2015 Informs Annual Meeting

SD08

INFORMS Philadelphia – 2015

SD05 05-Room 305, Marriott Tutorial: Collecting and Analyzing Twitter Data with Python Cluster: Social Media Analytics Invited Session Chair: Chris Marks, MIT, 50 Memorial Drive, Cambridge, MA, 02139, United States of America, cemarks@mit.edu 1 - Tutorial: Collecting and Analyzing Twitter Data with Python Chris Marks, MIT, 50 Memorial Drive, Cambridge, MA, 02139, United States of America, cemarks@mit.edu, Tauhid Zaman We present a few methodologies and working libraries in Python that enable an analyst to retrieve information through the Twitter API and provide quick-turn exploratory analyses. These analyses include spatial analyses of data with geo- location, network analyses, and analyses of the timeline and scale of information cascades.

SD07 07-Room 307, Marriott Systemic Risk in Financial Networks Cluster: Risk Management Invited Session

Chair: Luitgard Veraart, Associate Professor, London School of Economics and Political Science, Houghton Street, London, WC2A 2AE, United Kingdom, L.Veraart@lse.ac.uk 1 - Control of Interbank Contagion under Partial Information

Andreea Minca, Cornell University, Ithaca, United States of America, acm299@cornell.edu

We consider a core-periphery financial network in which links lead to the creation of projects in the outside economy but make banks prone to contagion risk. The controller seeks to maximize the value of the financial system under partial information. Our results show that the value of the system depends on the connectivity in a non-monotonous way. It may be optimal to increase the rate of intervention in the peripheral banks rather than in core banks. 2 - The Joint Impact of Bankruptcy Costs, Fire Sales and Cross- holdings on Systemic Risk Kerstin Awiszus, Leibniz Universität Hannover, Welfengarten 1, Hannover, 30167, Germany, awiszus@stochastik.uni- hannover.de, Stefan Weber The paper presents a comprehensive model of a banking system that integrates network effects, bankruptcy costs, fire sales and cross-holdings. For the integrated financial market we prove the existence of a price-payment equilibrium and design an algorithm for the computation of the greatest and the least equilibrium. The number of defaults corresponding to the greatest price-payment equilibrium is analyzed in several comparative case studies. 3 - Systemic Risk Measures Zachary Feinstein, Assistant Professor, Washington University in St. Louis, 1 Brookings Drive, CB 1042, St. Louis, MO, 63130, United States of America, zfeinstein@wustl.edu, Birgit Rudloff, Stefan Weber We propose a framework for measuring systemic risk in terms of capital endowments of the financial firms. Their construction requires two ingredients: a cash flow or value model that assigns to the capital allocations of the entities in the system a relevant stochastic outcome, and an acceptability criterion, i.e. those outcomes that are acceptable from the point of view of a regulatory authority. Systemic risk is measured by the set of allocations of capital that lead to acceptable outcomes. 4 - A Bayesian Methodology for Systemic Risk Assessment in Financial Networks Luitgard Veraart, Associate Professor, London School of Economics and Political Science, Houghton Street, London, WC2A 2AE, United Kingdom, L.Veraart@lse.ac.uk, Axel Gandy We study the interbank market as a network in which the nodes represent banks and the directed edges represent interbank liabilities. In practice, the network of interbank liabilities is not fully observable. We present a Bayesian methodology to deal with this lack of information when performing stress tests on such interbank networks.

SD06 06-Room 306, Marriott Asset Returns and Portfolio Management Sponsor: Financial Services Sponsored Session

Chair: Xianhua Peng, Assistant Professor, Hong Kong University of Science and Technology, Department of Mathematics, Hong Kong,

Hong Kong - PRC, maxhpeng@ust.hk 1 - Three Fund Portfolio Rules and the Mean-variance-skewness Frontier

Luis Chavez-bedoya, Professor, ESAN University, Alonso de Molina 1652, Surco, Lima, Lima 33, Peru, lchavezbedoya@esan.edu.pe, John Birge

Assuming that asset returns follow a generalized hyperbolic (GH) distribution, we study the optimal solution of a particular portfolio optimization problem and relate it to common three-fund rules and to the mean-variance-skewness frontier of Mencia and Sentana (2009). Finally, we describe the optimal portfolio in terms of the location, dispersion and skewness parameters of the GH distribution. 2 - Jumps in Equity Returns Before and During the Recent Financial Crisis: A Bayesian Analysis

Haowen Zhong, Department of Industrial Engineering and Operations Research, Columbia University, 500 West 120th

Street, New York, United States of America, hz2193@columbia.edu, Cindy Yu, Steven Kou

We attempt to answer two questions in this talk. (i) How did jumps in equity returns change after the 2008-2009 financial crisis? (ii) Can the performance of affine jump-diffusion models be improved if jump sizes are with tails heavier than those of the normal distribution? 3 - Separating Skilled and Unskilled Fund Managers by Contract Design Sang Hu, Risk Management Institute, National University of Singapore, 21 Heng Mui Keng Terrace, Icube Building #04-03, Singapore, rmihsa@nus.edu.sg, Steven Kou, Xuedong He Foster and Young (2010) shows that it is very difficult to design performance fee contracts that reward skilled fund managers while screening out unskilled fund managers. We show that (1) if there is a liquidation boundary, meaning that the fund investors liquidate their stake as soon as the fund returns hit the boundary, and (2) the fund manager has to use his/her own money to set up a deposit to offset the potential losses from investors, then skilled and unskilled managers can be separated. 4 - Optimal Exit Time from Casino Gambling: Why a Lucky Coin and a Good Memory Matter Xuedong He, Assistant Professor, Department of Industrial Engineering and Operations Research, Columbia University, xh2140@columbia.edu, Xunyu Zhou, Sang Hu, Jan Obloj We consider a dynamic casino gambling model and study the optimal strategy of a gambler with cumulative prospect theory (CPT) preferences. We develop a systematic and analytical approach to finding the gambler’s optimal strategy, illustrate how Markovian strategies can be strictly improved by reviewing the betting history or by tossing an independent coin, and explain that the improvement generated by using randomized strategies results from the lack of quasi-convexity of CPT preferences.

SD08 08-Room 308, Marriott Surveillance Sponsor: Telecommunications Sponsored Session

Chair: Fabio D’Andreagiovanni, Senior Researcher, Konrad-Zuse- Zentrum für Informationstechnik, Takustr. 7, Berlin, Germany, d.andreagiovanni@zib.de 1 - An Efficient Branch-column-cut Algorithm for Capacitated Survivable Network Design Richard Chen, Principal Member Of Technical Staff, Sandia National Laboratories, 7011 East Ave, Livermore, CA, 94550, United States of America, rlchen@sandia.gov, Cynthia Phillips We consider a capacitated survivable network design problem that requires a feasible multicommodity flow to exist after any k edge failures. Existing approaches generate violated inequalities based on static failure scenarios. We present new valid inequalities that dynamically cover all failure scenarios pertaining to a given vulnerability. We then present a branch-column-cut algorithm and empirical studies on SNDlib and random instances to demonstrate the effectiveness of our approach.

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