Hedging Effectiveness under Conditions of Asymmetry

We examine whether hedging effectiveness is affected by asymmetry in the return distribution by applying tail specific metrics to compare the hedging effectiveness of short and long hedgers using crude oil futures contracts. The metrics used include Lower Partial Moments (LPM), Value at Risk (VaR) and Conditional Value at Risk (CVAR). Comparisons are applied to a number of hedging strategies including OLS and both Symmetric and Asymmetric GARCH models. Our findings show that asymmetry reduces in-sample hedging performance and that there are significant differences in hedging performance between short and long hedgers. Thus, tail specific performance metrics should be applied in evaluating hedging effectiveness. We also find that the Ordinary Least Squares (OLS) model provides consistently good performance across different measures of hedging effectiveness and estimation methods irrespective of the characteristics of the underlying distribution

Fair Division of Indivisible Items

This paper analyzes criteria of fair division of a set of indivisible items among people whose revealed preferences are limited to rankings of the items and for whom no side payments are allowed. The criteria include refinements of Pareto optimality and envy-freeness as well as dominance-freeness, evenness of shares, and two criteria based on equally-spaced surrogate utilities, referred to as maxsum and equimax. Maxsum maximizes a measure of aggregate utility or welfare, whereas equimax lexicographically maximizes persons' utilities from smallest to largest. The paper analyzes conflicts among the criteria along possibilities and pitfalls of achieving fair division in a variety of circumstances.FAIR DIVISION; ALLOCATION OF INDIVISIBLE ITEMS; PARETO OPTIMALITY; ENVY-FREENESS; LEXICOGRAPHIC MAXIMUM

Paradoxes of Fair Division

Two or more players are required to divide up a set of indivisible items that they can rank from best to worst. They may, as well, be able to indicate preferences over subsets, or packages, of items. The main criteria used to assess the fairness of a division are efficiency (Pareto-optimality) and envy-freeness. Other criteria are also suggested, including a Rawlsian criterion that the worst-off player be made as well off as possible and a scoring procedure, based on the Borda count, that helps to render allocations as equal as possible. Eight paradoxes, all of which involve unexpected conflicts among the criteria, are described and classified into three categories, reflecting (1) incompatibilities between efficiency and envy-freeness, (2) the failure of a unique efficient and envy-free division to satisfy other criteria, and (3) the desirability, on occasion, of dividing up items unequally. While troublesome, the paradoxes also indicate opportunities for achieving fair division, which will depend on the fairness criteria one deems important and the trade-offs one considers acceptable.FAIR DIVISION; ALLOCATION OF INDIVISIBLE ITEMS; ENVY-FREENESS; PARETO- OPTIMALITY; RAWLSIAN JUSTICE; BORDA COUNT.

Stable marriage with general preferences

We propose a generalization of the classical stable marriage problem. In our model, the preferences on one side of the partition are given in terms of arbitrary binary relations, which need not be transitive nor acyclic. This generalization is practically well-motivated, and as we show, encompasses the well studied hard variant of stable marriage where preferences are allowed to have ties and to be incomplete. As a result, we prove that deciding the existence of a stable matching in our model is NP-complete. Complementing this negative result we present a polynomial-time algorithm for the above decision problem in a significant class of instances where the preferences are asymmetric. We also present a linear programming formulation whose feasibility fully characterizes the existence of stable matchings in this special case. Finally, we use our model to study a long standing open problem regarding the existence of cyclic 3D stable matchings. In particular, we prove that the problem of deciding whether a fixed 2D perfect matching can be extended to a 3D stable matching is NP-complete, showing this way that a natural attempt to resolve the existence (or not) of 3D stable matchings is bound to fail.Comment: This is an extended version of a paper to appear at the The 7th International Symposium on Algorithmic Game Theory (SAGT 2014

Multicriterial ranking approach for evaluating bank branch performance

14 ranking methods based on multiple criteria are suggested for evaluating the performance of the bank branches. The methods are explained via an illustrative example, and some of them are applied to a real-life data for 23 retail bank branches in a large-scale private Turkish commercial bank

A Characterization of Mixed Unit Interval Graphs

We give a complete characterization of mixed unit interval graphs, the intersection graphs of closed, open, and half-open unit intervals of the real line. This is a proper superclass of the well known unit interval graphs. Our result solves a problem posed by Dourado, Le, Protti, Rautenbach and Szwarcfiter (Mixed unit interval graphs, Discrete Math. 312, 3357-3363 (2012)).Comment: 17 pages, referees' comments adde

Downside risk in reservoir management

Downside risk, which refers to deviations below a threshold, is often important in water management decisions, especially in areas with large and skewed variations in precipitation patterns. In this paper, we present a model for a reservoir manager who is downside risk averse and who performs a dynamic allocation of irrigation water, taking into account the negative effects of droughts on farm profits and different environmental constraints. We analyse the water stock, flows and agricultural profits for alternative environmental restrictions and thresholds for irrigation levels and find that stricter environmental constraints increase total water supply and carryover stock, while higher penalty thresholds lead to their overall decrease. Furthermore, increasing penalty thresholds leads to a higher emphasis on avoiding shortages, at the expense of lower average profits.info:eu-repo/semantics/acceptedVersio

Sets Uniquely Determined by Projections on Axes I. Continuous Case

This paper studies sets S in Rn which are uniquely reconstructible from their hyperplane integral projections Pi(xi ;S) = ∬ . . . ∫ΧS ( {x1, . . . ,xi, . . . ,xn) dx1 . . . dxi - 1 dxi + 1 . . .dxn onto the n coordinate axes of Rn. It is shown that any additive set S = {x = (x1, . . .,xn) : ∑i = 1n fi(xi)≧0}, where each fi(xi) is a bounded measurable function, is uniquely reconstructible. In particular, balls are uniquely reconstructible. It is shown that in R2 all uniquely reconstructible sets are additive. For n≧3, Kemperman has shown that there are uniquely reconstructible sets in Rn of bounded measure that are not additive. It is also noted for n≧3 that neither of the properties of being additive and being a set of uniqueness is closed under monotone pointwise limits. A necessary condition for S to be a set of uniqueness is that S contain no bad configuration. A bad configuration is two finite sets of points T1 in Int(S) and T2 in Int(Sc), where Sc=Rn - S, such that T1 and T2 have the same number of points in any hyperplane xi = c for 1≦ i ≦n, and all c ∈ R2. We show that this necessary condition is sufficient for uniqueness for open sets S in R2. The results show that prior information about a density f in R2 to be reconstructed in tomography (namely if f is known to have only values 0 and 1) can sometimes reduce the problem of reconstructing f to knowing only two projections of f. Thus even meager prior information can in principle be of enormous value in tomography

Processing second-order stochastic dominance models using cutting-plane representations

This is the post-print version of the Article. The official published version can be accessed from the links below. Copyright @ 2011 Springer-VerlagSecond-order stochastic dominance (SSD) is widely recognised as an important decision criterion in portfolio selection. Unfortunately, stochastic dominance models are known to be very demanding from a computational point of view. In this paper we consider two classes of models which use SSD as a choice criterion. The first, proposed by Dentcheva and Ruszczyński (J Bank Finance 30:433–451, 2006), uses a SSD constraint, which can be expressed as integrated chance constraints (ICCs). The second, proposed by Roman et al. (Math Program, Ser B 108:541–569, 2006) uses SSD through a multi-objective formulation with CVaR objectives. Cutting plane representations and algorithms were proposed by Klein Haneveld and Van der Vlerk (Comput Manage Sci 3:245–269, 2006) for ICCs, and by Künzi-Bay and Mayer (Comput Manage Sci 3:3–27, 2006) for CVaR minimization. These concepts are taken into consideration to propose representations and solution methods for the above class of SSD based models. We describe a cutting plane based solution algorithm and outline implementation details. A computational study is presented, which demonstrates the effectiveness and the scale-up properties of the solution algorithm, as applied to the SSD model of Roman et al. (Math Program, Ser B 108:541–569, 2006).This study was funded by OTKA, Hungarian National Fund for Scientific Research, project 47340; by Mobile Innovation Centre, Budapest University of Technology, project 2.2; Optirisk Systems, Uxbridge, UK and by BRIEF (Brunel University Research Innovation and Enterprise Fund)