Efficiencies and scope economies of Chinese airports in moving passengers and cargo

The paper looks at the technical efficiency of Chinese airports using multi-output stochastic input distance function analysis. This method provides a statistical test of scope economies to investigate the contribution of air cargo transport to airport efficiency. Our findings confirm the presence of scope economies in air passenger and air cargo transport among airports in China. We compare and contrast these results with results obtained from single-output stochastic production frontier analysis in which the effect of scope economies is not included. Our results indicate that the presence of scope economies significantly affects the estimation of technical efficiency, thus implying different efficiency rankings among airports in China.     

The relation between the equity risk premium and the bond maturity premium in the UK: 1900–2006

Using a rich data set for the UK for over a century, we find that the relation between the equity risk premium and the government bond maturity premium is nonlinear and subject to stochastic regime switching. We identify a regime in which both premia are jointly characterized by low volatility and another regime in which both premia are characterized by high volatility. The occurrence of the high volatility regime chronologically coincides with major changes in the pound exchange rate. The low volatility regime has a higher probability of turning up over two consecutive years than the high volatility regime, but it is not perceived by investors to be an absorbing regime. The lagged maturity premium is a strong predictor of the equity risk premium only in the regime of low volatility. In addition, the lagged equity premium is a predictor of the maturity premium also in the low volatility regime. This result on regime-dependent bidirectional predictability is robust to alternative definitions of the equity premium, and to the inclusion of real interest rate and real growth effects.

Affine multiple yield curve models

We provide a general and tractable framework under which all multiple yield curve modeling approaches based on affine processes, be it short rate, Libor market, or Heath–Jarrow–Morton modeling, can be consolidated. We model a numéraire process and multiplicative spreads between Libor rates and simply compounded overnight indexed swap rates as functions of an underlying affine process. Besides allowing for ordered spreads and an exact fit to the initially observed term structures, this general framework leads to tractable valuation formulas for caplets and swaptions and embeds all existing multicurve affine models. The proposed approach also gives rise to new developments, such as a short rate type model driven by a Wishart process, for which we derive a closed‐form pricing formula for caplets. The empirical performance of two specifications of our framework is illustrated by calibration to market data.     

A Keynesian Dynamic Stochastic Disequilibrium model for business cycle analysis

A Dynamic Stochastic Disequilibrium model is proposed for business cycle analysis. The core innovation and fundamental deviation from the corresponding full-employment Dynamic Stochastic General Equilibrium model is the assumption that the nominal wage is a policy variable with no tendency to clear the labor market. As a consequence, disequilibrium unemployment arises which crucially alters the transmission of macroeconomic shocks. Solving the puzzle of low fiscal multipliers in conventional general equilibrium models, the effects of spending shocks become considerably more pronounced in the disequilibrium model because idle labor can be quickly utilized to accommodate aggregate demand without requiring households to increase their supply. In contrast to the standard model, technology and labor supply shocks are partly absorbed by unemployment and, hence, only moderately expansionary. Despite its simplicity and unlike the corresponding general equilibrium model, the disequilibrium model is able to generate shock responses which are broadly in line with empirical evidence.     

The balance between size and power in testing for linear association for two stationary AR(1) processes

The classical statistical procedure in testing the null hypothesis of zero correlation for two independent stationary AR(1) processes produces spurious correlations, contrast to the alternative testing approach that has been proposed by Agiakloglou and Tsimpanos (2012). This study examines the trade-offs between size distortions and power using both testing techniques, including the case where the true values of the autoregressive parameters are replaced by their estimates.     

Stochastic stability in assignment problems

In a dynamic model of assignment problems, it is shown that small deviations suffice to move between stable outcomes. This result is used to obtain no-selection and almost-no-selection results under the stochastic stability concept for uniform and payoff-dependent errors. There is no-selection of partner or payoff under uniform errors, nor for agents with multiple optimal partners under payoff-dependent errors. There can be selection of payoff for agents with a unique optimal partner under payoff-dependent errors. However, when every agent has a unique optimal partner, almost-no-selection is obtained.     

Lead time aggregation: A three-echelon supply chain model

In this paper, destructive effects of upstream aggregated stochastic lead times on the supply chain (SC) performance are analyzed. For this purpose, a three-echelon SC consisting of one producer, one distributor, and one retailer is modeled. Both the producer and distributor face stochastic lead times, which can be also aggregated to create a long unpredictable lead time. In order to scale down shortages at the retailer site, an incentive scheme is proposed to convince the upstream members to increase their reorder points. Applying the coordinated model considerably increases the total profit earned by the whole SC as well as all SC members.     

Regression-based Monte Carlo methods for stochastic control models: variable annuities with lifelong guarantees

We present regression-based Monte Carlo simulation algorithm for solving the stochastic control models associated with pricing and hedging of the guaranteed lifelong withdrawal benefit (GLWB) in variable annuities, where the dynamics of the underlying fund value is assumed to evolve according to the stochastic volatility model. The GLWB offers a lifelong withdrawal benefit, even when the policy account value becomes zero, while the policyholder remains alive. Upon death, the remaining account value will be paid to the beneficiary as a death benefit. The bang-bang control strategy analysed under the assumption of maximization of the policyholder’s expected cash flow reduces the strategy space of optimal withdrawal policies to three choices: zero withdrawal, withdrawal at the contractual amount or complete surrender. The impact on the GLWB value under various withdrawal behaviours of the policyholder is examined. We also analyse the pricing properties of GLWB subject to different model parameter values and structural features.     

A stochastic programming approach for floods emergency logistics

This article presents a model to assist decision makers in the logistics of a flood emergency. The model attempts to optimize inventory levels for emergency supplies as well as vehicles’ availability, in order to deliver enough supplies to satisfy demands with a given probability. A spatio-temporal stochastic process represents the flood occurrence. The model is approximately solved with sample average approximation. The article presents a method to quantify the impact of the various intervening logistics parameters. An example is provided and a sensitivity analysis is performed. The studied example shows large differences between the impacts of logistics parameters such as number of products, number of periods, inventory capacity and degree of demand fulfillment on the logistics cost and time. This methodology emerges as a valuable tool to help decision makers to allocate resources both before and after a flood occurs, with the aim of minimizing the undesirable effects of such events.     

Perturbed utility and general equilibrium analysis

We study general equilibrium theory of complete markets in an otherwise standard economy with each household having an additive perturbed utility function. Since this function represents a type of stochastic choice theory, the equilibrium of the corresponding economy is defined to be a price vector that makes its mean expected demand equal its mean endowment. We begin with a study of the economic meaning of this notion, by showing that at any given price vector, there always exists an economy with deterministic utilities whose mean demand is just the mean expected demand of our economy with additive perturbed utilities. We then show the existence of equilibrium, its Pareto inefficiency, and the upper hemi-continuity of the equilibrium set correspondence. Specializing to the case of regular economies, we finally demonstrate that almost every economy is regular and the equilibrium set correspondence in this regular case is continuous and locally constant.