Optimal portfolio selection for general provisioning and terminal wealth problems.

In Dhaene et al. (2005), multiperiod portfolio selection problems are discussed,using an analytical approach to find optimal constant mix investment strategies in a provisioning or savings context. In this paper we extend some of these results,investigating some specific, real-life situations. The problems that we consider in the first section of this paper are general in the sense that they allow for liabilities that can be both positive or negative, as opposed to Dhaene et al. (2005), where all liabilities have to be of the same sign. Secondly, we generalize portfolio selection problems to the case where a minimal return requirement is imposed. We derive an intuitive formula that can be used in provisioning and terminal wealth problems as a constraint on the admissable investment portfolios, in order to guarantee a minimal annualized return. We always apply our results to optimal portfolio selection.

Fiscal contingency planning for banking crises

There is constant demand for an estimate of the likely fiscal costs of future banking crises, but little precision can be expected in such an estimate. The author shows how information that is typically available to authorities could be used to get a general sense of the order of magnitude of the direct fiscal liability. What is required for such an estimate? 1) Information about the size and composition of the bank's balance sheets. 2) Expert assessments of the accuracy of the accounting data and of specific short-term risks to which the components are known to be subject. The author's method distinguishes between losses that have already crystallized and the changing risks for the immediate future. By including contingency planning for banking collapse in their fiscal calculations, authorities may risk destabilizing expectations or worsening the moral hazard in the system. But the risks of contingency planning generally outweigh the risks of sending confused signals. Insisting on ignorance is a poor way to protect against announcement errors that trigger panic.Insurance&Risk Mitigation,Banks&Banking Reform,Financial Intermediation,Payment Systems&Infrastructure,Financial Crisis Management&Restructuring,Banks&Banking Reform,Financial Intermediation,Financial Crisis Management&Restructuring,Insurance&Risk Mitigation,National Governance

Loan loss provisioning rules, procyclicality and financial volatility

Interactions between loan-loss provisioning regimes and business cycle fluctuations are studied in a dynamic stochastic general equilibrium model with credit market imperfections. With a specific provisioning system, provisions are triggered by past due payments. With a dynamic system, both past due payments and expected losses over the whole business cycle are accounted for, and provisions are smoothed over the cycle. Numerical experiments with a parameterized version of the model show that a dynamic provisioning regime can be highly effective in mitigating procyclicality of the financial system. The results also indicate that the combination of a credit gap-augmented Taylor rule and a dynamic provisioning system with full smoothing may be the most effective way to mitigate real and financial volatility associated with financial shocks

Do Banks provision for bad loans in good times? empirical evidence and policy implications

Recent debate about the pro-cyclical effects of bank capital requirements, has ignored the important role that bank loan loss provisions play in the overall framework of minimum capital regulation. It is frequently observed that under-provisioning, due to inadequate assessment of expected credit losses, aggravates the negative effect of minimum capital requirements during recessions, because capital must absorb both expected, and unexpected losses. Moreover, when expected losses are properly reflected in lending rates, but not in provisioning practices, fluctuations in bank earnings magnify true oscillations in bank profitability. The relative agency problems faced by different stakeholders, may help explain the prevailing, and often unsatisfactory institutional arrangements. The authors test their hypotheses with a sample of 1,176 large commercial banks - 372 of them in non-G10 countries - for the period 1988-99. After controlling for different country-specific macroeconomic, and institutional features, they find robust evidence among G10 banks, of a positive association between loan loss provisions, and banks'pre-provision income. Such evidence is not confirmed for non-G10 banks, which on average, provision too little in good times, and are forced to increase provisions in bad times. The econometric evidence shows that the protection of outsiders'claims - the claims of minority shareholders in common law countries, and of fiscal authorities in countries with high public debt - on bank income, has negative effects on the level of bank provisions.International Terrorism&Counterterrorism,Banks&Banking Reform,Payment Systems&Infrastructure,Public Sector Economics&Finance,Economic Theory&Research,Financial Intermediation,Banks&Banking Reform,Public Sector Economics&Finance,Economic Theory&Research,Insurance&Risk Mitigation

Socially Trusted Collaborative Edge Computing in Ultra Dense Networks

Small cell base stations (SBSs) endowed with cloud-like computing capabilities are considered as a key enabler of edge computing (EC), which provides ultra-low latency and location-awareness for a variety of emerging mobile applications and the Internet of Things. However, due to the limited computation resources of an individual SBS, providing computation services of high quality to its users faces significant challenges when it is overloaded with an excessive amount of computation workload. In this paper, we propose collaborative edge computing among SBSs by forming SBS coalitions to share computation resources with each other, thereby accommodating more computation workload in the edge system and reducing reliance on the remote cloud. A novel SBS coalition formation algorithm is developed based on the coalitional game theory to cope with various new challenges in small-cell-based edge systems, including the co-provisioning of radio access and computing services, cooperation incentives, and potential security risks. To address these challenges, the proposed method (1) allows collaboration at both the user-SBS association stage and the SBS peer offloading stage by exploiting the ultra dense deployment of SBSs, (2) develops a payment-based incentive mechanism that implements proportionally fair utility division to form stable SBS coalitions, and (3) builds a social trust network for managing security risks among SBSs due to collaboration. Systematic simulations in practical scenarios are carried out to evaluate the efficacy and performance of the proposed method, which shows that tremendous edge computing performance improvement can be achieved.Comment: arXiv admin note: text overlap with arXiv:1010.4501 by other author

Measuring sustainable intensification: combining composite indicators and efficiency analysis to account for positive externalities in cereal production

We combine the use of a stochastic frontier analysis framework and composite indicators for farm provision of environmental goods to obtain a farm level composite indicator reflecting sustainable intensification. The novel sustainable intensification composite indicator that is developed accounts for multidimensional market and non-market outputs, namely the economic performance of cereal farms (i.e. market production value) and the associated positive environmental impacts of production (e.g. positive environmental externalities). The composite indicator integrates three different indicators for the provision of environmental goods into a stochastic frontier analysis: a) agri-environmental payments; b) the ratio of rough grassland and permanent pasture area to total utilised agricultural area; and c) land use diversity, as measured by the Shannon Index. We apply this approach to a panel of data for 106 cereal farms in England and Wales during the period 2010–2012. Results indicate that farm rankings on the indicator vary substantially depending on the weight given to the different environmental aspects/indicators, suggesting that single indicators of the provision of environmental goods may not provide a true reflection of the environmental performance of farms. We illustrate a simple approach that captures the aspects of sustainable intensification of farms in a much more holistic way, i.e. by producing a distribution of sustainable intensification scores for each farm reflecting different weightings of evaluation criteria. To reduce the dimensionality of this distribution farms are classified into four distinct groups according to the shape of this distribution, with some farms found to perform well under all combinations of weights for evaluation criteria, while others always perform poorly. This distribution-based analysis provides a greater depth of information than traditional approaches based on the generation of a single sustainable intensification score

Q-Strategy: A Bidding Strategy for Market-Based Allocation of Grid Services

The application of autonomous agents by the provisioning and usage of computational services is an attractive research field. Various methods and technologies in the area of artificial intelligence, statistics and economics are playing together to achieve i) autonomic service provisioning and usage of Grid services, to invent ii) competitive bidding strategies for widely used market mechanisms and to iii) incentivize consumers and providers to use such market-based systems. The contributions of the paper are threefold. First, we present a bidding agent framework for implementing artificial bidding agents, supporting consumers and providers in technical and economic preference elicitation as well as automated bid generation by the requesting and provisioning of Grid services. Secondly, we introduce a novel consumer-side bidding strategy, which enables a goal-oriented and strategic behavior by the generation and submission of consumer service requests and selection of provider offers. Thirdly, we evaluate and compare the Q-strategy, implemented within the presented framework, against the Truth-Telling bidding strategy in three mechanisms – a centralized CDA, a decentralized on-line machine scheduling and a FIFO-scheduling mechanisms