Showing papers by "Central Economics and Mathematics Institute published in 2010"

Resource abundance: A curse or blessing?

Abstract: Is resource abundance a blessing or a curse? Typically, in resource rich countries, domestic fuel prices are lower, and energy intensity of GDP is higher. But they have higher investment in R&D and fixed capital stock, larger foreign exchange reserves and more inflows of FDI. They also have lower budget deficits and lower inflation. These are conducive for long term growth. We also find that in resource rich countries, real exchange rate is generally higher, accumulation of human capital is slower and institutions are worse, especially if they were not strong initially, which are detrimental for growth.

Shortest-path feasibility algorithms: An experimental evaluation

Abstract: This is an experimental study of algorithms for the shortest-path feasibility problem: Given a directed weighted graph, find a negative cycle or present a short proof that none exists. We study previously known and new algorithms. Our testbed is more extensive than those previously used, including both static and incremental problems, as well as worst-case instances. We show that, while no single algorithm dominates, a small subset (including new algorithms) has very robust performance in practice. Our work advances the state of the art in the area.

Mean square error for the Leland–Lott hedging strategy: convex pay-offs

Abstract: Leland’s approach to the hedging of derivatives under proportional transaction costs is based on an approximate replication of the European-type contingent claim VT using the classical Black–Scholes formula with a suitably enlarged volatility. The formal mathematical framework is a scheme of series, i.e., a sequence of models with transaction cost coefficients kn=k0n−α, where α∈[0,1/2] and n is the number of portfolio revision dates. The enlarged volatility \(\widehat{\sigma}_{n}\) in general depends on n except for the case which was investigated in detail by Lott, to whom belongs the first rigorous result on convergence of the approximating portfolio value \(V^{n}_{T}\) to the pay-off VT. In this paper, we consider only the Lott case α=1/2. We prove first, for an arbitrary pay-off VT=G(ST) where G is a convex piecewise smooth function, that the mean square approximation error converges to zero with rate n−1/2 in L2 and find the first order term of the asymptotics. We are working in a setting with non-uniform revision intervals and establish the asymptotic expansion when the revision dates are \(t_{i}^{n}=g(i/n)\), where the strictly increasing scale function g:[0,1]→[0,1] and its inverse f are continuous with their first and second derivatives on the whole interval, or g(t)=1−(1−t)β, β≥1. We show that the sequence \(n^{1/2}(V_{T}^{n}-V_{T})\) converges in law to a random variable which is the terminal value of a component of a two-dimensional Markov diffusion process and calculate the limit. Our central result is a functional limit theorem for the discrepancy process.

Competition-Originated Cycles and Insurance Strategies

Abstract: Abstract An insurance company entering the property and liability insurance market at the high point of the insurance cycle may decide to slash premiums to gain an advantageous market share. Such aggressive intrusion may call forth a concerted industry response, producing a severe decline in the insurance market price. This can ruin some companies, and agrees with the observation that the insurance cycles are correlated with clustered insolvencies. This paper addresses a quantitative analysis of competition-originated cycles; it explores an interplay of rational aggressive and defensive strategies in the multi-period Lundberg-type controlled risk model.

Separated set-systems and their geometric models

Abstract: This paper discusses strongly and weakly separated set-systems as well as rhombus tilings and wiring diagrams which are used to produce such systems. In particular, the Leclerc-Zelevinsky conjectures concerning weakly separated systems are proved. Bibliography: 54 titles.

Bank cost efficiency in Kazakhstan and Russia

Abstract: The Kazakhstan banking system is increasingly viewed as more advanced than the Russian system Kazakhstan adopted the International Accounting System (IAS) in 2003 and the Basel II norms in 2005, while Russia has yet to fully adopt either IAS or Basel II In this paper, bank data for 2002-2006 are used to estimate models of bank cost efficiency In contrast to most previous papers, no significance difference is found for the average cost efficiency scores of banks for the two countries during 2002-2006 How banks are ranked for efficiency depends upon the chosen model (input and output sets) An interesting insight is the finding that most banks in both countries are below optimal size