Solving non-linear stochastic models by parameterizing expectations: An application to asset pricing with production

A new algorithm called the parameterized expectations approach(PEA) for solving dynamic stochastic models under rational expectationsis developed and its advantages and disadvantages are discussed. Thisalgorithm can, in principle, approximate the true equilibrium arbitrarilywell. Also, this algorithm works from the Euler equations, so that theequilibrium does not have to be cast in the form of a planner's problem.Monte--Carlo integration and the absence of grids on the state variables,cause the computation costs not to go up exponentially when the numberof state variables or the exogenous shocks in the economy increase. \\As an application we analyze an asset pricing model with endogenousproduction. We analyze its implications for time dependence of volatilityof stock returns and the term structure of interest rates. We argue thatthis model can generate hump--shaped term structures.

Caution, children crossing: Heterogeneity of victim's cost of care and negligence rule

The paper deals with a bilateral accident situation in which victims haveheterogeneous costs of care. With perfect information,efficient care bythe injurer raises with the victim's cost. When the injurer cannot observeat all the victim's type, and this fact can be verified by Courts, first-bestcannot be implemented with the use of a negligence rule based on thefirst-best levels of care. Second-best leads the injurer to intermediate care,and the two types of victims to choose the best response to it. This second-bestsolution can be easily implemented by a negligence rule with second-best as duecare. We explore imperfect observation of the victim's type, characterizing theoptimal solution and examining the different legal alternatives when Courts cannotverify the injurers' statements. Counterintuitively, we show that there is nodifference at all between the use by Courts of a rule of complete trust and arule of complete distrust towards the injurers' statements. We then relate thefindings of the model to existing rules and doctrines in Common Law and Civil Lawlegal systems.

Consumer Advisory Bulletin, Price-Gouging Rule in Effect in Storm- and Flood-damaged Counties, August 2007

The Attorney General’s Consumer Protection Division receives hundreds of calls and consumer complaints every year. Follow these tips to avoid unexpected expense and disappointments. This record is about: Price-Gouging Rule in Effect in Storm- and Flood-damaged Counties

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.

Optimal negligence rule under limited liability

We study the standard economic model of unilateral accidents, in its simplest form, assumingthat the injurers have limited assets.We identify a second-best optimal rule that selects as duecare the minimum of first-best care, and a level of care that takes into account the wealth ofthe injurer. We show that such a rule in fact maximizes the precautionary effort by a potentialinjurer. The idea is counterintuitive: Being softer on an injurer, in terms of the required level ofcare, actually improves the incentives to take care when he is potentially insolvent. We extendthe basic result to an entire population of potentially insolvent injurers, and find that the optimalgeneral standards of care do depend on wealth, and distribution of income. We also show theconditions for the result that higher income levels in a given society call for higher levels of carefor accidents.

Promoting rule compliance in daily-life: Evidence from a randomized field experiment in the public libraries of Barcelona

We study how to promote compliance with rules in everyday situations. Having access to unique data on the universe of users of all public libraries inBarcelona, we test the effect of sending email messages with dierent contents.We find that users return their items earlier if asked to do so in a simple email.Emails reminding users of the penalties associated with late returns are more effective than emails with only a generic reminder. We find differential treatmenteffects by user types. The characteristics we analyze are previous compliance,gender, age, and nationality.

A simple access pricing rule to achieve the Ramsey outcome for interconnected networks

This paper considers a general and informationally efficient approach to determine the optimal access pricing rule for interconnected networks. It shows that there exists a simple rule that achieves the Ramsey outcome as the unique equilibrium when networks compete in linear prices without network-based price discrimination. The approach is informationally efficient in the sense that the regulator is required to know only the marginal cost structure, i.e. the marginal cost of making and terminating a call. The approach is general in that access prices can depend not only on the marginal costs but also on the retail prices, which can be observed by consumers and therefore by the regulator as well. In particular, I consider the set of linear access pricing rules which includes any fixed access price, the Efficient Component Pricing Rule (ECPR) and the Modified ECPR as special cases. I show that in this set, there is a unique rule that implements the Ramsey outcome as the unique equilibrium independently of the underlying demand conditions.

Solving heterogeneous-agent models by projection and perturbation

The paper proposes a numerical solution method for general equilibrium models with a continuum of heterogeneous agents, which combines elements of projection and of perturbation methods. The basic idea is to solve first for the stationary solutionof the model, without aggregate shocks but with fully specified idiosyncratic shocks. Afterwards one computes a first-order perturbation of the solution in the aggregate shocks. This approach allows to include a high-dimensional representation of the cross-sectional distribution in the state vector. The method is applied to a model of household saving with uninsurable income risk and liquidity constraints. The model includes not only productivity shocks, but also shocks to redistributive taxation, which cause substantial short-run variation in the cross-sectional distribution of wealth. If those shocks are operative, it is shown that a solution method based on very few statistics of the distribution is not suitable, while the proposed method can solve the model with high accuracy, at least for the case of small aggregate shocks. Techniques are discussed to reduce the dimension of the state space such that higher order perturbations are feasible.Matlab programs to solve the model can be downloaded.

Development and validation of a clinical decision rule for the diagnosis of influenza.

INTRODUCTION: A clinical decision rule to improve the accuracy of a diagnosis of influenza could help clinicians avoid unnecessary use of diagnostic tests and treatments. Our objective was to develop and validate a simple clinical decision rule for diagnosis of influenza. METHODS: We combined data from 2 studies of influenza diagnosis in adult outpatients with suspected influenza: one set in California and one in Switzerland. Patients in both studies underwent a structured history and physical examination and had a reference standard test for influenza (polymerase chain reaction or culture). We randomly divided the dataset into derivation and validation groups and then evaluated simple heuristics and decision rules from previous studies and 3 rules based on our own multivariate analysis. Cutpoints for stratification of risk groups in each model were determined using the derivation group before evaluating them in the validation group. For each decision rule, the positive predictive value and likelihood ratio for influenza in low-, moderate-, and high-risk groups, and the percentage of patients allocated to each risk group, were reported. RESULTS: The simple heuristics (fever and cough; fever, cough, and acute onset) were helpful when positive but not when negative. The most useful and accurate clinical rule assigned 2 points for fever plus cough, 2 points for myalgias, and 1 point each for duration <48 hours and chills or sweats. The risk of influenza was 8% for 0 to 2 points, 30% for 3 points, and 59% for 4 to 6 points; the rule performed similarly in derivation and validation groups. Approximately two-thirds of patients fell into the low- or high-risk group and would not require further diagnostic testing. CONCLUSION: A simple, valid clinical rule can be used to guide point-of-care testing and empiric therapy for patients with suspected influenza.

Solving a concrete sleepers production scheduling by genetic algorithms

PRECON S.A is a manufacturing company dedicated to produce prefabricatedconcrete parts to several industries as rail transportation andagricultural industries.Recently, PRECON signed a contract with RENFE,the Spanish Nnational Rail Transportation Company to manufacturepre-stressed concrete sleepers for siding of the new railways of the highspeed train AVE. The scheduling problem associated with the manufacturingprocess of the sleepers is very complex since it involves severalconstraints and objectives. The constraints are related with productioncapacity, the quantity of available moulds, satisfying demand and otheroperational constraints. The two main objectives are related withmaximizing the usage of the manufacturing resources and minimizing themoulds movements. We developed a deterministic crowding genetic algorithmfor this multiobjective problem. The algorithm has proved to be a powerfuland flexible tool to solve the large-scale instance of this complex realscheduling problem.

Solving ambiguities in contig assembly of Idiomarina loihiensis L2TR chromosome by in silico analyses.

Nucleotide composition analyses of bacterial genomes such as cumulative GC skew highlight the atypical, strongly asymmetric architecture of the recently published chromosome of Idiomarina loihiensis L2TR, suggesting that an inversion of a 600-kb chromosomal segment occurred. The presence of 3.4-kb inverted repeated sequences at the borders of the putative rearrangement supports this hypothesis. Reverting in silico this segment restores (1) a symmetric chromosome architecture; (2) the co-orientation of transcription of all rRNA operons with DNA replication; and (3) a better conservation of gene order between this chromosome and other gamma-proteobacterial ones. Finally, long-range PCRs encompassing the ends of the 600-kb segment reveal the existence of the reverted configuration but not of the published one. This demonstrates how cumulative nucleotide-skew analyses can validate genome assemblies.

Development and validation of a clinical prediction rule for chest wall syndrome in primary care

Le "Chest wall syndrome" (CWS) est défini comme étant une source bénigne de douleurs thoraciques, localisées sur la paroi thoracique antérieure et provoquées par une affection musculosquelettique. Le CWS représente la cause la plus fréquente de douleurs thoraciques en médecine de premier recours. Le but de cette étude est de développer et valider un score de prédiction clinique pour le CWS. Une revue de la littérature a d'abord été effectuée, d'une part pour savoir si un tel score existait déjà, et d'autre part pour retrouver les variables décrites comme étant prédictives d'un CWS. Le travail d'analyse statistique a été effectué avec les données issues d'une cohorte clinique multicentrique de patients qui avaient consulté en médecine de premier recours en Suisse romande avec une douleur thoracique (59 cabinets, 672 patients). Un diagnostic définitif avait été posé à 12 mois de suivi. Les variables pertinentes ont été sélectionnées par analyses bivariées, et le score de prédiction clinique a été développé par régression logistique multivariée. Une validation externe de ce score a été faite en utilisant les données d'une cohorte allemande (n= 1212). Les analyses bivariées ont permis d'identifier 6 variables caractérisant le CWS : douleur thoracique (ni rétrosternale ni oppressive), douleur en lancées, douleur bien localisée, absence d'antécédent de maladie coronarienne, absence d'inquiétude du médecin et douleur reproductible à la palpation. Cette dernière variable compte pour 2 points dans le score, les autres comptent pour 1 point chacune; le score total s'étend donc de 0 à 7 points. Dans la cohorte de dérivation, l'aire sous la courbe sensibilité/spécificité (courbe ROC) est de 0.80 (95% de l'intervalle de confiance : 0.76-0.83). Avec un seuil diagnostic de > 6 points, le score présente 89% de spécificité et 45% de sensibilité. Parmi tous les patients qui présentaient un CWS (n = 284), 71% (n = 201) avaient une douleur reproductible à la palpation et 45% (n= 127) sont correctement diagnostiqués par le score. Pour une partie (n = 43) de ces patients souffrant de CWS et correctement classifiés, 65 investigations complémentaires (30 électrocardiogrammes, 16 radiographies du thorax, 10 analyses de laboratoire, 8 consultations spécialisées, et une tomodensitométrie thoracique) avaient été réalisées pour parvenir au diagnostic. Parmi les faux positifs (n = 41), on compte trois angors stables (1.8% de tous les positifs). Les résultats de la validation externe sont les suivants : une aire sous la courbe ROC de 0.76 (95% de l'intervalle de confiance : 0.73-0.79) avec une sensibilité de 22% et une spécificité de 93%. Ce score de prédiction clinique pour le CWS constitue un complément utile à son diagnostic, habituellement obtenu par exclusion. En effet, pour les 127 patients présentant un CWS et correctement classifiés par notre score, 65 investigations complémentaires auraient pu être évitées. Par ailleurs, la présence d'une douleur thoracique reproductible à la palpation, bien qu'étant sa plus importante caractéristique, n'est pas pathognomonique du CWS.