Testing the Option Value Theory of Irreversible Investment

This paper statistically tests the option theory of irreversible investment under uncertainty. Using contingent claims valuation, we derive the value of options to invest in capacity, where the projects are endogenous to the economic circumstances prevailing at the investment date. We then test whether capacity investment decisions made by Canadian copper mines are compatible with the trigger price implied by the theory. The results speak strongly in favor of option theory as a theory of real investment. Our model explains both investment size and timing satisfactorily, from a statistical, and from an economic, point of view, and numerical simulations with a mean-reverting process suggest that the results do not depend crucially on the price being assumed to follow a geometric Brownian motion. Nous etablissons par la methode des actifs contingents la valeur de l'option d'effectuer des investissements irréversibles réels qui sont sensibles aux paramètres économiques prévalant au moment de la décision. Nous testons ensuite si des mines de cuivre canadiennes choisissent bien d'effectuer leurs investissements en capacité de production au moment où le prix du cuivre atteint le niveau critique impliqué par la théorie. Les résultats sont fortement en faveur de celle-ci. Le modèle explique tant la taille que la date des investissements, d'une manière statistiquement et économiquement satisfaisantes; des simulations avec un processus de retour à la moyenne indiquent que ces résultats ne dépendent pas de façon cruciale de l'hypothèse que le prix suit un processus brownien géométrique.Irreversible Investment, Uncertainty, Contingent Claims, Option Value, Putty Clay, Real Investment, Trigger Price - Investissement irréversible, incertitude, actifs contingents, valeur d'option, investissement réel, prix critique

Testing the Option Value Theory of Irreversible Investment

This paper statistically tests the theory of irreversible investment under uncertainty. Using dynamic programming and contingent claims valuation alternatively, we derive the value of options to invest in capacity, where the projects are endogenous to the economic circumstances prevailing at the investment date. We then test whether capacity investment decisions made by Canadian copper mines are compatible with the theory. The result speak strongly in favor of option theory as a theory of real investment; in particular, we provide a test which rejects the Net Present Value criterion, and our model explains both investment size and timing satisfactorily from a statistical and from an economic point of view. En recourrant tour à tour à la programmation dynamique et à la méthode des actifs contigents, nous établissons la valeur de l'option d'effectuer des investissements irréversibles réels qui sont sensibles aux paramètres économiques prévalant au moment de la décision. Nous testons ensuite si des investissements en capacité de production effectués par des mines de cuivre canadiennes sont conformes aux implications de la théorie. Les résultats sont fortements en faveur de celle-ci; nos données rejettent le critère de la valeur actuelle nette et le modèle explique tant la taille que la date des investissements d'une manière statistiquement et économiquement satisfaisante.Irreversible investment/Uncertainty/Dynamic programming/Contingent claims/Option value/Putty Clay/Real investment, Investissement irréversible; Incertitude; Programmation dynamique; Actifs contingents; Valeur d'option; modèle Putty Clay; Investissement réel.

Astrometric Method to Break the Photometric Degeneracy between Binary-source and Planetary Microlensing Perturbations

An extra-solar planet can be detected by microlensing because the planet can perturb the smooth lensing light curve created by the primary lens. However, it was shown by Gaudi that a subset of binary-source events can produce light curves that closely resemble those produced by a significant fraction of planet/star lens systems, causing serious contamination of a sample of suspected planetary systems detected via microlensing. In this paper, we show that if a lensing event is observed astrometrically, one can unambiguously break the photometric degeneracy between binary-source and planetary lensing perturbations. This is possible because while the planet-induced perturbation in the trajectory of the lensed source image centroid shifts points away from the opening of the unperturbed elliptical trajectory, while the perturbation induced by the binary source companion points always towards the opening. Therefore, astrometric microlensing observations by using future high-precision interferometers will be important for solid confirmation of microlensing planet detections.Comment: total 5 pages, including 1 figure and no table, ApJ, submitted, better quality pdf file is avalilable at http://astroph.chungbuk.ac.kr/~cheongho/publication.htm

Predicting the outcome of renal transplantation

ObjectiveRenal transplantation has dramatically improved the survival rate of hemodialysis patients. However, with a growing proportion of marginal organs and improved immunosuppression, it is necessary to verify that the established allocation system, mostly based on human leukocyte antigen matching, still meets today's needs. The authors turn to machine-learning techniques to predict, from donor-recipient data, the estimated glomerular filtration rate (eGFR) of the recipient 1 year after transplantation.DesignThe patient's eGFR was predicted using donor-recipient characteristics available at the time of transplantation. Donors' data were obtained from Eurotransplant's database, while recipients' details were retrieved from Charite Campus Virchow-Klinikum's database. A total of 707 renal transplantations from cadaveric donors were included.MeasurementsTwo separate datasets were created, taking features with <10% missing values for one and <50% missing values for the other. Four established regressors were run on both datasets, with and without feature selection.ResultsThe authors obtained a Pearson correlation coefficient between predicted and real eGFR (COR) of 0.48. The best model for the dataset was a Gaussian support vector machine with recursive feature elimination on the more inclusive dataset. All results are available at http://transplant.molgen.mpg.de/.LimitationsFor now, missing values in the data must be predicted and filled in. The performance is not as high as hoped, but the dataset seems to be the main cause.ConclusionsPredicting the outcome is possible with the dataset at hand (COR=0.48). Valuable features include age and creatinine levels of the donor, as well as sex and weight of the recipient

The Ecosystem Approach to Fisheries: Issues, Terminology, Principles, Institutional Foundations, Implementation and Outlook

Ecosystems are complex and dynamic natural units that produce goods and services beyond those of benefit to fisheries. Because fisheries have a direct impact on the ecosystem, which is also impacted by other human activities, they need to be managed in an ecosystem context. The meaning of the terms 'ecosystem management', 'ecosystem based management', 'ecosystem approach to fisheries'(EAF), etc., are still not universally defined and progressively evolving. The justification of EAF is evident in the characteristics of an exploited ecosystem and the impacts resulting from fisheries and other activities. The rich set of international agreements of relevance to EAF contains a large number of principles and conceptual objectives. Both provide a fundamental guidance and a significant challenge for the implementation of EAF. The available international instruments also provide the institutional foundations for EAF. The FAO Code of Conduct for Responsible Fisheries is particularly important in this respect and contains provisions for practically all aspects of the approach. One major difficulty in defining EAF lies precisely in turning the available concepts and principles into operational objectives from which an EAF management plan would more easily be developed. The paper discusses these together with the types of action needed to achieve them. Experience in EAF implementation is still limited but some issues are already apparent, e.g. in added complexity, insufficient capacity, slow implementation, need for a pragmatic approach, etc. It is argued, in conclusion, that the future of EAF and fisheries depends on the way in which the two fundamental concepts of fisheries management and ecosystem management, and their respective stakeholders, will join efforts or collide

Positivity and optimization for semi-algebraic functions

We describe algebraic certificates of positivity for functions belonging to a finitely generated algebra of Borel measurable functions, with particular emphasis to algebras generated by semi-algebraic functions. In which case the standard global optimization problem with constraints given by elements of the same algebra is reduced via a natural change of variables to the better understood case of polynomial optimization. A collection of simple examples and numerical experiments complement the theoretical parts of the article.Comment: 20 page

The Moment Problem for Continuous Positive Semidefinite Linear functionals

Let $\tau$ be a locally convex topology on the countable dimensional polynomial $\reals$-algebra \rx:=\reals[X_1,...,X_n]. Let $K$ be a closed subset of $\reals^n$, and let $M:=M_{\{g_1, ... g_s\}}$ be a finitely generated quadratic module in \rx. We investigate the following question: When is the cone \Pos(K) (of polynomials nonnegative on $K$) included in the closure of $M$? We give an interpretation of this inclusion with respect to representing continuous linear functionals by measures. We discuss several examples; we compute the closure of M=\sos with respect to weighted norm-$p$ topologies. We show that this closure coincides with the cone \Pos(K) where $K$ is a certain convex compact polyhedron.Comment: 14 page

The Distance Precision Matrix: computing networks from non-linear relationships

Motivation: Full-order partial correlation, a fundamental approach for network reconstruction, e.g. in the context of gene regulation, relies on the precision matrix (the inverse of the covariance matrix) as an indicator of which variables are directly associated. The precision matrix assumes Gaussian linear data and its entries are zero for pairs of variables that are independent given all other variables. However, there is still very little theory on network reconstruction under the assumption of non-linear interactions among variables. Results: We propose Distance Precision Matrix, a network reconstruction method aimed at both linear and non-linear data. Like partial distance correlation, it builds on distance covariance, a measure of possibly non-linear association, and on the idea of full-order partial correlation, which allows to discard indirect associations. We provide evidence that the Distance Precision Matrix method can successfully compute networks from linear and non-linear data, and consistently so across different datasets, even if sample size is low. The method is fast enough to compute networks on hundreds of nodes. Availability: An R package DPM is available at https://github.molgen.mpg.de/ghanbari/DPM. Supplementary information: Supplementary data are available at Bioinformatics online

Computation with Polynomial Equations and Inequalities arising in Combinatorial Optimization

The purpose of this note is to survey a methodology to solve systems of polynomial equations and inequalities. The techniques we discuss use the algebra of multivariate polynomials with coefficients over a field to create large-scale linear algebra or semidefinite programming relaxations of many kinds of feasibility or optimization questions. We are particularly interested in problems arising in combinatorial optimization.Comment: 28 pages, survey pape