Non-linear dynamics in international resource markets: Evidence from regime switching approach

This paper examines the nonstationary and nonlinear features of the non-renewable resource markets: the crude oil (US West Texas Intermediate and UK Brent), bituminous coal and natural gas markets. In particular, we achieve this goal by using the Markov switching unit root regression. This approach is attractive because it allows price to switch between stationary and nonstationary regimes (partial nonstationarity). It also allows price to switch between two stationary regimes (varied stationarity) or to switch between two nonstationary regimes (varied nonstationarity). The results of a range of non-linear tests show that the independently and identically distributed (i.i.d.) hypothesis or the random walk hypothesis is untenable for the non-renewable resource prices. The results from the Markov regression indicate that, in the cases of US West Texas Intermediate, UK Brent as well as bituminous coal, prices are characterized by the local nonstationarity in both regimes, and therefore varied nonstationarity is sustained. The price of natural gas is characterized by partial nonstationarity, indicating that this market is inconsistent with the efficient market.     

An options pricing approach to ramping rate restrictions at hydro power plants

This paper investigates the impact of ramping rate restrictions imposed on hydro operations to protect aquatic ecosystems. The optimal ramping decision is specified as an optimal control problem which results in a Hamilton Jacobi Bellman (HJB) equation. Electricity prices are modelled as a regime switching stochastic process. The optimal control is determined by solving the HJB equation numerically using a fully implicit finite difference approach with semi-Lagrangian time stepping. The paper focuses on the effect of ramping restrictions on a hydro plant׳s value and optimal operations, and provides an analysis of which factors cause ramping restrictions to have a greater or lesser impact on profitability. It is shown that hydro plant value is negatively affected by ramping restrictions, but the extent of the impact depends on key parameters which determine the desirability of frequent changes in water release rates. Interestingly for the case considered, value is not sensitive to ramping restrictions over a large range of restrictions. The results point to the importance of accurately modelling electricity prices in gauging the trade offs involved in imposing restrictions on hydro operators which may hinder their ability to respond to volatile electricity prices and meet peak demands.     

Leading national brands facing store brands competition: Is price competitiveness the only thing that matters?

Store Brands (SBs) have experienced a strong increase in both value and unit sales internationally during the last decades; thus their market share has been constantly growing. Starting from these considerations, the present work aims at deepening the topic of inter-brand competition within the FMCG market and, in particular, the market share trade-off between Leading National Brands (LNBs) and Store Brands. Our empirical analysis is based on panel data about 322 product categories sold within the Modern Grocery Distribution stores in the 2010–2013 period. Results obtained show: (i) the existence of a relationship between the increase in the LNB-SB price gap and the switching of market share from the former towards the latter; (ii) the consolidation of a change in consumers' purchasing preference in favor of SBs; (iii) the existence of an inverse relationship between the inter-brand competition intensity and the retail branding life cycle evolutionary stage, which is different for each product category.     

Factors influencing theme park visitor brand-switching behaviour as based on visitor perception

With the development of theme parks, which represent a multi-million-pound industry worldwide, research investigating the factors affecting theme park visitor brand-switching behaviour is an important method for improving theme park competitiveness. In the present work, models and research hypothesis are constructed based on visitor perception, and the survey data are collected and analysed to assess the hypothesis and to revise the conceptual model in this paper. The results indicate that there are seven factors influencing visitor brand-switching behaviour: ‘visitor variety-seeking', ‘visitor satisfaction', ‘switching cost', ‘perceived value', ‘competitor attraction', ‘theme park image' and ‘visitor involvement'. The perceived value and visitor satisfaction strongly influence brand-switching behaviour as intermediate variables. Visitor variety-seeking and competitor attraction are positively related to visitor brand switching behaviour, whereas the other five factors are negatively related to visitor brand-switching behaviour.     

Pricing vulnerable options with correlated jump-diffusion processes depending on various states of the economy

In this paper, we use a Markov-modulated regime switching approach to model various states of the economy, and study the pricing of vulnerable European options when the dynamics of the underlying asset value and the asset value of the counterparty follow two correlated jump-diffusion processes under regime switching. The correlation is modelled by both the diffusion parts and the pure jump parts which describe the uncertainty of the value of the risky assets. We develop a method to determine an equivalent martingale measure and a parsimonious representation of the risk-neutral density is provided. Based on this, we derive an analytical pricing formula for vulnerable options via two-dimensional Laplace transforms, and implement the formula through numerical Laplace inversion.     

Regulations for the Eighth International Congress of Actuaries

Abstract

The present paper proposes and investigates a procedure for numerical evaluation of the transition probabilities for a time-inhomogeneous Markov process when the intensities are known (estimated). The procedure is based on Taylor-expansion of the transition probabilities linked with the Chapman-Kolmogorov equations.     

OUTPUT FLUCTUATIONS PERSISTENCE: DO CYCLICAL SHOCKS MATTER?

The aim of this paper is to identify the different sources of persistence of output fluctuations. We propose an unobserved components model that allows us to decompose GDP series into a trend component and a cyclical component. We let the drift of the trend component switch between different regimes according to a first‐order Markov process. To calculate an appropriate p‐value for a test of linearity we propose a bootstrap procedure, which allows for general forms of heteroscedasticity. The performance of the bootstrap is checked by means of a Monte Carlo simulation. Our study concerns the USA. We find that cyclical shocks appear to play an important role on the observed persistence of output.     

The role of stochastic volatility and return jumps: reproducing volatility and higher moments in the KOSPI 200 returns dynamics

This paper investigates the role of stochastic volatility and return jumps in reproducing the volatility dynamics and the shape characteristics of the Korean Composite Stock Price Index (KOSPI) 200 returns distribution. Using efficient method of moments and reprojection analysis, we find that stochastic volatility models, both with and without return jumps, capture return dynamics surprisingly well. The stochastic volatility model without return jumps, however, cannot fully reproduce the conditional kurtosis implied by the data. Return jumps successfully complement this gap. We also find that return jumps are essential in capturing the volatility smirk effects observed in short-term options.

Technological knowledge as an essential facility

The economics of regulation has articulated the notions of essential facility and mandated interconnection. Their application to the governance of technological knowledge can be fruitful especially when implemented by the adoption of a compensatory liability rule and the parallel reduction in the exclusivity of patents. Because knowledge is at the same time an output and an input in the production of new knowledge, exclusivity, traditionally associated to patents, is the cause of actual knowledge rationing with major drawbacks in terms of both static and dynamic efficiency. This institutional innovation can improve the governance of technological knowledge and increase both its rates of dissemination and generation.

跳跃随机波动的阈值模型风险值的贝叶斯估计

文章基于一类跳跃随机波动的阈值模型风险值估计贝叶斯分析,在给定先验分布下,以马尔科夫链蒙特卡洛方法估计模型中的未知参数,并给出了MCMC模拟算法,进而讨论了风险值的预测。根据模拟结果,我们得知,如果没有考虑金融时间序列的外生冲击导致的跳跃行为,将会高估风险值,因此考虑跳跃行为后,将增加风险值估计的精度。