Partial Verification as a Substitute for Money

Recent work shows that we can use partial verification instead of money to implement truthful mechanisms. In this paper we develop tools to answer the following question. Given an allocation rule that can be made truthful with payments, what is the minimal verification needed to make it truthful without them? Our techniques leverage the geometric relationship between the type space and the set of possible allocations.Comment: Extended Version of 'Partial Verification as a Substitute for Money', AAAI 201

Bank failures, financial restrictions, and aggregate fluctuations: Canada and the United States, 1870-1913

During 1870_1913, Canada had a well-diversified branch banking system while banks in the U.S. unit-banking system were less diversified. Canadian banks could issue large-denomination notes with no restrictions on their backing, while all U.S. currency was essentially an obligation of the U.S. government. Also, experience in the two countries with regard to bank failures and panics was quite different. A general equilibrium business cycle model with endogenous financial intermediation is constructed that captures these historical Canadian and American monetary and banking arrangements as special cases. The model's predictions contradict conventional wisdom about the cyclical effects of banking panics. Support for these predictions is found in aggregate annual time series data for Canada and the United States.Bank failures ; Banks and banking - History ; Canada

Jump-Diffusion Risk-Sensitive Asset Management I: Diffusion Factor Model

This paper considers a portfolio optimization problem in which asset prices are represented by SDEs driven by Brownian motion and a Poisson random measure, with drifts that are functions of an auxiliary diffusion factor process. The criterion, following earlier work by Bielecki, Pliska, Nagai and others, is risk-sensitive optimization (equivalent to maximizing the expected growth rate subject to a constraint on variance.) By using a change of measure technique introduced by Kuroda and Nagai we show that the problem reduces to solving a certain stochastic control problem in the factor process, which has no jumps. The main result of the paper is to show that the risk-sensitive jump diffusion problem can be fully characterized in terms of a parabolic Hamilton-Jacobi-Bellman PDE rather than a PIDE, and that this PDE admits a classical C^{1,2} solution.Comment: 33 page

Effects of the Quantitative Easing Policy: A Survey of Empirical Analyses

This paper surveys the empirical analyses that examine the effects of the Bank of Japan's (BOJ's) quantitative easing policy (QEP), which was implemented from March 2001 through March 2006. The survey confirms a clear effect whereby the commitment to maintain the QEP fostered the expectations that the zero interest rate would continue into the future, thereby lowering the yield curve centering on the short- to medium-term range. There were also phases in which an increase in the current account balances held by financial institutions at the BOJ bolstered this expectation. While the results were mixed as to whether expansion of the monetary base and altering the composition of the BOJ's balance sheet led to portfolio rebalancing, generally this effect, if any, was smaller than that stemming from the commitment. When viewing the QEP's impact on Japan's economy through various transmission channels, many of the analyses suggest that the QEP created an accommodative environment in terms of corporate financing. In particular, the QEP contained financial institutions' funding costs from the market and staved off financial institutions' funding uncertainties. The QEP's effect on raising aggregate demand and prices was often limited, due largely to the then progressing corporate balance-sheet adjustment, as well as the zero bound constraint on interest rates.Zero interest rate policy; Quantitative easing policy; Commitment; Zero bound constraint on interest rates; Deflation

Review of modern numerical methods for a simple vanilla option pricing problem

Option pricing is a very attractive issue of financial engineering and optimization. The problem of determining the fair price of an option arises from the assumptions made under a given financial market model. The increasing complexity of these market assumptions contributes to the popularity of the numerical treatment of option valuation. Therefore, the pricing and hedging of plain vanilla options under the Black–Scholes model usually serve as a bench-mark for the development of new numerical pricing approaches and methods designed for advanced option pricing models. The objective of the paper is to present and compare the methodological concepts for the valuation of simple vanilla options using the relatively modern numerical techniques in this issue which arise from the discontinuous Galerkin method, the wavelet approach and the fuzzy transform technique. A theoretical comparison is accompanied by an empirical study based on the numerical verification of simple vanilla option prices. The resulting numerical schemes represent a particularly effective option pricing tool that enables some features of options that are depend-ent on the discretization of the computational domain as well as the order of the polynomial approximation to be captured better

Utilization survey of prototype structural test article

A survey was conducted of six aerospace companies and two NASA agencies to determine how prototype structural test articles are used in flight operations. The prototype structures are airframes and similar devices which are used for testing and generally are not flown. The survey indicated the following: (1) prototype test articles are not being discarded after development testing is complete, but are used for other purposes, (2) only two cases of prototypes being refurbished and flown were identified, (3) protective devices and inspection techniques are available to prevent or minimize test article damage, (4) substitute programs from design verification are availabel in lieu of using prototype structural articles, and (5) there is a trend away from dedicated test articles. Four options based on these study results were identified to reduce test and hardware costs without compromising reliability of the flight program