Showing papers by "Central Economics and Mathematics Institute published in 2012"

Consistent price systems and arbitrage opportunities of the second kind in models with transaction costs

Abstract: In contrast with the classical models of frictionless financial markets, market models with proportional transaction costs, even satisfying usual no-arbitrage properties, may admit arbitrage opportunities of the second kind This means that there are self-financing portfolios with initial endowments lying outside the solvency region but ending inside Such a phenomenon was discovered by M Rasonyi in the discrete-time framework In this note, we consider a rather abstract continuous-time setting and prove necessary and sufficient conditions for a property which we call no free lunch of the second kind, NFL2 We provide a number of equivalent conditions elucidating, in particular, the financial meaning of the property B which appeared as an indispensable “technical” hypothesis in previous papers on hedging (superreplication) of contingent claims under transaction costs We show that it is equivalent to another condition on the “richness” of the set of consistent price systems, close to the condition PCE introduced by Rasonyi In the last section, we deduce the Rasonyi theorem from our general result by using specific features of discrete-time models

Evaluating the performance of Russia in the research in nanotechnology

Abstract: The article analyzes the development of nano research in Russia during the years 1990–2010. To identify the contribution of Russia in nanoscience and to compare it with the contribution of other countries, we used the international multidisciplinary database Science Citation Index Expanded. Scientific performance is measured based on the growth rate of nano publications by countries and in the world, authorship patterns, indexes of international collaboration, etc. The indicators used are the national publication output, the total citations and the average citation per nano publication, the number and subject profile of highly cited nano publications; contribution and impact of Russian institutions. The article describes the current state and trends of nano research in Russia, their key players and the existing “centers of excellence.” It also discusses some inconsistencies of Russia’s science policy in the field of nanotechnology in light of the performed bibliometric study.

Publication patterns in Russia and the West compared

Abstract: The institutional environment of science differs across countries. Its particularities have an impact on outcomes of scientific enterprise in terms of authorship patterns and patterns of citations. The paper analyzes scholarly papers produced by faculty and graduate students affiliated with six universities, two of them operate in the Russian institutional environment of science and four others—in the Western European and North American. The citation analysis of papers included in two major databases, eLibrary (Russian) and Web of Knowledge (international), shows that the lists of predictors for the number of references to a scholarly article significantly differ in the Western and Russian cases.

Small transaction costs, absence of arbitrage and consistent price systems

Abstract: The aim of this note is to establish a criterion of absence of arbitrage opportunities under small transaction costs for a family of multi-asset models of financial markets.

The Long Road to Normality: Where Russia Now Stands

Abstract: The goal of this study is to reveal the long-term trajectory of Russian economic development and to make predictions for the future. We start with a much discussed question: Why did Russia do worse economically during transition than most other countries in Europe and Asia? It is argued that it was caused partly by objective circumstances before transition (distortions in industrial structure and in trade patterns accumulated during the era of central planning), but mostly by the weakening of the institutional capacity of the state during transition.

Inverse Dirichlet-to-Neumann problem for nodal curves

Abstract: This paper proposes direct and inverse results for the Dirichlet and Dirichlet-to-Neumann problems for complex curves with nodal type singularities. As an application, it gives a method for reconstructing the conformal structure of a compact surface of with constant scalar conductivity from electric current density measurements in a neighbourhood of one of its points. Bibliography: 23 titles.

Models for Estimating Depreciation in Plants, Machinery, and Equipment: Analysis and Proposals

Abstract: This article presents a novel application of the discounted cash flow (DCF) method for assessing percent good factors for secondhand items of machinery and equipment. The process is grounded in the principle of highest and best use and accounts for such factors as the salvage value of equipment and associated property as well as income taxes without requiring cash flow forecasts of the income obtainable from using the equipment.Application of the suggested DCF method to machinery and equipment valuation offers solutions to the following issues, which are elaborated in the article:1. Formalizing general patterns of change in the value of aging equipment;2. Recognizing inconsistencies in tabular and analytical methods for determining percent good factors for property tax assessment;3. Developing new analytical models which consistently describe the dependency of percent good factors on the age of equipment and are practical for the development of property tax assessment depreciation schedules;4. Determining percent good factors for equipment aged beyond its useful economic life.The most pertinent results may be achieved from this proposed method when the equipment depreciation process is treated in a continuous time formulation.

Equitable solvent controls in a multi-period game model of risk☆

Abstract: In insurance two major types of cycles are known: (a) regular many years long up- and down-swings referred to as underwriting cycles and (b) irregular short-range fluctuations. The key rationale of the underwriting cycles is migration of insureds triggered by the insurers’ price competition while the short-range fluctuations are due to unpredictable fluctuations in economic surroundings. The competition-originated cycles were modeled in the framework of a Lundberg’s-type multi-period model of risk in Malinovskii, 2010 , Malinovskii, submitted for publication . Short-range fluctuations were modeled under diverse nature scenarios in the framework of (i) diffusion (see Malinovskii, 2007 , Malinovskii, 2009 ) and (ii) Lundberg’s-type multi-period model (see Malinovskii, 2008a ). In this paper the results of Malinovskii (2009) are extended on the Lundberg’s-type multi-period model.

Mean Square Error for the Leland-Lott Hedging Strategy: Convex Pay-Off

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 formulae with a suitably enlarged volatility. The formal mathematical framework is a scheme of series, i.e. a sequence of models with the transaction costs coefficients kn and n is the number of the portfolio revision dates. The enlarged volatility, in general, depends on n except the case which was investigated in details by Lott to whom belongs the first rigorous result on convergence of the approximating portfolio value to the pay-off. In this paper we consider only the Lott case alpha= 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 asymptotics. We are working in the setting with non-uniform revision intervals and establish the asymptotic expansion when the revision dates are t_ni=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. We show that the sequence of approximate error converges in law to a random variable which is the terminal value of a component of two-dimensional Markov diffusion process and calculate the limit. Our central result is a functional limit theorem for the discrepancy process.

Towards a Semantic Segment of a Research e-Infrastructure: Necessary Information Objects, Tools and Services

Abstract: Basically semantic linkage technique is used to specify in computer readable form known facts or relationships that definitely exist between information objects like people, organizations, research results, etc. Recently developers also started using it to visualize scientists’ opinions or scientific hypotheses (e.g. inference/deduction, impact/usage, theoretical hierarchy, etc.) about relationships between research objects. Based on CERIF Link entity and the Semantic Layer and assuming that scientists typically re-use research objects by making relationships between them we propose a sketch of a research e-infrastructure semantic segment, which allow scientists unlimited re-use of research information systems (RIS) content. After some development a semantic linkage technique provides scientists with tools and services for semantic linking of any pair of research objects, which metadata are available within content of any RIS. This application also allows scientists a decentralized development of semantic vocabularies that guarantee a covering by this technique any new types of relationships. In the paper we discuss information objects, tools and services which are necessary for proper functioning of proposed segment of the research e-infrastructure. We also discuss a “quality control” topic which in this context is very important.

Group specialties in the problem of the maximum principle for systems with deviating argument

Abstract: The problem of equivalence of the maximum principle in strong pointwise and integral forms is investigated in an optimum control problem in which dynamics is described by a functional-differential equation of pointwise type (a differential equation with deviating argument). The maximum principle in the strong pointwise form is formulated in the aspect of a two-parametrical set of finite-dimensional extremal problems [1,2]. Like it is in ordinary systems, the first parameter is time t and the second parameter is a length of the words which are composed by the generators of finitely generated group Q of homeomorphisms of the real line and which are generated by the functions of a deviation of the argument (for the ordinary systems the corresponding group Q is trivial). The maximum principle in the strong pointwise form follows from the maximum principle in the integral form. The basic obstacle for the equivalence of two forms is a combinatorial condition on the group Q. The presence of noted combinatorial property involves the existence of metric invariants for the group Q that allows to describe its structure in more detail.

Inverse Dirichlet to Neumann problem for nodal curves

Abstract: This paper proposes direct and inverse results for the Dirichlet and Dirichlet to Neumann problems for complex curves with nodal type singularities. As an application, we give a method to reconstruct the conformal structure of a compact surface of the standard three dimensional euclidean space with constant scalar conductivity from electrical current measurements in a neighborhood of one of its points.

How to sell Russian gas to Europe via Ukraine

Abstract: In recent years, the problems of Russian gas supplies to Europe got quite serious as the events ofJanuary 2009 have shown. From an economic point of view, the sources of these problems are themonopoly of Ukraine as a transit country, on one hand, and Russian monopoly on supplies of gas toUkraine, on the other.The paper analyses different schemes of supplying Russian gas to Europe andUkraine. It is shown that under existing agreements on supplies of Russian gas to Europe, Ukrainedoesnottakeproperadvantageofitspositionasamonopolytransitcountry.Onitspart,Russiacouldbenefit by setting the price of gas supplied to Ukraine as a function of transit tariff set by Ukraine. 1. Introduction Russia is a major natural gas exporter to Europe, accounting for 25 per cent of Europeangas consumption and 60 per cent of its imports.All Russian gas for Europe is exported byonestate-controlledcompany,Gazprom,whichmakesitpossibleforRussiatoexerciseitsmarket power on the European gas market. Currently, Russian gas is supplied to Europeunder long-term contracts, some of which will expire in decades. Under these contracts,the price of natural gas is determined by the price of a basket of petroleum products, thusnot directly dependent on gas demand.While Russia is a dominant player on the European gas market, its profits are signifi-cantly threatened by its dependence on gas transit countries such as Ukraine and Belarus.Even with North Stream gas pipeline in action, Russia will still be dependent on transitcountries.The existing pattern of Russian gas supplies to Europe dates back to the Soviettime,whenmaingasexportpipelineswereconstructed.Underthispattern,Russiadeliversnatural gas to Western and Central Europe via transit countries having no control over

Models of Development Based on Technology Diffusion

Abstract: The problems of multifold increase of technological potential of developing countries are considered in the article. To solve them, i.e. to organize effectively tapping into global knowledge and their absorption, the performance of two diffusion channels is considered: open knowledge transfer and commercial knowledge transfer. The models of technological catching-up are investigated. Two of them are found to give an opportunity of effective use of international competition and global technology knowledge as a driver of technology development.

Wagner's Law, the Armey-Rahn Curve, and the Paradox of Wealth

Abstract: The article gives a formal and substantive interpretation of Adolph Wagner's law. Empirical evidence of violation of this law is cited. The role of the Armey-Rahn curve in restraining Wagner's law is revealed. The Armey-Rahn curve is identified for Sweden and Russia. The paradox of wealth is formulated and a substantive explanation of it is given.

Conceptual fundamentals of the long wave theory and the innovative potential of the Russian economy

Abstract: Some aspects of innovative development in terms of the long wave concept are studied in this paper. The stage of the sixth long wave, which is reached by the USA as the leader of the nanotechnological development, is specified. The innovative potential of Russia in the area of nanotechnologies is estimated.

Fiscal Policy and Economic Growth

Abstract: The article reports the results of testing of Wagner's law for four countries: the United States, Great Britain, Sweden, and Russia. Econometric relationships are constructed that can be used to study properties of the Armey-Rahn curve and the Laffer curve. A new algorithm is suggested for finding the Laffer points and Scully points. The evolution of budget policy and the connection of budget parameters with the economic growth rate are examined.

ОЦЕНКА ЭФФЕКТИВНОСТИ ИНВЕСТИЦИОННЫХ ПРОЕКТОВ В УСЛОВИЯХ РИСКА И НЕОПРЕДЕЛЕННОСТИ (Investment Project Evaluation under Risk and Uncertainty)

Abstract: Russian Abstract: Излагается новая теория ожидаемого эффекта для оценки инвестиционных проектов в условиях риска и неопределенности. Она ориентирована на анализ различных сценариев реализации проекта. Даны формализованные описания различных видов неопределенных величин: интервальных, нечетких, наделенных правдоподобием, случайных, интервально-случайных и других. Для установления общего вида критериев сравнения проектов с неопределенными результатами используется аксиоматический подход (в частности, такие критерии должны быть монотонными и аддитивными). Этот подход позволяет также исследовать ситуацию, когда неопределенные результаты проекта распределены во времени. English Abstract: This book gives the new expected effect theory of investment project evaluation under risk and uncertainty. This theory is oriented towards the analysis of various project realization scenarios. A formal description is provided for the interval, fuzzy, likelyhooded, random, interval-random and other types of uncertain values. To elaborate a general form of criteria allowing comparisons across projects with uncertain outcomes, the use is made of an axiomatic approach (in particular, it is noticed that such criteria should be monotone and additive). This approach has also allowed exploring a situation where uncertain project outcomes are occurring at different times (i.e. uncertain flow of project costs and effects).

Games with Linear Conjectures About System Parameters

Abstract: We study a finite game in which the players’ payoffs are functions not only of their strategy profiles but also of certain (parameter) vector related to the whole system state. Relationships between the strategy profiles and the state vector are defined with mappings of rather general forms. Each player makes a decision on her best response to the system’s state and the other players’ strategies under an additional conjecture about the influence of a variation of her strategy upon the variation of the system’s parameters. We consider two versions: (i) constant conjectures, and (ii) a less restrictive variant, when the players’ conjectures satisfy certain constraints related to strategy profiles and the system’s parameters. We propose a concept of equilibrium in such a game and prove its existence. A couple of illustrative examples complete the manuscript.

Estimation of Discount Rates for Assessing the Efficiency of Investment Projects in the Framework of Optimal Financial Asset Management

Abstract: Singled out for this study is a model of optimal asset management for a firm in a deterministic situation (i.e., given full information) that would allow to refine and modify a traditional definitions of discount rate as the highest rate of return on alternative investment opportunities. It is shown that, in general, the discount rate (determined as the rate of decline in the "shadow price" value of money in the optimal plan) is time-variable and depends not only on the general situation in the market, but also on the financial position of the planning firm. The constructed model provides opportunities for formulating the precise conditions for the financial feasibility of a project and justifying the structure of its efficiency criterion. It appears that the criterion of efficiency in question differs from the net present value (NPV) -- in addition to the discounted sum of cash flows from the project, it must take into account the market value of fixed assets created under the project. We also consider the accounting issues of inflation, uncertainty and risk in evaluating the effectiveness of the project and setting the discount rate.

Inflation development model

Abstract: Using Leontief's model, a complex price inflation model is developed that represents the inflation process as a dynamic process of varying the type of economic equilibrium. It is shown that the rate of inflation and the asymptotically stable vector of prices are determined by the Perron eigenvalue and the corresponding left-hand side eigenvector of a semipositive matrix that is constructed based on the input-output balance indicators.