Using real options to select stable Middleware-induced software architectures

The requirements that force decisions towards building distributed system architectures are usually of a non-functional nature. Scalability, openness, heterogeneity, and fault-tolerance are examples of such non-functional requirements. The current trend is to build distributed systems with middleware, which provide the application developer with primitives for managing the complexity of distribution, system resources, and for realising many of the non-functional requirements. As non-functional requirements evolve, the `coupling' between the middleware and architecture becomes the focal point for understanding the stability of the distributed software system architecture in the face of change. It is hypothesised that the choice of a stable distributed software architecture depends on the choice of the underlying middleware and its flexibility in responding to future changes in non-functional requirements. Drawing on a case study that adequately represents a medium-size component-based distributed architecture, it is reported how a likely future change in scalability could impact the architectural structure of two versions, each induced with a distinct middleware: one with CORBA and the other with J2EE. An option-based model is derived to value the flexibility of the induced-architectures and to guide the selection. The hypothesis is verified to be true for the given change. The paper concludes with some observations that could stimulate future research in the area of relating requirements to software architectures

Differential-difference equations in economics: on the numerical solution of vintage capital growth models

In this papel, we examine techniques for the analytical and numerical solution of statedependent differential-difference equations. Such equations occur in the continuous time modelling of vintage capital growth models, which form a particularly important class of models in modern economic growth theory. The theoretical treatment of non-statedependent differential-difference equations in economics has already been discussed by Benhabib and Rustichini (1991). In general, though, the state-dependence of a model prevents its analytical solution in all but the simplest of cases. We review a numerical method for solving state-dependent models, using sorne simple examples to illustrate our discussion. In addition, we analyse the Solow vintage capital growth model. We conclude by mentioning a crucial unresolved issue related to this topic

How sensitive are equilibrium pricing models to real-world distortions?

In both finance and economics, quantitative models are usually studied as isolated mathematical objects --- most often defined by very strong simplifying assumptions concerning rationality, efficiency and the existence of disequilibrium adjustment mechanisms. This raises the important question of how sensitive such models might be to real-world effects that violate the assumptions. We show how the consequences of rational behavior caused by perverse incentives, as well as various irrational tendencies identified by behavioral economists, can be systematically and consistently introduced into an agent-based model for a financial asset. This generates a class of models which, in the special case where such effects are absent, reduces to geometric Brownian motion --- the usual equilibrium pricing model. Thus we are able to numerically perturb a widely-used equilibrium pricing model market and investigate its stability. The magnitude of such perturbations in real markets can be estimated and the simulations imply that this is far outside the stability region of the equilibrium solution, which is no longer observed. Indeed the price fluctuations generated by endogenous dynamics, are in good general agreement with the excess kurtosis and heteroskedasticity of actual asset prices. The methodology is presented within the context of a financial market. However, there are close links to concepts and theories from both micro- and macro-economics including rational expectations, Soros' theory of reflexivity, and Minsky's theory of financial instability

Adaptive Network Dynamics and Evolution of Leadership in Collective Migration

The evolution of leadership in migratory populations depends not only on costs and benefits of leadership investments but also on the opportunities for individuals to rely on cues from others through social interactions. We derive an analytically tractable adaptive dynamic network model of collective migration with fast timescale migration dynamics and slow timescale adaptive dynamics of individual leadership investment and social interaction. For large populations, our analysis of bifurcations with respect to investment cost explains the observed hysteretic effect associated with recovery of migration in fragmented environments. Further, we show a minimum connectivity threshold above which there is evolutionary branching into leader and follower populations. For small populations, we show how the topology of the underlying social interaction network influences the emergence and location of leaders in the adaptive system. Our model and analysis can describe other adaptive network dynamics involving collective tracking or collective learning of a noisy, unknown signal, and likewise can inform the design of robotic networks where agents use decentralized strategies that balance direct environmental measurements with agent interactions.Comment: Submitted to Physica D: Nonlinear Phenomen

Toward a long-term strategy of economic development of Croatia: Where to begin, what to do and how to do it?

This paper attempts to elaborate the main principles of an economic development strategy suitable for Croatia over the next 10–15 years. Based on brief analyses of advances made in development theory and policy and experiences of the emerging market economies in Asia, Latin America, and Central Europe, the paper identifies critical factors necessary for launching an accelerated process of economic development. These factors are: leadership commitment to economic development; the level and quality of social and human capital; application of modern (especially information) technology; stable and consistent macroeconomic policies; and efficient market-based institutions. The paper then analyses Croatia’s strengths and weaknesses in terms of these factors in comparison with a select group of economies: Slovenia, Hungary, the Czech Republic, Portugal, Ireland, Chile, Uruguay, Hong Kong and Singapore. In addition, the paper analyses implications of “new economy” developments in the United States and other advanced industrial countries for a small open economy like Croatia. Against this background, the paper proposes seven basic principles for elaborating a long-term strategy of Croatia’s economic development: (i) Setting a clear development goal—the paper proposes a doubling of real per capita GDP to US$10,000 in the next 10–15 years, which would require an average annual growth rate of about 5½%, and that this growth rate is achievable; (ii) Ensuring transparency and equal access to development opportunities, as opposed to following specific industrial policy; (iii) Adjusting to globalisation of economic activity and absorbing “new economy” developments; (iv) Implementing fundamental reform of labour markets, with a view to reducing the high non-wage labour costs through pension and health care reforms; (v) Actively promoting financial market development by accelerating corporate and bank restructuring, and legal and judicial system reforms; (vi) Deciding on the economic role of the state in such areas as education, legal and judicial systems, market regulation, infrastructure, and science and technology; and (vii) Maintaining stable and consistent macroeconomic policies to facilitate structural reforms. The paper briefly discusses the main benefits and costs of a possible “euroisation” of Croatia’s economy, and arrangements for a possible transition from the current monetary and exchange rate regime, characterised by a high degree of factor and commodity price indexation to the Deutsche mark, toward a more flexible interim regime that would facilitate the eventual adoption of the euro and be consistent with the overall development strategy outlined

Equilibrium points for Optimal Investment with Vintage Capital

The paper concerns the study of equilibrium points, namely the stationary solutions to the closed loop equation, of an infinite dimensional and infinite horizon boundary control problem for linear partial differential equations. Sufficient conditions for existence of equilibrium points in the general case are given and later applied to the economic problem of optimal investment with vintage capital. Explicit computation of equilibria for the economic problem in some relevant examples is also provided. Indeed the challenging issue here is showing that a theoretical machinery, such as optimal control in infinite dimension, may be effectively used to compute solutions explicitly and easily, and that the same computation may be straightforwardly repeated in examples yielding the same abstract structure. No stability result is instead provided: the work here contained has to be considered as a first step in the direction of studying the behavior of optimal controls and trajectories in the long run

Wealth-Driven Competition in a Speculative Financial Market: Examples with Maximizing Agents

This paper demonstrates how both quantitative and qualitative results of general, analytically tractable asset-pricing model in which heterogeneous agents behave consistently with a constant relative risk aversion assumption can be applied to the particular case of ``linear'' investment choices. In this way it is shown how the framework developed in Anufriev and Bottazzi (2005) can be used inside the classical setting with demand derived from utility maximization. Consequently, some of the previous contributions of the agent-based literature are generalized. In the course of the analysis of asymptotic market behavior the main attention is paid to a geometric approach which allows to visualize all possible equilibria by means of a simple one-dimensional curve referred as the Equilibrium Market Line. The case of linear (particularly, mean-variance) investment functions thoroughly analyzed in this paper allows to highlight those features of the asymptotic dynamics which are common to all types of the CRRA-investment behavior and those which are specific for the linear investment functions.Asset Pricing Model, CRRA Framework, Equilibrium Market Line, Rational Choice, Expected Utility Maximization, Mean-Variance Optimization, Linear Investment Functions.