Optimal regime switching under risk aversion and uncertainty

echnology adoption is key for corporate strategy, often determining the success or failure of a company as a whole. However, risk aversion often raises the reluctance to make a timely technology switch, particularly when this entails the abandonment of an existing market regime and entry in a new one. Consequently, which strategy is most suitable and the optimal timing of regime switch depends not only on market factors, such as the definition of the market regimes, as well as economic and technological uncertainty, but also on attitudes towards risk. Therefore, we develop a utility-based, regime-switching framework for evaluating different technology-adoption strategies under price and technological uncertainty. We assume that a decisionmaker may invest in each technology that becomes available (compulsive) or delay investment until a new technology arrives and then invest in either the older (laggard) or the newer technology (leapfrog). Our results indicate that, if market regimes are asymmetric, then greater risk aversion and price uncertainty in a new regime may accelerate regime switching. In addition, the feasibility of a laggard strategy decreases (increases) as price uncertainty in an existing (new) regime increases. Finally, although risk aversion typically favours a compulsive and a laggard strategy, a leapfrog strategy may be feasible under risk aversion provided that the output price and the rate of innovation are sufficiently high

Stepwise Green Investment under Policy Uncertainty

We analyse how market price and policy uncertainty, in the form of random provision or retraction of a subsidy, interact to affect the optimal time of investment and the size of a renewable energy (RE) project that can be completed in either a single (lumpy investment) or multiple stages (stepwise investment). The subsidy takes the form of a fixed premium on top of the electricity price, and, therefore, investment is subject to electricity price uncertainty. We show that the risk of a permanent retraction (provision) of a subsidy increases (decreases) the incentive to invest, yet lowers (raises) the amount of installed capacity, and that this result is more pronounced as the size of the subsidy increases. Additionally, we show that increasing the number of policy interventions lowers the expected value of a subsidy and the size of the project. Furthermore, we illustrate that, although an increase in the size of a subsidy lowers the relative value of the stepwise investment strategy, the expected value of a lumpy investment strategy is still lower than that of stepwise investment

Regulatory oversight and bank risk

We investigate how a change in regulatory oversight affects bank risk, using the passage of the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 as a setting. Using a sample of bank holding companies (BHCs) covering the period 2015Q1 through 2020Q1, we find that risk increases for large BHCs affected by a change in regulatory oversight. In addition to increasing bank level risk, affected BHCs increase their respective contribution to the systemic risk. These BHCs also experience higher profitability, increased market valuation and reduced compliance costs.Publisher PDFPeer reviewe

ATRA mechanically reprograms pancreatic stellate cells to suppress matrix remodelling and inhibit cancer cell invasion

Pancreatic ductal adenocarcinoma (PDAC) is a highly aggressive malignancy with a dismal survival rate. Persistent activation of pancreatic stellate cells (PSCs) can perturb the biomechanical homoeostasis of the tumour microenvironment to favour cancer cell invasion. Here we report that ATRA, an active metabolite of vitamin A, restores mechanical quiescence in PSCs via a mechanism involving a retinoic acid receptor beta (RAR-β)-dependent downregulation of actomyosin (MLC-2) contractility. We show that ATRA reduces the ability of PSCs to generate high traction forces and adapt to extracellular mechanical cues (mechanosensing), as well as suppresses force-mediated extracellular matrix remodelling to inhibit local cancer cell invasion in 3D organotypic models. Our findings implicate a RAR-β/MLC-2 pathway in peritumoural stromal remodelling and mechanosensory-driven activation of PSCs, and further suggest that mechanical reprogramming of PSCs with retinoic acid derivatives might be a viable alternative to stromal ablation strategies for the treatment of PDAC

Electromagnetic shielding effectiveness of carbon fibre reinforced composites

This paper reports results on the shielding effectiveness parameter of laminated epoxy composites with carbon fibre reinforcements. Measurements of shielding effectiveness were carried out with a coaxial transmission line testing chamber according to ASTM 4935 standard and epoxy-matrix composites with continuous carbon-fibres were proven to be an excellent electromagnetic interference shielding material, where a composite slab made of 4 layers of prepregs provided more than 99.9% of electromagnetic attenuation. It was found that the reflection mechanism of the shielding material was mainly influenced by the fibre volume ratio, and that an increase in the number of layers of the composite resulted in higher shielding effectiveness due to a greater absorption mechanism. Calculations of the shielding effectiveness parameter of the material used were made by means of commercial electromagnetic simulation tools, having determined experimentally the overall resistivity of the composite. The findings presented in this work suggest that in presence of a greater number of interfaces at different impedance the separate modelling of matrix and fibres at mesoscopic scale must be taken into account

Low-frequency wide band-gap elastic/acoustic meta-materials using the K-damping concept

The terms "acoustic/elastic meta-materials" describe a class of periodic structures with unit cells exhibiting local resonance. This localized resonant structure has been shown to result in negative effective stiffness and/or mass at frequency ranges close to these local resonances. As a result, these structures present unusual wave propagation properties at wavelengths well below the regime corresponding to band-gap generation based on spatial periodicity, (i.e. "Bragg scattering"). Therefore, acoustic/elastic meta-materials can lead to applications, especially suitable in the low-frequency range. However, low frequency range applications of such meta-materials require very heavy internal moving masses, as well as additional constraints at the amplitudes of the internally oscillating locally resonating structures, which may prohibit their practical implementation. In order to resolve this disadvantage, the K-Damping concept will be analyzed. According to this concept, the acoustic/elastic meta-materials are designed to include negative stiffness elements instead or in addition to the internally resonating added masses. This concept removes the need for the heavy locally added heavy masses, while it simultaneously exploits the negative stiffness damping phenomenon. Application of both Bloch's theory and the classical modal analysis at the one-dimensional mass-in-mass lattice is analyzed and corresponding dispersion relations are derived. The results indicate significant advantages over the conventional mass-in-a mass lattice, such as broader band-gaps and increased damping ratio and reveal significant potential in the proposed solution. Preliminary feasibility analysis for seismic meta-structures and low frequency acoustic isolation-damping confirm the strong potential and applicability of this concept.Comment: Keywords: Acoustic meta-materials, elastic meta-materials, low-frequency vibration absorption, seismic meta-structures, noise absorptio

MRI efficacy in diagnosing internal lesions of the knee: a retrospective analysis

BACKGROUND: Many surgeons tend to believe that MRI is an accurate, non invasive diagnostic method, enough to lead to decisions for conservative treatment and save a patient from unnecessary arthroscopy. We conducted a retrospective study to investigate the accuracy of the MRI of the knee for the detection of injuries of the meniscus, cruciate ligaments and articular cartilage, in comparison with the preoperative clinical examination and intraoperative findings. Between May 2005 and February 2006 102 patients after clinical examination were diagnosed with meniscal or cruciate injury and underwent definitive treatment with arthroscopy. 46 of these patients fulfilled the inclusion criteria. The accuracy, sensitivity, specificity, negative and positive predictive values of the MRI findings were correlated with the lesions identified during arthroscopy. The diagnostic performance of the initial clinical examination was also calculated for the meniscal and cruciate ligament injuries. RESULTS: The accuracy for tears of the medial, lateral meniscus, anterior and posterior cruciate ligaments and articular cartilage was 81%, 77%, 86%, 98% and 60% respectively. The specificity was 69%, 88%, 89%, 98% and 73% respectively. The positive predictive value was 83%, 81%, 90%, 75% and 53% respectively. Finally, the clinical examination had significant lower reliability in the detection of these injuries. CONCLUSION: MRI is very helpful in diagnosing meniscal and cruciate ligament injuries. But in a countable percentage reports with false results and in chondral defects its importance is still vague. The arthroscopy still remains the gold standard for definitive diagnosis

Cyber Risk Assessment and Optimization: A Small Business Case Study

Assessing and controlling cyber risk is the cornerstone of information security management, but also a formidable challenge for organisations due to the uncertainties associated with attacks, the resulting risk exposure, and the availability of scarce resources for investment in mitigation measures. In this paper, we propose a cybersecurity decision-support framework, called CENSOR, for optimal cyber security investment. CENSOR accounts for the serial nature of a cyber attack, the uncertainty in the time required to exploit a vulnerability, and the optimisation of mitigation measures in the presence of a limited budget. First, we evaluate the cost that an organisation incurs due to a cyber security breach that progresses in stages and derive an analytical expression for the distribution of the present value of the cost. Second, we adopt a Set Covering and a Knapsack formulation to derive and compare optimal strategies for investment in mitigation measures. Third, we validate CENSOR via a case study of a small business (SB) based on: (i) the 2020 Common Weakness Enumeration (CWE) top 25 most dangerous software weaknesses; and (ii) the Center for Internet Security (CIS) Controls. Specifically, we demonstrate how the Knapsack formulation provides solutions that are both more affordable and entail lower risk compared to those of the Set Covering formulation. Interestingly, our results confirm that investing more in cybersecurity does not necessarily lead to an analogous cyber risk reduction, which indicates that the latter decelerates beyond a certain point of security investment intensity

Bi-level optimisation of subsidy and capacity investment under competition and uncertainty

In this paper, we develop a bi-level real options framework for deriving the equilibrium Government subsidisation and firm-level capacity investment policy in a duopoly market structure. We find that strategic interactions with the Government may impact a firm’s capacity investment decision significantly and that the equilibrium subsidisation policy depends on both the market structure and the type of duopolistic competition. Interestingly, the provision of greater subsidy to the leader raises the follower’s incentive to invest earlier and in a bigger project. The loss in value of the leader, due to the follower’s entry, relative to the monopolist increases with economic uncertainty and, although a subsidy can mitigate this loss, its effect becomes less pronounced as economic uncertainty increases. We also find that a profit (welfare)-maximising Government does not offer (offers) a subsidy in a highly uncertain environment or upon low tax rate, while higher tax rate does not always decelerate investment. Finally, we find that while competition is always desirable for a social planner, a profit-maximising Government may benefit more under pre-emptive competition