Multivariate continuous-time modeling of wind indexes and hedging of wind risk

With the introduction of the exchange-traded German wind power futures, opportunities for German wind power producers to hedge their volumetric risk are present. We propose two continuous-time multivariate models for wind power utilization at different wind sites, and discuss the properties and estimation procedures for the models. Applying the models to wind index data for wind sites in Germany and the underlying wind index of exchange-traded wind power futures contracts, the estimation results of both models suggest that they capture key statistical features of the data. We show how these models can be used to find optimal hedging strategies using exchange-traded wind power futures for the owner of a portfolio of so-called tailor-made wind power futures. Both in-sample and out-of-sample hedging scenarios are considered, and, in both cases, significant variance reductions are achieved. Additionally, the risk premium of the German wind power futures is analysed, leading to an indication of the risk premium of tailor-made wind power futures.     

UNILOC : A uni-location model

Apart from a few notable exceptions, most literature on the three prototype location problems, p-CENTER, p-MEDIAN, and SIMPLE PLANT LOCATION, has treated these problems individually. We formulate a uni-location problem called UNILOC, uniting these three fractions of a pattern, and propose an algorithmic complex UNICOM for its investigation.     

Enforcement and Information Strategies

In this paper we show that, if the relation between the actual monitoring probability and the extent of compliance in the regulated population is concave to the actual probability axis, providing perfect information raises compliance rates, relative to what might be called the “keep-them-ignorant” option. We also illustrate that a quite simple method is available for checking whether, in a particular setting with a particular class of regulated parties, the full information or the keep-them-ignorant policy ought to be pursued.     

Money and the ‘Level Playing Field’: The Epistemic Problem of European Financial Market Integration

ABSTRACT

Financial market integration processes in the European Union (EU) are characterised by an epistemic problem of economic theory. This problem encompasses what ‘the market’ is, how it is to be ‘integrated’, and the nature and role of ‘money’ as infrastructure of the fully integrated market. The EU’s legal framework has imported this epistemic problem along with the competitive conception of the market as described in economic theory – as a ‘level playing field’ for private exchange, under free, fair and ideally unrestrained competition. It manifests itself in European financial market integration processes, as exemplified in the article, via two otherwise disconnected areas of European Central Bank (ECB) activity: (a) the provision of central bank credit for the purpose of financial transaction settlement in the Eurozone; and (b) the conduct of ordinary monetary policy in the Eurozone. While the problem can be stabilised through legal, technical and other means, it remains latent, and may manifest itself again in unexpected ways, as happened in the wake of the 2008 financial crisis. Thus, contrary to ideologies that are widely understood as more or less coherent systems of doctrines, epistemic problems are characterised by specific tensions, contradictions and conceptual uncertainties.     

Modelling the joint behaviour of electricity prices in interconnected markets

The liberalization of energy markets worldwide during recent decades has introduced severe implications for the price formation in these markets. Especially within the European day-ahead electricity markets, increased physical connections between different market areas and a joint effort on optimizing the aggregate social welfare have led to highly connected markets. Consequently, observing the exact same hourly day-ahead prices for two or more interconnected electricity markets in Europe happens frequently. This affects the modelling of such prices and in turn the valuation of derivatives written on prices from these market areas. In this paper, we propose a joint model for day-ahead electricity prices in interconnected markets composed of a combination of transformed Ornstein–Uhlenbeck processes. We discuss the properties of the model and propose an estimation procedure based on filtering techniques. Furthermore, the properties of the model reveal that analytical prices are attainable for, e.g., forwards and spread options.     

Computing a quasi-perfect equilibrium of a two-player game

Refining an algorithm due to Koller, Megiddo and von Stengel, we show how to apply Lemke’s algorithm for solving linear complementarity programs to compute a quasi-perfect equilibrium in behavior strategies of a given two-player extensive-form game of perfect recall. A quasi-perfect equilibrium is known to be sequential, and our algorithm thus resolves a conjecture of McKelvey and McLennan in the positive. A quasi-perfect equilibrium is also known to be normal-form perfect and our algorithm thus provides an alternative to an algorithm by von Stengel, van den Elzen and Talman. For the case of a zero-sum game, we devise variants of the algorithm that rely on linear programming rather than linear complementarity programming and use the simplex algorithm or other algorithms for linear programming rather than Lemke’s algorithm. We argue that these latter algorithms are relevant for recent applications of equilibrium computation to artificial intelligence.