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on Computational Economics |
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Issue of 2013‒09‒24
seven papers chosen by |
| By: | A S Hurn (QUT); Kenenth A Lindsay (Glasgow); Andrew McClelland |
| Abstract: | This paper investigates several competing procedures for computing the price of European and digital options in which the underlying model has a characteristic function that is known in at least semi-closed form. The algorithms for pricing the options investigated here are the half-range Fourier cosine series, the half-range Fourier sine series and the full-range Fourier series. The performance of the algorithms is assessed in simulation experiments which price options in a Black-Scholes world where an analytical solution is available and for a simple affine model of stochastic volatility in which there is no closed-form solution. The results suggest that the half-range sine series approximation is the least effective of the three proposed algorithms. It is rather more difficult to distinguish between the performance of the half-range cosine series and the full-range Fourier series. There are however two clear differences. First, when the interval over which the density is approximated is relatively large, the full-range Fourier series is at least as good as the half-range Fourier cosine series, and outperforms the latter in pricing out-of-the-money call options, in particular with maturities of three months or less. Second, the computational time required by the half-range Fourier cosine series is uniformly longer than that required by the full-range Fourier series for an interval of fixed length. Taken together, these two conclusions make a strong case for the merit of pricing options using a full-range range Fourier series as opposed to a half-range Fourier cosine series. |
| Date: | 2013–01–24 |
| URL: | http://d.repec.org/n?u=RePEc:qut:auncer:2013_2&r=cmp |
| By: | Derek Anderson; Ben Hunt; Mika Kortelainen; Michael Kumhof; Douglas Laxton; Dirk Muir; Susanna Mursula; Stephen Snudden |
| Abstract: | The Global Integrated Monetary and Fiscal model (GIMF) is a multi-region, forward-looking, DSGE model developed by the Economic Modeling Division of the IMF for policy analysis and international economic research. Using a 5-region version of the GIMF, this paper illustrates the model’s macroeconomic properties by presenting its responses under a wide range of experiments, including fiscal, monetary, financial, demand, supply, and international shocks. |
| Keywords: | Economic models;Monetary policy;Financial sector;External shocks;Fiscal policy;Fiscal consolidation;Government expenditures;Demand;business cycle, fiscal multipliers; fiscal consolidation; fiscal policy; general equilibrium models, interest rates, macroeconomic interdependence, monetary policy, policy effects, simulation. |
| Date: | 2013–02–27 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:13/55&r=cmp |
| By: | Griveau-Billion, Théophile; Richard, Jean-Charles; Roncalli, Thierry |
| Abstract: | In this paper we propose a cyclical coordinate descent (CCD) algorithm for solving high dimensional risk parity problems. We show that this algorithm converges and is very fast even with large covariance matrices (n > 500). Comparison with existing algorithms also shows that it is one of the most efficient algorithms. |
| Keywords: | Risk parity, risk budgeting, ERC portfolio, cyclical coordinate descent algorithm, lasso |
| JEL: | C60 G11 |
| Date: | 2013–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:49822&r=cmp |
| By: | Roger E.A. Farmer; Vadim Khramov |
| Abstract: | We propose a method for solving and estimating linear rational expectations models that exhibit indeterminacy and we provide step-by-step guidelines for implementing this method in the Matlab-based packages Dynare and Gensys. Our method redefines a subset of expectational errors as new fundamentals. This redefinition allows us to treat indeterminate models as determinate and to apply standard solution algorithms. We provide a selection method, based on Bayesian model comparison, to decide which errors to pick as fundamental and we present simulation results to show how our procedure works in practice. |
| JEL: | C11 C13 C54 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19457&r=cmp |
| By: | Louise Roos |
| Abstract: | This paper describes the construction of database constructed for a dynamic CGE model for South Africa (hereafter SAGE). The starting point for creating a database for a CGE model are official data from an Input/output (IO) table, or from a Supply Use Table (SUT), or from a Social Accounting Matrix (SAM). Often the structure of the published data is not in the required format of a CGE database, and so a major task is to transform the official data into a form required by a CGE database. Four characteristics of the SAGE database are noted: 1. It contains information regarding the structure of the South African economy in the base year (2002). 2. It is the initial solution to the SAGE model. 3. It has the same basic structure as the ORANIG and MONASH databases. 4. The basic database is supplemented by additional data relating to dynamics. The database is organised in four parts. The first includes data on the coefficients that are computed from the input-output (IO) table. These coefficients represent the basic flows of commodities between users, commodity taxes paid by users, margin flows that facilitate the flow of commodities and valued added matrices. The second part of the SAGE database contains information on behavioural parameters. The elasticities influence the degree to which economic agents change their behaviour when relative prices change. The third part of the database contains information on government accounts, accounts with the rest of the world and industry-specific capital stocks and depreciation rates. The fourth part of this paper describes the tests undertaken to test for model validity. This paper is set out as follows: Section 1 describes the structure of the IO database. Section 2 reviews the official data sources used to create the IO database. Section 3 describes the steps taken to transform the official data into the correct format. Section 4 describes the elasticities and parameters adopted in for SAGE. Section 5 describes additional information regarding industry-specific capital stocks and government accounts. Section 6 describes various tests that were conducted to ensure that the database is balanced. The paper ends with a conclusion. |
| Keywords: | Computable general equilibrium (CGE), Database, Africa, Supply Use Tables |
| JEL: | C81 C68 O55 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:cop:wpaper:g-234&r=cmp |
| By: | Alexander Ludwig; Matthias Schön |
| Abstract: | This paper investigates extensions of the method of endogenous grid-points (ENDGM) introduced by Carroll (2006) to higher dimensions with more than one continuous endogenous state variable. We compare three different categories of algorithms: (i) the conventional method with exogenous grids (EXGM), (ii) the pure method of endogenous grid-points (ENDGM) and (iii) a hybrid method (HEGM). ENDGM comes along with Delaunay interpolation on irregular grids. Comparison of methods is done by evaluating speed and accuracy. We find that HEGM and ENDGM both dominate EXGM. The choice between HEGM and ENDGM depends on the number of dimensions and the number of grid-points in each dimension. With less than 150 grid-points in each dimension ENDGM is faster than HEGM, and vice versa. For a standard choice of 20 to 40 grid-points in each dimension, ENDGM is 1:6 to 1:8 times faster than HEGM. |
| Keywords: | Dynamic Models, Numerical Solution, Endogenous Gridpoints Method, Delaunay Interpolation |
| JEL: | C63 E21 |
| Date: | 2013–08–29 |
| URL: | http://d.repec.org/n?u=RePEc:kls:series:0065&r=cmp |
| By: | Oskar Lecuyer; Philippe Quirion |
| Abstract: | This article constitutes a new contribution to the analysis of overlapping instruments to cover the same emission sources. Using both an analytical and a numerical model, we find that when the risk that the CO2 price drops to zero and the political unavailability of a CO2 tax (at least in the European Union) are taken into account, it can be socially beneficial to implement an additional instrument encouraging the reduction of emissions, for instance a renewable energy subsidy. Our analysis has both a practical and a theoretical purpose. It aims at giving economic insight to policymakers in a context of increased uncertainty concerning the future stringency of the European Emission Trading Scheme. It also gives another rationale for the use of several instruments to cover the same emission sources, and shows the importance of accounting for corner solutions in the definition of the optimal policy mix |
| Keywords: | Uncertainty, Policy overlapping, Mitigation policy, Energy policy, EU-ETS, Renewable energy, Corner solutions, Nil CO2 price, European Union |
| JEL: | Q28 Q41 Q48 Q58 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:cec:wpaper:1301&r=cmp |