Pricing option contracts on the strategic petroleum reserve.

In this article we examine the pricing of option contracts on the strategic petroleum reserve (SPR) and consider how these can be used by both the government and refiners. We analyze the interaction between the call and put option contracts, taking into account the underlying game, in the infinite Markov decision process with discounting, explaining the relationship between the valuation of options on the SPR by refiners and the valuation of financial options on a marker crude in financial markets. We conclude that the values of both call and put options on the SPR increase with oil prices and decrease with total inventory. Furthermore, our analysis shows that a more active management of the SPR creates higher social welfare (although refiners profit less from inventories) and larger volatility in inventory profits, decreasing private investment in petroleum stocks

Developing a market-based approach to managing the US strategic petroleum reserve.

The Strategic Petroleum Reserve has not been used effectively to manage the consequences of oil shocks in the United States. The main reason is that political decision makers tend to hoard the reserves during crises and bureaucratic processes delay the sale of the reserves. Also, the enabling legislation focused on ameliorating shortages whereas disruptions result in price spikes rather than shortages. We develop a Markov game of the buildup and drawdown of the reserve in which a public player aims to maximize consumer welfare at the same time private holders of inventory maximize their profit. The methodological contribution in this paper is the development of financial options to implement the public player's optimal policy. We use the solution of this game to calculate the number and value of options necessary for the private marketplace to trigger the optimal buildup and drawdown of the reserve

INFORMATION GAMES IN THE QUEST FOR MINDSHARE

The rapid growth and great popularity of Internet sites that specialize in providing intangible services in the form of information and community services gives rise to new forms of competition. Information Web sites such as www.how2.com and community sites such as www.iVillage.com provide free "content" and rely on advertising and hosting revenues to generate income. The competition between content sites in the same market niche is intense and only a few companies are likely to survive. In this paper, we examine a number of competitive models or "information games" that provide insights into the nature of this competition. The models capture differences between the type and maturity of the markets and differences in the behavioral assumptions about the nature of consumer demand for content. While these markets often have a "winner-takes-all" nature, we find a number of situations in which more than one player can survive at equilibrium.Information Systems Working Papers Serie

AN INTELLIGENT SYSTEM FOR FORMULATING LINEAR PROGRAMS

The research and system development work described in this paper is aimed at overcoming some of the problems associated with the development of large, complex linear programming problems. The most overwhelming problem is that of size. It is not uncommon for large planning and policy analysis problems to have tens of thousands of constraints and activities. Matrix generator systems have been designed to help in this process. However, the amount of manual labor involved is still very great and the formulation process is subject to errors which are difficult to detect. We provide an overview of a system which uses artificial intelligence and database techniques to help a knowledgeable user formulate large linear programs. The system automates many of the tedious processes associated with large-scale modeling and provides a top-down development environment with a number of different forms of problem representation.Information Systems Working Papers Serie

Related problems in the production of a public relations motion picture film

Thesis (M.S.)--Boston Universit

Learning to Collude Tacitly on Production Levels by Oligopolistic Agents

Classical oligopoly theory has strong analytical foundations but is weak in capturing the operating environment of oligopolists and the available knowledge they have for making decisions, areas in which the management literature is relevant. We use agent-based models to simulate the impact on firm profitability of policies that oligopolists can pursue when setting production levels. We develop an approach to analyzing simulation results that makes use of nonparametric statistical tests, taking advantage of the large amounts of data generated by simulations, and avoiding the assumption of normality that does not necessarily hold. Our results show that in a quantity game, a simple exploration rule, which we call Probe and Adjust, can find either the Cournot equilibrium or the monopoly solution depending on the measure of success chosen by the firms. These results shed light on how tacit collusion can develop within an oligopoly

REPRESENTATION SCHEMES FOR MATHEMATICAL PROGRAMMING MODELS

Because of the difficulties often experienced in formulating and understanding large scale models, much current research is directed towards developing systems to support the construction and understanding of management science models. This paper discusses six different methods for representing mathematical programming models during the formulation phase of the modeling process. The approaches discussed in the paper include algebra, three different kinds of graphical schemes, a database-oriented approach and Structured Modeling. We emphasize representations that have graphical elements suitable for incorporation in the interface to a modeling system. The different methods are compared using a common example and conclusions are drawn as to their suitability for various modeling tasks and situations.Information Systems Working Papers Serie

LPSPEC: A Language for Representing Linear Programs

Information Systems Working Papers Serie

COMPOSITION RULES FOR BUILDING LINEAR PROGRAMMING MODELS FROM COMPONENT MODELS

This paper describes some rules for combining component models into complete linear programs. The objective is to lay the foundations for systems that give users flexibility in designing new models and reusing old ones, while at the same time, providing better documentation and better diagnostics than currently available. The results presented here rely on two different sets of properties of LP models: first, the syntactic relationships among indices that define the rows and columns of the LP, and second, the meanings attached to these indices. These two kinds of information allow us to build a complete algebraic statement of a model from a collection of components provided by the model builder.Information Systems Working Papers Serie

THE SCIENCE AND ART OF FORMULATING LINEAR PROGRAMS

This paper describes the philosophy underlying the development of an intelligent system to assist in the formulation of large linear programs. The LPFORM system allows users to state their problem using a graphical rather than an algebraic representation. A major objective of the system is to automate the bookkeeping involved in the development of large systems. It has expertise related to the structure of many of the common forms of linear programs (e.g. transportation, product-mix and blending problems) and of how these prototypes may be combined into more complex systems. Our approach involves characterizing the common forms of LP problems according to whether they are transformations in place, time or form. We show how LPFORM uses knowledge about the structure and meaning of linear programs to construct a correct tableau. Using the symbolic capabilities of artificial intelligence languages, we can manipulate and analyze some properties of the LP prior to actually generating a matrix.Information Systems Working Papers Serie