
Esta unidade didáctica forma parte do curso de Análise Económica dos Mercados Financeiros I que se imparte no primeiro cuadrimestre do Máster en Economía: Organización Industrial e Mercados Financeiros. O propósito da unidade é introducir o modelo de valoración de activos en equilibrio denominado CAPM. Con este propósito, explícase a determinación do risco e da rendibilidade esperada dun activo ou dunha carteira de activos, introducindo así o concepto da diversificación e a determinación d...
Pricing Asset-backed Securities: A Revised Model
Bradka, Lukas
2008-01-01
This paper deals with asset backed securities and the pricing thereof. First, an overview of debt markets is provided with a particular focus on the recent crisis in the sub prime markets. Second, literature surrounding securitization, asset backed securities and related types of debt is analysed and discussed. A revised pricing model for asset backed securities based on two existing models (Ebrahim, 2000; Ebrahim & Ahmed, 2007) is successively developed and implemented in Maple programming l...
Parabolic Free Boundary Price Formation Models Under Market Size Fluctuations
Markowich, Peter A.
2016-10-04
In this paper we propose an extension of the Lasry-Lions price formation model which includes uctuations of the numbers of buyers and vendors. We analyze the model in the case of deterministic and stochastic market size uctuations and present results on the long time asymptotic behavior and numerical evidence and conjectures on periodic, almost periodic, and stochastic uctuations. The numerical simulations extend the theoretical statements and give further insights into price formation dynamics.
The Hierarchical Trend Model for property valuation and local price indices
M.K. Francke; G.A. Vos
2002-01-01
This paper presents a hierarchical trend model (HTM) for selling prices of houses, addressing three main problems: the spatial and temporal dependence of selling prices and the dependency of price index changes on housing quality. In this model the general price trend, cluster-level price trends, an
EXPLANATORY MODEL OF SPOT PRICE OF IRON ORE
Juan Enrique Villalva A.
2015-11-01
Full Text Available The objective of this study was to construct an explanatory model of the spot price of iron ore in the international market. For this, the method of multiple linear regressions was used. As a dependent variable, the spot price of iron ore (62% Fe China Tianjin port was taken, between 2010 and 2013. As independents variables were taken seven variables of international iron ore market. The resulting model includes variables: Iron ore inventory in Chinese ports, Baltic Dry Index (BDI, Iron ore exports from Brazil & Australia and Chinese Rebar Steel Price, as explanatory variables of the behavior of the spot price of iron ore in the international market. The model has an adjusted coefficient of determination R2 of 0.90, and was validated by comparing its predictions vs. known values of 2014.
Modelling price determination in South Africa
E Moolman
2015-07-01
Full Text Available South Africa has been faced with high inflation rates since the early 1970s. Despite continued monetary discipline the inflation target has not yet been met, highlighting South Africa’s price-vulnerability as a small open emerging economy and raising questions about the efficiency of monetary policy. The objectives of this paper are: (i to analyse the influence of monetary policy on inflation in the small open emerging economy of South Africa, (ii to highlight the channels other than monetary policy through which inflation can be influenced (iii to analyse the influence of international prices and the exchange rate on inflation, (iv to determine the role of the labour market on inflation, especially through wage-push dynamics and (v to determine the role of demand-pull factors on inflation.
Systematic Risk Changes, Negative Realized Excess Returns and Time-Varying CAPM Beta
Jiri Novak
2015-01-01
We make two methodological modifications to the method of testing CAPM beta and we show that these significantly affect inferences about the association between CAPM beta and stock returns. While the conventional beta proxy is indeed largely unrelated to realized stock returns (in fact the relationship is slightly negative), using forward-looking beta and eliminating unrealistic assumptions about expected market returns makes it (highly) significant. In addition, we show that complementary em...
Modeling and Forecasting Average Temperature for Weather Derivative Pricing
Zhiliang Wang
2015-01-01
Full Text Available The main purpose of this paper is to present a feasible model for the daily average temperature on the area of Zhengzhou and apply it to weather derivatives pricing. We start by exploring the background of weather derivatives market and then use the 62 years of daily historical data to apply the mean-reverting Ornstein-Uhlenbeck process to describe the evolution of the temperature. Finally, Monte Carlo simulations are used to price heating degree day (HDD call option for this city, and the slow convergence of the price of the HDD call can be found through taking 100,000 simulations. The methods of the research will provide a frame work for modeling temperature and pricing weather derivatives in other similar places in China.
Pricing for Catastrophe Bonds Based on Expected-value Model
Junfei Chen
2013-02-01
Full Text Available As the catastrophes cannot be avoided and result in huge economic losses, therefore the compensation issue for catastrophe losses become an important research topic. Catastrophe bonds can effectively disperse the catastrophe risks which mainly undertaken by the government and the insurance companies currently and focus on capital more effectively in broad capital market, therefore to be an ideal catastrophe securities product. This study adopts Expectancy Theory to supplement and improve the pricing of catastrophe bonds based on Value Theory. A model of expected utility is established to determine the conditions of the expected revenue R of catastrophe bonds. The pricing model of the value function is used to get the psychological value of R,U (R-R‾, for catastrophe bonds. Finally, the psychological value is improved by the value according to expected utility and this can more accurately evaluate catastrophe bonds at a reasonable price. This research can provide decision-making for the pricing of catastrophe bonds.
A Stock Pricing Model Based on Arithmetic Brown Motion
YAN Yong-xin; HAN Wen-xiu
2001-01-01
This paper presents a new stock pricing model based on arithmetic Brown motion. The model overcomes the shortcomings of Gordon model completely. With the model investors can estimate the stock value of surplus companies, deficit companies, zero increase companies and bankrupt companies in long term investment or in short term investment.
Frederico Valle e Flister
2011-03-01
Full Text Available This work investigates the ability of the conditional CAPM to explain anomalous returns related to momentum, size and book-to-market effects using Lewellen and Nagel’s (2006 methodology in the Brazilian stock market. To this end we studied a sample of Bovespa’s stocks in a monthly basis from July 1995 to June 2008. The results indicate that only the book-to-market effect presents statistical significance. The conditional model, tested from time series of 12 months, also showed no significant gains in relation to the unconditional form. However, there are evidences that betas do vary over time, suggesting that the sample size on beta calculations may influence portfolio choices, i.e., the evidence of variation in betas over time means that analysis based on the CAPM should be cautious when using unconditional models.
Do expert ratings or economic models explain champagne prices?
Bentzen, Jan Børsen; Smith, Valdemar
2008-01-01
Champagne is bought with low frequency and many consumers most likely do not have or seek full information on the quality of champagne. Some consumers may rely on the reputation of particular brands, e.g. "Les Grandes Marques", some consumers choose to gain information from sensory ratings...... of champagne. The aim of this paper is to analyse the champagne prices on the Scandinavian markets by applying a hedonic price function in a comparative framework with minimal models using sensory ratings....
Comparative analysis of used car price evaluation models
Chen, Chuancan; Hao, Lulu; Xu, Cong
2017-05-01
An accurate used car price evaluation is a catalyst for the healthy development of used car market. Data mining has been applied to predict used car price in several articles. However, little is studied on the comparison of using different algorithms in used car price estimation. This paper collects more than 100,000 used car dealing records throughout China to do empirical analysis on a thorough comparison of two algorithms: linear regression and random forest. These two algorithms are used to predict used car price in three different models: model for a certain car make, model for a certain car series and universal model. Results show that random forest has a stable but not ideal effect in price evaluation model for a certain car make, but it shows great advantage in the universal model compared with linear regression. This indicates that random forest is an optimal algorithm when handling complex models with a large number of variables and samples, yet it shows no obvious advantage when coping with simple models with less variables.
Area-to-point Kriging in spatial hedonic pricing models
Yoo, E.-H.; Kyriakidis, P. C.
2009-12-01
This paper proposes a geostatistical hedonic price model in which the effects of location on house values are explicitly modeled. The proposed geostatistical approach, namely area-to-point Kriging with External Drift (A2PKED), can take into account spatial dependence and spatial heteroskedasticity, if they exist. Furthermore, this approach has significant implications in situations where exhaustive area-averaged housing price data are available in addition to a subset of individual housing price data. In the case study, we demonstrate that A2PKED substantially improves the quality of predictions using apartment sale transaction records that occurred in Seoul, South Korea, during 2003. The improvement is illustrated via a comparative analysis, where predicted values obtained from different models, including two traditional regression-based hedonic models and a point-support geostatistical model, are compared to those obtained from the A2PKED model.
The capital-asset-pricing model and arbitrage pricing theory: A unification
Khan, M. Ali; Sun, Yeneng
1997-01-01
We present a model of a financial market in which naive diversification, based simply on portfolio size and obtained as a consequence of the law of large numbers, is distinguished from efficient diversification, based on mean-variance analysis. This distinction yields a valuation formula involving only the essential risk embodied in an asset’s return, where the overall risk can be decomposed into a systematic and an unsystematic part, as in the arbitrage pricing theory; and the systematic component further decomposed into an essential and an inessential part, as in the capital-asset-pricing model. The two theories are thus unified, and their individual asset-pricing formulas shown to be equivalent to the pervasive economic principle of no arbitrage. The factors in the model are endogenously chosen by a procedure analogous to the Karhunen–Loéve expansion of continuous time stochastic processes; it has an optimality property justifying the use of a relatively small number of them to describe the underlying correlational structures. Our idealized limit model is based on a continuum of assets indexed by a hyperfinite Loeb measure space, and it is asymptotically implementable in a setting with a large but finite number of assets. Because the difficulties in the formulation of the law of large numbers with a standard continuum of random variables are well known, the model uncovers some basic phenomena not amenable to classical methods, and whose approximate counterparts are not already, or even readily, apparent in the asymptotic setting. PMID:11038614
The capital-asset-pricing model and arbitrage pricing theory: a unification.
Ali Khan, M; Sun, Y
1997-04-15
We present a model of a financial market in which naive diversification, based simply on portfolio size and obtained as a consequence of the law of large numbers, is distinguished from efficient diversification, based on mean-variance analysis. This distinction yields a valuation formula involving only the essential risk embodied in an asset's return, where the overall risk can be decomposed into a systematic and an unsystematic part, as in the arbitrage pricing theory; and the systematic component further decomposed into an essential and an inessential part, as in the capital-asset-pricing model. The two theories are thus unified, and their individual asset-pricing formulas shown to be equivalent to the pervasive economic principle of no arbitrage. The factors in the model are endogenously chosen by a procedure analogous to the Karhunen-Loéve expansion of continuous time stochastic processes; it has an optimality property justifying the use of a relatively small number of them to describe the underlying correlational structures. Our idealized limit model is based on a continuum of assets indexed by a hyperfinite Loeb measure space, and it is asymptotically implementable in a setting with a large but finite number of assets. Because the difficulties in the formulation of the law of large numbers with a standard continuum of random variables are well known, the model uncovers some basic phenomena not amenable to classical methods, and whose approximate counterparts are not already, or even readily, apparent in the asymptotic setting.
Modelling world gold prices and USD foreign exchange relationship using multivariate GARCH model
Ping, Pung Yean; Ahmad, Maizah Hura Binti
2014-12-01
World gold price is a popular investment commodity. The series have often been modeled using univariate models. The objective of this paper is to show that there is a co-movement between gold price and USD foreign exchange rate. Using the effect of the USD foreign exchange rate on the gold price, a model that can be used to forecast future gold prices is developed. For this purpose, the current paper proposes a multivariate GARCH (Bivariate GARCH) model. Using daily prices of both series from 01.01.2000 to 05.05.2014, a causal relation between the two series understudied are found and a bivariate GARCH model is produced.
Das, Sonali
2010-01-01
Full Text Available This paper uses the dynamic factor model framework, which accommodates a large cross-section of macroeconomic time series, for forecasting regional house price inflation. In this study, the authors forecast house price inflation for five...
Model documentation: Electricity market module, electricity finance and pricing submodule
1994-04-07
The purpose of this report is to define the objectives of the model, describe its basic approach, and provide detail on how it works. The EFP is a regulatory accounting model that projects electricity prices. The model first solves for revenue requirements by building up a rate base, calculating a return on rate base, and adding the allowed expenses. Average revenues (prices) are calculated based on assumptions regarding regulator lag and customer cost allocation methods. The model then solves for the internal cash flow and analyzes the need for external financing to meet necessary capital expenditures. Finally, the EFP builds up the financial statements. The EFP is used in conjunction with the National Energy Modeling System (NEMS). Inputs to the EFP include the forecast generating capacity expansion plans, operating costs, regulator environment, and financial data. The outputs include forecasts of income statements, balance sheets, revenue requirements, and electricity prices.
Bayesian Option Pricing Using Mixed Normal Heteroskedasticity Models
Rombouts, Jeroen V.K.; Stentoft, Lars Peter
While stochastic volatility models improve on the option pricing error when compared to the Black-Scholes-Merton model, mispricings remain. This paper uses mixed normal heteroskedasticity models to price options. Our model allows for significant negative skewness and time varying higher order...... moments of the risk neutral distribution. Parameter inference using Gibbs sampling is explained and we detail how to compute risk neutral predictive densities taking into account parameter uncertainty. When forecasting out-of-sample options on the S&P 500 index, substantial improvements are found compared...
Research on the Price Features of Oil Stochastic Model Based on the Continuous Jump Model
Hou Mengmeng
2017-01-01
Full Text Available Aiming at calculating the price changes under the price features of oil stochastic model, the continuous jump model is proposed in this paper for data processing. The procedure is flexible, may be used with market prices of any oil contingent claim with closed form pricing solution, and easily deals with missing data problems. The results show that the accuracy can thus be improved overall the proposed system substantially.
Particle-scale modelling of financial price dynamics
Liu, David
2017-02-01
This paper proposes a particle-based computational framework for modeling of financial price dynamics, which is an extension of the recent empirical work of Financial Brownian Particle (FBP), and discretizes and solves the Langevin equation that is the continuum representation of a financial market. The framework enables us to simulate the limit order book of the USD/JPY exchange rates. The research yields results that are in good agreement with the published empirical results. Our framework of modelling financial prices is of multidisciplinary nature, and can bridge the fields of empirical studies of financial order books, particle dynamics simulation, and modelling of financial market.
Dynamics Model Applied to Pricing Options with Uncertain Volatility
Lorella Fatone
2012-01-01
model is proposed. The data used to test the calibration problem included observations of asset prices over a finite set of (known equispaced discrete time values. Statistical tests were used to estimate the statistical significance of the two parameters of the Black-Scholes model: the volatility and the drift. The effects of these estimates on the option pricing problem were investigated. In particular, the pricing of an option with uncertain volatility in the Black-Scholes framework was revisited, and a statistical significance was associated with the price intervals determined using the Black-Scholes-Barenblatt equations. Numerical experiments involving synthetic and real data were presented. The real data considered were the daily closing values of the S&P500 index and the associated European call and put option prices in the year 2005. The method proposed here for calibrating the Black-Scholes dynamics model could be extended to other science and engineering models that may be expressed in terms of stochastic dynamical systems.
An analysis of security price risk and return among publicly traded pharmacy corporations.
Gilligan, Adrienne M; Skrepnek, Grant H
2013-01-01
Community pharmacies have been subject to intense and increasing competition in the past several decades. To determine the security price risk and rate of return of publicly traded pharmacy corporations present on the major U.S. stock exchanges from 1930 to 2009. The Center of Research in Security Prices (CRSP) database was used to examine monthly security-level stock market prices in this observational retrospective study. The primary outcome of interest was the equity risk premium, with analyses focusing upon financial metrics associated with risk and return based upon modern portfolio theory (MPT) including: abnormal returns (i.e., alpha), volatility (i.e., beta), and percentage of returns explained (i.e., adjusted R(2)). Three equilibrium models were estimated using random-effects generalized least squares (GLS): 1) the Capital Asset Pricing Model (CAPM); 2) Fama-French Three-Factor Model; and 3) Carhart Four-Factor Model. Seventy-five companies were examined from 1930 to 2009, with overall adjusted R(2) values ranging from 0.13 with the CAPM to 0.16 with the Four-Factor model. Alpha was not significant within any of the equilibrium models across the entire 80-year time period, though was found from 1999 to 2009 in the Three- and Four-Factor models to be associated with a large, significant, and negative risk-adjusted abnormal returns of -33.84%. Volatility varied across specific time periods based upon the financial model employed. This investigation of risk and return within publicly listed pharmacy corporations from 1930 to 2009 found that substantial losses were incurred particularly from 1999 to 2009, with risk-adjusted security valuations decreasing by one-third. Copyright © 2013 Elsevier Inc. All rights reserved.
Modeling and forecasting electricity price jumps in the Nord Pool power market
Knapik, Oskar
extreme prices and forecasting of the price jumps is crucial for risk management and market design. In this paper, we consider the problem of the impact of fundamental price drivers on forecasting of price jumps in NordPool intraday market. We develop categorical time series models which take into account...... i) price drivers, ii) persistence, iii) seasonality of electricity prices. The models are shown to outperform commonly-used benchmark. The paper shows how crucial for price jumps forecasting is to incorporate additional knowledge on price drivers like loads, temperature and water reservoir level...
Stochastic Volatility Model and Technical Analysis of Stock Price
Wei LIU; Wei An ZHENG
2011-01-01
In the stock market, some popular technical analysis indicators (e.g. Bollinger Bands, RSI,ROC, ...) are widely used by traders. They use the daily (hourly, weekly, ...) stock prices as samples of certain statistics and use the observed relative frequency to show the validity of those well-knownindicators. However, those samples are not independent, so the classical sample survey theory does not apply. In earlier research, we discussed the law of large numbers related to those observations when one assumes Black-Scholes' stock price model. In this paper, we extend the above results to the more popular stochastic volatility model.
Modeling Tiered Pricing in the Internet Transit Market
Valancius, Vytautas; Feamster, Nick; Johari, Ramesh; Vazirani, Vijay V
2011-01-01
ISPs are increasingly selling "tiered" contracts, which offer Internet connectivity to wholesale customers in bundles, at rates based on the cost of the links that the traffic in the bundle is traversing. Although providers have already begun to implement and deploy tiered pricing contracts, little is known about how such pricing affects ISPs and their customers. While contracts that sell connectivity on finer granularities improve market efficiency, they are also more costly for ISPs to implement and more difficult for customers to understand. In this work we present two contributions: (1) we develop a novel way of mapping traffic and topology data to a demand and cost model; and (2) we fit this model on three large real-world networks: an European transit ISP, a content distribution network, and an academic research network, and run counterfactuals to evaluate the effects of different pricing strategies on both the ISP profit and the consumer surplus. We highlight three core findings. First, ISPs gain most ...
Modeling of price and profit in coupled-ring networks
Tangmongkollert, Kittiwat; Suwanna, Sujin
2016-06-01
We study the behaviors of magnetization, price, and profit profiles in ring networks in the presence of the external magnetic field. The Ising model is used to determine the state of each node, which is mapped to the buy-or-sell state in a financial market, where +1 is identified as the buying state, and -1 as the selling state. Price and profit mechanisms are modeled based on the assumption that price should increase if demand is larger than supply, and it should decrease otherwise. We find that the magnetization can be induced between two rings via coupling links, where the induced magnetization strength depends on the number of the coupling links. Consequently, the price behaves linearly with time, where its rate of change depends on the magnetization. The profit grows like a quadratic polynomial with coefficients dependent on the magnetization. If two rings have opposite direction of net spins, the price flows in the direction of the majority spins, and the network with the minority spins gets a loss in profit.
Consumption-based macroeconomic models of asset pricing theory
Đorđević Marija
2016-01-01
Full Text Available The family of consumptionbased asset pricing models yields a stochastic discount factor proportional to the marginal rate of intertemporal substitution of consumption. In examining the empirical performance of this class of models, several puzzles are discovered. In this literature review we present the canonical model, the corresponding empirical tests, and different extensions to this model that propose a resolution of these puzzles.
Estimating Structural Models of Corporate Bond Prices in Indonesian Corporations
Lenny Suardi
2014-08-01
Full Text Available This paper applies the maximum likelihood (ML approaches to implementing the structural model of corporate bond, as suggested by Li and Wong (2008, in Indonesian corporations. Two structural models, extended Merton and Longstaff & Schwartz (LS models, are used in determining these prices, yields, yield spreads and probabilities of default. ML estimation is used to determine the volatility of irm value. Since irm value is unobserved variable, Duan (1994 suggested that the irst step of ML estimation is to derive the likelihood function for equity as the option on the irm value. The second step is to ind parameters such as the drift and volatility of irm value, that maximizing this function. The irm value itself is extracted by equating the pricing formula to the observed equity prices. Equity, total liabilities, bond prices data and the irm's parameters (irm value, volatility of irm value, and default barrier are substituted to extended Merton and LS bond pricing formula in order to valuate the corporate bond.These models are implemented to a sample of 24 bond prices in Indonesian corporation during period of 2001-2005, based on criteria of Eom, Helwege and Huang (2004. The equity and bond prices data were obtained from Indonesia Stock Exchange for irms that issued equity and provided regular inancial statement within this period. The result shows that both models, in average, underestimate the bond prices and overestimate the yields and yield spread. ";} // -->activate javascript
2015-11-30
Scientific Publishing Company DOI : 10.1142/S0219024915500521 OPTION PRICING WITH A LEVY-TYPE STOCHASTIC DYNAMIC MODEL FOR STOCK PRICE PROCESS UNDER SEMI...Applebaum (2009) Levy Processes and Stochastic Calculus . Cambridge University Press. K. Back & S. R. Pliska (1991) On the fundamental theorem of asset
A Vector Autoregressive Model for Electricity Prices Subject to Long Memory and Regime Switching
Haldrup, Niels; Nielsen, Frank; Nielsen, Morten Ørregaard
2007-01-01
to occasional congestion periods. For a system of bilat- eral prices non-congestion means that electricity prices are identical whereas congestion makes prices depart. Hence, the joint price dynamics implies switching between essen- tially a univariate price process under non-congestion and a bivariate price......A regime dependent VAR model is suggested that allows long memory (fractional integration) in each of the regime states as well as the possibility of fractional cointegra- tion. The model is relevant in describing the price dynamics of electricity prices where the transmission of power is subject...... process under congestion. At the same time it is an empirical regularity that electricity prices tend to show a high degree of fractional integration, and thus that prices may be fractionally cointegrated. An empirical analysis using Nord Pool data shows that even though the prices strongly co-move under...
Reaction-diffusion-branching models of stock price fluctuations
Tang, Lei-Han; Tian, Guang-Shan
Several models of stock trading (Bak et al., Physica A 246 (1997) 430.) are analyzed in analogy with one-dimensional, two-species reaction-diffusion-branching processes. Using heuristic and scaling arguments, we show that the short-time market price variation is subdiffusive with a Hurst exponent H=1/4. Biased diffusion towards the market price and blind-eyed copying lead to crossovers to the empirically observed random-walk behavior ( H=1/2) at long times. The calculated crossover forms and diffusion constants are shown to agree well with simulation data.
Application for Single Price Auction Model (SPA) in AC Network
Wachi, Tsunehisa; Fukutome, Suguru; Chen, Luonan; Makino, Yoshinori; Koshimizu, Gentarou
This paper aims to develop a single price auction model with AC transmission network, based on the principle of maximizing social surplus of electricity market. Specifically, we first formulate the auction market as a nonlinear optimization problem, which has almost the same form as the conventional optimal power flow problem, and then propose an algorithm to derive both market clearing price and trade volume of each player even for the case of market-splitting. As indicated in the paper, the proposed approach can be used not only for the price evaluation of auction or bidding market but also for analysis of bidding strategy, congestion effect and other constraints or factors. Several numerical examples are used to demonstrate effectiveness of our method.
Business Models, transparency and efficient stock price formation
Nielsen, Christian; Vali, Edward; Hvidberg, Rene
of this, our hypothesis is that if it is possible to improve, simplify and define the way a company communicates its business model to the market, then it must be possible for the company to create a more efficient price formation of its share. To begin with, we decided to investigate whether transparency...
Novel pricing model for spectrum leasing in secondary spectrum market
WANG Lei; XU Xing-kun; XU Wen-jun; HE Zhi-qiang; LIN Jia-ru
2010-01-01
According to the property rights model of cognitive radio,primary users who own the spectral resource have the right to lease or trade part of it to secondary users in exchange for appropriate profit. In this paper,an implementation of this framework is investigated,where a primary link can lease the owned spectrum to secondary nodes in exchange for cooperation (relaying). A novel pricing model is proposed that enables the trading between spectrum and cooperation. Based on the demand of secondary nodes,the primary link attempts to maximize its quality of service (QoS) by setting the price of spectrum. Taking the price asked by primary link,the secondary nodes aim to obtain most profits by deciding the amount of spectrum to buy and then pay for it by cooperative transmission. The investigated model is conveniently cast in the framework of seller/buyer (Stackelberg) games. Analysis and numerical results show that our pricing model is effective and practical for spectrum leasing based on trading spectral resource for cooperation.
On Option Pricing Models in the Presence of Heavy Tails
Vellekoop, M.H.; Nieuwenhuis, J.W.
2007-01-01
We propose a modification of the option pricing framework derived by Borland which removes the possibilities for arbitrage within this framework. It turns out that such arbitrage possibilities arise due to an incorrect derivation of the martingale transformation in the non-Gaussian option models whi
On option pricing models in the presence of heavy tails
Vellekoop, Michel; Nieuwenhuis, Hans
2007-01-01
We propose a modification of the option pricing framework derived by Borland which removes the possibilities for arbitrage within this framework. It turns out that such arbitrage possibilities arise due to an incorrect derivation of the martingale transformation in the non-Gaussian option models whi
Valuing water resources in Switzerland using a hedonic price model
van Dijk, Diana; Siber, Rosi; Brouwer, Roy; Logar, Ivana; Sanadgol, Dorsa
2016-05-01
In this paper, linear and spatial hedonic price models are applied to the housing market in Switzerland, covering all 26 cantons in the country over the period 2005-2010. Besides structural house, neighborhood and socioeconomic characteristics, we include a wide variety of new environmental characteristics related to water to examine their role in explaining variation in sales prices. These include water abundance, different types of water bodies, the recreational function of water, and water disamenity. Significant spatial autocorrelation is found in the estimated models, as well as nonlinear effects for distances to the nearest lake and large river. Significant effects are furthermore found for water abundance and the distance to large rivers, but not to small rivers. Although in both linear and spatial models water related variables explain less than 1% of the price variation, the distance to the nearest bathing site has a larger marginal contribution than many neighborhood-related distance variables. The housing market shows to differentiate between different water related resources in terms of relative contribution to house prices, which could help the housing development industry make more geographically targeted planning activities.
A generalized exponential time series regression model for electricity prices
Haldrup, Niels; Knapik, Oskar; Proietti, Tomasso
We consider the issue of modeling and forecasting daily electricity spot prices on the Nord Pool Elspot power market. We propose a method that can handle seasonal and non-seasonal persistence by modelling the price series as a generalized exponential process. As the presence of spikes can distort...... the estimation of the dynamic structure of the series we consider an iterative estimation strategy which, conditional on a set of parameter estimates, clears the spikes using a data cleaning algorithm, and reestimates the parameters using the cleaned data so as to robustify the estimates. Conditional...... on the estimated model, the best linear predictor is constructed. Our modeling approach provides good fit within sample and outperforms competing benchmark predictors in terms of forecasting accuracy. We also find that building separate models for each hour of the day and averaging the forecasts is a better...
Jump diffusion models and the evolution of financial prices
Figueiredo, Annibal; Castro, Marcio T. de [Institute of Physics, University of Brasilia (Brazil); Silva, Sergio da [Department of Economics, Federal University of Santa Catarina (Brazil); Gleria, Iram, E-mail: iram@pq.cnpq.br [Institute of Physics, Federal University of Alagoas (Brazil)
2011-08-08
We analyze a stochastic model to describe the evolution of financial prices. We consider the stochastic term as a sum of the Wiener noise and a jump process. We point to the effects of the jumps on the return time evolution, a central concern of the econophysics literature. The presence of jumps suggests that the process can be described by an infinitely divisible characteristic function belonging to the De Finetti class. We then extend the De Finetti functions to a generalized nonlinear model and show the model to be capable of explaining return behavior. -- Highlights: → We analyze a stochastic model to describe the evolution of financial prices. → The stochastic term is considered as a sum of the Wiener noise and a jump process. → The process can be described by an infinitely divisible characteristic function belonging to the De Finetti class. → We extend the De Finetti functions to a generalized nonlinear model.
Carl-Johan Petri
2014-08-01
Full Text Available Purpose: The purpose of the paper is to describe how the biggest Swedish taxi company (Taxi Kurir developed an innovative price model to leverage the business model. Design/methodology/approach : The empirical data in the article describe Taxi Kurir’s development of a new price model. Data about the Swedish taxi market and about Taxi Kurir has been compiled though interviews and document studies. Detailed information about the background, development and implementation of Taxi Kurir’s new price model has been captured through interviews with representatives from Taxi Kurir. Findings : Based on both the empirical example, and other investigations, we have found that a company can create substantial changes in their price model, by just changing some of its basic characteristics. A well designed price model can contribute to leveraging the intentions of the business model. Practical implications : Most academic and practical texts about business models consider pricing to be an important component. However, they typically do not refer to the specifics of the price- or revenue models. According to the literature review in this paper, and the empirical findings, the configuration of a company’s price model should be aligned with its business model. This will contribute to leveraging the business model. Originality/value: The Swedish taxi market is one of the most deregulated in the world. Differently from most other countries, any individual or company can start and operate a taxi business. This case offers a unique description on how the biggest company in the market responded to the competition by introducing a fundamentally new price model, by making a small change in one of the dimensions in their existing price model.
Sukono Sukono
2010-01-01
Full Text Available In this paper we formulated mean-VaR portfolio optimization through CAPM Koyck transformation. We assumed that lagged of risk premium which have highly influence on stock returns is infinite, while model parameters decrease geometrically. We also assumed that rate of return in risk premium market index is not constant, in other word has a non-constant volatility rate, and also has a long memory effect. The later was analyzed using ARFIMA. Non constant volatility rate was modeled via GARCH model. The portfolio optimization was constructed using Langrangian multiplier and the Kuhn-Tucker theorem was employed to obtain the solution by the least square method. Finally, we provide a numerical example of the optimization model based on several stocks traded in Indonesian capital market.
PRICE AND RETURN MODELS--IMPERICAL TESTS OF CHINESE STOCK MARKET
2008-01-01
In accounting researches, price and return models are usually evaluated and compared, aiming at to select the better one. In both models, earnings response coefficient is the key variable and is paid major attentions to my most previous researches. In previous researches, price and return models as well as other models transformed from original price and return models are universally studied. The general conclusion is: proved by regression analyses, price model is outstanding in economic e...
Pricing Models of e-Books When Competing with p-Books
Yan Li
2013-01-01
Full Text Available With the rise in popularity of e-books, there is a growing need to reexamine the pricing strategy in the e-book supply chain. In this paper, we study two forms of pricing models widely used in the book industry: wholesale and agency pricing models. We first assume a stylized deterministic demand model in which the demand depends on the price, the degree of substitution, and the overall market potential. Subsequently, we employ the game theory to determine the price equilibriums and profit distribution under different pricing models. Finally, we explore the behavior of the publisher and the retailer under different preferences and degrees of substitution through a computational study. Our findings indicate that the e-book price will be lower under the agency pricing model than under the wholesale pricing model, which is counterintuitive. The publishers have higher incentives to adopt the agency pricing model than the wholesale pricing model. The agency pricing model benefits the whole system and can provide readers with books at lower prices. The degree of substitution between the two forms of books and the readers’ preference toward e-book will affect the books’ price and the profit distribution between the publisher and the retailers.
Drug development costs when financial risk is measured using the Fama-French three-factor model.
Vernon, John A; Golec, Joseph H; Dimasi, Joseph A
2010-08-01
In a widely cited article, DiMasi, Hansen, and Grabowski (2003) estimate the average pre-tax cost of bringing a new molecular entity to market. Their base case estimate, excluding post-marketing studies, was $802 million (in $US 2000). Strikingly, almost half of this cost (or $399 million) is the cost of capital (COC) used to fund clinical development expenses to the point of FDA marketing approval. The authors used an 11% real COC computed using the capital asset pricing model (CAPM). But the CAPM is a single factor risk model, and multi-factor risk models are the current state of the art in finance. Using the Fama-French three factor model we find that the cost of drug development to be higher than the earlier estimate. Copyright (c) 2009 John Wiley & Sons, Ltd.
Exponential model for option prices: Application to the Brazilian market
Ramos, Antônio M. T.; Carvalho, J. A.; Vasconcelos, G. L.
2016-03-01
In this paper we report an empirical analysis of the Ibovespa index of the São Paulo Stock Exchange and its respective option contracts. We compare the empirical data on the Ibovespa options with two option pricing models, namely the standard Black-Scholes model and an empirical model that assumes that the returns are exponentially distributed. It is found that at times near the option expiration date the exponential model performs better than the Black-Scholes model, in the sense that it fits the empirical data better than does the latter model.
Towards Economic Models for MOOC Pricing Strategy Design
Jia, Yongzheng; Song, Zhengyang; Bai, Xiaolan; Xu, Wei
2017-01-01
MOOCs have brought unprecedented opportunities of making high-quality courses accessible to everybody. However, from the business point of view, MOOCs are often challenged for lacking of sustainable business models, and academic research for marketing strategies of MOOCs is also a blind spot currently. In this work, we try to formulate the business models and pricing strategies in a structured and scientific way. Based on both theoretical research and real marketing data analysis from a MOOC ...
Self-Consistent Asset Pricing Models
Malevergne, Y
2006-01-01
We discuss the foundations of factor or regression models in the light of the self-consistency condition that the market portfolio (and more generally the risk factors) is (are) constituted of the assets whose returns it is (they are) supposed to explain. As already reported in several articles, self-consistency implies correlations between the return disturbances. As a consequence, the alpha's and beta's of the factor model are unobservable. Self-consistency leads to renormalized beta's with zero effective alpha's, which are observable with standard OLS regressions. Analytical derivations and numerical simulations show that, for arbitrary choices of the proxy which are different from the true market portfolio, a modified linear regression holds with a non-zero value $\\alpha_i$ at the origin between an asset $i$'s return and the proxy's return. Self-consistency also introduces ``orthogonality'' and ``normality'' conditions linking the beta's, alpha's (as well as the residuals) and the weights of the proxy por...
The asset pricing model of musharakah factors
Simon, Shahril; Omar, Mohd; Lazam, Norazliani Md
2015-02-01
The existing three-factor model developed by Fama and French for conventional investment was formulated based on risk-free rates element in which contradict with Shariah principles. We note that the underlying principles that govern Shariah investment were mutual risk and profit sharing between parties, the assurance of fairness for all and that transactions were based on an underlying asset. In addition, the three-factor model did not exclude stock that was not permissible by Shariah such as financial services based on riba (interest), gambling operator, manufacture or sale of non-halal products or related products and other activities deemed non-permissible according to Shariah. Our approach to construct the factor model for Shariah investment was based on the basic tenets of musharakah in tabulating the factors. We start by noting that Islamic stocks with similar characteristics should have similar returns and risks. This similarity between Islamic stocks was defined by the similarity of musharakah attributes such as business, management, profitability and capital. These attributes define factor exposures (or betas) to factors. The main takeaways were that musharakah attributes we chose had explain stock returns well in cross section and were significant in different market environments. The management factor seemed to be responsible for the general dynamics of the explanatory power.
Testing for regime-switching CAPM on Zagreb Stock Exchange
Tihana Škrinjarić
2014-12-01
Full Text Available The standard Capital Asset Pricing Model assumes that a linear relationship exists between the risk (beta and the expected excess return of a stock. However, empirical findings have shown over the years that this relationship varies over time. Stock markets undergo phases of greater and smaller volatility in which beta varies accordingly (undergoes different regimes. Given that the Croatian capital market is still insufficiently investigated, the aim of this paper is to explore the possibility of a non-linear relationship between the stock risk and return. Linear and Markov-switching models (Hamilton 1989 are examined on the Zagreb Stock Exchange based on monthly data on 21 stocks, ranging from January 2005 to December 2013. In that way, investors can use the results based on the best model when making decisions about buying stocks. Since this is one of the first papers on regime-switching on the Croatian capital market, it will hopefully contribute to the existing literature on investing.
Evaluating Asset Pricing Models in a Simulated Multifactor Approach
Wagner Piazza Gaglianone
2012-12-01
Full Text Available In this paper a methodology to compare the performance of different stochastic discount factor (SDF models is suggested. The starting point is the estimation of several factor models in which the choice of the fundamental factors comes from different procedures. Then, a Monte Carlo simulation is designed in order to simulate a set of gross returns with the objective of mimicking the temporal dependency and the observed covariance across gross returns. Finally, the artificial returns are used to investigate the performance of the competing asset pricing models through the Hansen and Jagannathan (1997 distance and some goodness-of-fit statistics of the pricing error. An empirical application is provided for the U.S. stock market.
Detailed Modelling of Thermal Units From a Price-Taker Perspective
Maenhoudt, Marijn; Deconinck, Geert
2012-01-01
Generation Companies (GenCos) acting as price-takers, schedule their plants according to market price forecasts. As these GenCos do not consider active market price setting as a strategy to increase profits, their performance solely relies on (1) price forecast accuracy and (2) the representation of a plant’s operational characteristics. This paper strives at constituting a reference work for thermal plant modelling from a price-taker’s perspective. Two main contributions can be distinguish...
Information in stock prices and some consequences: A model-free approach
Yatracos, Yannis G.
2015-01-01
The price of a stock will rarely follow the assumed model and a curious investor or a Regulatory Authority may wish to obtain a probability model the prices support. A risk neutral probability ${\\cal P}^*$ for the stock's price at time $T$ is determined in closed form from the prices before $T$ without assuming a price model. The findings indicate that ${\\cal P}^*$ may be a mixture. Under mild conditions on the prices the necessary and sufficient condition to obtain ${\\cal P}^*$ is the coinci...
Limit Laws in Transaction-Level Asset Price Models
Aue, Alexander; Hurvich, Clifford M; Soulier, Philippe
2011-01-01
We consider pure-jump transaction-level models for asset prices in continuous time, driven by point processes. In a bivariate model that admits cointegration, we allow for time deformations to account for such effects as intraday seasonal patterns in volatility, and non-trading periods that may be different for the two assets. We also allow for asymmetries (leverage effects). We obtain the asymptotic distribution of the log-price process. We also obtain the asymptotic distribution of the ordinary least-squares estimator of the cointegrating parameter based on data sampled from an equally-spaced discretization of calendar time, in the case of weak fractional cointegration. For this same case, we obtain the asymptotic distribution for a tapered estimator under more
A Consistent Pricing Model for Index Options and Volatility Derivatives
Kokholm, Thomas
on the underlying asset. The model has the convenient feature of decoupling the vanilla skews from spot/volatility correlations and allowing for different conditional correlations in large and small spot/volatility moves. We show that our model can simultaneously fit prices of European options on S&P 500 across......We propose a flexible modeling framework for the joint dynamics of an index and a set of forward variance swap rates written on this index. Our model reproduces various empirically observed properties of variance swap dynamics and enables volatility derivatives and options on the underlying index...
Adaptation of warrant price with Black Scholes model and historical volatility
Aziz, Khairu Azlan Abd; Idris, Mohd Fazril Izhar Mohd; Saian, Rizauddin; Daud, Wan Suhana Wan
2015-05-01
This project discusses about pricing warrant in Malaysia. The Black Scholes model with non-dividend approach and linear interpolation technique was applied in pricing the call warrant. Three call warrants that are listed in Bursa Malaysia were selected randomly from UiTM's datastream. The finding claims that the volatility for each call warrants are different to each other. We have used the historical volatility which will describes the price movement by which an underlying share is expected to fluctuate within a period. The Black Scholes model price that was obtained by the model will be compared with the actual market price. Mispricing the call warrants will contribute to under or over valuation price. Other variables like interest rate, time to maturity date, exercise price and underlying stock price are involves in pricing call warrants as well as measuring the moneyness of call warrants.
Modeling the relationship between the oil price and global food prices
Chen, Sheng-Tung [Department of Public Finance, Feng Chia University (China); Kuo, Hsiao-I [Department of Senior Citizen Service Management, Chaoyang University of Technology (China); Chen, Chi-Chung [Department of Applied Economics, National Chung-Hsing University, Taiwan, 250 Kuo-Kuang Road, Taichung (China)
2010-08-15
The growth of corn-based ethanol production and soybean-based bio-diesel production following the increase in the oil prices have significantly affect the world agricultural grain productions and its prices. The main purpose of this paper is to investigate the relationships between the crude oil price and the global grain prices for corn, soybean, and wheat. The empirical results show that the change in each grain price is significantly influenced by the changes in the crude oil price and other grain prices during the period extending from the 3rd week in 2005 to the 20th week in 2008 which implies that grain commodities are competing with the derived demand for bio-fuels by using soybean or corn to produce ethanol or bio-diesel during the period of higher crude oil prices in these recent years. The subsidy policies in relation to the bio-fuel industries in some nations engaging in bio-fuel production should be considered to avoid the consequences resulting from high oil prices. (author)
Social Shaping of CAPM/CIM and the Social System of the Company
Clausen, Christian
1997-01-01
This chapter deals with the transformation of production technology (CAPM and CIM) from general visions operating in discussions at the societal level or among consultants, unions etc. through to its implementation at the company level. The shaping of technology through political and social proce...
Jump diffusion models and the evolution of financial prices
Figueiredo, Annibal; de Castro, Marcio T.; da Silva, Sergio; Gleria, Iram
2011-08-01
We analyze a stochastic model to describe the evolution of financial prices. We consider the stochastic term as a sum of the Wiener noise and a jump process. We point to the effects of the jumps on the return time evolution, a central concern of the econophysics literature. The presence of jumps suggests that the process can be described by an infinitely divisible characteristic function belonging to the De Finetti class. We then extend the De Finetti functions to a generalized nonlinear model and show the model to be capable of explaining return behavior.
Fuzzy Optimization of Option Pricing Model and Its Application in Land Expropriation
Aimin Heng
2014-01-01
Full Text Available Option pricing is irreversible, fuzzy, and flexible. The fuzzy measure which is used for real option pricing is a useful supplement to the traditional real option pricing method. Based on the review of the concepts of the mean and variance of trapezoidal fuzzy number and the combination with the Carlsson-Fuller model, the trapezoidal fuzzy variable can be used to represent the current price of land expropriation and the sale price of land on the option day. Fuzzy Black-Scholes option pricing model can be constructed under fuzzy environment and problems also can be solved and discussed through numerical examples.
Extended ARMA models for estimating price developments on day-ahead electricity markets
Swider, Derk J. [Institute of Energy Economics and the Rational Use of Energy, University of Stuttgart, Hessbruehlstr. 49a, 70565 Stuttgart (Germany); Weber, Christoph [University of Duisburg-Essen, Universitaetsstr. 12, 45117 Essen (Germany)
2007-04-15
In this paper extended models for estimating price developments on electricity markets are presented. The models consider deviations from the normality hypothesis of the prices. Based on an ARMA model combination with GARCH, Gaussian-mixture and switching-regime approaches are comparatively discussed. The comparison is based on historic electricity prices of the spot and two reserve markets in Germany. It is shown that the proposed extended models lead to significantly improved representations of the considered stochastic price processes. It is inferred that these models may be preferred for estimating price developments on electricity markets. (author)
Monetary Policy and Bond Option Pricing in an Analytical RBC Model
Söderlind, Paul
2003-01-01
This paper analyzes how bond option prices are affected by different types of monetary policy. Analytical results from a general equilibrium model with sticky wages show that employment or output targeting typically give lower bond option prices than inflation targeting.
Lya Aklimawati; Teguh Wahyudi
2013-01-01
High volatility cocoa price movement is consequenced by imbalancing between power demand and power supply in commodity market. World economy expectation and market liberalization would lead to instability on cocoa prices in the international commerce. Dynamic prices moving erratically influence the benefit of market players, particularly producers. The aim of this research is (1) to estimate the empirical cocoa prices model for responding market dynamics and (2) ...
A semi-Markov model with memory for price changes
D'Amico, Guglielmo; Petroni, Filippo
2011-12-01
We study the high-frequency price dynamics of traded stocks by means of a model of returns using a semi-Markov approach. More precisely we assume that the intraday returns are described by a discrete time homogeneous semi-Markov model which depends also on a memory index. The index is introduced to take into account periods of high and low volatility in the market. First of all we derive the equations governing the process and then theoretical results are compared with empirical findings from real data. In particular we analyzed high-frequency data from the Italian stock market from 1 January 2007 until the end of December 2010.
Modelling the Price of Unleaded Petrol in Australia’s Capital Cities
Abbas Valadkhani
2010-06-01
Full Text Available This paper examines the long-run and short-run determinants of unleaded petrol price in Australia’s capitalcities using monthly data to find out whether prices respond asymmetrically to external shocks. Based on thecointegration test results and the estimated asymmetric short-run dynamic models, it is found that: (1 in thelong-run petrol prices are mainly determined by Tapis crude oil and Singapore petrol prices; (2 there issome evidence of asymmetric price adjustments in the short-run since petrol price increases have been mostlypassed on to the consumer faster than price decreases in four capital cities. More specifically, this paperprovides convincing evidence in support of asymmetric price adjustments and the “rockets-and-feathershypothesis” in Adelaide, Brisbane, Melbourne and Sydney. One can thus argue that there are a significantdegree of market inefficiency and/or collusion, requiring a closer government price monitoring and scrutiny.
Forecasting Crude Oil Price with Multiscale Denoising Ensemble Model
Xia Li
2014-01-01
Full Text Available Crude oil price becomes more volatile and sensitive to increasingly diversified influencing factors with higher level of deregulations worldwide. Current methodologies are being challenged as they have been constrained by traditional approaches assuming homogeneous time horizons and investment strategies. Approximations they provided over the long term time horizon no longer satisfy the accuracy requirement at shorter term and more microlevels. This paper proposes a novel crude oil price forecasting model based on the wavelet denoising ARMA models ensemble by least square support vector regression with the reduced forecasting matrix dimensions by independent component analysis. The proposed methodology combines the multi resolution analysis and nonlinear ensemble framework. The wavelet denoising based algorithm is introduced to separate and extract the underlying data components with distinct features, corresponding to investors with different investment scales, which are modeled with time series models of different specifications and parameters. Then least square support vector regression is introduced to nonlinearly ensemble results based on different wavelet families to further reduce the estimation biases and improve the forecasting generalizability. Empirical studies show the significant performance improvement when the proposed model is tested against the bench-mark models.
Beheshti, Rahmatollah; Igusa, Takeru; Jones-Smith, Jessica
2016-11-01
The price of food has long been considered one of the major factors that affects food choices. However, the price metric (e.g., the price of food per calorie or the price of food per gram) that individuals predominantly use when making food choices is unclear. Understanding which price metric is used is especially important for studying individuals with severe budget constraints because food price then becomes even more important in food choice. We assessed which price metric is used by low-income individuals in deciding what to eat. With the use of data from NHANES and the USDA Food and Nutrient Database for Dietary Studies, we created an agent-based model that simulated an environment representing the US population, wherein individuals were modeled as agents with a specific weight, age, and income. In our model, agents made dietary food choices while meeting their budget limits with the use of 1 of 3 different metrics for decision making: energy cost (price per calorie), unit price (price per gram), and serving price (price per serving). The food consumption patterns generated by our model were compared to 3 independent data sets. The food choice behaviors observed in 2 of the data sets were found to be closest to the simulated dietary patterns generated by the price per calorie metric. The behaviors observed in the third data set were equidistant from the patterns generated by price per calorie and price per serving metrics, whereas results generated by the price per gram metric were further away. Our simulations suggest that dietary food choice based on price per calorie best matches actual consumption patterns and may therefore be the most salient price metric for low-income populations. © 2016 American Society for Nutrition.
Determination of Factors Affecting the Price of Gold: A Study of MGARCH Model
Mehmet Fatih Bayramoglu
Full Text Available Recently, increase of the gold prices attracts interest again together with the affects of the latest financial crisis. Main objective of this study is to determine factors affecting the gold prices. The study includes montly data between June, 1992 and March, 2010. Oil prices, USA exchange rate, USA inflation rate, USA real interest rate data are included in the model as variables. According to emprical findings, highest correlation is found between gold prices and USA exchange rate negatively. Secondly, a positive correlation is found between gold prices and oil prices.
Wavelet regression model in forecasting crude oil price
Hamid, Mohd Helmie; Shabri, Ani
2017-05-01
This study presents the performance of wavelet multiple linear regression (WMLR) technique in daily crude oil forecasting. WMLR model was developed by integrating the discrete wavelet transform (DWT) and multiple linear regression (MLR) model. The original time series was decomposed to sub-time series with different scales by wavelet theory. Correlation analysis was conducted to assist in the selection of optimal decomposed components as inputs for the WMLR model. The daily WTI crude oil price series has been used in this study to test the prediction capability of the proposed model. The forecasting performance of WMLR model were also compared with regular multiple linear regression (MLR), Autoregressive Moving Average (ARIMA) and Generalized Autoregressive Conditional Heteroscedasticity (GARCH) using root mean square errors (RMSE) and mean absolute errors (MAE). Based on the experimental results, it appears that the WMLR model performs better than the other forecasting technique tested in this study.
Henry Jordaan
2010-12-01
Full Text Available Price risk associated with maize production became a reason for concern in South Africa only after the deregulation of the agricultural commodities markets in the mid-1990s, when farmers became responsible for marketing their own crops. Although farmers can use, inter alia, the cash forward contracting and/or the derivatives market to manage price risk, few farmers actually participate in forward pricing. A similar reluctance to use forward pricing methods is also found internationally. A number of different model specifications have been used in previous research to model forward pricing behaviour which is based on the assumption that the same variables influence both the adoption and the quantity decision. This study compares the results from a model specification which models forward pricing behaviour in a single-decision framework with the results from modelling the quantity decision conditional to the adoption decision in a two-step approach. The results suggest that substantially more information is obtained by modelling forward pricing behaviour as two separate decisions rather than a single decision. Such information may be valuable in educational material compiled to educate farmers in the effective use of forward pricing methods in price risk management. Modelling forward pricing behaviour as two separate decisions is thus a more effective means of modelling forward pricing behaviour than modelling it as a single decision.
A Generalized Schwartz Model for Energy Spot Prices - Estimation using a Particle MCMC Method
Lunde, Asger; Brix, Anne Floor; Wei, Wei
We propose an energy spot price model featuring a two-factor price process and a two-component stochastic volatility process. The first factor in the price process captures the normal variations; the second accounts for spikes. The two-component volatility allows for a flexible autocorrelation st...
The Performance of Multi-Factor Term Structure Models for Pricing and Hedging Caps and Swaptions
Driessen, J.J.A.G.; Klaassen, P.; Melenberg, B.
2000-01-01
In this paper we empirically compare different term structure models when it comes to the pricing and hedging of caps and swaptions.We analyze the influence of the number of factors on the pricing and hedging results, and investigate which type of data -interest rate data or derivative price data-
A reference-dependent model of the price-quality heuristic
Gneezy, A.; Gneezy, U.; Lauga, D.O.
2014-01-01
People often use price as a proxy for quality, resulting in a positive correlation between prices and product liking, known as the "price- quality" (P-Q) heuristic. Using data from three experiments conducted at a winery, this article offers a more complex and complete reference-dependent model of
The Performance of Multi-Factor Term Structure Models for Pricing and Hedging Caps and Swaptions
Driessen, J.J.A.G.; Klaassen, P.; Melenberg, B.
2000-01-01
In this paper we empirically compare different term structure models when it comes to the pricing and hedging of caps and swaptions.We analyze the influence of the number of factors on the pricing and hedging results, and investigate which type of data -interest rate data or derivative price data- s
A reference-dependent model of the price-quality heuristic
A. Gneezy; U. Gneezy; D.O. Lauga
2014-01-01
People often use price as a proxy for quality, resulting in a positive correlation between prices and product liking, known as the "price- quality" (P-Q) heuristic. Using data from three experiments conducted at a winery, this article offers a more complex and complete reference-dependent model of t
Zhang, Shuang
2012-01-01
Based on farmers' supply behavior theory and price expectations theory, this paper establishes grain farmers' supply response model of two major grain varieties (early indica rice and mixed wheat) in the major producing areas, to test whether the minimum grain purchase price policy can have price-oriented effect on grain production and supply in the major producing areas. Empirical analysis shows that the minimum purchase price published annually by the government has significant positive imp...
Inter-temporal CAPM: an empirical test with Brazilian market data
Octavio Portolano Machado
2013-07-01
Full Text Available This paper examines the empirical validity of the Inter-temporal Capital Asset Pricing Model (ICAPM with Brazilian market data. The Bali and Engle (2010 methodology is used with the estimation of conditional covariances between stock portfolio returns and pricing factors. The covariances are then used as explanatory variables in the pricing equation. The results validate the model for the 1988 to 2012 period. The estimated risk aversion coefficient is positive and significant, and the relevant pricing factors are interest rates, inflation and gold prices; the reverse is true in the case of the exchange rate. Breaking up the sample period into sub-periods indicates that major events (changes in economic regimes and the 2008 crisis are capable of modifying the associations observed and reducing the model’s validity.
Price Dispersion and Short Run Equilibrium in a Queuing Model
Michael Sattinger
2003-01-01
Price dispersion is analyzed in the context of a queuing market where customers enter queues to acquire a good or service and may experience delays. With menu costs, price dispersion arises and can persist in the medium and long run. The queuing market rations goods in the same way whether firm prices are optimal or not. Price dispersion reduces the rate at which customers get the good and reduces customer welfare.
Global Asset Pricing: Is There a Role for Long-run Consumption Risk?
Rangvid, Jesper; Schmelling, Maik; Schrimpf, Andreas
We estimate long-run consumption-based asset pricing models using a comprehensive set of international test assets, including broad equity market portfolios, international value/growth portfolios, and international bond portfolios. We find that differences in returns across assets within a country...... that consumption growth is more predictable over short to medium-run horizons than over longer horizons and that empirical evidence of a de- clining risk aversion parameter estimate in long-run risk models has to be interpreted with care....... are sometimes (and most prominently for the U.S.) better captured by the assets' exposure to long-run consumption risk as opposed to their exposure to one-period changes in consumption (the canonical consumption CAPM). Across countries, however, exposure to long-run consumption risk does not provide a better...
Modeling Long-term Behavior of Stock Market Prices Using Differential Equations
Yang, Xiaoxiang; Zhao, Conan; Mazilu, Irina
2015-03-01
Due to incomplete information available in the market and uncertainties associated with the price determination process, the stock prices fluctuate randomly during a short period of time. In the long run, however, certain economic factors, such as the interest rate, the inflation rate, and the company's revenue growth rate, will cause a gradual shift in the stock price. Thus, in this paper, a differential equation model has been constructed in order to study the effects of these factors on the stock prices. The model obtained accurately describes the general trends in the AAPL and XOM stock price changes over the last ten years.
Winarti, Yuyun Guna; Noviyanti, Lienda; Setyanto, Gatot R.
2017-03-01
The stock investment is a high risk investment. Therefore, there are derivative securities to reduce these risks. One of them is Asian option. The most fundamental of option is option pricing. Many factors that determine the option price are underlying asset price, strike price, maturity date, volatility, risk free interest rate and dividends. Various option pricing usually assume that risk free interest rate is constant. While in reality, this factor is stochastic process. The arithmetic Asian option is free from distribution, then, its pricing is done using the modified Black-Scholes model. In this research, the modification use the Curran approximation. This research focuses on the arithmetic Asian option pricing without dividends. The data used is the stock daily closing data of Telkom from January 1 2016 to June 30 2016. Finnaly, those option price can be used as an option trading strategy.
R-squared measurement in multifactor pricing model
Jianlong, Wang; Jaaman, Saiful Hafizah; Samsudin, Humaida Banu
2015-09-01
The importance of the adjusted R-squared (R2) in multiple regression is to measure how well a model explains the response variable from independent variables. R2 sometimes induces some mistaken ideas and peculiar claims. Statistically, the larger the R2 is, the better explanatory power the model has. However, large R2 does not occur commonly in empirical study, for one should consider the practical significance of the explanatory variables, not just the statistics. This study examines the usefulness of R2 in multifactor pricing model of Shanghai Stock Exchange (SHSE). The results of this study show that the ability of R2 in information interpretation is not convinced in empirical study.
Developing a new stochastic competitive model regarding inventory and price
Rashid, Reza; Bozorgi-Amiri, Ali; Seyedhoseini, S. M.
2015-01-01
Within the competition in today's business environment, the design of supply chains becomes more complex than before. This paper deals with the retailer's location problem when customers choose their vendors, and inventory costs have been considered for retailers. In a competitive location problem, price and location of facilities affect demands of customers; consequently, simultaneous optimization of the location and inventory system is needed. To prepare a realistic model, demand and lead time have been assumed as stochastic parameters, and queuing theory has been used to develop a comprehensive mathematical model. Due to complexity of the problem, a branch and bound algorithm has been developed, and its performance has been validated in several numerical examples, which indicated effectiveness of the algorithm. Also, a real case has been prepared to demonstrate performance of the model for real world.
BUSINESS MODELS FOR TAX AND TRANSFER PRICING PURPOSES
Corlaciu Alexandra
2013-07-01
Full Text Available In order to remain competitive, the multinational enterprises (MNEs are forced by the globalization phenomenon (which manifestation has became more and more stringent to analyze continuously its effectiveness. In this respect, the structure of the business represents an element which might have an important impact for the enterprise’s overall results. This is why, in the last decades, the MNEs granted special attention to business structures and put significant efforts in business restructurings, where the case, with the scope to keep the efficiency and to remain on the market. Generally, the operational business restructuring process follows one of the business model globally developed, namely manufacturer or sales business models. Thus, according to the functions performed, assets used and risks assumed, the entities within the group are labeled into limited risk units (such as toll manufacturer or commission agent, medium risk (contract manufacturer, commissionaire, stripped distributor or high risk units (fully fledged manufacturer, fully fledged distributor. Notwithstanding the above, there should be emphasized that the operational business restructuring has to be undertaken with maximal care, as it might have important fiscal impact. Having this regard, the purpose of the present investigation is to provide, from a tax and transfer pricing point of view, a systematic and structured analysis of the generally characteristics of business models (manufacturer and sales business models used by multinational enterprises in the process of business reorganization, with the scope to increase their performance and the sustainable competitive advantages. Thus, by using the fundamental (theoretical and qualitative research type, this paper is aiming to present the most important characteristics of each business model (general overview of each model, the principal risk assumed, the usual transfer pricing method used for the remuneration of intra
Cyber-intrusion Auto-response and Policy Management System (CAPMS)
Lusk, Steve [ViaSat Inc., Boston, MA (United States); Lawrence, David [Duke Energy, Charlotte, NC (United States); Suvana, Prakash [Southern California Edison, Rosemead, CA (United States)
2015-11-11
The Cyber-intrusion Auto-response and Policy Management System (CAPMS) project was funded by a grant from the US Department of Energy (DOE) Cybersecurity for Energy Delivery Systems (CEDS) program with contributions from two partner electric utilities: Southern California Edison (SCE) and Duke Energy. The goal of the project was to demonstrate protecting smart grid assets from a cyber attack in a way that “does not impede critical energy delivery functions.” This report summarizes project goals and activities for the CAPMS project and explores what did and did not work as expected. It concludes with an assessment of possible benefits and value of the system for the future.
Cyber-intrusion Auto-response and Policy Management System (CAPMS)
Energy, Duke; Sat, Via; Edison, Southern California
2015-09-30
The Cyber-intrusion Auto-response and Policy Management System (CAPMS) project was funded by a grant from the US Department of Energy (DOE) Cybersecurity for Energy Delivery Systems (CEDS) program with contributions from two partner electric utilities: Southern California Edison (SCE) and Duke Energy. The goal of the project was to demonstrate protecting smart grid assets from a cyber attack in a way that “does not impede critical energy delivery functions.” This report summarizes project goals and activities for the CAPMS project and explores what did and did not work as expected. It concludes with an assessment of possible benefits and value of the system for the future.
P. Adam
2016-03-01
Full Text Available This study aims to investigate the dynamics of the effects of world crude oil prices and world rice prices on Indonesia’s inflation rate in the period between January 2004 and September 2015. Monthly time series data spanning from January 2004 to September 2015 are analyzed using difference equation model as the econometric tool. Test result shows that there existed a dynamic effect of world oil crude prices and world rice prices on inflation rate in Indonesia. The World crude oil prices positively affected the inflation rate in that each 1% increase (decrease in the world crude oil prices caused the inflation rate to go up (drop by 0.33%. The world rice prices also positively affected the inflation rate, where each 1% increase (decrease in world rice prices was followed by a 0.52% rise (fall of the inflation rate.
Daily Crude Oil Price Forecasting Using Hybridizing Wavelet and Artificial Neural Network Model
Ani Shabri
2014-01-01
Full Text Available A new method based on integrating discrete wavelet transform and artificial neural networks (WANN model for daily crude oil price forecasting is proposed. The discrete Mallat wavelet transform is used to decompose the crude price series into one approximation series and some details series (DS. The new series obtained by adding the effective one approximation series and DS component is then used as input into the ANN model to forecast crude oil price. The relative performance of WANN model was compared to regular ANN model for crude oil forecasting at lead times of 1 day for two main crude oil price series, West Texas Intermediate (WTI and Brent crude oil spot prices. In both cases, WANN model was found to provide more accurate crude oil prices forecasts than individual ANN model.
Lya Aklimawati
2013-12-01
Full Text Available High volatility cocoa price movement is consequenced by imbalancing between power demand and power supply in commodity market. World economy expectation and market liberalization would lead to instability on cocoa prices in the international commerce. Dynamic prices moving erratically influence the benefit of market players, particularly producers. The aim of this research is (1 to estimate the empirical cocoa prices model for responding market dynamics and (2 analyze short-term and long-term effect of price determinants variables on cocoa prices. This research was carried out by analyzing annualdata from 1980 to 2011, based on secondary data. Error correction mechanism (ECM approach was used to estimate the econometric model of cocoa price.The estimation results indicated that cocoa price was significantly affected by exchange rate IDR-USD, world gross domestic product, world inflation, worldcocoa production, world cocoa consumption, world cocoa stock and Robusta prices at varied significance level from 1 - 10%. All of these variables have a long run equilibrium relationship. In long run effect, world gross domestic product, world cocoa consumption and world cocoa stock were elastic (E >1, while other variables were inelastic (E <1. Variables that affecting cocoa pricesin short run equilibrium were exchange rate IDR-USD, world gross domestic product, world inflation, world cocoa consumption and world cocoa stock. The analysis results showed that world gross domestic product, world cocoa consumption and world cocoa stock were elastic (E >1 to cocoa prices in short-term. Whereas, the response of cocoa prices was inelastic to change of exchange rate IDR-USD and world inflation.Key words: Price
Macroeconomic factors and oil futures prices. A data-rich model
Zagaglia, Paolo [Modelling Division, Sveriges Riksbank (Sweden)
2010-03-15
I study the dynamics of oil futures prices in the NYMEX using a large panel dataset that includes global macroeconomic indicators, financial market indices, quantities and prices of energy products. I extract common factors from the panel data series and estimate a Factor-Augmented Vector Autoregression for the maturity structure of oil futures prices. I find that latent factors generate information that, once combined with that of the yields, improves the forecasting performance for oil prices. Furthermore, I show that a factor correlated to purely financial developments contributes to the model performance, in addition to factors related to energy quantities and prices. (author)
Forecasting house prices in the 50 states using Dynamic Model Averaging and Dynamic Model Selection
Bork, Lasse; Møller, Stig Vinther
2015-01-01
We examine house price forecastability across the 50 states using Dynamic Model Averaging and Dynamic Model Selection, which allow for model change and parameter shifts. By allowing the entire forecasting model to change over time and across locations, the forecasting accuracy improves...
Kinetic market models with single commodity having price fluctuations
Chatterjee, A; Chakrabarti, Bikas K.; Chatterjee, Arnab
2006-01-01
We study here numerically the behavior of an ideal gas like model of markets having only one non-consumable commodity. We investigate the behavior of the steady-state distributions of money, commodity and total wealth, as the dynamics of trading or exchange of money and commodity proceeds, with local (in time) fluctuations in the price of the commodity. These distributions are studied in markets with agents having uniform and random saving factors. The self-organizing features in money distribution are similar to the cases without any commodity (or with consumable commodities), the commodity distribution shows an exponential decay. The wealth distribution shows interesting behavior: Gamma like distribution for uniform saving propensity and has the same power-law tail, as that of the money distribution for a market with agents having random saving propensity.
Multi-period inventory models with price protection
Ahat, Nurdan
2007-01-01
Cataloged from PDF version of article. In an environment with declining sales prices, retailers (or any reseller) often face the risk of buying high and selling low. In order to limit their channel partners’ exposure to such risks and increase the availability of their products in the marketplace, suppliers often offer price protection. With price protection, a retailer is reimbursed with a percentage of the procurement cost declines, for the inventory that the retailer orde...
Application of GARCH Model in Research on Price of Agricultural Products
2011-01-01
Taking the price of grain in Guizhou Province as an example, by establishing GARCH model, I calculate VAR of logarithm return of grain price index, in order to conduct research on the variation law of price of the agricultural products. The results show that VAR of grain in Guizhou has variation. After the year 2010, VAR value is gradually increasing, and the price variation risk of grain market tends to increase progressively. Based on the characteristics of grain price variation, a series of corresponding proposals are put forward to stabilize the grain price as follows: strengthen the agricultural infrastructure construction, and promote the agricultural overall production capacity; reinforce the market supervision on the circulation field of agricultural products, and maintain market order; improve regulation system of agricultural products, and stabilize the price of agricultural products; strengthen mobility regulation, and prevent a flood of speculative cash.
The asymmetric effect of coal price on the China's macro economy using NARDL model
Hou, J. C.; Yang, M. C.
2016-08-01
The present work endeavors to explore the asymmetric effect of coal price on the China's macro economy by applying nonlinear autoregressive distributed lag (NARDL) model for the period of January 2005 to June 2015. The obtained results indicate that the coal price has a strong asymmetric effect on China's macro economy in the long-run. Namely one percent increase in coal price leads to 0.6194 percent of the China's macro economy increase; and while the coal price is reduces by 1 percent, the China's macro economy will decrease by 0.008 percent. These data indicate that when coal price rises, the effect on China's macro economy is far greater than the price decline. In the short-run, coal price fluctuation has a positive effect on the China's macro economy.
基于资产链的异质投资者资本资产定价模型%The Heterogeneous Agent of CAPM based on Asset Chains
胡盈; 吴冲锋
2011-01-01
The key assumption of the classical Capital Asset Pricing Model ( CAPM ) is homogeneous belief, which means all investors hold the same expectation about the probability distribution for future returns of assets. Under this assumption, each efficient portfolio on the capital market line means a combination of risk-free asset and market portfolio of risky asset. The efficient portfolio contradicts with people's decisions on financial investments activities in the real world. For instance, besides the index-linked instrument products a large amount of differentiated financial products are provided for investors.The research proposes the assumption of heterogeneous beliefs based on the asset chains. While the asset formation changes on asset chains, the asset value evolves from book value of physical assets to intrinsic value of company, and then to market value of listed company. Investors hold heterogeneous beliefs because they have different opinions about the process of changing asset value on each node of asset chains.The research analyzes the difference of risk investment portfolios for heterogeneous investors by solving continuous time optimal investment and consumption models. The result shows that the two-fund separation theorem does not hold under heterogeneous belief. Investors hold different portfolios of risky assets instead of the unique market portfolio. Therefore the risk-free asset and unique market portfolios cannot construct efficient portfolios. Furthermore, the research finds that risk-free asset and three risky funds can help construct all efficient portfolios. These risky funds reflect three main systematic risks, including macroeconomic trend, market average rate of profit, and market liquidity. The construction of each risky fund is related to the probability distribution of assets return instead of the wealth and preference of investors. Therefore, the capital market line of classical CAPM can be transformed into a 4-dimension capital market
Hedonic price models and indices based on boosting applied to the Dutch housing market
M. Kagie (Martijn); M.C. van Wezel (Michiel)
2006-01-01
textabstractWe create a hedonic price model for house prices for six geographical submarkets in the Netherlands. Our model is based on a recent data mining technique called boosting. Boosting is an ensemble technique that combines multiple models, in our case decision trees, into a combined
Option Pricing for Time-Change Exponential Levy Model Under Memm
2007-01-01
The purpose of this article is to study the rational evaluation of European options price when the underlying price process is described by a time-change Levy process. European option pricing formula is obtained under the minimal entropy martingale measure (MEMM) and applied to several examples of particular time-change Levy processes. It can be seen that the framework in this paper encompasses the Black-Scholes model and almost all of the models proposed in the subordinated market.
A Price Index Model for Road Freight Transportation and Its Empirical analysis in China
Liu Zhishuo
2017-01-01
Full Text Available The aim of price index for road freight transportation (RFT is to reflect the changes of price in the road transport market. Firstly, a price index model for RFT based on the sample data from Alibaba logistics platform is built. This model is a three levels index system including total index, classification index and individual index and the Laspeyres method is applied to calculate these indices. Finally, an empirical analysis of the price index for RFT market in Zhejiang Province is performed. In order to demonstrate the correctness and validity of the exponential model, a comparative analysis with port throughput and PMI index is carried out.
An Econometric Model for SINOPEC Stock Price Tendency on Domestic Securities Market
无
2006-01-01
A time series analysis method was used to establish an econometric model for SINOPEC'S stock price tendency on the domestic securities market under the background of sharp oil price rises in recent years. The model was proven to be a non-stationary time series and unit root process, as tested with the Dickey-Fuller method, and the result of a practical case showed that this model could well reflect SINOPEC stock price tendency on the securities market of China. It would be a guide for research and prediction of stock price tendency.
Modeling House Pricing in the Real Estate Market of São Paulo City
Carla Jucá Amrein
2011-06-01
Full Text Available edonic modeling has become a benchmark for pricing real assets with several intrinsic characteristics. This work tests also others dimensions for asset pricing: the quality of life in the housing neighborhood and macroeconomic variables. The data is about the real estate market in São Paulo city from January 2001 to March 2008. The main results were: the longer the maturity of mortgage financing, the larger the housing price, but decreasing interest rate spread stimulate the real estate market, and the interactions between the dummy for the boom period and either housing characteristics or bank interest rates spread show that the hedonic model loses its relative importance for pricing, while market risk variables become much more relevant. Thus, these new findings suggests that for modeling a house price index it is not sufficient to consider only average prices or a hedonic approach, but both the market and credit risks as well.
Urban Traffic Congestion Pricing Model with the Consideration of Carbon Emissions Cost
Jian Wang
2014-02-01
Full Text Available As one of the most effective traffic demand management opinions, congestion pricing can reduce private car travel demand and the associated carbon dioxide emissions. First, we summarized the status quo of transport carbon dioxide emission charges and congestion pricing, and then, we analyzed the characteristics of urban transport carbon dioxide emissions. Then, we proposed a (pricing framework in which carbon emission costs would be considered as part of the generalized cost of travel. Based on this framework, this paper developed a bi-level mathematical model to optimize consumer surplus, using congestion and carbon emission charges as the control variables. A dissect search algorithm was used to solve the bi-level program model, and a numerical example was given to illustrate the methodology. This paper incorporates the emission pricing into the congestion pricing model, while considering two modes, and puts forward suitable proposals for the implementation of an urban traffic congestion pricing policy in China.
Efficient Option Pricing in Crisis Based on Dynamic Elasticity of Variance Model
Congyin Fan
2016-01-01
Full Text Available Market crashes often appear in daily trading activities and such instantaneous occurring events would affect the stock prices greatly. In an unstable market, the volatility of financial assets changes sharply, which leads to the fact that classical option pricing models with constant volatility coefficient, even stochastic volatility term, are not accurate. To overcome this problem, in this paper we put forward a dynamic elasticity of variance (DEV model by extending the classical constant elasticity of variance (CEV model. Further, the partial differential equation (PDE for the prices of European call option is derived by using risk neutral pricing principle and the numerical solution of the PDE is calculated by the Crank-Nicolson scheme. In addition, Kalman filtering method is employed to estimate the volatility term of our model. Our main finding is that the prices of European call option under our model are more accurate than those calculated by Black-Scholes model and CEV model in financial crashes.
A Dynamic Pricing Model for Coordinated Sales and Operations
M. Fleischmann (Moritz); J.M. Hall (Joseph); D.F. Pyke (David)
2005-01-01
textabstractRecent years have seen advances in research and management practice in the area of pricing, and particularly in dynamic pricing and revenue management. At the same time, researchers and managers have made dramatic improvements in operations and supply chain management. The interactions b
The location model with two periods of price competition
Webers, H.M.
1994-01-01
In this paper we characterize the subgame perfect Nash equilibria of a location-then-price game where firms first choose locations and after that compete for prices in two subsequent periods. Locations are thus seen as long term commitments. There are two types of consumers, each with different valu
A scalable delivery framework and a pricing model for streaming media with advertisements
Al-Hadrusi, Musab; Sarhan, Nabil J.
2008-01-01
This paper presents a delivery framework for streaming media with advertisements and an associated pricing model. The delivery model combines the benefits of periodic broadcasting and stream merging. The advertisements' revenues are used to subsidize the price of the media content. The pricing is determined based on the total ads' viewing time. Moreover, this paper presents an efficient ad allocation scheme and three modified scheduling policies that are well suited to the proposed delivery framework. Furthermore, we study the effectiveness of the delivery framework and various scheduling polices through extensive simulation in terms of numerous metrics, including customer defection probability, average number of ads viewed per client, price, arrival rate, profit, and revenue.
Daniels, Marcus G.; Farmer, J. Doyne; Gillemot, László; Iori, Giulia; Smith, Eric
2003-03-01
We model trading and price formation in a market under the assumption that order arrival and cancellations are Poisson random processes. This model makes testable predictions for the most basic properties of markets, such as the diffusion rate of prices (which is the standard measure of financial risk) and the spread and price impact functions (which are the main determinants of transaction cost). Guided by dimensional analysis, simulation, and mean-field theory, we find scaling relations in terms of order flow rates. We show that even under completely random order flow the need to store supply and demand to facilitate trading induces anomalous diffusion and temporal structure in prices.
An empirical exploration of the world oil price under the target zone model
Linghui Tang; Shawkat Hammoudeh [Drexel University, Philadelphia, PA (United States). Lebow College of Business
2002-11-01
This paper investigates the behavior of the world oil price based on the first-generation target zone model. Using anecdotal data during the period of 1988-1999, we found that OPEC has tried to maintain a weak target zone regime for the oil price. Our econometric tests suggest that the movement of the oil price is not only manipulated by actual and substantial interventions by OPEC but also tempered by market participants' expectations of interventions. As a consequence, the non-linear model based on the target zone theory has very good forecasting ability when the oil price approaches the upper or lower limit of the band. (author)
An empirical exploration of the world oil price under the target zone model
Tang, Linghui; Hammoudeh, Shawkat [Department of Economics and International Business, Lebow College of Business, Drexel University, 19104 Philadelphia, PA (United States)
2002-11-01
This paper investigates the behavior of the world oil price based on the first-generation target zone model. Using anecdotal data during the period of 1988-1999, we found that OPEC has tried to maintain a weak target zone regime for the oil price. Our econometric tests suggest that the movement of the oil price is not only manipulated by actual and substantial interventions by OPEC but also tempered by market participants' expectations of interventions. As a consequence, the non-linear model based on the target zone theory has very good forecasting ability when the oil price approaches the upper or lower limit of the band.
Zainora, A. M.; Norzailawati, M. N.; Tuminah, P.
2016-06-01
Presently, it is noticeable that there is a significant influence of public open space about house price, especially in many developed nations. Literature suggests the relationship between the two aspects give impact on the housing market, however not many studies undertaken in Malaysia. Thus, this research was initiated to analyse the relationship of open space and house price via the techniques of GIS-Hedonic Pricing Model. In this regards, the GIS tool indicates the pattern of the relationship between open space and house price spatially. Meanwhile, Hedonic Pricing Model demonstrates the index of the selected criteria in determining the housing price. This research is a perceptual study of 200 respondents who were the house owners of double-storey terrace houses in four townships, namely Bandar Baru Bangi, Taman Melawati, Subang Jaya and Shah Alam, in Klang Valley. The key research question is whether the relationship between open space and house price exists and the nature of its pattern and intensity. The findings indicate that there is a positive correlation between open space and house price. Correlation analysis reveals that a weak relationship (rs research has achieved its research aims and thus, offers the value added in applying the GIS-Hedonic pricing model in analysing the influence of open space to the house price in the form of spatially and textually.
[Study on early-warning of Chinese materia medica price base on ARMA model].
Chang, Feng; Mao, Yang-Dui
2014-05-01
This study sets up an early-warning system framework of Chinese materia medica price, using price index as early warning indicator to establish black early-warning model, with indicator of price index volatility and limit line of "price principal". The research divides warning degree into 5 parts named negative heavy warning, negative light warning, no warning, positive light warning and positive heavy warning, with 5 corresponding lights to describe the change level of the medicine price. Then make an early-warning empirical research based on Chengdu Chinese materia medica price index from December in 2010 to October in 2013. ARMA model is applied to forecast index and the result of early-warning is analyzed, and finally farmer households, companies, customers and the government are recommended respectively.
Hidden Markov Model and Forward-Backward Algorithm in Crude Oil Price Forecasting
Talib Bon, Abdul; Isah, Nuhu
2016-11-01
In light of the importance of crude oil to the world's economy, it is not surprising that economists have devoted great efforts towards developing methods to forecast price and volatility levels. Crude oil is an important energy commodity to mankind. Several causes have made crude oil prices to be volatile such as economic, political and social. Hence, forecasting the crude oil prices is essential to avoid unforeseen circumstances towards economic activity. In this study, daily crude oil prices data was obtained from WTI dated 2nd January to 29th May 2015. We used Hidden Markov Model (HMM) and Forward-Backward Algorithm to forecasting the crude oil prices. In this study, the analyses were done using Maple software. Based on the study, we concluded that model (0 3 0) is able to produce accurate forecast based on a description of history patterns in crude oil prices.
A Bayesian Multi-Level Factor Analytic Model of Consumer Price Sensitivities across Categories
Duvvuri, Sri Devi; Gruca, Thomas S.
2010-01-01
Identifying price sensitive consumers is an important problem in marketing. We develop a Bayesian multi-level factor analytic model of the covariation among household-level price sensitivities across product categories that are substitutes. Based on a multivariate probit model of category incidence, this framework also allows the researcher to…
A Hierarchical Bayes Error Correction Model to Explain Dynamic Effects of Price Changes
D. Fok (Dennis); R. Paap (Richard); C. Horváth (Csilla); Ph.H.B.F. Franses (Philip Hans)
2005-01-01
textabstractThe authors put forward a sales response model to explain the differences in immediate and dynamic effects of promotional prices and regular prices on sales. The model consists of a vector autoregression rewritten in error-correction format which allows to disentangle the immediate
Libor and Swap Market Models for the Pricing of Interest Rate Derivatives : An Empirical Analysis
de Jong, F.C.J.M.; Driessen, J.J.A.G.; Pelsser, A.
2000-01-01
In this paper we empirically analyze and compare the Libor and Swap Market Models, developed by Brace, Gatarek, and Musiela (1997) and Jamshidian (1997), using paneldata on prices of US caplets and swaptions.A Libor Market Model can directly be calibrated to observed prices of caplets, whereas a
A Vector Autoregressive Model for Electricity Prices Subject to Long Memory and Regime Switching
Haldrup, Niels; Nielsen, Frank; Nielsen, Morten Ørregaard
2007-01-01
A regime dependent VAR model is suggested that allows long memory (fractional integration) in each of the regime states as well as the possibility of fractional cointegra- tion. The model is relevant in describing the price dynamics of electricity prices where the transmission of power is subject...
A Bayesian Multi-Level Factor Analytic Model of Consumer Price Sensitivities across Categories
Duvvuri, Sri Devi; Gruca, Thomas S.
2010-01-01
Identifying price sensitive consumers is an important problem in marketing. We develop a Bayesian multi-level factor analytic model of the covariation among household-level price sensitivities across product categories that are substitutes. Based on a multivariate probit model of category incidence, this framework also allows the researcher to…
A Hierarchical Bayes Error Correction Model to Explain Dynamic Effects of Price Changes
D. Fok (Dennis); R. Paap (Richard); C. Horváth (Csilla); Ph.H.B.F. Franses (Philip Hans)
2005-01-01
textabstractThe authors put forward a sales response model to explain the differences in immediate and dynamic effects of promotional prices and regular prices on sales. The model consists of a vector autoregression rewritten in error-correction format which allows to disentangle the immediate effec
The wine hedonic price models in the "Old and New World": : state of the art
Estrella Orrego, María Jimena; Defrancesco, Edi; Gennari, Alejandro
2012-01-01
The basic hedonic hypothesis is that goods are valued for their utility-bearing characteristics and not for the good itself. Each attribute can be evaluated by consumers when making a purchasing decision and an implicit price can be identified for each of them. Thus, the observed price of a certain good can be analyzed as the sum of the implicit prices paid for each quality attribute. Literature has reported hedonic models estimates in the case of wines, which are excellent examples of ...
Chung-Chang Lee
2009-01-01
This paper uses hierarchical linear modeling (HLM) to explore the influence of satisfaction with public facilities on both individual residential and overall (or regional) levels on housing prices. The empirical results indicate that the average housing prices between local cities and counties exhibit significant variance. At the macro level, the explanatory power of the variable ¡§convenience of life¡¨ on the average housing prices of all counties and cities reaches the 5% significance level...
Application of adversarial risk analysis model in pricing strategies with remanufacturing
Liurui Deng
2015-01-01
Full Text Available Purpose: Purpose: This paper mainly focus on the application of adversarial risk analysis (ARA in pricing strategy with remanufacturing. We hope to obtain more realistic results than classical model. Moreover, we also wish that our research improve the development of ARA in pricing strategy of manufacturing or remanufacturing. Approach: In order to gain more actual research, combining adversarial risk analysis, we explore the pricing strategy with remanufacturing based on Stackelberg model. Especially, we build OEM’s 1-order ARA model and further study on manufacturers and remanufacturers’ pricing strategy. Findings: We find the OEM’s 1-order ARA model for the OEM’s product cost C. Besides, we get according manufacturers and remanufacturers’ pricing strategies. Besides, the pricing strategies based on 1-order ARA model have advantage over than the classical model regardless of OEMs and remanufacturers. Research implications: The research on application of ARA imply that we can get more actual results with this kind of modern risk analysis method and ARA can be extensively in pricing strategies of supply chain. Value: Our research improves the application of ARA in remanufacturing industry. Meanwhile, inspired by this analysis, we can also create different ARA models for different parameters. Furthermore, some results and analysis methods can be applied to other pricing strategies of supply chain.
A GIS-based hedonic price model for agricultural land
Demetriou, Demetris
2015-06-01
Land consolidation is a very effective land management planning approach that aims towards rural/agricultural sustainable development. Land reallocation which involves land tenure restructuring is the most important, complex and time consuming component of land consolidation. Land reallocation relies on land valuation since its fundamental principle provides that after consolidation, each landowner shall be granted a property of an aggregate value that is approximately the same as the value of the property owned prior to consolidation. Therefore, land value is the crucial factor for the land reallocation process and hence for the success and acceptance of the final land consolidation plan. Land valuation is a process of assigning values to all parcels (and its contents) and it is usually carried out by an ad-hoc committee. However, the process faces some problems such as it is time consuming hence costly, outcomes may present inconsistency since it is carried out manually and empirically without employing systematic analytical tools and in particular spatial analysis tools and techniques such as statistical/mathematical. A solution to these problems can be the employment of mass appraisal land valuation methods using automated valuation models (AVM) based on international standards. In this context, this paper presents a spatial based linear hedonic price model which has been developed and tested in a case study land consolidation area in Cyprus. Results showed that the AVM is capable to produce acceptable in terms of accuracy and reliability land values and to reduce time hence cost required by around 80%.
Equilibrium pricing in an order book environment: Case study for a spin model
Meudt, Frederik; Schmitt, Thilo A.; Schäfer, Rudi; Guhr, Thomas
2016-07-01
When modeling stock market dynamics, the price formation is often based on an equilibrium mechanism. In real stock exchanges, however, the price formation is governed by the order book. It is thus interesting to check if the resulting stylized facts of a model with equilibrium pricing change, remain the same or, more generally, are compatible with the order book environment. We tackle this issue in the framework of a case study by embedding the Bornholdt-Kaizoji-Fujiwara spin model into the order book dynamics. To this end, we use a recently developed agent based model that realistically incorporates the order book. We find realistic stylized facts. We conclude for the studied case that equilibrium pricing is not needed and that the corresponding assumption of a "fundamental" price may be abandoned.
Non-life insurance pricing: multi-agent model
Darooneh, A. H.
2004-11-01
We use the maximum entropy principle for the pricing of non-life insurance and recover the Bühlmann results for the economic premium principle. The concept of economic equilibrium is revised in this respect.
Non-Life Insurance Pricing: Multi Agents Model
Amir H. Darooneh
2004-01-01
We use the maximum entropy principle for pricing the non-life insurance and recover the B\\"{u}hlmann results for the economic premium principle. The concept of economic equilibrium is revised in this respect.
NONE
2006-07-01
The development of the future prices for electric power calls for a continuous analysis of the market. The quantities to be sold are purchased directly on the wholesale-trading market or via models indicating the development of the wholesale trading prices. A professional and risk-adjusted control of the portfolio is the central module in order to get the right position in the increasing competition. Within the options trading, forecasting the electric power prices is of central importance.
Henry de-Graft Acquah
2013-01-01
Full Text Available Information Criteria provides an attractive basis for selecting the best model from a set of competing asymmetric price transmission models or theories. However, little is understood about the sensitivity of the model selection methods to model complexity. This study therefore fits competing asymmetric price transmission models that differ in complexity to simulated data and evaluates the ability of the model selection methods to recover the true model. The results of Monte Carlo experimentation suggest that in general BIC, CAIC and DIC were superior to AIC when the true data generating process was the standard error correction model, whereas AIC was more successful when the true model was the complex error correction model. It is also shown that the model selection methods performed better in large samples for a complex asymmetric data generating process than with a standard asymmetric data generating process. Except for complex models, AIC's performance did not make substantial gains in recovery rates as sample size increased. The research findings demonstrate the influence of model complexity in asymmetric price transmission model comparison and selection.
An Intraday Pricing Model of Foreign Exchange Markets
Rafael Romeu
2003-01-01
Market makers learn about asset values as they set intraday prices and absorb portfolio flows. Absorbing these flows causes inventory imbalances. Previous work has argued that market makers change prices to manage incoming flows and offset inventory imbalances. This study argues that they have multiple instruments, or ways to manage inventory imbalances and learn about evolving asset values. Hence, they smooth inventory levels and update prior information about assets using multiple instrumen...
CAPM usando uma carteira sintética do PIB Brasileiro
Araújo Eurilton
2006-01-01
Full Text Available Uma grande dificuldade de testar o CAPM, como apontado na crítica de Roll, é selecionar uma "proxy" adequada para carteira de mercado. A literatura recente tem buscado alternativas para a construção de uma carteira de mercado, as quais procuram incorporar os efeitos de ativos não transacionados em bolsa, como o capital humano. Este trabalho segue a metodologia proposta por Hou (2002 e se dedica a cons-truir uma carteira de mercado hipotética que paga o PIB como dividendo. O objetivo do artigo é avaliar se esta carteira alternativa constitui uma ampla e legítima "proxy" para a carteira de mercado, testando sua eficiência no sentido média-variância e sua capacidade de explicar o retorno de carteiras de ativos, no contexto do CAPM. Adicionalmente, compara-se o desempenho desta medida alternativa ao obtido pelo retorno do Ibovespa. Os resultados obtidos, especialmente os referentes à versão Black, mostram que a carteira sintética não é eficiente. O retorno do Ibovespa, apesar de não satisfazer as condições de validade do CAPM e de eficiência em alguns subperíodos estudados, foi eficiente em muitos deles e também na amostra inteira (1991-2002, sendo, portanto, uma medida mais razoável para a carteira de mercado do que a alternativa proposta por Hou (2002.
Adaptive hidden Markov model with anomaly States for price manipulation detection.
Cao, Yi; Li, Yuhua; Coleman, Sonya; Belatreche, Ammar; McGinnity, Thomas Martin
2015-02-01
Price manipulation refers to the activities of those traders who use carefully designed trading behaviors to manually push up or down the underlying equity prices for making profits. With increasing volumes and frequency of trading, price manipulation can be extremely damaging to the proper functioning and integrity of capital markets. The existing literature focuses on either empirical studies of market abuse cases or analysis of particular manipulation types based on certain assumptions. Effective approaches for analyzing and detecting price manipulation in real time are yet to be developed. This paper proposes a novel approach, called adaptive hidden Markov model with anomaly states (AHMMAS) for modeling and detecting price manipulation activities. Together with wavelet transformations and gradients as the feature extraction methods, the AHMMAS model caters to price manipulation detection and basic manipulation type recognition. The evaluation experiments conducted on seven stock tick data from NASDAQ and the London Stock Exchange and 10 simulated stock prices by stochastic differential equation show that the proposed AHMMAS model can effectively detect price manipulation patterns and outperforms the selected benchmark models.
Introducing a price variation limiter mechanism into a behavioral financial market model.
Naimzada, Ahmad; Pireddu, Marina
2015-08-01
In the present paper, we consider a nonlinear financial market model in which, in order to decrease the complexity of the dynamics and to achieve price stabilization, we introduce a price variation limiter mechanism, which in each period bounds the price variation so that the current price is forced to belong to a certain interval determined by the price realization in the previous period. More precisely, we introduce such mechanism into a financial market model in which the price dynamics are described by a sigmoidal price adjustment mechanism characterized by the presence of two asymptotes that bound the price variation and thus the dynamics. We show that the presence of our asymptotes prevents divergence and negativity issues. Moreover, we prove that the basins of attraction are complicated only under suitable conditions on the parameters and that chaos arises just when the price limiters are loose enough. On the other hand, for some suitable parameter configurations, we detect multistability phenomena characterized by the presence of up to three coexisting attractors.
TESTING THE CAPM FOR THE BRAZILIAN STOCK MARKET USING MULTIVARIATE GARCH BETWEEN 1995 AND 2012
Lucas Lucio Godeiro
2013-01-01
Full Text Available The paper tests the CAPM for the Brazilian stock market using dynamic betas. The sample involves 28 stocks included in the Ibovespa portfolio as of March 21, 2012 and that were traded during the period from Jan. 01, 1995 to March 20, 2012. Dynamic betas were estimated and conditional betas contributed with larger explanatory power of excess cross section returns. The main contribution of the paper is the estimation of dynamic betas for Ibovespa shares, which can be useful for investors using Long x Short strategies.
A. M. Zainora
2016-06-01
Full Text Available Presently, it is noticeable that there is a significant influence of public open space about house price, especially in many developed nations. Literature suggests the relationship between the two aspects give impact on the housing market, however not many studies undertaken in Malaysia. Thus, this research was initiated to analyse the relationship of open space and house price via the techniques of GIS-Hedonic Pricing Model. In this regards, the GIS tool indicates the pattern of the relationship between open space and house price spatially. Meanwhile, Hedonic Pricing Model demonstrates the index of the selected criteria in determining the housing price. This research is a perceptual study of 200 respondents who were the house owners of double-storey terrace houses in four townships, namely Bandar Baru Bangi, Taman Melawati, Subang Jaya and Shah Alam, in Klang Valley. The key research question is whether the relationship between open space and house price exists and the nature of its pattern and intensity. The findings indicate that there is a positive correlation between open space and house price. Correlation analysis reveals that a weak relationship (rs < 0.1 established between the variable of open space and house price (rs = 0.91, N = 200, p = 0.2. Consequently, the rate of house price change is rather small. In overall, this research has achieved its research aims and thus, offers the value added in applying the GIS-Hedonic pricing model in analysing the influence of open space to the house price in the form of spatially and textually.
The performance of multi-factor term structure models for pricing and hedging caps and swaptions
Driessen, J.J.A.G.; Klaassen, P.; Melenberg, B.
2000-01-01
In this paper we empirically compare a wide range of different term structure models when it comes to the pricing and, in particular, hedging of caps and swaptions. We analyze the influence of the number of factors on the hedging and pricing results, and investigate which type of data "interest rate
Global modelling to predict timber production and prices: the GFPM approach
Joseph Buongiorno
2014-01-01
Timber production and prices are determined by the global demand for forest products, and the capability of producers from many countries to grow and harvest trees, transform them into products and export. The Global Forest Products Model (GFPM) simulates how this global demand and supply of multiple products among many countries determines prices and attendant...
Pricing Bermudan options under local Lévy models with default
A. Borovykh (Anastasia); A. Pascucci; C.W. Oosterlee (Cornelis)
2017-01-01
textabstractWe consider a defaultable asset whose risk-neutral pricing dynamics are described by an exponential Lévy-type martingale. This class of models allows for a local volatility, local default intensity and a locally dependent Lévy measure. We present a pricing method for Bermudan options
Pricing Strategies and Models for the Provision of Digitized Texts in Higher Education.
Hardy, Rachel; Oppenheim, Charles; Rubbert, Iris
2002-01-01
Describes research into charging mechanisms for the delivery of digitized texts to higher education students in the United Kingdom and discusses the need for a satisfactory pricing model. Explains the HERON (Higher Education Resources On-Demand) and PELICAN (Pricing Experiment Library Information Cooperative Network) projects and considers…
Modeling transport pricing with multiple stakeholders. Working paper: Methodology and a case study
Smits, E.
2012-01-01
Pricing measures (e.g., a kilometre charge or cordon toll) are used to improve the external effects of transportation (e.g., congestion or emissions). This working paper presents a planning model for pricing while taking the preferences and interactions of multiple stakeholders (e.g., governments or
An EOQ Model with Two-Parameter Weibull Distribution Deterioration and Price-Dependent Demand
Mukhopadhyay, Sushanta; Mukherjee, R. N.; Chaudhuri, K. S.
2005-01-01
An inventory replenishment policy is developed for a deteriorating item and price-dependent demand. The rate of deterioration is taken to be time-proportional and the time to deterioration is assumed to follow a two-parameter Weibull distribution. A power law form of the price dependence of demand is considered. The model is solved analytically…
Xuan Chi; Barry Goodwin
2012-01-01
Spatial and temporal relationships among agricultural prices have been an important topic of applied research for many years. Such research is used to investigate the performance of markets and to examine linkages up and down the marketing chain. This research has empirically evaluated price linkages by using correlation and regression models and, later, linear and...
Prediction Model of Weekly Retail Price for Eggs Based on Chaotic Neural Network
LI Zhe-min; CUI Li-guo; XU Shi-wei; WENG Ling-yun; DONG Xiao-xia; LI Gan-qiong; YU Hai-peng
2013-01-01
This paper establishes a short-term prediction model of weekly retail prices for eggs based on chaotic neural network with the weekly retail prices of eggs from January 2008 to December 2012 in China. In the process of determining the structure of the chaotic neural network, the number of input layer nodes of the network is calculated by reconstructing phase space and computing its saturated embedding dimension, and then the number of hidden layer nodes is estimated by trial and error. Finally, this model is applied to predict the retail prices of eggs and compared with ARIMA. The result shows that the chaotic neural network has better nonlinear iftting ability and higher precision in the prediction of weekly retail price of eggs. The empirical result also shows that the chaotic neural network can be widely used in the ifeld of short-term prediction of agricultural prices.
Risk assessment of oil price from static and dynamic modelling approaches
Mi, Zhi-Fu; Wei, Yi-Ming; Tang, Bao-Jun
2017-01-01
The price gap between West Texas Intermediate (WTI) and Brent crude oil markets has been completely changed in the past several years. The price of WTI was always a little larger than that of Brent for a long time. However, the price of WTI has been surpassed by that of Brent since 2011. The new...... market circumstances and volatility of oil price require a comprehensive reestimation of risk. Therefore, this study aims to explore an integrated approach to assess the price risk in the two crude oil markets through the value at risk (VaR) model. The VaR is estimated by the extreme value theory (EVT......) and GARCH model on the basis of generalized error distribution (GED). The results show that EVT is a powerful approach to capture the risk in the oil markets. On the contrary, the traditional variance–covariance (VC) and Monte Carlo (MC) approaches tend to overestimate risk when the confidence level is 95...
Stock Prices and the Monetrary Model of Exchange Rate: An Empirical Investigation.
Broom, S.; Morley, B.
2003-01-01
This paper develops an alternative version of the monetary model of exchange rate determination, which incorporates a stock price measure. This model is then tested using data from Canada and the USA, applying the cointegration and error correction methodology. In contrast to many previous tests of the monetary model, this version produces evidence of cointegration and stock prices have a highly significant effect on the exchange rate in both the short and long run. In addition the restricted...
A regime-switching stochastic volatility model for forecasting electricity prices
Exterkate, Peter; Knapik, Oskar
In a recent review paper, Weron (2014) pinpoints several crucial challenges outstanding in the area of electricity price forecasting. This research attempts to address all of them by i) showing the importance of considering fundamental price drivers in modeling, ii) developing new techniques...... for probabilistic (i.e. interval or density) forecasting of electricity prices, iii) introducing an universal technique for model comparison. We propose new regime-switching stochastic volatility model with three regimes (negative jump, normal price, positive jump (spike)) where the transition matrix depends...... on explanatory variables. Bayesian inference is explored in order to obtain predictive densities. The main focus of the paper is on shorttime density forecasting in Nord Pool intraday market. We show that the proposed model outperforms several benchmark models at this task....
A non-Gaussian Ornstein-Uhlenbeck model for pricing wind power futures
Benth, Fred Espen; Pircalabu, Anca
2017-01-01
generated assuming a recent level of installed capacity. Also, based on one year of observed prices for wind power futures with different delivery periods, we study the market price of risk. Generally, we find a negative risk premium whose magnitude decreases as the length of the delivery period increases.......The recent introduction of wind power futures written on the German wind power production index has brought with it new interesting challenges in terms of modeling and pricing. Some particularities of this product are the strong seasonal component embedded in the underlying, the fact that the wind...... index. We discuss the properties of the model and estimation of the model parameters. Further, the model allows for an analytical formula for pricing wind power futures. We provide an empirical study, where the model is calibrated to 37 years of German wind power production index that is synthetically...
Titus SUCIU
2013-01-01
In individual companies, price is one significant factor in achieving marketing success. In many purchase situations, price can be of great importance to customers. Marketers must establish pricing strategies that are compatible with the rest of the marketing mix. Management should decide whether to charge the same price to all similar buyers of identical quantities of a product (a one-price strategy) or to set different prices (a flexible price strategy). Many organizations, especially retai...
Titus SUCIU
2013-01-01
In individual companies, price is one significant factor in achieving marketing success. In many purchase situations, price can be of great importance to customers. Marketers must establish pricing strategies that are compatible with the rest of the marketing mix. Management should decide whether to charge the same price to all similar buyers of identical quantities of a product (a one-price strategy) or to set different prices (a flexible price strategy). Many organizations, especially retai...
Bayesian Option Pricing using Mixed Normal Heteroskedasticity Models
Rombouts, Jeroen; Stentoft, Lars
2014-01-01
measured in dollar and implied standard deviation losses, and it turns out that the impact of parameter uncertainty is minor. Therefore, when it comes to option pricing where large amounts of data are available, the choice of the inference method is unimportant. The results are robust to different...
MODELING REAL ESTATE MARKET: FORECASTING THE PRICE OF A SQUARE
Natalya V. Kontsevaya
2016-01-01
Full Text Available The possibility of forecasting indicators of the real estate market. An approach based on the use of lag variables, where the lag time is determined by analyzing the dynamics of relative error. The result is a leading indicator. Forecasted assessment of the near future the price per square meter in Moscow.
UPPAAL-SMC: Statistical Model Checking for Priced Timed Automata
Bulychev, Petr; David, Alexandre; Larsen, Kim Guldstrand
2012-01-01
This paper offers a survey of U PPAAL - SMC, a major extension of the real-time verification tool U PPAAL. U PPAAL - SMC allows for the efficient analysis of performance properties of networks of priced timed automata under a natural stochastic semantics. In particular, U PPAAL - SMC relies on a ...
2012-01-01
Based on farmers’ supply behavior theory and price expectations theory,this paper establishes grain farmers’ supply response model of two major grain varieties (early indica rice and mixed wheat) in the major producing areas,to test whether the minimum grain purchase price policy can have price-oriented effect on grain production and supply in the major producing areas. Empirical analysis shows that the minimum purchase price published annually by the government has significant positive impact on farmers’ grain supply in the major grain producing areas. In recent years,China steadily raises the level of minimum grain purchase price,which has played an important role in effectively protecting grain farmers’ interests,mobilizing the enthusiasm of farmers’ grain production,and ensuring the market supply of key grain varieties.
Does Climate Change Mitigation Activity Affect Crude Oil Prices? Evidence from Dynamic Panel Model
Jude C. Dike
2014-01-01
Full Text Available This paper empirically investigates how climate change mitigation affects crude oil prices while using carbon intensity as the indicator for climate change mitigation. The relationship between crude oil prices and carbon intensity is estimated using an Arellano and Bond GMM dynamic panel model. This study undertakes a regional-level analysis because of the geographical similarities among the countries in a region. Regions considered for the study are Africa, Asia and Oceania, Central and South America, the EU, the Middle East, and North America. Results show that there is a positive relationship between crude oil prices and carbon intensity, and a 1% change in carbon intensity is expected to cause about 1.6% change in crude oil prices in the short run and 8.4% change in crude oil prices in the long run while the speed of adjustment is 19%.
An Inventory Model with Price and Quality Dependent Demand Where Some Items Produced Are Defective
Tapan Kumar Datta
2013-01-01
Full Text Available This paper analyzes an inventory system for joint determination of product quality and selling price where a fraction of items produced are defective. It is assumed that only a fraction of defective items can be repaired/reworked. The demand rate depends upon both the quality and the selling price of the product. The production rate, unit price, and carrying cost depend upon the quality of the items produced. Quality index is used to determine the quality of the product. An algorithm is provided to solve the model with given values of model parameters. Sensitivity analysis has also been performed.
Baadsgaard, Mikkel; Nielsen, Jan Nygaard; Madsen, Henrik
2000-01-01
An econometric analysis of continuous-timemodels of the term structure of interest rates is presented. A panel of coupon bond prices with different maturities is used to estimate the embedded parameters of a continuous-discrete state space model of unobserved state variables: the spot interest rate......, the central tendency and stochastic volatility. Emphasis is placed on the particular class of exponential-affine term structure models that permits solving the bond pricing PDE in terms of a system of ODEs. It is assumed that coupon bond prices are contaminated by additive white noise, where the stochastic...
Theoretical and Empirical Review of Asset Pricing Models: A Structural Synthesis
Saban Celik
2012-01-01
Full Text Available The purpose of this paper is to give a comprehensive theoretical review devoted to asset pricing models by emphasizing static and dynamic versions in the line with their empirical investigations. A considerable amount of financial economics literature devoted to the concept of asset pricing and their implications. The main task of asset pricing model can be seen as the way to evaluate the present value of the pay offs or cash flows discounted for risk and time lags. The difficulty coming from discounting process is that the relevant factors that affect the pay offs vary through the time whereas the theoretical framework is still useful to incorporate the changing factors into an asset pricing models. This paper fills the gap in literature by giving a comprehensive review of the models and evaluating the historical stream of empirical investigations in the form of structural empirical review.
The Q theory of investment, the capital asset pricing model, and asset valuation: a synthesis.
McDonald, John F
2004-05-01
The paper combines Tobin's Q theory of real investment with the capital asset pricing model to produce a new and relatively simple procedure for the valuation of real assets using the income approach. Applications of the new method are provided.
Using Satellite Remote Sensing Data in a Spatially Explicit Price Model
Brown, Molly E.; Pinzon, Jorge E.; Prince, Stephen D.
2007-01-01
Famine early warning organizations use data from multiple disciplines to assess food insecurity of communities and regions in less-developed parts of the World. In this paper we integrate several indicators that are available to enhance the information for preparation for and responses to food security emergencies. The assessment uses a price model based on the relationship between the suitability of the growing season and market prices for coarse grain. The model is then used to create spatially continuous maps of millet prices. The model is applied to the dry central and northern areas of West Africa, using satellite-derived vegetation indices for the entire region. By coupling the model with vegetation data estimated for one to four months into the future, maps are created of a leading indicator of potential price movements. It is anticipated that these maps can be used to enable early warning of famine and for planning appropriate responses.
Solving Optimal Pricing Model for Perishable Commodities with Imperialist Competitive Algorithm
Bo-Wen Liu
2013-01-01
Full Text Available The pricing problem for perishable commodities is important in manufacturing enterprise. In this study, a new model based on the profit maximization principle and a discrete demand function which is a negative binomial demand distribution is proposed. This model is used to find out the best combination for price and discount price. The computational results show that the optimal discount price equals the cost of the product. Because the demand functions which involves several different distributions is so complex that the model is hard to solve with normal numerical method. Thus we combine the model with exterior penalty function and applied a novel evolution algorithm-Imperialist Competitive Algorithm (ICA to solve the problem. Particle Swarm algorithm (PSO is also applied to solve the problem for comparison. The result shows that ICA has higher convergence rate and execution speed.
Estimating the Volatility of Cocoa Price Return with ARCH and GARCH Models
Lya Aklimawati
2013-08-01
Full Text Available Dynamics of market changing as a result of market liberalization have an impact on agricultural commodities price fluctuation. High volatility on cocoa price movement reflect its price and market risk. Because of price and market uncertainty, the market players face some difficulties to make a decision in determining business development. This research was conducted to 1 understand the characteristics of cocoa price movement in cocoa futures trading, and 2analyze cocoa price volatility using ARCH and GARCH type model. Research was carried out by direct observation on the pattern of cocoa price movement in the futures trading and volatility analysis based on secondary data. The data was derived from Intercontinental Exchange ( ICE Futures U.S. Reports. The analysis result showed that GARCH is the best model to predict the value of average cocoa price return volatility, because it meets criteria of three diagnostic checking, which are ARCH-LM test, residual autocorrelation test and residual normality test. Based on the ARCH-LM test, GARCH (1,1did not have heteroscedasticity, because p-value 2 (0.640139and F-statistic (0.640449 were greater than 0.05. Results of residual autocorrelation test indicated that residual value of GARCH (1,1 was random, because the statistic value of Ljung-Box (LBon the 36 th lag is smaller than the statistic value of 2. Whereas, residual normality test concluded the residual of GARCH (1,1 were normally distributed, because AR (29, MA (29, RESID (-1^2, and GARCH (-1 were significant at 5% significance level. Increasing volatility value indicate high potential risk. Price risk can be reduced by managing financial instrument in futures trading such as forward and futures contract, and hedging. The research result also give an insight to the market player for decision making and determining time of hedging. Key words: Volatility, price, cocoa, GARCH, risk, futures trading
From a bundled energy-capacity pricing model to an energy-capacity-ancillary services pricing model
Raineri, Ricardo; Arce, Raul; Salamanca, Carlos [Departamento de Ingenieria Industrial y de Sistemas, Pontificia Universidad Catolica de Chile, Casilla 306, Correo 22, Santiago (Chile); Rios, Sebastian [Departamento de Ingenieria Electrica, Pontificia Universidad Catolica de Chile, Casilla 306, Correo 22, Santiago (Chile)
2008-08-15
In this paper, we extend the Chilean power generation pricing mechanism, with capacity and energy payments, to one where ancillary services (AS), as frequency regulation and voltage control, are explicitly recognized. Adequacy and security attributes of the electric system and the public good characteristics of AS are set within the payment structure to distribute the financing of AS among those who benefit from their provision. The contribution to finance the provision of AS is determined assessing the value assigned to the system security by each agent, following what's an efficient pricing mechanism in the presence of public goods. (author)
Estimation of sectoral prices in the BNL energy input--output model
Tessmer, R.G. Jr.; Groncki, P.; Boyce, G.W. Jr.
1977-12-01
Value-added coefficients have been incorporated into Brookhaven's Energy Input-Output Model so that one can calculate the implicit price at which each sector sells its output to interindustry and final-demand purchasers. Certain adjustments to historical 1967 data are required because of the unique structure of the model. Procedures are also described for projecting energy-sector coefficients in future years that are consistent with exogenously specified energy prices.
Empirical testing of alternative price spread models in the South African maize market
Faminow, Merle D.; Laubscher, J. M.
1991-01-01
Reduced-form price spread models have been recently utilized by Wohlgenant and Mullen, and Thompson and Lyon to evaluate the economic factors affecting the marketing margins for agricultural products. Drawing on Gardner, Heien, Buse and Brandow, Waugh, Tomek and Robinson, and others they specify alternative retail-farm price spread models and attempt to determine which best fit the data in the context of underlying theoretical rationale. This paper continues in the spirit of Wohlgenant and Mu...
Day-ahead electricity price forecasting using wavelet transform combined with ARIMA and GARCH models
Tan, Zhongfu; Zhang, Jinliang; Xu, Jun [North China Electric Power University, Beijing 102206 (China); Wang, Jianhui [Argonne National Laboratory, Argonne, IL 60439 (United States)
2010-11-15
This paper proposes a novel price forecasting method based on wavelet transform combined with ARIMA and GARCH models. By wavelet transform, the historical price series is decomposed and reconstructed into one approximation series and some detail series. Then each subseries can be separately predicted by a suitable time series model. The final forecast is obtained by composing the forecasted results of each subseries. This proposed method is examined on Spanish and PJM electricity markets and compared with some other forecasting methods. (author)
R.P. Faber (Riemer)
2010-01-01
textabstractThis thesis studies price data and tries to unravel the underlying economic processes of why firms have chosen these prices. It focuses on three aspects of price setting. First, it studies whether the existence of a suggested price has a coordinating effect on the prices of firms. Second
Wang, Xiao-Tian
2010-02-01
This paper deals with the problem of discrete time option pricing by the fractional Black-Scholes model with transaction costs. By a mean self-financing delta-hedging argument in a discrete time setting, a European call option pricing formula is obtained. The minimal price C(t,St) of an option under transaction costs is obtained as timestep δt=((, which can be used as the actual price of an option. In fact, C(t,St) is an adjustment to the volatility in the Black-Scholes formula by using the modified volatility σ√{2}(( to replace the volatility σ, where {k}/{σ}{1}/{2} is the Hurst exponent, and k is a proportional transaction cost parameter. In addition, we also show that timestep and long-range dependence have a significant impact on option pricing.
Default Rate and Price of Capital in a Costly External Finance Model
Juan Pablo Medina
2006-03-01
Full Text Available Financial frictions have been used to enrich mechanisms transmission in macroeconomics. However, the predictions of real business cycle models of costly external finance imply a procyclical default rate, external premium and relative price of capital which seems at odds with the data. In this article, we include technology shocks that affect the average productivity and idiosyncratic risk of capital producers in a standard costly external finance model. These elements enhance the model to deliver a countercyclical default rate, external finance and relative price of capital premium which are more consistent with the data and contrary to the results obtained with a sector-neutral productivity shock. Intuitively, if the entrepreneurs’ investment projects become more productive in average, the relative price of capital and the default rate fall while investment and output increase. Using data on the relative price of capital, we perform a calibration of this type of shocks which highlights its business-cycle relevance.
A behavioral asset pricing model with a time-varying second moment
Chiarella, Carl [School of Finance and Economics, University of Technology, Sydney, P.O. Box 123, Broadway, NSW 2007 (Australia)]. E-mail: carl.chiarella@uts.edu.au; He Xuezhong [School of Finance and Economics, University of Technology, Sydney, P.O. Box 123, Broadway, NSW 2007 (Australia); Wang, Duo [LMAM, Department of Financial Mathematics, School of Mathematical Sciences, Peking University, Beijing 100871 (China)
2006-08-15
We develop a simple behavioral asset pricing model with fundamentalists and chartists in order to study price behavior in financial markets when chartists estimate both conditional mean and variance by using a weighted averaging process. Through a stability, bifurcation, and normal form analysis, the market impact of the weighting process and time-varying second moment are examined. It is found that the fundamental price becomes stable (unstable) when the activities from both types of traders are balanced (unbalanced). When the fundamental price becomes unstable, the weighting process leads to different price dynamics, depending on whether the chartists act as either trend followers or contrarians. It is also found that a time-varying second moment of the chartists does not change the stability of the fundamental price, but it does influence the stability of the bifurcations. The bifurcation becomes stable (unstable) when the chartists are more (less) concerned about the market risk characterized by the time-varying second moment. Different routes to complicated price dynamics are also observed. The analysis provides an analytical foundation for the statistical analysis of the corresponding stochastic version of this type of behavioral model.
Waterlander, Wilma E; Blakely, Tony; Nghiem, Nhung; Cleghorn, Christine L; Eyles, Helen; Genc, Murat; Wilson, Nick; Jiang, Yannan; Swinburn, Boyd; Jacobi, Liana; Michie, Jo; Ni Mhurchu, Cliona
2016-07-19
There is a need for accurate and precise food price elasticities (PE, change in consumer demand in response to change in price) to better inform policy on health-related food taxes and subsidies. The Price Experiment and Modelling (Price ExaM) study aims to: I) derive accurate and precise food PE values; II) quantify the impact of price changes on quantity and quality of discrete food group purchases and; III) model the potential health and disease impacts of a range of food taxes and subsidies. To achieve this, we will use a novel method that includes a randomised Virtual Supermarket experiment and econometric methods. Findings will be applied in simulation models to estimate population health impact (quality-adjusted life-years [QALYs]) using a multi-state life-table model. The study will consist of four sequential steps: 1. We generate 5000 price sets with random price variation for all 1412 Virtual Supermarket food and beverage products. Then we add systematic price variation for foods to simulate five taxes and subsidies: a fruit and vegetable subsidy and taxes on sugar, saturated fat, salt, and sugar-sweetened beverages. 2. Using an experimental design, 1000 adult New Zealand shoppers complete five household grocery shops in the Virtual Supermarket where they are randomly assigned to one of the 5000 price sets each time. 3. Output data (i.e., multiple observations of price configurations and purchased amounts) are used as inputs to econometric models (using Bayesian methods) to estimate accurate PE values. 4. A disease simulation model will be run with the new PE values as inputs to estimate QALYs gained and health costs saved for the five policy interventions. The Price ExaM study has the potential to enhance public health and economic disciplines by introducing internationally novel scientific methods to estimate accurate and precise food PE values. These values will be used to model the potential health and disease impacts of various food pricing policy
Directional Congestion and Regime Switching in a Long Memory Model for Electricity Prices
Haldrup, Niels; Nielsen, Morten Ø.
and regime switching reflecting congestion and non-congestion periods are empirically relevant and hence are features that need to be taken into account when modeling price behavior. In the present paper we further elaborate on the co-existence of long memory and regime switches by focusing on the effect......-congestion and congestion periods with excess demand in the one or the other region. Using data from the Nordic power exchange, Nord Pool, we find that the price dynamicsand long memory features of the price series generally are rather differentacross the different states. Also, there is evidence of fractional...
Price dynamics in a strategic model of trade between two regions
Iordanov, Iordan V; Vassilev, Andrey A
2008-01-01
This paper develops a strategic model of trade between two regions in which, depending on the relation among output, financial resources and transportation costs, the adjustment of prices towards an equilibrium is studied. We derive conditions on the relations among output and financial resources which produce different types of Nash equilibria. The paths obtained in the process of converging toward a steady state for prices under discrete-time and continuous-time dynamics are derived and compared. It turns out that the results in the two cases differ substantially. Some of the effects of random disturbances on the price dynamics in continuous time are also studied.
Rent pricing decision support mathematical model for finance leases under effective risks
Rabbani Masoud
2015-01-01
Full Text Available Nowadays, leasing has become an increasingly important and popular method for equipment acquisition. But, because of the rent pricing difficulties and some risks that affect the lessor and lessee's decision making, there are many people that still tend to buy equipment instead of lease it. In this paper we explore how risk can affect the leasing issue support mathematical model. For this purpose, we consider three types of risk; Credit risk, Transaction risk and Risk based pricing. In particular, our focus was on how to make decision about rent pricing in a leasing problem with different customers, various quality levels and different pricing methods. Finally, the mathematical model has been solved by Genetic Algorithm that is a search heuristic to optimize the problem. This algorithm was coded in MATLAB® R2012a to provide the best set of results.
Density Forecasts of Crude-Oil Prices Using Option-Implied and ARCH-Type Models
Tsiaras, Leonidas; Høg, Esben
The predictive accuracy of competing crude-oil price forecast densities is investigated for the 1994-2006 period. Moving beyond standard ARCH models that rely exclusively on past returns, we examine the benefits of utilizing the forward-looking information that is embedded in the prices...... of derivative contracts. Risk-neutral densities, obtained from panels of crude-oil option prices, are adjusted to reflect real-world risks using either a parametric or a non-parametric calibration approach. The relative performance of the models is evaluated for the entire support of the density, as well...... obtained by option prices and non-parametric calibration methods over those constructed using historical returns and simulated ARCH processes....
Corporate sustainability and asset pricing models: empirical evidence for the Brazilian stock market
Vitor Gonçalves de Azevedo
2016-01-01
Full Text Available Abstract The paper investigates the impact of corporate sustainability on asset prices. For that purpose, we develop a novel corporate sustainability factor and test the extent to which this factor is priced in an augmented four-factor version of the traditional Fama & French (1993 asset pricing model. The corporate sustainability factor is based on a zero-investment portfolio which is long in stocks with high sustainability and short in stocks with low sustainability. We use data on the Brazilian stock market to estimate alternative model specifications with different combinations of four explanatory variables: the corporate sustainability premium, the market risk factor premium, the size factor premium and the book-to-market factor premium. Our results indicate that corporate sustainability is priced and helps to explain the variability in the cross-section of expected stock returns.
Zeren Fatma
2010-01-01
Full Text Available This paper tries to examine the long run relationships between the aggregate consumer prices and some cost-based components for the Turkish economy. Based on a simple economic model of the macro-scaled price formation, multivariate cointegration techniques have been applied to test whether the real data support the a priori model construction. The results reveal that all of the factors, related to the price determination, have a positive impact on the consumer prices as expected. We find that the most significant component contributing to the price setting is the nominal exchange rate depreciation. We also cannot reject the linear homogeneity of the sum of all the price data as to the domestic inflation. The paper concludes that the Turkish consumer prices have in fact a strong cost-push component that contributes to the aggregate pricing.
Optimization models and techniques for implementation and pricing of electricity markets
Madrigal Martinez, Marcelino
Vertically integrated electric power systems extensively use optimization models and solution techniques to guide their optimal operation and planning. The advent of electric power systems re-structuring has created needs for new optimization tools and the revision of the inherited ones from the vertical integration era into the market environment. This thesis presents further developments on the use of optimization models and techniques for implementation and pricing of primary electricity markets. New models, solution approaches, and price setting alternatives are proposed. Three different modeling groups are studied. The first modeling group considers simplified continuous and discrete models for power pool auctions driven by central-cost minimization. The direct solution of the dual problems, and the use of a Branch-and-Bound algorithm to solve the primal, allows to identify the effects of disequilibrium, and different price setting alternatives over the existence of multiple solutions. It is shown that particular pricing rules worsen the conflict of interest that arise when multiple solutions exist under disequilibrium. A price-setting alternative based on dual variables is shown to diminish such conflict. The second modeling group considers the unit commitment problem. An interior-point/cutting-plane method is proposed for the solution of the dual problem. The new method has better convergence characteristics and does not suffer from the parameter tuning drawback as previous methods The robustness characteristics of the interior-point/cutting-plane method, combined with a non-uniform price setting alternative, show that the conflict of interest is diminished when multiple near optimal solutions exist. The non-uniform price setting alternative is compared to a classic average pricing rule. The last modeling group concerns to a new type of linear network-constrained clearing system models for daily markets for power and spinning reserve. A new model and
STOCHASTIC PRICING MODEL FOR THE REAL ESTATE MARKET: FORMATION OF LOG-NORMAL GENERAL POPULATION
Oleg V. Rusakov
2015-01-01
Full Text Available We construct a stochastic model of real estate pricing. The method of the pricing construction is based on a sequential comparison of the supply prices. We proof that under standard assumptions imposed upon the comparison coefficients there exists an unique non-degenerated limit in distribution and this limit has the lognormal law of distribution. The accordance of empirical distributions of prices to thetheoretically obtained log-normal distribution we verify by numerous statistical data of real estate prices from Saint-Petersburg (Russia. For establishing this accordance we essentially apply the efficient and sensitive test of fit of Kolmogorov-Smirnov. Basing on “The Russian Federal Estimation Standard N2”, we conclude that the most probable price, i.e. mode of distribution, is correctly and uniquely defined under the log-normal approximation. Since the mean value of log-normal distribution exceeds the mode - most probable value, it follows that the prices valued by the mathematical expectation are systematically overstated.
Stadtmann, Georg; Moritzen; Jörgensen
2012-01-01
According to the news model of asset price determination, only the unexpected component of an information should drive the stock price. We use the Danish publicly listed football club Brøndby IF to analyse how match outcome impacts the stock price. To disentangle gross news from net news, betting...... odd information is used to control for the expected match outcome....
Stadtmann, Georg; Moritzen; Jörgensen
2012-01-01
According to the news model of asset price determination, only the unexpected component of an information should drive the stock price. We use the Danish publicly listed football club Brøndby IF to analyse how match outcome impacts the stock price. To disentangle gross news from net news, betting...... odd information is used to control for the expected match outcome....
On the asymptotic behavior of a boltzmann-type price formation model
Burger, Martin
2014-01-01
In this paper we study the asymptotic behavior of a Boltzmann-type price formation model, which describes the trading dynamics in a financial market. In many of these markets trading happens at high frequencies and low transaction costs. This observation motivates the study of the limit as the number of transactions k tends to infinity, the transaction cost a to zero and ka=const. Furthermore we illustrate the price dynamics with numerical simulations © 2014 International Press.
Electricity Price Forecasting using Sale and Purchase Curves: The X-Model
Florian Ziel; Rick Steinert
2015-01-01
Our paper aims to model and forecast the electricity price by taking a completely new perspective on the data. It will be the first approach which is able to combine the insights of market structure models with extensive and modern econometric analysis. Instead of directly modeling the electricity price as it is usually done in time series or data mining approaches, we model and utilize its true source: the sale and purchase curves of the electricity exchange. We will refer to this new model ...
SVR-Boosting ensemble model for electricity price forecasting in electric power market
ZHOU Dian-min; GAO Lin; GUAN Xiao-hong; GAO Feng
2008-01-01
A revised support vector regression (SVR) ensemble model based on boosting algorithm (SVR-Boos-ting) is presented in this paper for electricity price forecasting in electric power market. In the light of charac-the forecasting model to inhibit the learning from abnormal data in electricity price sequence. The results from actual data indicate that, compared with the single support vector regression model, the proposed SVR-Boosting ensemble model is able to enhance the stability of the model output remarkably, acquire higher predicting accu-racy, and possess comparatively satisfactory generalization capability.
ON A PARABOLIC FREE BOUNDARY EQUATION MODELING PRICE FORMATION
MARKOWICH, P. A.
2009-10-01
We discuss existence and uniqueness of solutions for a one-dimensional parabolic evolution equation with a free boundary. This problem was introduced by Lasry and Lions as description of the dynamical formation of the price of a trading good. Short time existence and uniqueness is established by a contraction argument. Then we discuss the issue of global-in-time-extension of the local solution which is closely related to the regularity of the free boundary. We also present numerical results. © 2009 World Scientific Publishing Company.
Yongxiu He
2014-04-01
Full Text Available In Beijing, China, the rational consumption of energy is affected by the insufficient linkage mechanism of the energy pricing system, the unreasonable price ratio and other issues. This paper combines the characteristics of Beijing’s energy market, putting forward the society-economy equilibrium indicator R maximization taking into consideration the mitigation cost to determine a reasonable price ratio range. Based on the computable general equilibrium (CGE model, and dividing four kinds of energy sources into three groups, the impact of price fluctuations of electricity and natural gas on the Gross Domestic Product (GDP, Consumer Price Index (CPI, energy consumption and CO2 and SO2 emissions can be simulated for various scenarios. On this basis, the integrated effects of electricity and natural gas price shocks on the Beijing economy and environment can be calculated. The results show that relative to the coal prices, the electricity and natural gas prices in Beijing are currently below reasonable levels; the solution to these unreasonable energy price ratios should begin by improving the energy pricing mechanism, through means such as the establishment of a sound dynamic adjustment mechanism between regulated prices and market prices. This provides a new idea for exploring the rationality of energy price ratios in imperfect competitive energy markets.
ARCH Models Efficiency Evaluation in Prediction and Poultry Price Process Formation
Behzad Fakari Sardehae
2016-09-01
Full Text Available Introduction: Poultry is an important commodity for household consumption. In recent years, price fluctuation for this commodity has caused an uncertain condition for consumers and poultry prices over the past two years has changed a lot. This has caused many changes and uncertainty in a purchase decision. Analysis of changes and volatility modeling can be a great help to predict the poultry prices and great facilities in creating appropriate policies in future. The prices of staples such as poultry consumption basket is highly variable because much of the protein is necessary for daily energy are supplied in this way to households. So when the price of chicken which has been changed over the past two years and has always been in the press and media attention, has been selected in this study. Fluctuations in price of chicken have caused a surge in consumer expectations and contributed in volatility of chicken price. Materials and Methods: In this study ARCH models have been used for daily price of poultry of Iran’s market and this was investigated for2012-13and2013-14.BecauseARCH models can model the impact of heterogeneous variance over time in time series data then the variance of time series, which is limited in time, has no time limit. Many time series are more complex than a linear patterns, thus, non-linear models are of particular importance in Economic Sciences and Econometrics. Accordingly, Engle presented that ARCH model can model the heterogeneous variance components of the error term. That is a disturbing element and modeling can help to examine and explore the relationship between the components can be found disturbing. Basically, these models fit the data to a cluster and periodic oscillations with high volatility and low volatility associated with the period. In this study, we used several different models like ARCH, GARCH, IGARCH, and TGARCH. The distribution of the error term of the model also followt-student distribution
Hui-Ling Yang
2012-01-01
Full Text Available In today’s competitive markets, selling price and purchasing cost are usually fluctuating with economic conditions. Both selling price and purchasing cost are vital to the profitability of a firm. Therefore, in this paper, I extend the inventory model introduced by Teng and Yang (2004 to allow for not only the selling price but also the purchasing cost to change from one replenishment cycle to another during a finite time horizon. The objective is to find the optimal replenishment schedule and pricing policy to obtain the profit as maximum as possible. The conditions that lead to a maximizing solution guarantee that the existence, uniqueness, and global optimality are proposed. An efficient solution procedure and some theoretical results are presented. Finally, numerical examples for illustration and sensitivity analysis for managerial decision making are also performed.
Directional Congestion and Regime Switching in a Long Memory Model for Electricity Prices
Haldrup, Niels; Nielsen, Morten Ø.
and regime switching reflecting congestion and non-congestion periods are empirically relevant and hence are features that need to be taken into account when modeling price behavior. In the present paper we further elaborate on the co-existence of long memory and regime switches by focusing on the effect......The functioning of electricity markets has experienced increasing complexityas a result of deregulation in recent years. Consequently this affects the multilateral price behaviour across regions with physical exchange of power. It has been documented elsewhere that features such aslong memory......-congestion and congestion periods with excess demand in the one or the other region. Using data from the Nordic power exchange, Nord Pool, we find that the price dynamicsand long memory features of the price series generally are rather differentacross the different states. Also, there is evidence of fractional...
A Heterogeneous Agent Model of Asspet Price with Three Time Delays
Akio Matsumoto
2016-09-01
Full Text Available This paper considers a continuous-time heterogeneous agent model ofa ...nancial market with one risky asset, two types of agents (i.e., thefundamentalists and the chartists, and three time delays. The chartistdemand is determined through a nonlinear function of the di¤erence be-tween the current price and a weighted moving average of the delayedprices whereas the fundamentalist demand is governed by the di¤erencebetween the current price and the fundamental value. The asset price dy-namics is described by a nonlinear delay di¤erential equation. Two mainresults are analytically and numerically shown:(i the delay destabilizes the market price and generates cyclic oscillationsaround the equilibrium;(ii under multiple delays, stability loss and gain repeatedly occurs as alength of the delay increases.
A Data-Driven Bidding Model for a Cluster of Price-Responsive Consumers of Electricity
Saez Gallego, Javier; Morales González, Juan Miguel; Zugno, Marco
2016-01-01
This paper deals with the market-bidding problem of a cluster of price-responsive consumers of electricity. We develop an inverse optimization scheme that, recast as a bilevel programming problem, uses price-consumption data to estimate the complex market bid that best captures the price.......g., weather conditions and calendar effects. We test the proposed methodology for a particular application: forecasting the power consumption of a small aggregation of households that took part in the Olympic Peninsula project. Results show that the price-sensitive consumption of the cluster of flexible loads......-response of the cluster. The complex market bid is defined as a series of marginal utility functions plus some constraints on demand, such as maximum pick-up and drop-off rates. The proposed modeling approach also leverages information on exogenous factors that may influence the consumption behavior of the cluster, e...
Rombouts, Jeroen V.K.; Stentoft, Lars; Violante, Francesco
in their specification of the conditional variance, conditional correlation, and innovation distribution. All models belong to the dynamic conditional correlation class which is particularly suited because it allows to consistently estimate the risk neutral dynamics with a manageable computational effort in relatively...... innovation for a Laplace innovation assumption improves the pricing in a smaller way. Apart from investigating directly the value of model sophistication in terms of dollar losses, we also use the model condence set approach to statistically infer the set of models that delivers the best pricing performance....
a Merton-Like Approach to Pricing Debt Based on a Non-Gaussian Asset Model
Borland, Lisa; Evnine, Jeremy; Pochart, Benoit
2005-09-01
We propose a generalization to Merton's model for evaluating credit spreads. In his original work, a company's assets were assumed to follow a log-normal process. We introduce fat tails and skew into this model, along the same lines as in the option pricing model of Borland and Bouchaud (2004, Quantitative Finance 4) and illustrate the effects of each component. Preliminary empirical results indicate that this model fits well to empirically observed credit spreads with a parameterization that also matched observed stock return distributions and option prices.
Equilibrium Asset and Option Pricing under Jump-Diffusion Model with Stochastic Volatility
Xinfeng Ruan
2013-01-01
Full Text Available We study the equity premium and option pricing under jump-diffusion model with stochastic volatility based on the model in Zhang et al. 2012. We obtain the pricing kernel which acts like the physical and risk-neutral densities and the moments in the economy. Moreover, the exact expression of option valuation is derived by the Fourier transformation method. We also discuss the relationship of central moments between the physical measure and the risk-neutral measure. Our numerical results show that our model is more realistic than the previous model.
An empirical comparison of alternate regime-switching models for electricity spot prices
Janczura, Joanna [Hugo Steinhaus Center, Institute of Mathematics and Computer Science, Wroclaw University of Technology, 50-370 Wroclaw (Poland); Weron, Rafal [Institute of Organization and Management, Wroclaw University of Technology, 50-370 Wroclaw (Poland)
2010-09-15
One of the most profound features of electricity spot prices are the price spikes. Markov regime-switching (MRS) models seem to be a natural candidate for modeling this spiky behavior. However, in the studies published so far, the goodness-of-fit of the proposed models has not been a major focus. While most of the models were elegant, their fit to empirical data has either been not examined thoroughly or the signs of a bad fit ignored. With this paper we want to fill the gap. We calibrate and test a range of MRS models in an attempt to find parsimonious specifications that not only address the main characteristics of electricity prices but are statistically sound as well. We find that the best structure is that of an independent spike 3-regime model with time-varying transition probabilities, heteroscedastic diffusion-type base regime dynamics and shifted spike regime distributions. Not only does it allow for a seasonal spike intensity throughout the year and consecutive spikes or price drops, which is consistent with market observations, but also exhibits the 'inverse leverage effect' reported in the literature for spot electricity prices. (author)
Dranitsaris, George; Truter, Ilse; Lubbe, Martie S; Sriramanakoppa, Nitin N; Mendonca, Vivian M; Mahagaonkar, Sangameshwar B
2011-10-01
Decision analysis (DA) is commonly used to perform economic evaluations of new pharmaceuticals. Using multiples of Malaysia's per capita 2010 gross domestic product (GDP) as the threshold for economic value as suggested by the World Health Organization (WHO), DA was used to estimate a price per dose for bevacizumab, a drug that provides a 1.4-month survival benefit in patients with metastatic colorectal cancer (mCRC). A decision model was developed to simulate progression-free and overall survival in mCRC patients receiving chemotherapy with and without bevacizumab. Costs for chemotherapy and management of side effects were obtained from public and private hospitals in Malaysia. Utility estimates, measured as quality-adjusted life years (QALYs), were determined by interviewing 24 oncology nurses using the time trade-off technique. The price per dose was then estimated using a target threshold of US$44 400 per QALY gained, which is 3 times the Malaysian per capita GDP. A cost-effective price for bevacizumab could not be determined because the survival benefit provided was insufficient According to the WHO criteria, if the drug was able to improve survival from 1.4 to 3 or 6 months, the price per dose would be $567 and $1258, respectively. The use of decision modelling for estimating drug pricing is a powerful technique to ensure value for money. Such information is of value to drug manufacturers and formulary committees because it facilitates negotiations for value-based pricing in a given jurisdiction.
Spatial heterogeneity in hedonic house price models : The case of Austria
Helbich, M.; Brunauer, W.; Vaz, E.; Nijkamp, P.
2014-01-01
Modelling spatial heterogeneity (SH) is a controversial subject in real estate economics. Single-family-home prices in Austria are explored to investigate the capability of global and locally weighted hedonic models. Even if regional indicators are not fully capable to model SH and technical amendme
H. Sherafatmand
2016-10-01
transmission in dates market bivariate GARCH model was used. Developments of ARCH and GARCH models take into account the nature of the phenomenon Volatility in financial and prices error component regression equations. ARCH model was first introduced by Engle and augmented GARCH model was first introduced by Bollerslev. Due to Conditional variance Heteroscedasticity, ARCH and GARCH models are widely used but little attention has been to this interaction. For this purpose, bivariate GARCH models developed. This study determined the mechanism of price transmission in date's market, over the period 1361: 1-1391: 4 with Diagonal VECH Bivariate GARCH model. Results and Discussion: With the implementation of augmented Dickey-Fuller test, it was found that the time series producer price index and the consumer price index over the period 1361:1-1391:4 are stationary in first difference. In this study, also Hegy test used for stationary of variables. In this test the unit root hypothesis tested with different periods (for the monthly data used in this study up to 12 repetitions will examined. Next, Johansen co-integration test results showed that there was a long-term relationship between the producer price index and the consumer price index. Granger causality test results indicated that there was a one-way causal relationship from consumer price index to producer price index. The results of this study indicated that the producer price index volatility with one lag has a positive and significant impact on its current volatility. As the results indicated, the covariance coefficient is statistically significant, indicating the volatility spillover between the two levels of the market. The spillover of volatility indicated uncertainty in the retail market and in producers market. The results also indicated that a one unit increase in the consumer price index cause an increase in producer price index less than unity (0.003. Conclusions: the price transmission in Dates market is incomplete
Modeling stock price dynamics by continuum percolation system and relevant complex systems analysis
Xiao, Di; Wang, Jun
2012-10-01
The continuum percolation system is developed to model a random stock price process in this work. Recent empirical research has demonstrated various statistical features of stock price changes, the financial model aiming at understanding price fluctuations needs to define a mechanism for the formation of the price, in an attempt to reproduce and explain this set of empirical facts. The continuum percolation model is usually referred to as a random coverage process or a Boolean model, the local interaction or influence among traders is constructed by the continuum percolation, and a cluster of continuum percolation is applied to define the cluster of traders sharing the same opinion about the market. We investigate and analyze the statistical behaviors of normalized returns of the price model by some analysis methods, including power-law tail distribution analysis, chaotic behavior analysis and Zipf analysis. Moreover, we consider the daily returns of Shanghai Stock Exchange Composite Index from January 1997 to July 2011, and the comparisons of return behaviors between the actual data and the simulation data are exhibited.
Real-Time Pricing DR Programs Evaluation Based on Power Model in Electricity Markets
Shoorangiz Shams Shamsabad Farahani
2012-04-01
Full Text Available Along with developing Demand Response Programs (DRPs, suitable chances have been created to take part the demand-side in electricity markets. The results of such programs are improvement of some technical and economical characteristic of power system. DRPs are divided into two categories which are priced-based and incentive-based demand response programs. This paper presents the application of power modeling for Real-Time Pricing programs (RTP as most prevalent priced-based DRPs. the nonlinear behavioral characteristic of elastic loads is considered which causes to more realistic modeling of demand response to RTP rates. In order to evaluation of proposed model, the impact of running RTP programs using proposed power model on load profile of the peak day of the Iranian power system in 2007 is investigated.
A Generic Decomposition Formula for Pricing Vanilla Options under Stochastic Volatility Models
Raúl Merino
2015-01-01
Full Text Available We obtain a decomposition of the call option price for a very general stochastic volatility diffusion model, extending a previous decomposition formula for the Heston model. We realize that a new term arises when the stock price does not follow an exponential model. The techniques used for this purpose are nonanticipative. In particular, we also see that equivalent results can be obtained by using Functional Itô Calculus. Using the same generalizing ideas, we also extend to nonexponential models the alternative call option price decomposition formula written in terms of the Malliavin derivative of the volatility process. Finally, we give a general expression for the derivative of the implied volatility under both the anticipative and the nonanticipative cases.
Fractional Black-Scholes Model and Technical Analysis of Stock Price
Song Xu
2013-01-01
Full Text Available In the stock market, some popular technical analysis indicators (e.g., Bollinger bands, RSI, ROC, etc. are widely used to forecast the direction of prices. The validity is shown by observed relative frequency of certain statistics, using the daily (hourly, weekly, etc. stock prices as samples. However, those samples are not independent. In earlier research, the stationary property and the law of large numbers related to those observations under Black-Scholes stock price model and stochastic volatility model have been discussed. Since the fitness of both Black-Scholes model and short-range dependent process has been questioned, we extend the above results to fractional Black-Scholes model with Hurst parameter H>1/2, under which the stock returns follow a kind of long-range dependent process. We also obtain the rate of convergence.
A Phillips curve interpretation of error-correction models of the wage and price dynamics
Harck, Søren H.
This paper presents a model of employment, distribution and inflation in which a modern error correction specification of the nominal wage and price dynamics (referring to claims on income by workers and firms) occupies a prominent role. It is brought out, explicitly, how this rather typical error......-correction setting, which actually seems to capture the wage and price dynamics of many large- scale econometric models quite well, is fully compatible with the notion of an old-fashioned Phillips curve with finite slope. It is shown how the steady-state impact of various shocks to the model can be profitably...
A Phillips curve interpretation of error-correction models of the wage and price dynamics
Harck, Søren H.
2009-01-01
This paper presents a model of employment, distribution and inflation in which a modern error correction specification of the nominal wage and price dynamics (referring to claims on income by workers and firms) occupies a prominent role. It is brought out, explicitly, how this rather typical error......-correction setting, which actually seems to capture the wage and price dynamics of many large- scale econometric models quite well, is fully compatible with the notion of an old-fashioned Phillips curve with finite slope. It is shown how the steady-state impact of various shocks to the model can be profitably...
Municipal household solid waste fee based on an increasing block pricing model in Beijing, China.
Chu, Zhujie; Wu, Yunga; Zhuang, Jun
2017-03-01
This article aims to design an increasing block pricing model to estimate the waste fee with the consideration of the goals and principles of municipal household solid waste pricing. The increasing block pricing model is based on the main consideration of the per capita disposable income of urban residents, household consumption expenditure, production rate of waste disposal industry, and inflation rate. The empirical analysis is based on survey data of 5000 households in Beijing, China. The results indicate that the current uniform price of waste disposal is set too high for low-income people, and waste fees to the household disposable income or total household spending ratio are too low for the medium- and high-income families. An increasing block pricing model can prevent this kind of situation, and not only solve the problem of lack of funds, but also enhance the residents' awareness of environmental protection. A comparative study based on the grey system model is made by having a preliminary forecast for the waste emissions reduction effect of the pay-as-you-throw programme in the next 5 years of Beijing, China. The results show that the effect of the pay-as-you-throw programme is not only to promote the energy conservation and emissions reduction, but also giving a further improvement of the environmental quality.
An agent-based approach to modelling the effects of extreme events on global food prices
Schewe, Jacob; Otto, Christian; Frieler, Katja
2015-04-01
Extreme climate events such as droughts or heat waves affect agricultural production in major food producing regions and therefore can influence the price of staple foods on the world market. There is evidence that recent dramatic spikes in grain prices were at least partly triggered by actual and/or expected supply shortages. The reaction of the market to supply changes is however highly nonlinear and depends on complex and interlinked processes such as warehousing, speculation, and export restrictions. Here we present for the first time an agent-based modelling framework that accounts, in simplified terms, for these processes and allows to estimate the reaction of world food prices to supply shocks on a short (monthly) timescale. We test the basic model using observed historical supply, demand, and price data of wheat as a major food grain. Further, we illustrate how the model can be used in conjunction with biophysical crop models to assess the effect of future changes in extreme event regimes on the volatility of food prices. In particular, the explicit representation of storage dynamics makes it possible to investigate the potentially nonlinear interaction between simultaneous extreme events in different food producing regions, or between several consecutive events in the same region, which may both occur more frequently under future global warming.
Supply chain single vendor – Single buyer inventory model with price-dependent demand
Mona Ahmadi Rad
2014-09-01
Full Text Available Purpose: The aim of this article is developing an integrated production-inventory-marketing model for a two-stage supply chain. The demand rate is considered as the Iso-elastic decreasing function of the selling price. The main research goal of the article is to obtain the optimal values of the selling price, order quantity and number of shipments for the proposed model under independent and also joint optimization. In addition, the effects of the model’s parameters on the optimal solution are investigated. Design/methodology/approach: Mathematical modeling is used to obtain the joint total profit function of the supply chain. Then, the iterative solution algorithm is presented to solve the model and determine the optimal solution. Findings and Originality/value: It is observed that under joint optimization, the demand rate and the supply chain’s profit are higher than their values under independent optimization, especially for the more price sensitive demand. Therefore, coordination between the buyer and the vendor is advantageous for the supply chain. On the other hand, joint optimization will be less beneficial when there isn’t a significant difference between the buyer’s and the vendor’s holding costs. Originality/value: The contribution of the article is determining the ordering and pricing policy jointly in the supply chain, which contains one vendor and one buyer while the demand rate is the Iso-elastic function of the selling price.
Crop Monitoring as a Tool for Modelling the Genesis of Millet Prices in Senegal
Jacques, D.; Marinho, E.; Defourny, P.; Waldner, F.; d'Andrimont, R.
2015-12-01
Food security in Sahelian countries strongly relies on the ability of markets to transfer staplesfrom surplus to deficit areas. Market failures, leading to the inefficient geographical allocation of food,are expected to emerge from high transportation costs and information asymmetries that are commonin moderately developed countries. As a result, important price differentials are observed betweenproducing and consuming areas which damages both poor producers and food insecure consumers. Itis then vital for policy makers to understand how the prices of agricultural commodities are formed byaccounting for the existing market imperfections in addition to local demand and supply considerations. To address this issue, we have gathered an unique and diversified set of data for Senegal andintegrated it in a spatially explicit model that simulates the functioning of agricultural markets, that isfully consistent with the economic theory. Our departure point is a local demand and supply modelaround each market having its catchment areas determined by the road network. We estimate the localsupply of agricultural commodities from satellite imagery while the demand is assumed to be a functionof the population living in the area. From this point on, profitable transactions between areas with lowprices to areas with high prices are simulated for different levels of per kilometer transportation costand information flows (derived from call details records i.e. mobile phone data). The simulated prices are then comparedwith the actual millet prices. Despite the parsimony of the model that estimates only two parameters, i.e. the per kilometertransportation cost and the information asymmetry resulting from low levels of mobile phone activitybetween markets, it impressively explains more than 80% of the price differentials observed in the 40markets included in the analysis. In one hand these results can be used in the assessment of the socialwelfare impacts of the further development of
An Inventory Model with Finite Replenishment Rate, Trade Credit Policy and Price-Discount Offer
Biswajit Sarkar
2013-01-01
Full Text Available When some suppliers offer trade credit periods and price discounts to retailers in order to increase the demand of their products, retailers have to face different types of discount offers and credits within which they have to take a decision which is the best offer for them to make more profit. The retailers try to buy perfect-quality items at a reasonable price, and also they try to invest returns obtained by selling those items in such a manner that their business is not hampered. In this point of view, we consider an economic order quantity (EOQ model for various types of time-dependent demand when delay in payment and price discount are permitted by suppliers to retailers. The models of various demand patterns are discussed analytically. Some numerical examples and graphical representations are considered to illustrate the model.
Integrated model for pricing, delivery time setting, and scheduling in make-to-order environments
Garmdare, Hamid Sattari; Lotfi, M. M.; Honarvar, Mahboobeh
2017-05-01
Usually, in make-to-order environments which work only in response to the customer's orders, manufacturers for maximizing the profits should offer the best price and delivery time for an order considering the existing capacity and the customer's sensitivity to both the factors. In this paper, an integrated approach for pricing, delivery time setting and scheduling of new arrival orders are proposed based on the existing capacity and accepted orders in system. In the problem, the acquired market demands dependent on the price and delivery time of both the manufacturer and its competitors. A mixed-integer non-linear programming model is presented for the problem. After converting to a pure non-linear model, it is validated through a case study. The efficiency of proposed model is confirmed by comparing it to both the literature and the current practice. Finally, sensitivity analysis for the key parameters is carried out.
Lagi, Marco; Bertrand, Karla Z; Bar-Yam, Yaneer
2012-01-01
Increases in global food prices have led to widespread hunger and social unrest---and an imperative to understand their causes. In a previous paper published in September 2011, we constructed for the first time a dynamic model that quantitatively agreed with food prices. Specifically, the model fit the FAO Food Price Index time series from January 2004 to March 2011, inclusive. The results showed that the dominant causes of price increases during this period were investor speculation and ethanol conversion. The model included investor trend following as well as shifting between commodities, equities and bonds to take advantage of increased expected returns. Here, we extend the food prices model to January 2012, without modifying the model but simply continuing its dynamics. The agreement is still precise, validating both the descriptive and predictive abilities of the analysis. Policy actions are needed to avoid a third speculative bubble that would cause prices to rise above recent peaks by the end of 2012.
A reduced modelling approach to the pricing of mortgage backed securities
Rana D. Parshad
2010-09-01
Full Text Available We consider a pricing model for mortgage backed securities formulated as a non-linear partial differential equation. We show that under certain feasible assumptions this model can be greatly simplified. We prove the well posedness of the simplified PDE.
American Option Pricing using GARCH models and the Normal Inverse Gaussian distribution
Stentoft, Lars Peter
In this paper we propose a feasible way to price American options in a model with time varying volatility and conditional skewness and leptokurtosis using GARCH processes and the Normal Inverse Gaussian distribution. We show how the risk neutral dynamics can be obtained in this model, we interpre....... In particular, improvements are found when considering the smile in implied standard deviations....
Pistorius, M.; Stolte, J.
2012-01-01
We present a new numerical method to price vanilla options quickly in time-changed Brownian motion models. The method is based on rational function approximations of the Black-Scholes formula. Detailed numerical results are given for a number of widely used models. In particular, we use the variance
Higher-order effects in asset-pricing models with long-run risks
Pohl, W.; Schmedders, K.; Wilms, Ole
2017-01-01
This paper shows that the latest generation of asset pricing models with long-run risk exhibits economically significant nonlinearities, and thus the ubiquitous Campbell--Shiller log-linearization can generate large numerical errors. These errors in turn translate to considerable errors in the model
The application of pharmacoeconomic modelling to estimate a value-based price for new cancer drugs.
Dranitsaris, George; Truter, Ilse; Lubbe, Martie S; Cottrell, Wayne; Spirovski, Biljana; Edwards, Jonathan
2012-04-01
Value-based pricing has recently been discussed by international bodies as a means to estimate a drug price that is linked to the benefits it offers patients and society. The World Health Organization (WHO) has recommended using three times a country's per capita gross domestic product (GDP) as the threshold for economic value. Using the WHO criteria, pharmacoeconomic modelling was used to illustrate the application of value-based price towards bevacizumab, a relatively new drug that provides a 1.4-month survival benefit to patients with metastatic colorectal cancer (mCRC). A decision model was developed to simulate outcomes in mCRC patients receiving chemotherapy ± bevacizumab. Clinical data were obtained from randomized trials and costs from Canadian cancer centres. Utility estimates were determined by interviewing 24 oncology nurses and pharmacists. A price per dose of bevacizumab was then estimated using a target threshold of $CAD117,000 per quality adjusted life year gained, which is three times the Canadian per capita GDP. For a 1.4-month survival benefit, a price of $CAD830 per dose would be considered cost-effective from the Canadian public health care perspective. If the drug were able to improve patient quality of life or survival from 1.4 to 3 months, the drug price could increase to $CAD1560 and $CAD2180 and still be considered cost-effective. The use of the WHO criteria for estimating a value-based price is feasible, but a balance between what patients/governments can afford to pay and the commercial viability of the product in the reference country would be required. © 2010 Blackwell Publishing Ltd.
Recovery of time-dependent volatility in option pricing model
Deng, Zui-Cha; Hon, Y. C.; Isakov, V.
2016-11-01
In this paper we investigate an inverse problem of determining the time-dependent volatility from observed market prices of options with different strikes. Due to the non linearity and sparsity of observations, an analytical solution to the problem is generally not available. Numerical approximation is also difficult to obtain using most of the existing numerical algorithms. Based on our recent theoretical results, we apply the linearisation technique to convert the problem into an inverse source problem from which recovery of the unknown volatility function can be achieved. Two kinds of strategies, namely, the integral equation method and the Landweber iterations, are adopted to obtain the stable numerical solution to the inverse problem. Both theoretical analysis and numerical examples confirm that the proposed approaches are effective. The work described in this paper was partially supported by a grant from the Research Grant Council of the Hong Kong Special Administrative Region (Project No. CityU 101112) and grants from the NNSF of China (Nos. 11261029, 11461039), and NSF grants DMS 10-08902 and 15-14886 and by Emylou Keith and Betty Dutcher Distinguished Professorship at the Wichita State University (USA).
Kevin D. Brewer
2012-11-01
Full Text Available This paper presents some Excel-based simulation exercises that are suitable for use in financial modeling courses. Such exercises are based on a stochastic process of stock price movements, called geometric Brownian motion, that underlies the derivation of the Black-Scholes option pricing model. Guidance is provided in assigning appropriate values of the drift parameter in the stochastic process for such exercises. Some further simulation exercises are also suggested. As the analytical underpinning of the materials involved is provided, this paper is expected to be of interest also to instructors and students of investment courses.
STOCHASTIC DYNAMICS OF PRICES IN A MODEL OF FINANCIAL MARKET WITH DIFFERENT TYPES OF NOISE TRADERS
Lebedeva T. S.
2015-12-01
Full Text Available In the present study, the calculations of price dynamics are made in the model of a financial market consisting of fundamentalist and noise traders. Numerical calculations are carried out in accordance with the full Walrasian dynamic price adjustment rule. To describe fluctuations in the number of optimistic and pessimistic noise traders, a seminal stochastic Kirman’s ant model (reducible to a Markov chain is used, as well as its modification with different scaling properties of the parameter controlling the strength of herding behavior of noise agents
Forecasting Long-Term Crude Oil Prices Using a Bayesian Model with Informative Priors
Chul-Yong Lee
2017-01-01
Full Text Available In the long-term, crude oil prices may impact the economic stability and sustainability of many countries, especially those depending on oil imports. This study thus suggests an alternative model for accurately forecasting oil prices while reflecting structural changes in the oil market by using a Bayesian approach. The prior information is derived from the recent and expected structure of the oil market, using a subjective approach, and then updated with available market data. The model includes as independent variables factors affecting oil prices, such as world oil demand and supply, the financial situation, upstream costs, and geopolitical events. To test the model’s forecasting performance, it is compared with other models, including a linear ordinary least squares model and a neural network model. The proposed model outperforms on the forecasting performance test even though the neural network model shows the best results on a goodness-of-fit test. The results show that the crude oil price is estimated to increase to $169.3/Bbl by 2040.
Michael Alles; Srikant Datar
1998-01-01
Most research into cost systems has focused on their motivational implications. This paper takes a different approach, by developing a model where two oligopolistic firms strategically select their cost-based transfer prices. Duopoly models frequently assume that firms game on their choice of prices. Product prices, however, are ultimately based on the firms' transfer prices that communicate manufacturing costs to marketing departments. It is for this reason that transfer prices will have a s...
Density Forecasts of Crude-Oil Prices Using Option-Implied and ARCH-Type Models
Tsiaras, Leonidas; Høg, Esben
of derivative contracts. Risk-neutral densities, obtained from panels of crude-oil option prices, are adjusted to reflect real-world risks using either a parametric or a non-parametric calibration approach. The relative performance of the models is evaluated for the entire support of the density, as well...... The predictive accuracy of competing crude-oil price forecast densities is investigated for the 1994-2006 period. Moving beyond standard ARCH models that rely exclusively on past returns, we examine the benefits of utilizing the forward-looking information that is embedded in the prices...... as for regions and intervals that are of special interest for the economic agent. We find that non-parametric adjustments of risk-neutral density forecasts perform significantly better than their parametric counterparts. Goodness-of-fit tests and out-of-sample likelihood comparisons favor forecast densities...
Density Forecasts of Crude-Oil Prices Using Option-Implied and ARCH-Type Models
Høg, Esben; Tsiaras, Leonidas
2011-01-01
of derivative contracts. Risk-neutral densities, obtained from panels of crude-oil option prices, are adjusted to reflect real-world risks using either a parametric or a non-parametric calibration approach. The relative performance of the models is evaluated for the entire support of the density, as well......The predictive accuracy of competing crude-oil price forecast densities is investigated for the 1994–2006 period. Moving beyond standard ARCH type models that rely exclusively on past returns, we examine the benefits of utilizing the forward-looking information that is embedded in the prices...... as for regions and intervals that are of special interest for the economic agent. We find that non-parametric adjustments of risk-neutral density forecasts perform significantly better than their parametric counterparts. Goodness-of-fit tests and out-of-sample likelihood comparisons favor forecast densities...
Two-echelon competitive integrated supply chain model with price and credit period dependent demand
Pal, Brojeswar; Sankar Sana, Shib; Chaudhuri, Kripasindhu
2016-04-01
This study considers a two-echelon competitive supply chain consisting of two rivaling retailers and one common supplier with trade credit policy. The retailers hope that they can enhance their market demand by offering a credit period to the customers and the supplier also offers a credit period to the retailers. We assume that the market demand of the products of one retailer depends not only on their own market price and offering a credit period to the customers, but also on the market price and offering a credit period of the other retailer. The supplier supplies the product with a common wholesale price and offers the same credit period to the retailers. We study the model under a centralised (integrated) case and a decentralised (Vertical Nash) case and compare them numerically. Finally, we investigate the model by the collected numerical data.
Bilevel Model for Pricing and Production Planning Decision with Fuzzy Parameters
HuijunSun; ZiyouGao
2004-01-01
With the deepen of market competition, product pricing and production decision problem in many firms have become more and more important. A bilevel model is proposed to describe the pricing and production decisions with fuzzy demand and fuzzy cost parameters. The upper level is to determine the optimal price and production quantity with capacity constraints. Using this information, the lower level problem tries to structure a response (the distribution pattern of customers (or markets)) that will satisfy his demand at minimum cost. And after transforming the fuzzy numbers into the crisp value by Graded Mean Integration Representation method, the solution algorithm based on difference method is given. Finally, the application of the model and its algorithm are illustrated with a simple example.
Jäkel, Ina Charlotte; Sørensen, Allan
-cut prediction on the sign of the exporter price premium. However, the model unambiguously predicts a negative exporter price premium in terms of quality-adjusted prices, i.e. prices per unit of quality. This prediction is broadly borne out in the Danish data: while the magnitude of the premium varies across...
Are stock prices too volatile to be justified by the dividend discount model?
Akdeniz, Levent; Salih, Aslıhan Altay; Ok, Süleyman Tuluğ
2007-03-01
This study investigates excess stock price volatility using the variance bound framework of LeRoy and Porter [The present-value relation: tests based on implied variance bounds, Econometrica 49 (1981) 555-574] and of Shiller [Do stock prices move too much to be justified by subsequent changes in dividends? Am. Econ. Rev. 71 (1981) 421-436.]. The conditional variance bound relationship is examined using cross-sectional data simulated from the general equilibrium asset pricing model of Brock [Asset prices in a production economy, in: J.J. McCall (Ed.), The Economics of Information and Uncertainty, University of Chicago Press, Chicago (for N.B.E.R.), 1982]. Results show that the conditional variance bounds hold, hence, our hypothesis of the validity of the dividend discount model cannot be rejected. Moreover, in our setting, markets are efficient and stock prices are neither affected by herd psychology nor by the outcome of noise trading by naive investors; thus, we are able to control for market efficiency. Consequently, we show that one cannot infer any conclusions about market efficiency from the unconditional variance bounds tests.
Wang, Xiao-Tian; Yan, Hai-Gang; Tang, Ming-Ming; Zhu, En-Hui
2010-02-01
A model for option pricing of fractional version of the Merton model with ‘Hurst exponent’ H being in [1/2,1) is established with transaction costs. In particular, for H∈(1/2,1) the minimal price Cmin(t,St) of an option under transaction costs is obtained, which displays that the timestep δt and the ‘Hurst exponent’ H play an important role in option pricing with transaction costs.
The analysis of volatility of gold coin price fluctuations in Iran using ARCH & VAR models
Younos Vakilolroaya
2014-03-01
Full Text Available The aim of this study is to investigate the changes in gold price and modeling of its return volatility and conditional variance model. The study gathers daily prices of gold coins as the dependent variable and the price of gold in world market, the price of oil in OPEC, exchange rate USD to IRR and index of Tehran Stock Exchange from March 2007 to July 2013 and using ARCH family models and VAR methods, the study analysis the data. The study first examines whether the data are stationary or not and then it reviews the household stability, Arch and Garch models. The proposed study investigates the causality among variables, selects different factors, which could be blamed of uncertainty in the coin return. The results indicate that the effect of sudden changes of standard deviation and after a 14-day period disappears and gold price goes back to its initial position. In addition, in this study we observe the so-called leverage effect in Iran’s Gold coin market, which means the good news leads to more volatility in futures market than bad news in an equal size. Finally, the result of analysis of variance implies that in the short-term, a large percentage change in uncertainty of the coin return is due to changes in the same factors and volatility of stock returns in the medium term, global gold output, oil price and exchange rate fluctuation to some extent will show the impact. In the long run, the effects of parameters are more evident.
ELMO model predicts the price of electric power; ELMO-malli saehkoen hinnan ennustamiseksi
Antila, H. [Electrowatt-Ekono Oy, Helsinki (Finland)
2001-07-01
Electrowatt-Ekono has developed a new model, by which it is possible to make long-term prognoses on the development of electricity prices in the Nordic Countries. The ELMO model can be used as an analysis service of the electricity markets and estimation of the profitability of long-term power distribution contracts with different scenarios. It can also be applied for calculation of technical and economical fundamentals for new power plants, and for estimation of the effects of different taxation models on the emissions of power generation. The model describes the whole power generation system, the power and heat consumption and transmission. The Finnish power generation system is based on the Electrowatt-Ekono's boiler database by combining different data elements. Calculation is based on the assumption that the Nordic power generation system is used optimally, and that the production costs are minimised. In practise the effectively operated electricity markets ensure the optimal use of the production system. The market area to be described consists of Finland and Sweden. The spot prices have long been the same. Norway has been treated as a separate market area. The most potential power generation system, the power consumption and the power transmission system are presumed for the target year during a normal rainfall situation. The basic scenario is calculated on the basis of the preconditional data. The calculation is carried out on hourly basis, which enables the estimation of the price variation of electric power between different times during the day and seasons. The system optimises the power generation on the basis of electricity and heat consumption curves and fuel prices. The result is an hourly limit price for electric power. Estimates are presented as standard form reports. Prices are presented as average annuals, in the seasonal base, and in hourly or daily basis for different seasons.
Meier, Petra S; Holmes, John; Angus, Colin; Ally, Abdallah K; Meng, Yang; Brennan, Alan
2016-02-01
While evidence that alcohol pricing policies reduce alcohol-related health harm is robust, and alcohol taxation increases are a WHO "best buy" intervention, there is a lack of research comparing the scale and distribution across society of health impacts arising from alternative tax and price policy options. The aim of this study is to test whether four common alcohol taxation and pricing strategies differ in their impact on health inequalities. An econometric epidemiological model was built with England 2014/2015 as the setting. Four pricing strategies implemented on top of the current tax were equalised to give the same 4.3% population-wide reduction in total alcohol-related mortality: current tax increase, a 13.4% all-product duty increase under the current UK system; a value-based tax, a 4.0% ad valorem tax based on product price; a strength-based tax, a volumetric tax of £0.22 per UK alcohol unit (= 8 g of ethanol); and minimum unit pricing, a minimum price threshold of £0.50 per unit, below which alcohol cannot be sold. Model inputs were calculated by combining data from representative household surveys on alcohol purchasing and consumption, administrative and healthcare data on 43 alcohol-attributable diseases, and published price elasticities and relative risk functions. Outcomes were annual per capita consumption, consumer spending, and alcohol-related deaths. Uncertainty was assessed via partial probabilistic sensitivity analysis (PSA) and scenario analysis. The pricing strategies differ as to how effects are distributed across the population, and, from a public health perspective, heavy drinkers in routine/manual occupations are a key group as they are at greatest risk of health harm from their drinking. Strength-based taxation and minimum unit pricing would have greater effects on mortality among drinkers in routine/manual occupations (particularly for heavy drinkers, where the estimated policy effects on mortality rates are as follows: current tax
Option Pricing with Asymmetric Heteroskedastic Normal Mixture Models
Rombouts, Jeroen V. K; Stentoft, Lars
2015-01-01
2011, and compute dollar losses and implied standard deviation losses. We compare our results to those of existing mixture models and other benchmarks like component models and jump models. Using the model confidence set test, the overall dollar root mean squared error of the best performing benchmark...
Pricing Participating Products under a Generalized Jump-Diffusion Model
Tak Kuen Siu
2008-01-01
Full Text Available We propose a model for valuing participating life insurance products under a generalized jump-diffusion model with a Markov-switching compensator. It also nests a number of important and popular models in finance, including the classes of jump-diffusion models and Markovian regime-switching models. The Esscher transform is employed to determine an equivalent martingale measure. Simulation experiments are conducted to illustrate the practical implementation of the model and to highlight some features that can be obtained from our model.
Baldin, Andrea; Bille, Trine; Ellero, Andrea
The implementation of Revenue Management (RM) techniques in non profit performing arts organizations presents new challenges compared to other sectors, such as transportion or hospitality industries, in which these techniques are more consolidated. Indeed, performing arts organizations are charac......The implementation of Revenue Management (RM) techniques in non profit performing arts organizations presents new challenges compared to other sectors, such as transportion or hospitality industries, in which these techniques are more consolidated. Indeed, performing arts organizations...... is to incentive the customers to discriminate among themselves according to their reservation price, offering a schedule of different prices corresponding to different seats in the venue. In this context, price and allocation of the theatre seating area are decision variables that allow theatre managers to manage...... of heterogeneity among customer categories in both choice and demand. The proposed model is validated with booking data referring to the Royal Danish Theatre during the period 2010-2015....
Cost accounting models used for price-setting of health services: an international review.
Raulinajtys-Grzybek, Monika
2014-12-01
The aim of the article was to present and compare cost accounting models which are used in the area of healthcare for pricing purposes in different countries. Cost information generated by hospitals is further used by regulatory bodies for setting or updating prices of public health services. The article presents a set of examples from different countries of the European Union, Australia and the United States and concentrates on DRG-based payment systems as they primarily use cost information for pricing. Differences between countries concern the methodology used, as well as the data collection process and the scope of the regulations on cost accounting. The article indicates that the accuracy of the calculation is only one of the factors that determine the choice of the cost accounting methodology. Important aspects are also the selection of the reference hospitals, precise and detailed regulations and the existence of complex healthcare information systems in hospitals.
Asset Price Dynamics in a Chartist-Fundamentalist Model with Time Delays: A Bifurcation Analysis
Loretti I. Dobrescu
2016-01-01
Full Text Available This paper studies the dynamic behavior of asset prices using a chartist-fundamentalist model with two speculative markets. To this effect, we employ a differential system with delays à la Dibeh (2007 to describe the price dynamics and we assume that the two markets are coupled via diffusive coupling terms. We study two different time delay cases, namely, when both markets experience the same time delay and when the time delay is different across markets. First, we theoretically determine that the equilibrium exists and investigate its stability. Second, we establish the general conditions for the existence of local Hopf bifurcations and analyze their direction and stability. The common conclusion from both the delay scenarios we consider is that coupled speculative markets with heterogeneous agents in each, but with different price dynamics, can be synchronized through diffusive coupling. Finally, we provide some numerical illustrations to confirm our theoretical findings.
Ordering Cost Reduction in Inventory Model with Defective Items and Backorder Price Discount
Karuppuchamy Annadurai
2014-01-01
Full Text Available In the real market, as unsatisfied demands occur, the longer the length of lead time is, the smaller the proportion of backorder would be. In order to make up for the inconvenience and even the losses of royal and patient customers, the supplier may offer a backorder price discount to secure orders during the shortage period. Also, ordering policies determined by conventional inventory models may be inappropriate for the situation in which an arrival lot contains some defective items. To compensate for the inconvenience of backordering and to secure orders, the supplier may offer a price discount on the stockout item. The purpose of this study is to explore a coordinated inventory model including defective arrivals by allowing the backorder price discount and ordering cost as decision variables. There are two inventory models proposed in this paper, one with normally distributed demand and another with distribution free demand. A computer code using the software Matlab 7.0 is developed to find the optimal solution and present numerical examples to illustrate the models. The results in the numerical examples indicate that the savings of the total cost are realized through ordering cost reduction and backorder price discount.
An alternative to the standard spatial econometric approaches in hedonic house price models
von Graevenitz, Kathrine; Panduro, Toke Emil
2015-01-01
Omitted, misspecified, or mismeasured spatially varying characteristics are a cause for concern in hedonic house price models. Spatial econometrics or spatial fixed effects have become popular ways of addressing these concerns. We discuss the limitations of standard spatial approaches to hedonic...
A generalized one-factor term structure model and pricing of interest rate derivative securities
Jiang, George J.
1997-01-01
The purpose of this paper is to propose a nonparametric interest rate term structure model and investigate its implications on term structure dynamics and prices of interest rate derivative securities. The nonparametric spot interest rate process is estimated from the observed short-term interest
Reviewing progress in PJM's capacity market structure via the new reliability pricing model
Sener, Adil Caner; Kimball, Stefan
2007-12-15
The Reliability Pricing Model introduces significant changes to the capacity market structure of PJM. The main feature of the RPM design is a downward-sloping demand curve, which replaces the highly volatile vertical demand curve. The authors review the latest RPM structure, results of the auctions, and the future course of the implementation process. (author)
Boosting the predictive accuracy of urban hedonic house price models through airborne laser scanning
Helbich, M.; Jochem, A.; Mücke, W.; Höfle, B.
2013-01-01
This paper introduces an integrative approach to hedonic house price modeling which utilizes high density 3D airborne laser scanning (ALS) data. In general, it is shown that extracting exploratory variables using 3D analysis – thus explicitly considering high-rise buildings, shadowing effects, etc.
Evaluation of the house price models using an ECM approach: the case of the Netherlands
Francke, M.K.; Vujic, S.; Vos, G.A.
2009-01-01
The research question of this paper is whether the Dutch housing market is overvalued or not. This is investigated by using different types of error correction models and by examining the impact of different variables that can explain house price changes in the Netherlands. The current financial cri
Pricing model of credit default swap with stochastic foreign exchange rate
WANG Yang
2013-04-01
Full Text Available A pricing model is established by using the structure approach and the backward Kolmogrov equation under the assumption of stochastic foreign exchange rate.The explicit solution of credit default swap is obtained for the dollar market.And a correlative financial analysis is given.
Lattice Methods for Pricing American Strangles with Two-Dimensional Stochastic Volatility Models
Xuemei Gao
2014-01-01
Full Text Available The aim of this paper is to extend the lattice method proposed by Ritchken and Trevor (1999 for pricing American options with one-dimensional stochastic volatility models to the two-dimensional cases with strangle payoff. This proposed method is compared with the least square Monte-Carlo method via numerical examples.
Pricing swaptions and coupon bond options in affine term structure models
Schrager, D.F.; Pelsser, A.A.J.
2005-01-01
We propose an approach to …nd an approximate price of a swaption in Affine Term Structure Models. Our approach is based on the derivation of approximate dynamics in which the volatility of the Forward Swap Rate is itself an affine function of the factors. Hence we remain in the Affine framework and
Rough electricity: a new fractal multi-factor model of electricity spot prices
Bennedsen, Mikkel
We introduce a new mathematical model of electricity spot prices which accounts for the most important stylized facts of these time series: seasonality, spikes, stochastic volatility and mean reversion. Empirical studies have found a possible fifth stylized fact, fractality, and our approach...
Spatial-Temporal Models of Insect Growth, Diffusion and Derivative Pricing
Insect derivatives represent an important innovation in specialty crop risk management. An active over-the-counter market in insect derivatives will require a transparent pricing method. The paper develops an econometric model of the spatio-temporal process underlying a particular insect populatio...
A two-Factor Asset Pricing Model and the Fat Tail Distribution of Firm Sizes
Malevergne, Y
2007-01-01
In the standard equilibrium and/or arbitrage pricing framework, the value of any asset is uniquely specified from the belief that only the systematic risks need to be remunerated by the market. Here, we show that, even for arbitrary large economies when the distribution of the capitalization of firms is sufficiently heavy-tailed as is the case of real economies, there may exist a new source of significant systematic risk, which has been totally neglected up to now but must be priced by the market. This new source of risk can readily explain several asset pricing anomalies on the sole basis of the internal-consistency of the market model. For this, we derive a theoretical two-factor model for asset pricing which has empirically a similar explanatory power as the Fama-French three-factor model. In addition to the usual market risk, our model accounts for a diversification risk, proxied by the equally-weighted portfolio, and which results from an ``internal consistency factor'' appearing for arbitrary large econ...
Pricing Volatility Derivatives Under the Modified Constant Elasticity of Variance Model
Leunglung Chan; Eckhard Platen
2015-01-01
This paper studies volatility derivatives such as variance and volatility swaps, options on variance in the modified constant elasticity of variance model using the benchmark approach. The analytical expressions of pricing formulas for variance swaps are presented. In addition, the numerical solutions for variance swaps, volatility swaps and options on variance are demonstrated.
A Study on the Pricing Model for 3PL of Inventory Financing
Zhilan Song
2016-01-01
Full Text Available Being a new research area, logistics finance solves the contradiction between banks and SMEs (small and medium enterprises about financing; it is beneficial to financial market and logistics market development too. As a service innovation, it unites the interests of bank, 3PL (third-party logistics providers, and SMEs and integrates material, finance, and information. Logistics finance has been developed in recent years in China, but the research is not enough on 3PL enterprises. On the background of that, the paper makes a research in the field of logistics finance with different pricing methods, based on the perspective of third-party logistics enterprises. This paper proposes a pricing model of inventory financing that can maximize the cash flow of 3PL enterprise, when the default rate of the small- and medium-sized enterprise is affected by the pledge price. And then this paper studies the model of inventory financing that can maximize the cash flow of enterprise under the condition of the existence of cash discount rate. The core factors affecting the loan-to-value ratio were established through analysis of mathematical model. We also consider the loan-to-value ratio of cash discount rate in the model. Results show that in the pledge of the known function and cash discount the price change can be calculated to meet enterprise cash flow lending rates and get biggest loan-to-value ratio.
Sharpe (Ratio Thinking about the Investment Opportunity Set and CAPM Relationship
Valeriy Zakamulin
2011-01-01
Full Text Available In the presence of a risk-free asset the investment opportunity set obtained via the Markowitz portfolio optimization procedure is usually characterized in terms of the vector of excess returns on individual risky assets and the variance-covariance matrix. We show that the investment opportunity set can alternatively be characterized in terms of the vector of Sharpe ratios of individual risky assets and the correlation matrix. This implies that the changes in the characteristics of individual risky assets that preserve the Sharpe ratios and the correlation matrix do not change the investment opportunity set. The alternative characterization makes it simple to perform a comparative static analysis that provides an answer to the question of what happens with the investment opportunity set when we change the risk-return characteristics of individual risky assets. We demonstrate the advantages of using the alternative characterization of the investment opportunity set in the investment practice. The Sharpe ratio thinking also motivates reconsidering the CAPM relationship and adjusting Jensen's alpha in order to properly measure abnormal portfolio performance.
Bayesian Network Modeling to Improve Water Pricing Practices in Northwest China
Yusuyunjiang Mamitimin
2015-10-01
Full Text Available Water pricing is regarded as the most important and simplest economic instrument to encourage more efficient use of irrigation water in crop production. In the extremely water-scarce Tarim River basin in northwest China, improving water use efficiency has high relevance for research and policy. A Bayesian network modeling approach was applied, which is especially suitable under data-scarce conditions and the complex geo-hydrological, socioeconomic, and institutional settings of the study region, as it allows the integration of data from various types of sources. The transdisciplinary approach aimed at understanding the actual water pricing practices, the shortcomings of the current system, and possible ways of improvement. In an iterative procedure of expert interviews and group workshops, the key factors related to water pricing and water use efficiency were identified. The interactions among specific factors were defined by the respective experts, generating a causal network, which describes all relevant aspects of the investigated system. This network was finally populated with probabilistic relationships through a second round of expert interviews and group discussions. The Bayesian modeling exercise was then conducted using Netica software. The modeling results show that the mere increase of water price does not lead to significant increases in water use efficiency in crop production. Additionally, the model suggests a shift to volumetric water pricing, subsidization of water saving irrigation technology, and advancing agricultural extension to enable the farmer to efficiently react to increased costs for water. The applied participatory modeling approach helped to stimulate communication among relevant stakeholders from different domains in the region, which is necessary to create mutual understanding and joint targeted action. Finally, the challenges related to the applied transdisciplinary Bayesian modeling approach are discussed in the
Xian, Lu; He, Kaijian; Lai, Kin Keung
2016-07-01
In recent years, the increasing level of volatility of the gold price has received the increasing level of attention from the academia and industry alike. Due to the complexity and significant fluctuations observed in the gold market, however, most of current approaches have failed to produce robust and consistent modeling and forecasting results. Ensemble Empirical Model Decomposition (EEMD) and Independent Component Analysis (ICA) are novel data analysis methods that can deal with nonlinear and non-stationary time series. This study introduces a new methodology which combines the two methods and applies it to gold price analysis. This includes three steps: firstly, the original gold price series is decomposed into several Intrinsic Mode Functions (IMFs) by EEMD. Secondly, IMFs are further processed with unimportant ones re-grouped. Then a new set of data called Virtual Intrinsic Mode Functions (VIMFs) is reconstructed. Finally, ICA is used to decompose VIMFs into statistically Independent Components (ICs). The decomposition results reveal that the gold price series can be represented by the linear combination of ICs. Furthermore, the economic meanings of ICs are analyzed and discussed in detail, according to the change trend and ICs' transformation coefficients. The analyses not only explain the inner driving factors and their impacts but also conduct in-depth analysis on how these factors affect gold price. At the same time, regression analysis has been conducted to verify our analysis. Results from the empirical studies in the gold markets show that the EEMD-ICA serve as an effective technique for gold price analysis from a new perspective.
无
2005-01-01
At present, electricity price to grid of domestic power plants is priced by the national administration based on the policy of "one power plant with one electricity price to grid," which is difficult to realize real bidding for access to grid in practice in a short term. This paper presents one kind of power-exchanging transaction model among price-varied power plants, which will be beneficial to price-varied power plants without any loss of profits of them and guarantee state-owned assets profits in minimum loss with no promotion of average price limit by power plants. Under ideal conditions, the computation results showed the sufficiency and necessity of power-exchanging transaction and maximum similarity with the requirements of optimized resources disposition in economics. The presented model is shown to be full of practicability and has been used in some part of power market.
J. K. Wang
2001-01-01
Full Text Available I present a model of stock market price fluctuations incorporating effects of share supply as a history-dependent function of previous purchases and share demand as a function of price deviation from moving averages. Price charts generated show intervals of oscillations switching amplitude and frequency suddenly in time, forming price and trading volume patterns well-known in market technical analysis. Ultimate price trends agree with traditional predictions for specific patterns. The consideration of dynamically evolving supply and demand in this model resolves the apparent contradiction with the Efficient Market Hypothesis: perceptions of imprecise equity values by a world of investors evolve over non-negligible periods of time, with dependence on price history.
Option Pricing with Asymmetric Heteroskedastic Normal Mixture Models
Rombouts, Jeroen V.K.; Stentoft, Lars
varying higher order moments of the risk neutral distribution. When forecasting out-of-sample a large set of index options between 1996 and 2009, substantial improvements are found compared to several benchmark models in terms of dollar losses and the ability to explain the smirk in implied volatilities....... Overall, the dollar root mean squared error of the best performing benchmark component model is 39% larger than for the mixture model. When considering the recent financial crisis this difference increases to 69%....
Inventories, markups and real rigidities in sticky price models of the Canadian economy
Kryvtsov, Oleksiy; Midrigan, Virgiliu
2011-01-01
Recent New Keynesian models of macroeconomy view nominal cost rigidities, rather than nominal price rigidities, as the key feature that accounts for the observed persistence in output and inflation. Kryvtsov and Midrigan (2010a,b) reassess these conclusions by combining a theory based on nominal rigidities and storable goods with direct evidence on inventories for the U.S. This paper applies Kryvtsov and Midrigan's model to the case of Canada. The model predicts that if costs of production ar...
Lee Chun Chang; Hui-Yu Lin
2012-01-01
Housing data are of a nested nature as houses are nested in a village, a town, or a county. This study thus applies HLM (hierarchical linear modelling) in an empirical study by adding neighborhood characteristic variables into the model for consideration. Using the housing data of 31 neighborhoods in the Taipei area as analysis samples and three HLM sub-models, this study discusses the impact of neighborhood characteristics on house prices. The empirical results indicate that the impact of va...
Jixiang Zhou; Yong Wang; Xiaoming Yan
2014-01-01
We investigate a joint pricing and purchasing problem for the dual-channel newsvendor model with the assumption that only the mean and variance of the demand are known. The newsvendor in our model simultaneously distributes a single product through traditional retail and Internet. A robust optimization approach that maximizes the worst-case profit is adapted under the aforementioned conditions to model demand uncertainty and linear clearing functions that characterize the relationship between...
Petra S Meier
2016-02-01
Full Text Available While evidence that alcohol pricing policies reduce alcohol-related health harm is robust, and alcohol taxation increases are a WHO "best buy" intervention, there is a lack of research comparing the scale and distribution across society of health impacts arising from alternative tax and price policy options. The aim of this study is to test whether four common alcohol taxation and pricing strategies differ in their impact on health inequalities.An econometric epidemiological model was built with England 2014/2015 as the setting. Four pricing strategies implemented on top of the current tax were equalised to give the same 4.3% population-wide reduction in total alcohol-related mortality: current tax increase, a 13.4% all-product duty increase under the current UK system; a value-based tax, a 4.0% ad valorem tax based on product price; a strength-based tax, a volumetric tax of £0.22 per UK alcohol unit (= 8 g of ethanol; and minimum unit pricing, a minimum price threshold of £0.50 per unit, below which alcohol cannot be sold. Model inputs were calculated by combining data from representative household surveys on alcohol purchasing and consumption, administrative and healthcare data on 43 alcohol-attributable diseases, and published price elasticities and relative risk functions. Outcomes were annual per capita consumption, consumer spending, and alcohol-related deaths. Uncertainty was assessed via partial probabilistic sensitivity analysis (PSA and scenario analysis. The pricing strategies differ as to how effects are distributed across the population, and, from a public health perspective, heavy drinkers in routine/manual occupations are a key group as they are at greatest risk of health harm from their drinking. Strength-based taxation and minimum unit pricing would have greater effects on mortality among drinkers in routine/manual occupations (particularly for heavy drinkers, where the estimated policy effects on mortality rates are as
Model risk analysis for risk management and option pricing
Kerkhof, F.L.J.
2003-01-01
Due to the growing complexity of products in financial markets, market participants rely more and more on quantitative models for trading and risk management decisions. This introduces a fairly new type of risk, namely, model risk. In the first part of this thesis we investigate the quantitative inf
Roşu, M. M.; Tarbă, C. I.; Neagu, C.
2016-11-01
The current models for inventory management are complementary, but together they offer a large pallet of elements for solving complex problems of companies when wanting to establish the optimum economic order quantity for unfinished products, row of materials, goods etc. The main objective of this paper is to elaborate an automated decisional model for the calculus of the economic order quantity taking into account the price regressive rates for the total order quantity. This model has two main objectives: first, to determine the periodicity when to be done the order n or the quantity order q; second, to determine the levels of stock: lighting control, security stock etc. In this way we can provide the answer to two fundamental questions: How much must be ordered? When to Order? In the current practice, the business relationships with its suppliers are based on regressive rates for price. This means that suppliers may grant discounts, from a certain level of quantities ordered. Thus, the unit price of the products is a variable which depends on the order size. So, the most important element for choosing the optimum for the economic order quantity is the total cost for ordering and this cost depends on the following elements: the medium price per units, the stock cost, the ordering cost etc.
Modeling and forecasting foreign exchange daily closing prices with normal inverse Gaussian
Teneng, Dean
2013-09-01
We fit the normal inverse Gaussian(NIG) distribution to foreign exchange closing prices using the open software package R and select best models by Käärik and Umbleja (2011) proposed strategy. We observe that daily closing prices (12/04/2008 - 07/08/2012) of CHF/JPY, AUD/JPY, GBP/JPY, NZD/USD, QAR/CHF, QAR/EUR, SAR/CHF, SAR/EUR, TND/CHF and TND/EUR are excellent fits while EGP/EUR and EUR/GBP are good fits with a Kolmogorov-Smirnov test p-value of 0.062 and 0.08 respectively. It was impossible to estimate normal inverse Gaussian parameters (by maximum likelihood; computational problem) for JPY/CHF but CHF/JPY was an excellent fit. Thus, while the stochastic properties of an exchange rate can be completely modeled with a probability distribution in one direction, it may be impossible the other way around. We also demonstrate that foreign exchange closing prices can be forecasted with the normal inverse Gaussian (NIG) Lévy process, both in cases where the daily closing prices can and cannot be modeled by NIG distribution.
Prediction and Research on Vegetable Price Based on Genetic Algorithm and Neural Network Model
2011-01-01
Considering the complexity of vegetables price forecast,the prediction model of vegetables price was set up by applying the neural network based on genetic algorithm and using the characteristics of genetic algorithm and neural work.Taking mushrooms as an example,the parameters of the model are analyzed through experiment.In the end,the results of genetic algorithm and BP neural network are compared.The results show that the absolute error of prediction data is in the scale of 10%;in the scope that the absolute error in the prediction data is in the scope of 20% and 15%.The accuracy of genetic algorithm based on neutral network is higher than the BP neutral network model,especially the absolute error of prediction data is within the scope of 20%.The accuracy of genetic algorithm based on neural network is obviously better than BP neural network model,which represents the favorable generalization capability of the model.
Rusakov, Oleg; Laskin, Michael
2017-06-01
We consider a stochastic model of changes of prices in real estate markets. We suppose that in a book of prices the changes happen in points of jumps of a Poisson process with a random intensity, i.e. moments of changes sequently follow to a random process of the Cox process type. We calculate cumulative mathematical expectations and variances for the random intensity of this point process. In the case that the process of random intensity is a martingale the cumulative variance has a linear grows. We statistically process a number of observations of real estate prices and accept hypotheses of a linear grows for estimations as well for cumulative average, as for cumulative variance both for input and output prises that are writing in the book of prises.
Approximation methods of European option pricing in multiscale stochastic volatility model
Ni, Ying; Canhanga, Betuel; Malyarenko, Anatoliy; Silvestrov, Sergei
2017-01-01
In the classical Black-Scholes model for financial option pricing, the asset price follows a geometric Brownian motion with constant volatility. Empirical findings such as volatility smile/skew, fat-tailed asset return distributions have suggested that the constant volatility assumption might not be realistic. A general stochastic volatility model, e.g. Heston model, GARCH model and SABR volatility model, in which the variance/volatility itself follows typically a mean-reverting stochastic process, has shown to be superior in terms of capturing the empirical facts. However in order to capture more features of the volatility smile a two-factor, of double Heston type, stochastic volatility model is more useful as shown in Christoffersen, Heston and Jacobs [12]. We consider one modified form of such two-factor volatility models in which the volatility has multiscale mean-reversion rates. Our model contains two mean-reverting volatility processes with a fast and a slow reverting rate respectively. We consider the European option pricing problem under one type of the multiscale stochastic volatility model where the two volatility processes act as independent factors in the asset price process. The novelty in this paper is an approximating analytical solution using asymptotic expansion method which extends the authors earlier research in Canhanga et al. [5, 6]. In addition we propose a numerical approximating solution using Monte-Carlo simulation. For completeness and for comparison we also implement the semi-analytical solution by Chiarella and Ziveyi [11] using method of characteristics, Fourier and bivariate Laplace transforms.
An Econometric Model of Healthcare Demand With Nonlinear Pricing.
Kunz, Johannes S; Winkelmann, Rainer
2016-04-04
From 2004 to 2012, the German social health insurance levied a co-payment for the first doctor visit in a calendar quarter. We develop a new model for estimating the effect of such a co-payment on the individual number of visits per quarter. The model combines a one-time increase in the otherwise constant hazard rate determining the timing of doctor visits with a difference-in-differences strategy to identify the reform effect. An extended version of the model accounts for a mismatch between reporting period and calendar quarter. Using data from the German Socio-Economic Panel, we do not find an effect of the co-payment on demand for doctor visits. Copyright © 2016 John Wiley & Sons, Ltd.
Back to the Future Betas: Empirical Asset Pricing of US and Southeast Asian Markets
Jordan French
2016-07-01
Full Text Available The study adds an empirical outlook on the predicting power of using data from the future to predict future returns. The crux of the traditional Capital Asset Pricing Model (CAPM methodology is using historical data in the calculation of the beta coefficient. This study instead uses a battery of Generalized Auto Regressive Conditional Heteroskedasticity (GARCH models, of differing lag and parameter terms, to forecast the variance of the market used in the denominator of the beta formula. The covariance of the portfolio and market returns are assumed to remain constant in the time-varying beta calculations. The data spans from 3 January 2005 to 29 December 2014. One ten-year, two five-year, and three three-year sample periods were used, for robustness, with ten different portfolios. Out of sample forecasts, mean absolute error (MAE and mean squared forecast error (MSE were used to compare the forecasting ability of the ex-ante GARCH models, Artificial Neural Network, and the standard market ex-post model. Find that the time-varying MGARCH and SGARCH beta performed better with out-of-sample testing than the other ex-ante models. Although the simplest approach, constant ex-post beta, performed as well or better within this empirical study.
Study on the Dynamic Pricing Revenue Distribution Model of Fresh Agricultural Products Supply Chain
Haoran Shi
2013-12-01
Full Text Available This study divides the sales cycle of fresh agricultural products into two stages according to the features of fresh agricultural products, establishes two pricing strategies according to its sales and through constructing an centralized-control model of supply chain under the constraints of revenue sharing contract and through analyzing different prices in the two stages, it summarizes the sales strategies of retailers and supplier and the anticipated sales, proposes to coordinate the operation of fresh agricultural products supply chain by adjusting the revenue coefficient in the revenue sharing contract. After comparing the revenue of decentralized-control supply chain model and centralized-control supply chain model, this study concludes that centralized-control supply chain model will have higher revenue.
Modeling the price dynamics of CO{sub 2} emission allowances
Benz, Eva [Bonn Graduate School of Economics (Germany); Trueck, Stefan [Macquarie University Sydney (Australia)
2009-01-15
In this paper we analyze the short-term spot price behavior of carbon dioxide (CO{sub 2}) emission allowances of the new EU-wide CO{sub 2} emissions trading system (EU ETS). After reviewing the stylized facts of this new class of assets we investigate several approaches for modeling the returns of emission allowances. Due to different phases of price and volatility behavior in the returns, we suggest the use of Markov switching and AR-GARCH models for stochastic modeling. We examine the approaches by conducting an in-sample and out-of-sample forecasting analysis and by comparing the results to alternative approaches. Our findings strongly support the adequacy of the models capturing characteristics like skewness, excess kurtosis and in particular different phases of volatility behavior in the returns. (author)
Option pricing for stochastic volatility model with infinite activity Lévy jumps
Gong, Xiaoli; Zhuang, Xintian
2016-08-01
The purpose of this paper is to apply the stochastic volatility model driven by infinite activity Lévy processes to option pricing which displays infinite activity jumps behaviors and time varying volatility that is consistent with the phenomenon observed in underlying asset dynamics. We specially pay attention to three typical Lévy processes that replace the compound Poisson jumps in Bates model, aiming to capture the leptokurtic feature in asset returns and volatility clustering effect in returns variance. By utilizing the analytical characteristic function and fast Fourier transform technique, the closed form formula of option pricing can be derived. The intelligent global optimization search algorithm called Differential Evolution is introduced into the above highly dimensional models for parameters calibration so as to improve the calibration quality of fitted option models. Finally, we perform empirical researches using both time series data and options data on financial markets to illustrate the effectiveness and superiority of the proposed method.
Fair pricing, and pricing paradoxes
Barbara Swart
2016-05-01
Full Text Available The St Petersburg Paradox revolves round the determination of a fair price for playing the St Petersburg Game. According to the original formulation, the price for the game is infinite, and, therefore, paradoxical. Although the St Petersburg Paradox can be seen as concerning merely a game, Paul Samuelson (1977 calls it a “fascinating chapter in the history of ideas”, a chapter that gave rise to a considerable number of papers over more than 200 years involving fields such as probability theory and economics. In a paper in this journal, Vivian (2013 undertook a numerical investigation of the St Petersburg Game. In this paper, the central issue of the paradox is identified as that of fair (risk-neutral pricing, which is fundamental in economics and finance and involves important concepts such as no arbitrage, discounting, and risk-neutral measures. The model for the St Petersburg Game as set out in this paper is new and analytical and resolves the so-called pricing paradox by applying a discounting procedure. In this framework, it is shown that there is in fact no infinite price paradox, and simple formulas for obtaining a finite price for the game are also provided.
Robust Estimation and Forecasting of the Capital Asset Pricing Model
G. Bian (Guorui); M.J. McAleer (Michael); W-K. Wong (Wing-Keung)
2013-01-01
textabstractIn this paper, we develop a modified maximum likelihood (MML) estimator for the multiple linear regression model with underlying student t distribution. We obtain the closed form of the estimators, derive the asymptotic properties, and demonstrate that the MML estimator is more
Robust Estimation and Forecasting of the Capital Asset Pricing Model
G. Bian (Guorui); M.J. McAleer (Michael); W-K. Wong (Wing-Keung)
2010-01-01
textabstractIn this paper, we develop a modified maximum likelihood (MML) estimator for the multiple linear regression model with underlying student t distribution. We obtain the closed form of the estimators, derive the asymptotic properties, and demonstrate that the MML estimator is more
THE AGENT-BASED MODEL OF REGULATION OF RETAIL PRICES ON THE MARKET OF PETROLEUM PRODUCTS
Leonid Galchynsky; Andrij Svydenko; Iryna Veremenko
2011-01-01
This article provides model of the retail gasoline market as multi-agent systems. The main factors, which affecting on the retail price of gasoline were determined. The authors found that using the agent approach, which takes into consideration the coalitions in the market, in particular, tacit collusion, it is possible to describe the behaviour of players correctly. An description of agent behaviour models and algorithms specific agent were done.
A Perfect Price Discrimination Market Model with Production, and a (Rational) Convex Program for It
Goel, Gagan; Vazirani, Vijay
Recent results showed PPAD-completeness of the problem of computing an equilibrium for Fisher's market model under additively separable, piecewise-linear, concave utilities. We show that introducing perfect price discrimination in this model renders its equilibrium polynomial time computable. Moreover, its set of equilibria are captured by a convex program that generalizes the classical Eisenberg-Gale program, and always admits a rational solution.
A Phillips curve interpretation of error-correction models of the wage and price dynamics
Harck, Søren H.
-correction setting, which actually seems to capture the wage and price dynamics of many large- scale econometric models quite well, is fully compatible with the notion of an old-fashioned Phillips curve with finite slope. It is shown how the steady-state impact of various shocks to the model can be profitably...... conceived of and interpreted in terms of (and to some extent even calculated by means of) this long-run Phillips curve. ...
ALTERNATE PRICING STRATEGIES IN CONSTRUCTION
Krishna Mochtar
2000-01-01
Full Text Available Recent research findings on pricing strategies both in general and in construction are reviewed and explored. First%2C pricing strategy in general%2C mostly in the manufacturing industry%2C is reviewed. It includes the concepts of pricing strategy%2C predatory pricing%2C price wars%2C and price policy development. Second%2C pricing strategy in construction is explored. It includes various pricing models for bid price determination%2C such as the Friedman-Gates models%2C expected utility models%2C risk-pricing model%2C and the crew-day%2C multiple regression%2C and fuzzy-set pricing models. In conclusion%2C pricing strategies in construction are still predominantly based on a cost-based approach. More recent models try to close the gap between the models and the real life conditions of a bidder%5C%27s decision-making process. It appears that there are more problems in cost-based pricing as opposed to market-based pricing. Consequently%2C it is highly recommended that%2C alternative pricing approach such as that are closer to the proposed market-based pricing model need to be explored and developed for use in the construction industry. Abstract in Bahasa Indonesia : Pricing+strategy%2C+cost-based+pricing%2C+market-based+pricing.
Evaluation of Mining Titles Based on Option-Pricing Model
无
2006-01-01
Limitations exist in applying discounted cash flow and analogy sales methods to evaluate mining titles. In order to find a more appropriate way of evaluating mining titles, the Black-Scholes model is discussed in this paper. The authors pay particular attention to the determination of the time to maturity of the option on the basis of characteristics of the mining industry, pointing out that a reasonable time to maturity of the option should be the remaining time after deducting the essential time, needed by exploitation of the mineral resources within the mining property, from the life of the mining title. Several conclusions, related to the exercise of mineral resource management, are drawn from a case study analysis; extending the life of a mining title within a certain range could increase the revenue to the seller of the mining title. Application of the Black-Scholes model to evaluate mining titles would encourage an expansion of the scale of production.
The Price Model of Aquatic Products Based on Predictive Control Theory
2011-01-01
This paper discusses a disequilibrium cobweb model of price of aquatic products, and applies predictive control theory, so that the system operates stably, and the deviation between supply and demand of aquatic products smoothly tracks the pre-given target. It defines the supply and demand change model, and researches the impact of parameter selection in this model on dynamic state and robustness of the system. I conduct simulation by Matlab software, to get the response curve of this model. The results show that in the early period of commodities coming into the market, affected by lack of market information and many other factors, the price fluctuates greatly in a short time. The market will gradually achieve balance between supply and demand over time, and the price fluctuations in the neighbouring two periods are broadly consistent. The increase in model parameter can decrease overshoot, to promote the stability of system, but the slower the dynamic response, the longer the deviation between supply and demand to accurately track a given target. Therefore, by selecting different parameters, the decision-makers can establish different models of supply and demand changes to meet the actual needs, and ensure stable development of market. Simulation results verify the excellent performance of this algorithm.
Matsypura, Dmytro
In this dissertation, I develop a new theoretical framework for the modeling, pricing analysis, and computation of solutions to electric power supply chains with power generators, suppliers, transmission service providers, and the inclusion of consumer demands. In particular, I advocate the application of finite-dimensional variational inequality theory, projected dynamical systems theory, game theory, network theory, and other tools that have been recently proposed for the modeling and analysis of supply chain networks (cf. Nagurney (2006)) to electric power markets. This dissertation contributes to the extant literature on the modeling, analysis, and solution of supply chain networks, including global supply chains, in general, and electric power supply chains, in particular, in the following ways. It develops a theoretical framework for modeling, pricing analysis, and computation of electric power flows/transactions in electric power systems using the rationale for supply chain analysis. The models developed include both static and dynamic ones. The dissertation also adds a new dimension to the methodology of the theory of projected dynamical systems by proving that, irrespective of the speeds of adjustment, the equilibrium of the system remains the same. Finally, I include alternative fuel suppliers, along with their behavior into the supply chain modeling and analysis framework. This dissertation has strong practical implications. In an era in which technology and globalization, coupled with increasing risk and uncertainty, complicate electricity demand and supply within and between nations, the successful management of electric power systems and pricing become increasingly pressing topics with relevance not only for economic prosperity but also national security. This dissertation addresses such related topics by providing models, pricing tools, and algorithms for decentralized electric power supply chains. This dissertation is based heavily on the following
3D Weight Matrices in Modeling Real Estate Prices
Mimis, A.
2016-10-01
Central role in spatial econometric models of real estate data has the definition of the weight matrix by which we capture the spatial dependence between the observations. The weight matrices presented in literature so far, treats space in a two dimensional manner leaving out the effect of the third dimension or in our case the difference in height where the property resides. To overcome this, we propose a new definition of the weight matrix including the third dimensional effect by using the Hadamard product. The results illustrated that the level effect can be absorbed into the new weight matrix.
AN OPTION PRICING MODEL UNDER FUTURE REVENUE UNCERTAINTY
XueMinggao
2003-01-01
The purpose of this paper is to discuss how the value of high-tech firm can be rationally valued by taking into account managerial flexibility when its future revenue is uncertain ,thereby the firm's manager can make rational investment decisionS. Using stochastic control theory, the paper will present that the firm's value satisfies a partially differentiate equation,and analyze the managerial flexibility value within a framework of real-option analytic theorey. Finally,the comparative static analysis and the model's simple application are given.
Regime switches induced by supply-demand equilibrium: a model for power-price dynamics
Mari, Carlo; Tondini, Daniela
2010-11-01
Regime-switching models can be used to describe stochastic movements of electricity prices in deregulated markets. This paper shows that regime-switching dynamics arise quite naturally in an equilibrium context in which the functional form of the supply curve is described by a two-state Markov process. This mechanism is responsible for random switches between regimes and it allows one to describe the main features of the price-formation process. With the interplay between demand and supply, the proposed methodology can be used to capture shortages in electricity generation, forced outages, and peaks in electricity demand. As an example of application, a two-regime model specification is proposed, and it will be shown that the empirical analysis, performed by estimating using the model on the California power market, offers an interesting agreement with observed data.
A long-term/short-term model for daily electricity prices with dynamic volatility
Schlueter, Stephan
2010-09-15
In this paper we introduce a new stochastic long-term/short-term model for short-term electricity prices, and apply it to four major European indices, namely to the German, Dutch, UK and Nordic one. We give evidence that all time series contain certain periodic (mostly annual) patterns, and show how to use the wavelet transform, a tool of multiresolution analysis, for filtering purpose. The wavelet transform is also applied to separate the long-term trend from the short-term oscillation in the seasonal-adjusted log-prices. In all time series we find evidence for dynamic volatility, which we incorporate by using a bivariate GARCH model with constant correlation. Eventually we fit various models from the existing literature to the data, and come to the conclusion that our approach performs best. For the error distribution, the Normal Inverse Gaussian distribution shows the best fit. (author)
Jixiang Zhou
2014-01-01
Full Text Available We investigate a joint pricing and purchasing problem for the dual-channel newsvendor model with the assumption that only the mean and variance of the demand are known. The newsvendor in our model simultaneously distributes a single product through traditional retail and Internet. A robust optimization approach that maximizes the worst-case profit is adapted under the aforementioned conditions to model demand uncertainty and linear clearing functions that characterize the relationship between demand and prices. We obtain a close-form expression for the robust optimal policy. Illustrative simulations and numerical experiments show the effects of several parameters on the optimal policy and on newsvendor performance. Finally, we determine that the gap between newsvendor performance under demand certainty and uncertainty is minimal, which shows that the robust approach can significantly improve performance.
Christensen, Bent Jesper; van der Wel, Michel
of the risk premium is associated with the slope factor, and individual risk prices depend on own past values, factor realizations, and past values of other risk prices, and are significantly related to the output gap, consumption, and the equity risk price. The absence of arbitrage opportunities is strongly...... is tested, but in addition to the standard bilinear term in factor loadings and market prices of risk, the relevant mean restriction in the term structure case involves an additional nonlinear (quadratic) term in factor loadings. We estimate our general model using likelihood-based dynamic factor model...... techniques for a variety of volatility factors, and implement the relevant likelihood ratio tests. Our factor model estimates are similar across a general state space implementation and an alternative robust two-step principal components approach. The evidence favors time-varying market prices of risk. Most...
SINGH, S. P.; G.C.Panda
2015-01-01
This paper derives an inventory model is developed for items that deteriorates at a generalized Weibull distributed rate when demand for the items is dependent on the selling price. Shortages are not allowed and price inflation is taken into consideration over finite planning horizon. A brief analysis of the cost involved is carried out by theoretical analysis.
S.P.Singh
2015-09-01
Full Text Available This paper derives an inventory model is developed for items that deteriorates at a generalized Weibull distributed rate when demand for the items is dependent on the selling price. Shortages are not allowed and price inflation is taken into consideration over finite planning horizon. A brief analysis of the cost involved is carried out by theoretical analysis.
Jiang, GJ
1998-01-01
This paper develops a nonparametric model of interest rate term structure dynamics based an a spot rate process that permits only positive interest rates and a market price of interest rate risk that precludes arbitrage opportunities. Both the spot rate process and the market price of interest rate
Jiang, GJ
1998-01-01
This paper develops a nonparametric model of interest rate term structure dynamics based an a spot rate process that permits only positive interest rates and a market price of interest rate risk that precludes arbitrage opportunities. Both the spot rate process and the market price of interest rate
Lie-Algebraic Approach for Pricing Zero-Coupon Bonds in Single-Factor Interest Rate Models
C. F. Lo
2013-01-01
Full Text Available The Lie-algebraic approach has been applied to solve the bond pricing problem in single-factor interest rate models. Four of the popular single-factor models, namely, the Vasicek model, Cox-Ingersoll-Ross model, double square-root model, and Ahn-Gao model, are investigated. By exploiting the dynamical symmetry of their bond pricing equations, analytical closed-form pricing formulae can be derived in a straightfoward manner. Time-varying model parameters could also be incorporated into the derivation of the bond price formulae, and this has the added advantage of allowing yield curves to be fitted. Furthermore, the Lie-algebraic approach can be easily extended to formulate new analytically tractable single-factor interest rate models.
American Option Pricing using GARCH models and the Normal Inverse Gaussian distribution
Stentoft, Lars Peter
In this paper we propose a feasible way to price American options in a model with time varying volatility and conditional skewness and leptokurtosis using GARCH processes and the Normal Inverse Gaussian distribution. We show how the risk neutral dynamics can be obtained in this model, we interpret...... the effect of the riskneutralization, and we derive approximation procedures which allow for a computationally efficient implementation of the model. When the model is estimated on financial returns data the results indicate that compared to the Gaussian case the extension is important. A study of the model...
Ju Chunhua
2013-05-01
Full Text Available Research on the method to strengthen the cooperation among members to achieve win-win result is an important subject in SCM. Nevertheless, most studies to date on supply chain pricing have only assumed that the market demand is only influenced by retail price but not by logistics service level. That is why our work is concerned with logistics service and product pricing strategies in supply chain consisting of the manufacturer, the retailer and the TPL provider. For three-echelon supply chain system with TPL service level, use game theory to analyze its pricing, production, service levels and profit allocation. Three different models are discussed which are based on Stackelberg games and cooperative game. We find that the whole supply chain profit brought by collaborative decision-making is much higher than it independent decision-making brings based on the research. And it can increase the whole profit through reasonable setting of allocation proportion of profit. The study proposes multiple effective distribution methods of supply chain profit and takes an example to perform empirical analysis on the results to proof effectiveness.
Li, Rui, E-mail: lirui1401@bjtu.edu.cn; Wang, Jun
2016-01-08
A financial price model is developed based on the voter interacting system in this work. The Lempel–Ziv complexity is introduced to analyze the complex behaviors of the stock market. Some stock market stylized facts including fat tails, absence of autocorrelation and volatility clustering are investigated for the proposed price model firstly. Then the complexity of fluctuation behaviors of the real stock markets and the proposed price model are mainly explored by Lempel–Ziv complexity (LZC) analysis and multi-scale weighted-permutation entropy (MWPE) analysis. A series of LZC analyses of the returns and the absolute returns of daily closing prices and moving average prices are performed. Moreover, the complexity of the returns, the absolute returns and their corresponding intrinsic mode functions (IMFs) derived from the empirical mode decomposition (EMD) with MWPE is also investigated. The numerical empirical study shows similar statistical and complex behaviors between the proposed price model and the real stock markets, which exhibits that the proposed model is feasible to some extent. - Highlights: • A financial price dynamical model is developed based on the voter interacting system. • Lempel–Ziv complexity is the firstly applied to investigate the stock market dynamics system. • MWPE is employed to explore the complexity fluctuation behaviors of the stock market. • Empirical results show the feasibility of the proposed financial model.
Day-Ahead Crude Oil Price Forecasting Using a Novel Morphological Component Analysis Based Model
Zhu, Qing; Zou, Yingchao; Lai, Kin Keung
2014-01-01
As a typical nonlinear and dynamic system, the crude oil price movement is difficult to predict and its accurate forecasting remains the subject of intense research activity. Recent empirical evidence suggests that the multiscale data characteristics in the price movement are another important stylized fact. The incorporation of mixture of data characteristics in the time scale domain during the modelling process can lead to significant performance improvement. This paper proposes a novel morphological component analysis based hybrid methodology for modeling the multiscale heterogeneous characteristics of the price movement in the crude oil markets. Empirical studies in two representative benchmark crude oil markets reveal the existence of multiscale heterogeneous microdata structure. The significant performance improvement of the proposed algorithm incorporating the heterogeneous data characteristics, against benchmark random walk, ARMA, and SVR models, is also attributed to the innovative methodology proposed to incorporate this important stylized fact during the modelling process. Meanwhile, work in this paper offers additional insights into the heterogeneous market microstructure with economic viable interpretations. PMID:25061614
Day-ahead crude oil price forecasting using a novel morphological component analysis based model.
Zhu, Qing; He, Kaijian; Zou, Yingchao; Lai, Kin Keung
2014-01-01
As a typical nonlinear and dynamic system, the crude oil price movement is difficult to predict and its accurate forecasting remains the subject of intense research activity. Recent empirical evidence suggests that the multiscale data characteristics in the price movement are another important stylized fact. The incorporation of mixture of data characteristics in the time scale domain during the modelling process can lead to significant performance improvement. This paper proposes a novel morphological component analysis based hybrid methodology for modeling the multiscale heterogeneous characteristics of the price movement in the crude oil markets. Empirical studies in two representative benchmark crude oil markets reveal the existence of multiscale heterogeneous microdata structure. The significant performance improvement of the proposed algorithm incorporating the heterogeneous data characteristics, against benchmark random walk, ARMA, and SVR models, is also attributed to the innovative methodology proposed to incorporate this important stylized fact during the modelling process. Meanwhile, work in this paper offers additional insights into the heterogeneous market microstructure with economic viable interpretations.
ARIMA Model Estimated by Particle Swarm Optimization Algorithm for Consumer Price Index Forecasting
Wang, Hongjie; Zhao, Weigang
This paper presents an ARIMA model which uses particle swarm optimization algorithm (PSO) for model estimation. Because the traditional estimation method is complex and may obtain very bad results, PSO which can be implemented with ease and has a powerful optimizing performance is employed to optimize the coefficients of ARIMA. In recent years, inflation and deflation plague the world moreover the consumer price index (CPI) which is a measure of the average price of consumer goods and services purchased by households is usually observed as an important indicator of the level of inflation, so the forecast of CPI has been focused on by both scientific community and relevant authorities. Furthermore, taking the forecast of CPI as a case, we illustrate the improvement of accuracy and efficiency of the new method and the result shows it is predominant in forecasting.
Substitution and price elasticity estimates using inter-countrypooled data in a translog cost model
Roy, Joyashree; Sanstad, Alan H.; Sathaye, Jayant A.; Khaddaria,Raman
2006-06-01
Pooled data across several developing countries and the U.S. were used to estimate long-run substitution and price elasticities ina translog framework for the paper, iron and steel, and aggregatemanufacturing industries. While the quality of the estimates variesacross the several industry-specific models, the results suggest highervalues for these elasticities than appear commonly used in integratedassessment models. Estimates of own-price elasticities of energy rangefrom - 0.80 to - 1.76 and are comparable to estimates from previouseconometric studies in the context of developed countries (- 0.77 to -0.87). Substitution elasticities show wider variation across countriesand industries. For energy and capital they range from -1.96 to 9.80, forlabor and energy from 2.61 to 7.11, and for energy and material from -0.26 to 2.07.
Dynamical analysis for a model of asset prices with two delays
Wang, Luxuan; Niu, Ben; Wei, Junjie
2016-04-01
This paper provides a new perspective to understand the mechanism on the market stability or oscillation by investigating a two-dimensional asset price model with two delays. Stability conditions and the existence of Hopf bifurcation are obtained by investigating the characteristic equation. Then an explicit algorithm for determining the criticality of Hopf bifurcation and stability of the bifurcating solutions is derived, using the center manifold reduction method. The global continuation of bifurcating periodic solutions is detected using a global Hopf bifurcation theorem. It is found that delay may induce supercritical Hopf bifurcations, hence bring oscillation into the asset price model. Moreover, when time delay gets larger, the period of oscillation also increases. Finally, some numerical illustrations with Matlab and DDE-Biftool are carried out to support the theoretical analysis.
A Non Parametric Model for the Forecasting of the Venezuelan Oil Prices
Costanzo, Sabatino; Dehne, Wafaa; Prato, Hender
2007-01-01
A neural net model for forecasting the prices of Venezuelan crude oil is proposed. The inputs of the neural net are selected by reference to a dynamic system model of oil prices by Mashayekhi (1995, 2001) and its performance is evaluated using two criteria: the Excess Profitability test by Anatoliev and Gerko (2005) and the characteristics of the equity curve generated by a trading strategy based on the neural net predictions. ----- Se introduce aqui un modelo no parametrico para pronosticar los precios del petroleo Venezolano cuyos insumos son seleccionados en base a un sistema dinamico que explica los precios en terminos de dichos insumos. Se describe el proceso de recoleccion y pre-procesamiento de datos y la corrida de la red y se evaluan sus pronosticos a traves de un test estadistico de predictibilidad y de las caracteristicas del Equity Curve inducido por la estrategia de compraventa bursatil generada por dichos pronosticos.
Modeling the global market for crude oil and forecasting the price: a comprehensive study
Behmiri, Niaz Badhiri
2013-01-01
Crude oil prices before 1970 were under control by multinational monopolist oil companies; from 1970 to 1986 OPEC administered pricing system determined crude oil prices; and from 1986 to the present, crude oil prices are determined by a market-linked pricing mechanism or demand-to-supply ratio, taking in account a set of many other factors, such as economic, political, financial, technological, meteorological and oil reserves. As in a market-linked pricing mechanism, the main determinant fac...
Autchariyapanitkul, K; S Chanaim; Sriboonchitta, S; DENOEUX, T
2014-01-01
International audience; We consider an inference method for prediction based on belief functions in quantile regression with an asymmetric Laplace distribution. We apply this method to the capital asset pricing model to estimate the beta coefficient and measure volatility under various market conditions at given quantiles. Likelihood-based belief functions are constructed from historical data of the securities in the S&P500 market. The results give us evidence on the systematic risk, in the f...
Policy Decisions for a Price Dependent Demand Rate Inventory Model with Progressive Payments Scheme
Rajat Kumar; Mukesh Kumar
2012-01-01
Problem statement: In this proposed research, we developed an inventory model to formulate an optimal ordering policies for supplier who offers progressive permissible delay periods to the retailer to settle his/her account. We assumed that the annual demand rate as a decreasing function of price with constant rate of deterioration and time-varying holding cost. Shortages in inventory are allowed which is completely backlogged. Approach: The main objective of this study to frame an inventory ...
P. A. Bowen
1997-07-01
Full Text Available The fact that traditional price/cost models are unrelated to the construction process renders them largely unsuited to the provision of meaningful price/cost advice. The nature and lengthiness of the construction planning process has precluded its incorporation into price/cost modelling during the pre-tender phase of the traditional building procurement process. The nub of the modelling problem has been how to integrate the complex process of construction planning into the pre-tender price/cost modelling process. In this paper the authors propose the synthesis of artificial intelligence techniques and construction planning techniques, resulting in a conceptual framework for a network-based cost modelling system for use by quantity surveyors in the cost modelling of buildings.
Harun Guzeldere,; Serra Eren Sarioglu
2012-01-01
The traditional Capital Asset Pricing Model stating that the risk premium of a financial asset is positively related to its market risk, was found to be insufficient in explaining the expected returns of stocks. Fama and French (1993) introduced the “Three-Factor Asset Pricing Model” via inserting the size and book-to-market factors to the standard Capital Asset Pricing Model. In this study, the validity of the Three-Factor Model in Istanbul Stock Exchange within 1999-2011 period is investiga...
Prashant Jindal
2016-06-01
Full Text Available For the past four decades the integrated vendor and buyer supply chain inventory model has been an interesting topic, but quality improvement of defective items in the integrated inventory model with backorder price discount involving controllable lead time has been rarely discussed. The aim of this paper is to minimize the total related cost in the continuous review model by considering the order quantity, reorder point, lead time, process quality, backorder price discount and number of shipment as decision variables. Moreover, we assume that an investment function is used to improve the process quality. The lead time demand follows a normal distribution. In addition, the buyer offers backorder price discount to motivate the customers for possible backorders. There are some defective items in the arrival lot, so its treatment is also taken in account in this paper. We develop an iterative procedure for finding the optimal values of decision variables and numerical example is presented to illustrate the solution procedure. Additionally, sensitivity analysis with respect to major parameters is also carried out.
Vicente, R; Leite, V B P; Caticha, N; Vicente, Renato; Toledo, Charles M. de; Leite, Vitor B.P.; Caticha, Nestor
2006-01-01
We investigate the Heston model with stochastic volatility and exponential tails as a model for the typical price fluctuations of the Brazilian S\\~ao Paulo Stock Exchange Index (IBOVESPA). Raw prices are first corrected for inflation and a period spanning 15 years characterized by memoryless returns is chosen for the analysis. Model parameters are estimated by observing volatility scaling and correlation properties. We show that the Heston model with at least two time scales for the volatility mean reverting dynamics satisfactorily describes price fluctuations ranging from time scales larger than 20 minutes to 160 days. At time scales shorter than 20 minutes we observe autocorrelated returns and power law tails incompatible with the Heston model. Despite major regulatory changes, hyperinflation and currency crises experienced by the Brazilian market in the period studied, the general success of the description provided may be regarded as an evidence for a general underlying dynamics of price fluctuations at i...
Andersen, Torben G.; Bollerslev, Tim; Huang, Xin
Building on realized variance and bi-power variation measures constructed from high-frequency financial prices, we propose a simple reduced form framework for effectively incorporating intraday data into the modeling of daily return volatility. We decompose the total daily return variability...... of an ACH model for the time-varying jump intensities coupled with a relatively simple log-linear structure for the jump sizes. Lastly, we discuss how the resulting reduced form model structure for each of the three components may be used in the construction of out-of-sample forecasts for the total return...
A note on Black-Scholes pricing model for theoretical values of stock options
Edeki, S. O.; Ugbebor, O. O.; Owoloko, E. A.
2016-02-01
In this paper, we consider some conditions that transform the classical Black-Scholes Model for stock options valuation from its partial differential equation (PDE) form to an equivalent ordinary differential equation (ODE) form. In addition, we propose a relatively new semi-analytical method for the solution of the transformed Black-Scholes model. The obtained solutions via this method can be used to find the theoretical values of the stock options in relation to their fair prices. In considering the reliability and efficiency of the models, we test some cases and the results are in good agreement with the exact solution.
A Two-Sided Market Model of Optimal Price Structure for Instant Messenger
Jun Xu
2013-01-01
Full Text Available Instant messenger (IM is one of the most popular Internet applications all over the world. This paper examines the pricing problem of IM based on two-sided market model. IM serves as a two-sided platform, which gets both Internet users and advertisers on board. This paper concludes that IM operator adopts a heavily skewed price structure that favors IM users both under monopolistic case and under horizontal differentiated duopolistic case. When advertising revenue is large enough relatively to marginal cost for serving IM users, IM users can enjoy free service provided by IM operators. The competitive equilibrium of duopolistic case is not necessarily symmetric when advertisers choose singlehoming. Even in the symmetric equilibrium platform would rather deter all advertisers.
On the Role of Memory in an Asset Pricing Model with Heterogeneous Beliefs
Miroslav Verbič
2008-06-01
Full Text Available The paper discusses the role of memory in an asset pricing model with heterogeneous beliefs. In particular, we were interested in how memory in the fitness measure affects the stability of evolutionary adaptive systems and the survival of technical trading. In order to obtain an insight into this matter, two cases were analyzed: a two-type case of fundamentalists versus contrarians and a three-type case of fundamentalists versus opposite biases. It has been established that increasing memory strength has a stabilizing effect on dynamics, though it is not able to eliminate speculative traders’ short-run profit-seeking behaviour from the market. Furthermore, opposite biases do not seem to lead to chaotic dynamics, even when there are no costs for fundamentalists. Apparently some (strong trend extrapolator beliefs are needed in order to trigger chaotic asset price fluctuations.
成本建模与原价分析%Cost Modeling and Original Price Analysis
王涛; 袁建新
2015-01-01
In the light of the processing characteristics of automotive sheet metal parts, and based on the establishment of the homogeneous cost pool, we construct the mathematical model of sheet metal products’ original price.By using the models, we make the original price analysis and carry out the sheet metal products’ actuarial work, so the cost control point is found, and ultimately it is realized to save procurement costs and reduce the purchase price.%根据汽车钣金件加工特点，在建立同质作业成本库的基础上，对钣金件产品原价进行数学模型构建，通过模型的运用，实现钣金件产品原价的分析与精算工作，从而发现成本控制点，最终达到节约采购成本、降低采购价格的目的。
Da Liu
2013-01-01
Full Text Available A combined forecast with weights adaptively selected and errors calibrated by Hidden Markov model (HMM is proposed to model the day-ahead electricity price. Firstly several single models were built to forecast the electricity price separately. Then the validation errors from every individual model were transformed into two discrete sequences: an emission sequence and a state sequence to build the HMM, obtaining a transmission matrix and an emission matrix, representing the forecasting ability state of the individual models. The combining weights of the individual models were decided by the state transmission matrixes in HMM and the best predict sample ratio of each individual among all the models in the validation set. The individual forecasts were averaged to get the combining forecast with the weights obtained above. The residuals of combining forecast were calibrated by the possible error calculated by the emission matrix of HMM. A case study of day-ahead electricity market of Pennsylvania-New Jersey-Maryland (PJM, USA, suggests that the proposed method outperforms individual techniques of price forecasting, such as support vector machine (SVM, generalized regression neural networks (GRNN, day-ahead modeling, and self-organized map (SOM similar days modeling.
Bond and CDS Pricing via the Stochastic Recovery Black-Cox Model
Albert Cohen
2017-04-01
Full Text Available Building on recent work incorporating recovery risk into structural models by Cohen & Costanzino (2015, we consider the Black-Cox model with an added recovery risk driver. The recovery risk driver arises naturally in the context of imperfect information implicit in the structural framework. This leads to a two-factor structural model we call the Stochastic Recovery Black-Cox model, whereby the asset risk driver At defines the default trigger and the recovery risk driver Rt defines the amount recovered in the event of default. We then price zero-coupon bonds and credit default swaps under the Stochastic Recovery Black-Cox model. Finally, we compare our results with the classic Black-Cox model, give explicit expressions for the recovery risk premium in the Stochastic Recovery Black-Cox model, and detail how the introduction of separate but correlated risk drivers leads to a decoupling of the default and recovery risk premiums in the credit spread. We conclude this work by computing the effect of adding coupons that are paid continuously until default, and price perpetual (consol bonds in our two-factor firm value model, extending calculations in the seminal paper by Leland (1994.
Hardik N Soni
2012-04-01
Full Text Available This study investigates optimal pricing and inventory policies for non-instantaneous deteriorating items with permissible delay in payment. The demand rate is as known, continuous and differentiable function of price while holding cost rate, interest paid rate and interest earned rate are characterized as independent fuzzy variables rather than fuzzy numbers as in previous studies. Under these general assumptions, we first formulated a fuzzy expected value model (EVM and then some useful theoretical results have been derived to characterize the optimal solutions. An efficient algorithm is designed to determine the optimal pricing and inventory policy for the proposed model. The algorithmic procedure is demonstrated by means of numerical examples.
经济时间资产定价模型%Assets pricing under economic time
于栋华; 吴冲锋
2011-01-01
在常规时间变换研究中所采用的从属概念是建立在独立条件上的,但是价格和成交量之间却是相关的.为了能够将成交量作为价格的随机时间,推广了从属概念,提出了相关从属的定义.相关从属扩大了时间变换研究的范围.继而讨论了相关从属下过程的扩散性质,研究了经济时间上的资产定价问题,结果类似于资本资产定价模型和套利定价模型.最后,利用零贝塔CAPM检验对上海A股市场进行了实证研究,发现经济时间资产定价模型在某些情况下是成立的,并且同样条件下的经济时间模型比日历时间模型的拟合度要高.%Economic systems may not evolve evenly in calendar time. So come economic time and time deformation. Although subordination is the most important mathematical method for time deformation, there is a deficiency in the definition. Because it requires that the stochastic time process and the latent process should be independent. It' s constraining in practice, because the processes often correlate in this way or that way. In order to model such cases, a new concept of dependent-subordination is proposed here. It generalizes subordination from independence to dependence and can be applied in many circumstances, for example,it can be applied to prices and volumes. In early studies, researchers always choose volume as a stochastic time for price. But now we know that price isn' t independent of volume and they are correlated. So, choosing volume as a stochastic time for price isn't appropriate in subordination. But, with the definition of dependent-subordination , volume can be a stochastic time for price. This coincides with the idea that price changes may really be driven by volumes. Next, diffusion properties of dependent-subordination are presented. Finally, assets pricing under economic time is discussed as an application of dependent-subordination. Results are similar to ordinary calendar ones of CAPM and APT.
The Q theory of investment, the capital asset pricing model,and asset valuation:a synthesis
MCDONALD John F.
2004-01-01
The paper combines Tobin's Q theory of real investment with the capital asset pricing model to produce a new and relatively simple procedure for the valuation of real assets using the income approach. Applications of the new method are provided.
A multi-objective model for cordon-based congestion pricing schemes with nonlinear distance tolls
孙鑫; 刘志远; THOMPSON Russell G; 别一鸣; 翁金贤; 陈淑燕
2016-01-01
Congestion pricing is an important component of urban intelligent transport system. The efficiency, equity and the environmental impacts associated with road pricing schemes are key issues that should be considered before such schemes are implemented. This paper focuses on the cordon-based pricing with distance tolls, where the tolls are determined by a nonlinear function of a vehicles’ travel distance within a cordon, termed as toll charge function. The optimal tolls can give rise to:1) higher total social benefits, 2) better levels of equity, and 3) reduced environmental impacts (e.g., less emission). Firstly, a deterministic equilibrium (DUE) model with elastic demand is presented to evaluate any given toll charge function. The distance tolls are non-additive, thus a modified path-based gradient projection algorithm is developed to solve the DUE model. Then, to quantitatively measure the equity level of each toll charge function, the Gini coefficient is adopted to measure the equity level of the flows in the entire transport network based on equilibrium flows. The total emission level is used to reflect the impacts of distance tolls on the environment. With these two indexes/measurements for the efficiency, equity and environmental issues as well as the DUE model, a multi-objective bi-level programming model is then developed to determine optimal distance tolls. The multi-objective model is converted to a single level model using the goal programming. A genetic algorithm (GA) is adopted to determine solutions. Finally, a numerical example is presented to verify the methodology.
Oil prices and the stock prices of alternative energy companies
Henriques, Irene; Sadorsky, Perry [Schulich School of Business, 4700 Keele Street, Toronto, Ontario (Canada)
2008-05-15
Energy security issues coupled with increased concern over the natural environment are driving factors behind oil price movements. While it is widely accepted that rising oil prices are good for the financial performance of alternative energy companies, there has been relatively little statistical work done to measure just how sensitive the financial performance of alternative energy companies are to changes in oil prices. In this paper, a four variable vector autoregression model is developed and estimated in order to investigate the empirical relationship between alternative energy stock prices, technology stock prices, oil prices, and interest rates. Our results show technology stock prices and oil prices each individually Granger cause the stock prices of alternative energy companies. Simulation results show that a shock to technology stock prices has a larger impact on alternative energy stock prices than does a shock to oil prices. These results should be of use to investors, managers and policy makers. (author)
CHEN Xu; WAN Jian-ping
2007-01-01
To study the approximation of foreign currency option prices when the underlying assets'price dynamics are described by exponential Lévy processes, the convolution representations for option pricing formulas were given, and then the fast Fourier transform(FFT) algorithm was used to get the approximate values of option prices. Finally, a numerical example was given to demonstrate the calculate steps to the option price by FFT.
Bilevel linear programming model of charging for effluent based on price control
LI Yu-hua; LI Lei; HU Yun-quan; SHAO Hai-hong
2007-01-01
For the optimum price problem of charging for effluent, this paper analyzes the optimal Pigovian Tax and the serious information asymmetry problem existing in the application process of optimal Pigovian Tax,which is predominant in theory. Then the bilevel system optimizing decision-making theory is applied to give bilevel linear programming decision-making model of charging for effluent, in which the government (environmental protection agency) acts as the upper level decision-making unit and the polluting enterprises act as the lower level decision-making unit. To some extent, the model avoids the serious information asymmetry between the government and the polluting enterprises on charging for effluent.
Choice Overload, Satisficing Behavior, and Price Distribution in a Time Allocation Model
Francisco Álvarez
2014-01-01
Full Text Available Recent psychological research indicates that consumers that search exhaustively for the best option of a market product—known as maximizers—eventually feel worse than consumers who just look for something good enough—called satisficers. We formulate a time allocation model to explore the relationship between different distributions of prices of the product and the satisficing behavior and the related welfare of the consumer. We show numerically that, as the number of options becomes large, the maximizing behavior produces less and less welfare and eventually leads to choice paralysis—these are effects of choice overload—whereas satisficing conducts entail higher levels of satisfaction and do not end up in paralysis. For different price distributions, we provide consistent evidence that maximizers are better off for a low number of options, whereas satisficers are better off for a sufficiently large number of options. We also show how the optimal satisficing behavior is affected when the underlying price distribution varies. We provide evidence that the mean and the dispersion of a symmetric distribution of prices—but not the shape of the distribution—condition the satisficing behavior of consumers. We also show that this need not be the case for asymmetric distributions.
No Dog Left Behind: A Hedonic Pricing Model for Animal Shelters.
Reese, Laura A; Skidmore, Mark; Dyar, William; Rosebrook, Erika
2017-01-01
Companion animal overpopulation is a growing problem in the United States. In addition to strays, an average of 324,500 nonhuman animals are relinquished to shelters yearly by their caregivers due to family disruption (divorce, death), foreclosure, economic problems, or minor behavioral issues. As a result, estimates of animals in shelters range from 3 million to 8 million, and due to overcrowding, euthanasia is common. This analysis seeks to determine the appropriate pricing mechanisms to clear animal shelters of dogs in the manner most desirable-that is, through adoption. Based on a survey of Michigan residents, it is clear there are a number of correlations between the traits of dogs and the individuals who care for them. Hedonic pricing models indicate that animal shelters need to proactively vary their pricing systems to discount particular traits, specifically for mixed-breed, older, and black dogs. Premiums can be charged for puppies, purebred dogs, and those who have received specific services such as microchipping.
Developing a goal programming model for ideal/mutual house price
Saiddin, Nor Syuhadah; Zaibidi, Nerda Zura; Sulaiman, Nor Intan Saniah
2015-12-01
One cannot deny the importance of a house as a living need. Unfortunately, the unreasonable house price makes it approximately impossible to be owned, mostly for middle income group. Nowadays, the middle income house buyers have two alternatives, whether to buy it from a private developer or through PR1MA and My First Home scheme, since both parties have their own advantages. Goal programming has been employed to resolve the multi objective problem among parties. Due to the complex decision making in house price determination between the parties, this study purposely modeled the problem using interval goal programming approach. Goal programming and interval goal programming can be differ based on their goal (i.e. the aspire level) which is in the form of interval. This study employed primary data and secondary data, which primary data is acquired from semi-structured interview with private developer, while secondary data is the data obtained from literature review. Initial result shows the satisfactory house price over preferences and needs of the decision makers, which are RM454, 050.00 for the private developer, RM322, 880.00 for the government and range of RM2380.95 to RM245, 100.00 for the house buyer. This suggests the house price range that is satisfied by all parties which is about RM238, 000.95 to RM460, 000.00.The satisfaction might occurred when they are all cooperating, which the way could enlighten the impact of collaboration between the parties. This could be the limitations for this study.
Short-term electricity demand and gas price forecasts using wavelet transforms and adaptive models
Nguyen, Hang T.; Nabney, Ian T. [Non-linearity and Complexity Research Group, School of Engineering and Applied Science, Aston University, Aston Triangle, Birmingham B4 7ET (United Kingdom)
2010-09-15
This paper presents some forecasting techniques for energy demand and price prediction, one day ahead. These techniques combine wavelet transform (WT) with fixed and adaptive machine learning/time series models (multi-layer perceptron (MLP), radial basis functions, linear regression, or GARCH). To create an adaptive model, we use an extended Kalman filter or particle filter to update the parameters continuously on the test set. The adaptive GARCH model is a new contribution, broadening the applicability of GARCH methods. We empirically compared two approaches of combining the WT with prediction models: multicomponent forecasts and direct forecasts. These techniques are applied to large sets of real data (both stationary and non-stationary) from the UK energy markets, so as to provide comparative results that are statistically stronger than those previously reported. The results showed that the forecasting accuracy is significantly improved by using the WT and adaptive models. The best models on the electricity demand/gas price forecast are the adaptive MLP/GARCH with the multicomponent forecast; their NMSEs are 0.02314 and 0.15384 respectively. (author)
Higher-order co-moments in asset pricing on the stock exchange in Brazil
Paulo Vitor Jordão da Gama Silva
2015-12-01
Full Text Available This study seeks to identify the behavior of systemic asymmetry (coskewness and systemic kurtosis (cokurtosis in asset pricing on the Brazilian stock exchange (in BM&F Bovespa. The methodology explored by Harvey and Siddique (2000 was used to estimate the degree of coskewness and cokurtosis for stocks in each month t, following the CAPM regression. The three-factor model was used according to Fama and French (1993, with modifications to the calculation of the factors following the methodology exploited by Neves (2003. The results show that for the Brazilian market, assets with negative coskewness and cokurtosis tend to yield more than assets with positive coskewness and cokurtosis. According to observations in the American and London markets, as investors expect higher returns for the high risk, a preference was found for negative coskewness and positive cokurtosis. In Brazil, it was found that in the case of coskewness, it repeats itself, but not for cokurtosis, where the reverse is true, which can lead to the conclusion of a typically risk-averse behavior.
Modeling the return and volatility of the Greek electricity marginal system price
Theodorou, Petros [Department of Economics, Athens University of Economics and Business, 76, Patission Street, 104 34 Athens (Greece); Karyampas, Dimitrios [School of Economics, Mathematics and Statistics, Birkbeck, University of London (United Kingdom)
2008-07-15
Traditional cost based optimization models (WASP) for expansion planning do not allow for mark-to-market valuation and cannot satisfy arbitrage free requirements. This work will fill this gap by developing and estimating models for mark-to-market valuation. Furthermore the present paper examines the return and volatility of the newly born Greek's electricity market's marginal system price. A detailed description of the market mechanism and regulation is used to describe how prices are determined in order to proceed with return and volatility modeling. Continuous time mean reverting and time varying mean reverting stochastic processes have been solved in discrete time processes and estimated econometrically along with ARMAX and GARCH models. It was found that GARCH model gave much better estimation and forecasting ability. Strong persistence in mean has been found giving suspicions of market inefficiency and strong incentives for arbitrage opportunities. Finally, the change in the regulatory framework has been controlled and found to have significant impact. (author)
Shu San Gan
2015-12-01
Full Text Available In this study we develop a model that optimizes the price for new and remanufactured short life-cycle products where demands are time-dependent and price sensitive. While there has been very few published works that attempt to model remanufacturing decisions for products with short life cycle, we believe that there are many situations where remanufacturing short life cycle products is rewarding economically as well as environmentally. The system that we model consists of a retailer, a manufacturer, and a collector of used product from the end customers. Two different scenarios are evaluated for the system. The first is the independent situation where each party attempts to maximize his/her own total profit and the second is the joint profit model where we optimize the combined total profit for all three members of the supply chain. Manufacturer acts as the Stackelberg leader in the independently optimized scenario, while in the other the intermediate prices are determined by coordinated pricing policy. The results suggest that (i reducing the price of new products during the decline phase does not give better profit for the whole system, (ii the total profit obtained from optimizing each player is lower than the total profit of the integrated model, and (iii speed of change in demand influences the robustness of the prices as well as the total profit gained.
Li, Rui; Wang, Jun
2016-01-01
A financial price model is developed based on the voter interacting system in this work. The Lempel-Ziv complexity is introduced to analyze the complex behaviors of the stock market. Some stock market stylized facts including fat tails, absence of autocorrelation and volatility clustering are investigated for the proposed price model firstly. Then the complexity of fluctuation behaviors of the real stock markets and the proposed price model are mainly explored by Lempel-Ziv complexity (LZC) analysis and multi-scale weighted-permutation entropy (MWPE) analysis. A series of LZC analyses of the returns and the absolute returns of daily closing prices and moving average prices are performed. Moreover, the complexity of the returns, the absolute returns and their corresponding intrinsic mode functions (IMFs) derived from the empirical mode decomposition (EMD) with MWPE is also investigated. The numerical empirical study shows similar statistical and complex behaviors between the proposed price model and the real stock markets, which exhibits that the proposed model is feasible to some extent.
Wendel Alex Castro Silva
2012-04-01
Full Text Available Este estudo testa e compara duas versões da relação de equilíbrio geral para a predição dos retornos esperados: o CAPM na versão estática e o CAPM na versão condicional, que considera não estacionárias as estimativas dos coeficientes ao longo de um determinado período. A primeira preocupação foi quanto ao poder explicativo de cada modelo e em relação aos efeitos das variáveis econômicas, e a segunda foi examinar a ocorrência de mudanças estruturais e quais os períodos impactaram no comportamento dos coeficientes. A análise foi feita em dados diários de índices representativos de papéis negociados na Bovespa no período compreendido entre 1º de dezembro de 2005 e 31 de outubro de 2008 (721 observações. Para ter um número mínimo de observações e estimar, de forma consistente, os parâmetros dos modelos de regressão e para que a correção de Newey-West pudesse corrigir o problema de ineficiência dos coeficientes quando fossem violados os pressupostos clássicos de ausências de autocorrelação e heterocedasticidade dos resíduos, em alguns casos, teve-se de considerar as quebras que fossem estatisticamente mais significativas por meio do controle do período de monitoramento. Assim, após a aplicação dos testes para verificação das hipóteses clássicas de MQO, constatou-se que o modelo escolhido seria o CAPM condicional, por apresentar menores critérios de informações de Akaike (AIC e Schwarz (BIC, sem a presença de quebra estrutural. Quando se considerou a presença de quebra estrutural na série temporal, observaram-se mudanças nos riscos sistêmicos e totais ao longo do período observado. Diante desses resultados, recomenda-se investigar os possíveis eventos que provocaram ruptura nas séries, observando os fatores que contribuíram para tal interferência.
A RBF neural network model with GARCH errors: Application to electricity price forecasting
Coelho, Leandro dos Santos [Industrial and Systems Engineering Graduate Program, PPGEPS, Pontifical Catholic University of Parana, Imaculada Conceicao, 1155, Zip code 80215-901, Curitiba, Parana (Brazil); Santos, Andre A.P. [Department of Statistics, Universidad Carlos III de Madrid, C/ Madrid, 126, 28903 Getafe, Madrid (Spain)
2011-01-15
In this article, we propose a nonlinear forecasting model based on radial basis function neural networks (RBF-NNs) with Gaussian activation functions and robust clustering algorithms to model the conditional mean and a parametric generalized autoregressive conditional heteroskedasticity (GARCH) specification to model the conditional volatility. Instead of calibrating the parameters of the RBF-NNs via numerical simulations, we propose an estimation procedure by which the number of basis functions, their corresponding widths and the parameters of the GARCH model are jointly estimated via maximum likelihood along with a genetic algorithm to maximize the likelihood function. We use this model to provide multi-step-ahead point and direction-of-change forecasts of the Spanish electricity pool prices. (author)
International evidence on crude oil price dynamics. Applications of ARIMA-GARCH models
Mohammadi, Hassan [Department of Economics, Illinois State University, Normal, IL 61790-4200 (United States); Su, Lixian [Graduate Student, Department of Economics, Illinois State University, Normal, IL 61790-4200 (United States)
2010-09-15
We examine the usefulness of several ARIMA-GARCH models for modeling and forecasting the conditional mean and volatility of weekly crude oil spot prices in eleven international markets over the 1/2/1997-10/3/2009 period. In particular, we investigate the out-of-sample forecasting performance of four volatility models - GARCH, EGARCH and APARCH and FIGARCH over January 2009 to October 2009. Forecasting results are somewhat mixed, but in most cases, the APARCH model outperforms the others. Also, conditional standard deviation captures the volatility in oil returns better than the traditional conditional variance. Finally, shocks to conditional volatility dissipate at an exponential rate, which is consistent with the covariance-stationary GARCH models than the slow hyperbolic rate implied by the FIGARCH alternative. (author)
A stochastic delay model for pricing debt and equity: Numerical techniques and applications
Tambue, Antoine; Kemajou Brown, Elisabeth; Mohammed, Salah
2015-01-01
Delayed nonlinear models for pricing corporate liabilities and European options were recently developed. Using self-financed strategy and duplication we were able to derive a Random Partial Differential Equation (RPDE) whose solutions describe the evolution of debt and equity values of a corporate in the last delay period interval in the accompanied paper (Kemajou et al., 2012) [14]. In this paper, we provide robust numerical techniques to solve the delayed nonlinear model for the corporate value, along with the corresponding RPDEs modeling the debt and equity values of the corporate. Using financial data from some firms, we forecast and compare numerical solutions from both the nonlinear delayed model and classical Merton model with the real corporate data. From this comparison, it comes up that in corporate finance the past dependence of the firm value process may be an important feature and therefore should not be ignored.
Shengchun Yang
2016-01-01
Full Text Available Demand response (DR programs provide an effective approach for dealing with the challenge of wind power output fluctuations. Given that uncertain DR, such as price elastic load (PEL, plays an important role, the uncertainty of demand response behavior must be studied. In this paper, a multi-objective stochastic optimization problem of PEL is proposed on the basis of the analysis of the relationship between price elasticity and probabilistic characteristic, which is about stochastic demand models for consumer loads. The analysis aims to improve the capability of accommodating wind output uncertainty. In our approach, the relationship between the amount of demand response and interaction efficiency is developed by actively participating in power grid interaction. The probabilistic representation and uncertainty range of the PEL demand response amount are formulated differently compared with those of previous research. Based on the aforementioned findings, a stochastic optimization model with the combined uncertainties from the wind power output and the demand response scenario is proposed. The proposed model analyzes the demand response behavior of PEL by maximizing the electricity consumption satisfaction and interaction benefit satisfaction of PEL. Finally, a case simulation on the provincial power grid with a 151-bus system verifies the effectiveness and feasibility of the proposed mechanism and models.
A dual theory of price and value in a meso-scale economic model with stochastic profit rate
Greenblatt, R. E.
2014-12-01
The problem of commodity price determination in a market-based, capitalist economy has a long and contentious history. Neoclassical microeconomic theories are based typically on marginal utility assumptions, while classical macroeconomic theories tend to be value-based. In the current work, I study a simplified meso-scale model of a commodity capitalist economy. The production/exchange model is represented by a network whose nodes are firms, workers, capitalists, and markets, and whose directed edges represent physical or monetary flows. A pair of multivariate linear equations with stochastic input parameters represent physical (supply/demand) and monetary (income/expense) balance. The input parameters yield a non-degenerate profit rate distribution across firms. Labor time and price are found to be eigenvector solutions to the respective balance equations. A simple relation is derived relating the expected value of commodity price to commodity labor content. Results of Monte Carlo simulations are consistent with the stochastic price/labor content relation.
Roohollah Zare
2015-06-01
Full Text Available This paper analyzes the association between monetary policy (measured by short-term interest rate and stock prices at the aggregate and disaggregated levels for Malaysia using asymmetric cointegration and error-correction modeling approaches. Estimating the models using monthly data from 1986:1 to 2012:12, results show with the exception of the finance, plantation and consumer products sectors, there is evidences supportive of the long-run relations between monetary policy and stock prices. Further, the aggregate, industrial and properties stock price indices are noted to be asymmetrically cointegrated with monetary policy with the faster adjustment of stock prices when they are below their long-run values.
On a price formation free boundary model by Lasry & Lions: The Neumann problem
Caffarelli, Luis A; Wolfram, Marie-Therese
2011-01-01
We discuss local and global existence and uniqueness for the price formation free boundary model with homogeneous Neumann boundary conditions introduced by Lasry & Lions in 2007. The results are based on a transformation of the problem to the heat equation with nonstandard boundary conditions. The free boundary becomes the zero level set of the solution of the heat equation. The transformation allows us to construct an explicit solution and discuss the behavior of the free boundary. Global existence can be verified under certain conditions on the free boundary and examples of non-existence are given.
On a price formation free boundary model by Lasry and Lions
Caffarelli, Luis A.
2011-06-01
We discuss global existence and asymptotic behaviour of a price formation free boundary model introduced by Lasry and Lions in 2007. Our results are based on a construction which transforms the problem into the heat equation with specially prepared initial datum. The key point is that the free boundary present in the original problem becomes the zero level set of this solution. Using the properties of the heat operator we can show global existence, regularity and asymptotic results of the free boundary. 2011 Académie des sciences.
A 3-DIMENSIONAL DISCRETE MODEL OF HOUSING PRICE AND ITS INHERENT COMPLEXITY ANALYSIS
Lingling MU; Junhai MA; Liwen CHEN
2009-01-01
A discrete nonlinear model of real estate is derived, with which the evolutionary trend among government, consumers and real estate developers is described. The stability, bifurcation, and chaotic behavior of the system are also analyzed by using nonlinear dynamic method. Results show that chaos can be obtained via quasi-periodic transition and double-periodic bifurcation. The influence of dynamic evolutionary trend among stakeholder on system stability is also studied and some interesting conclusions are derived. This research can effectively explain the complex behavior of housing prices.
I, Sahadudheen I
2013-01-01
This paper examines the effect of volatility in both rupee-dollar and rupee-euro exchange rates on stock prices in India using daily data from 3-Apr-2007 to 30-Mar-2012. Adopting a generalized autoregressive conditional heteroskedasticity (GARCH) and exponential GARCH (EGARCH) model, the study suggests a negative relationship between exchange rate and stock prices in India. Even though India is a major trade partner of European Union, the study couldn’t find any significant statistical effect...
Shabri, Ani; Samsudin, Ruhaidah
2014-01-01
Crude oil prices do play significant role in the global economy and are a key input into option pricing formulas, portfolio allocation, and risk measurement. In this paper, a hybrid model integrating wavelet and multiple linear regressions (MLR) is proposed for crude oil price forecasting. In this model, Mallat wavelet transform is first selected to decompose an original time series into several subseries with different scale. Then, the principal component analysis (PCA) is used in processing subseries data in MLR for crude oil price forecasting. The particle swarm optimization (PSO) is used to adopt the optimal parameters of the MLR model. To assess the effectiveness of this model, daily crude oil market, West Texas Intermediate (WTI), has been used as the case study. Time series prediction capability performance of the WMLR model is compared with the MLR, ARIMA, and GARCH models using various statistics measures. The experimental results show that the proposed model outperforms the individual models in forecasting of the crude oil prices series.
Ani Shabri
2014-01-01
Full Text Available Crude oil prices do play significant role in the global economy and are a key input into option pricing formulas, portfolio allocation, and risk measurement. In this paper, a hybrid model integrating wavelet and multiple linear regressions (MLR is proposed for crude oil price forecasting. In this model, Mallat wavelet transform is first selected to decompose an original time series into several subseries with different scale. Then, the principal component analysis (PCA is used in processing subseries data in MLR for crude oil price forecasting. The particle swarm optimization (PSO is used to adopt the optimal parameters of the MLR model. To assess the effectiveness of this model, daily crude oil market, West Texas Intermediate (WTI, has been used as the case study. Time series prediction capability performance of the WMLR model is compared with the MLR, ARIMA, and GARCH models using various statistics measures. The experimental results show that the proposed model outperforms the individual models in forecasting of the crude oil prices series.
Kelmara Mendes Vieira
2011-03-01
Full Text Available This work develops a hybrid model of structural equations able to take simultaneously the hypotheses of signaling, liquidity, and optimal price level to explain the reaction to the stock dividends and stock splits. In the measurement model four constructs were defined: trading activity, spread, size, and price. The structural model defines extant relations from the proposition of 22 sub-hypotheses. A sample of 321 splits performed in the Brazilian market between 1990 and 2004 was used for assessing the model. Confirmatory factor analysis revealed the validity and coherence of the four constructs. The structural model confirmed 9 original sub-hypotheses.
Price Recall, Bertrand Paradox and Price Dispersion With Elastic Demand
Carvalho, M.
2009-01-01
This paper studies the consequence of an imprecise recall of the price by the consumers in the Bertrand price competition model for a homogeneous good. It is shown that firms can exploit this weakness and charge prices above the competitive price. This markup increases for rougher recall of the pric
Price control and macromarketing
Kancir Rade
2003-01-01
Full Text Available Price control at macro level is part of integral macro marketing strategic control system, or more precisely, part of social marketing mix control. Price impact is direct, if it is regarded in the context of needs satisfaction, and indirect, within the context of resource allocation. These two patterns of price impact define control mechanism structuring. Price control in sense of its direct impact at process of need satisfaction should comprise qualitative and quantitative level of needs satisfaction at a given price level and its structure, informational dimension of price and different disputable forms of corporate pricing policies. Control of price allocation function is based at objectives of macro marketing system management in the area of resource allocation and the role of price as allocator in contemporary market economies. Control process is founded, on one hand, at theoretical models of correlation between price and demand in different market structures, and on the other hand, at complex limits that price as allocator has, and which make whole control process even more complex because of reduction of the degree of determinism in functioning of contemporary economic systems. Control of price allocation function must be continuous and dynamic process if it is to provide for convergence with environmental changes and if it is to provide for placing control systems at micro marketing levels in the function of socially valid objectives.
Modelling the Errors of EIA’s Oil Prices and Production Forecasts by the Grey Markov Model
Gholam Hossein Hasantash
2012-01-01
Full Text Available Grey theory is about systematic analysis of limited information. The Grey-Markov model can improve the accuracy of forecast range in the random fluctuating data sequence. In this paper, we employed this model in energy system. The average errors of Energy Information Administrations predictions for world oil price and domestic crude oil production from 1982 to 2007 and from 1985 to 2008 respectively were used as two forecasted examples. We showed that the proposed Grey-Markov model can improve the forecast accuracy of original Grey forecast model.
Debora Revoltella
2010-09-01
Full Text Available The private sector has used proxies such as sovereign credit ratings, spreads on sovereign bonds and spreads on sovereign credit default swaps (CDS to gauge country risk, even though these measures are pricing the risk of default of government bonds, which is different from the risks facing private participants in cross-border financing. Under normal market conditions, the CDS spreads are a very useful source of information on country risk. However, the recent crisis has shown that the CDS spreads might lead to some underpricing or overpricing of fundamentals in the case of excessively low or excessively high risk aversion. In this paper we develop an alternative measure of country risk that extracts the volatile, short-term market sentiment component from the sover eign CDS spread in order to improve its reliability in periods of market distress. We show that adverse market sentiment was a key driver of the sharp increase in sovereign CDS spreads of central and eastern European (CEE countries during the most severe phase of the crisis. We also show that our measure of country risk sheds some light on the observed stability of cross-border bank flows to CEE banks during the crisis.
Mohammad Sohrabi
2016-02-01
Full Text Available This paper, considers the supplier selection in three echelon supply chain with Vendor Managed Inventory (VMI strategy under price dependent demand condition. As there is a lack of study on the supplier selection in VMI literature, this paper presents a VMI model in supply chain including multi supplier, one distributer and multi retailer that distributer selects suppliers. Two class models (traditional vs. VMI are presented and we compare them to study the impact of VMI on supply chain and supplier selection. As the proposed model is a NP-hard problem, a meta-heuristics namely Harmony Search is employed to optimize the proposed models. We show that how the VMI system can effect on supplier selection and can change the set of selected suppliers. Finally the conclusion and further studies are presented
Price-Dynamics of Shares and Bohmian Mechanics: Deterministic or Stochastic Model?
Choustova, Olga
2007-02-01
We apply the mathematical formalism of Bohmian mechanics to describe dynamics of shares. The main distinguishing feature of the financial Bohmian model is the possibility to take into account market psychology by describing expectations of traders by the pilot wave. We also discuss some objections (coming from conventional financial mathematics of stochastic processes) against the deterministic Bohmian model. In particular, the objection that such a model contradicts to the efficient market hypothesis which is the cornerstone of the modern market ideology. Another objection is of pure mathematical nature: it is related to the quadratic variation of price trajectories. One possibility to reply to this critique is to consider the stochastic Bohm-Vigier model, instead of the deterministic one. We do this in the present note.
Numerical Methods for Pricing American Options with Time-Fractional PDE Models
Zhou, Zhiqiang; Gao, Xuemei
2016-01-01
In this paper we develop a Laplace transform method and a finite difference method for solving American option pricing problem when the change of the option price with time is considered as a fractal...
Exploring the WTI crude oil price bubble process using the Markov regime switching model
Zhang, Yue-Jun; Wang, Jing
2015-03-01
The sharp volatility of West Texas Intermediate (WTI) crude oil price in the past decade triggers us to investigate the price bubbles and their evolving process. Empirical results indicate that the fundamental price of WTI crude oil appears relatively more stable than that of the market-trading price, which verifies the existence of oil price bubbles during the sample period. Besides, by allowing the WTI crude oil price bubble process to switch between two states (regimes) according to a first-order Markov chain, we are able to statistically discriminate upheaval from stable states in the crude oil price bubble process; and in most of time, the stable state dominates the WTI crude oil price bubbles while the upheaval state usually proves short-lived and accompanies unexpected market events.
Estimating Price Volatility Structure in Iran’s Meat Market: Application of General GARCH Models
Z. Rasouli Birami
2016-10-01
Full Text Available Introduction: Over the past few years, the price volatility of agricultural products and food markets has attracted attention of many researchers and policy makers. This growing attention was started from the food price crisis in 2007 and 2008 when major agricultural products faced accelerated price increases and then rapidly decreased. This paper focused on the price volatility of major commodities related to three market levels of Iran’s meat market, including hay (the input level, calf and sheep (the wholesale level and beef and mutton (the retail level. In particular, efforts will made to find more appropriate models for explaining the behavior of volatility of the return series and to identify which return series are more volatile. The effects of good and bad news on the volatility of prices in each return series will also be studied. Materials and Methods: Different GARCH type models have been considered the best for modeling volatility of return series. Nonlinear GARCH models were introduced to capture the effect of good and bad news separately. The paper uses some GARCH type models including GARCH, Exponential GARCH (EGARCH, GJR-GARCH, Threshold GARCH (TGARCH, Simple Asymmetric GARCH (SAGARCH, Power GARCH (PGARCH, Non-linear GARCH (NGARCH, Asymmetric Power GARCH (APGARCH and Non-linear Power GARCH (NPGARCH to model the volatility of hay, calf, sheep, beef and mutton return series. The data on hay, calf, sheep, and beef and mutton monthly prices are published by Iran’s livestock support firm. The paper uses monthly data over the sample period of the May 1992 to the March 2014. Results and Discussion: Descriptive statistics of the studied return series show evidence of skewness and kurtosis. The results here show that all the series has fat tails. The significant p-values for the Ljung-Box Q-statistics mean that the auto-correlation exists in the squared residuals. The presence of unit roots in the return series is confirmed by the
Hegerty Scott W.
2015-11-01
Full Text Available Recent commodity price declines have added to worldwide macroeconomic risk, which has had serious effects on both commodity exporters and manufacturers that use oil and raw materials. These effects have been keenly felt in Central and Eastern Europe—particularly in Russia, but also in European Union member states. This study tests for spillovers among commodity-price and macroeconomic volatility by applying a VAR(1-MGARCH model to monthly time series for eight CEE countries. Overall, we find that oil prices do indeed have effects throughout the region, as do spillovers among exchange rates, inflation, interest rates, and output, but that they differ from country to country—particularly when different degrees of transition and integration are considered. While oil prices have a limited impact on the currencies of Russia and Ukraine, they do make a much larger contribution to the two countries’ macroeconomic volatility than do spillovers among the other macroeconomic variables.