Estimating overidentified, nonrecursive, time-varying coefficients structural VARs

This paper provides a method to estimate time varying coefficients structuralVARs which are non-recursive and potentially overidentified. The procedureallows for linear and non-linear restrictions on the parameters, maintainsthe multi-move structure of standard algorithms and can be used toestimate structural models with different identification restrictions. We studythe transmission of monetary policy shocks and compare the results with thoseobtained with traditional methods.

On the closed-form approximation of short-time random strike options

In this paper we propose a general technique to develop first and second order closed-form approximation formulas for short-time options withrandom strikes. Our method is based on Malliavin calculus techniques andallows us to obtain simple closed-form approximation formulas dependingon the derivative operator. The numerical analysis shows that these formulas are extremely accurate and improve some previous approaches ontwo-assets and three-assets spread options as Kirk's formula or the decomposition mehod presented in Alòs, Eydeland and Laurence (2011).

Measuring time-varying economic fears with consumption-based stochastic discount factors

This paper analyzes empirically the volatility of consumption-based stochastic discount factors as a measure of implicit economic fears by studying its relationship with future economic and stock market cycles. Time-varying economic fears seem to be well captured by the volatility of stochastic discount factors. In particular, the volatility of recursive utility-based stochastic discount factor with contemporaneous growth explains between 9 and 34 percent of future changes in industrial production at short and long horizons respectively. They also explain ex-ante uncertainty and risk aversion. However, future stock market cycles are better explained by a similar stochastic discount factor with long-run consumption growth. This specification of the stochastic discount factor presents higher volatility and lower pricing errors than the specification with contemporaneous consumption growth.

Solving higher-dimensional continuous time stochastic control problems by value function regression

The paper develops a method to solve higher-dimensional stochasticcontrol problems in continuous time. A finite difference typeapproximation scheme is used on a coarse grid of low discrepancypoints, while the value function at intermediate points is obtainedby regression. The stability properties of the method are discussed,and applications are given to test problems of up to 10 dimensions.Accurate solutions to these problems can be obtained on a personalcomputer.

Probabilistic maximal covering location-allocation models with constrained waiting time or queue length for congested systems

When dealing with the design of service networks, such as healthand EMS services, banking or distributed ticket selling services, thelocation of service centers has a strong influence on the congestion ateach of them, and consequently, on the quality of service. In this paper,several models are presented to consider service congestion. The firstmodel addresses the issue of the location of the least number of single--servercenters such that all the population is served within a standard distance,and nobody stands in line for a time longer than a given time--limit, or withmore than a predetermined number of other clients. We then formulateseveral maximal coverage models, with one or more servers per service center.A new heuristic is developed to solve the models and tested in a 30--nodesnetwork.

A consistency test of the time trade-off

This paper tests the internal consistency of time trade-off utilities.We find significant violations of consistency in the direction predictedby loss aversion. The violations disappear for higher gauge durations.We show that loss aversion can also explain that for short gaugedurations time trade-off utilities exceed standard gamble utilities. Ourresults suggest that time trade-off measurements that use relativelyshort gauge durations, like the widely used EuroQol algorithm(Dolan 1997), are affected by loss aversion and lead to utilities thatare too high.

A test of the predictive validity of non-linear QALY models using time trade-off utilities

This paper presents a test of the predictive validity of various classes ofQALY models (i.e., linear, power and exponential models). We first estimatedTTO utilities for 43 EQ-5D chronic health states and next these states wereembedded in health profiles. The chronic TTO utilities were then used topredict the responses to TTO questions with health profiles. We find that thepower QALY model clearly outperforms linear and exponential QALY models.Optimal power coefficient is 0.65. Our results suggest that TTO-based QALYcalculations may be biased. This bias can be avoided using a power QALY model.

Minimum price variations, time priority and quotes dynamics

We analyze the impact of a minimum price variation (tick) and timepriority on the dynamics of quotes and the trading costs when competitionfor the order flow is dynamic. We find that convergence to competitiveoutcomes can take time and that the speed of convergence is influencedby the tick size, the priority rule and the characteristics of the orderarrival process. We show also that a zero minimum price variation is neveroptimal when competition for the order flow is dynamic. We compare thetrading outcomes with and without time priority. Time priority is shownto guarantee that uncompetitive spreads cannot be sustained over time.However it can sometimes result in higher trading costs. Empiricalimplications are proposed. In particular, we relate the size of thetrading costs to the frequency of new offers and the dynamics of theinside spread to the state of the book.

A Hull and White formula for a general stochastic volatility jump-diffusion model with applications to the study of the short-time behavior of the implied volatility

In this paper, generalizing results in Alòs, León and Vives (2007b), we see that the dependence of jumps in the volatility under a jump-diffusion stochastic volatility model, has no effect on the short-time behaviour of the at-the-money implied volatility skew, although the corresponding Hull and White formula depends on the jumps. Towards this end, we use Malliavin calculus techniques for Lévy processes based on Løkka (2004), Petrou (2006), and Solé, Utzet and Vives (2007).

A simple randomized algorithm for consistent sequential prediction of ergodic time series

We present a simple randomized procedure for the prediction of a binary sequence. The algorithm uses ideas from recent developments of the theory of the prediction of individual sequences. We show that if thesequence is a realization of a stationary and ergodic random process then the average number of mistakes converges, almost surely, to that of the optimum, given by the Bayes predictor.

On the short-time behavior of the implied volatility for jump-diffusion models with stochastic volatility

In this paper we use Malliavin calculus techniques to obtain an expression for the short-time behavior of the at-the-money implied volatility skew for a generalization of the Bates model, where the volatility does not need to be neither a difussion, nor a Markov process as the examples in section 7 show. This expression depends on the derivative of the volatility in the sense of Malliavin calculus.

Incorporating waiting time in competitive location models: Formulations and heuristics

In this paper we propose a metaheuristic to solve a new version of the Maximum CaptureProblem. In the original MCP, market capture is obtained by lower traveling distances or lowertraveling time, in this new version not only the traveling time but also the waiting time willaffect the market share. This problem is hard to solve using standard optimization techniques.Metaheuristics are shown to offer accurate results within acceptable computing times.

The role of incidental variables of time in mood assessment

Determining what influences mood is important for theories of emotion and research onsubjective well-being. We consider three sets of factors: activities in which people areengaged; individual differences; and incidental variables that capture when mood ismeasured, e.g., time-of-day. These three factors were investigated simultaneously in a studyinvolving 168 part-time students who each responded 30 times in an experience samplingstudy conducted over 10 working days. Respondents assessed mood on a simple bipolarscale from 1 (very negative) to 10 (very positive). Activities had significant effects but,with the possible exception of variability in the expression of mood, no systematicindividual differences were detected. Diurnal effects, similar to those already reported inthe literature, were found as was an overall Friday effect. However, these effects weresmall. Lastly, the weather had little or no influence. We conclude that simple measures ofoverall mood are not greatly affected by incidental variables.

Life-time redistribution effects of the Spanish public pension system

The paper analyses the inter and intragenerational redistribution effects ofthe public pensions system in Spain. This is achieved by first comparing the expected present value of life-time income transfers (PVT) and internalrates of return (IRR) of different population cohorts. Secondly, we study the intragenerational aspects of the Spanish public pensions by calculating PVTs the IRRs for workers of different categories, grouped by earnings, gender and marital status.The results obtained show the nature of the important intergenerational effects of the Social Security System in Spain. The oldest 1935 cohort clearlybenefits in relation to the youngest 1965 cohort. This is basically due to thegap between current wages and the contribution bases established in the 60s and 70s in Spain during the early stages of the Social Security System, and to the worsening shortfall in Social Security funding, combined with the longer of life expectancy.In addition, intragenerational effects exist by income levels. For contributors who pay between the minimum and the maximum allowable contribution bases, net transfers and rates of return are higher in actuarial terms for high incomecontributors. The social security `dealï is again more profitable for highincome individuals since they contribute at the maximum basis, with respect tolow income contributors at the minimum basis. This is due to the late entry and a higher survival rate for high income contributors.The system tends to favour women, given that they generally live longer than men and this factor is only partially offset by their lower wages. Married males, given the fact that they have longer life expectancy and leave a pension to their spouse, obtain higher present net transfers too than do single contributors.We close the paper with some comments on the slight impact and moderate effects of proposals for Social Security reform and on how these may change the previously observed redistribution effects.