2015 Informs Annual Meeting

TB06

INFORMS Philadelphia – 2015

2 - Toward Effective Information Diffusion on Social Media Platforms: An Analysis of Dyadic Relationship Jing Peng, The Wharton School, University of Pennsylvania, 3730 Walnut Street Suite 500, Philadelphia, PA, 19104, United States of America, jingpeng@wharton.upenn.edu, Ashish Agarwal, Kartik Hosanagar, Raghuram Iyengar We investigate the impact of dyadic network characteristics on information diffusion in social media platforms with directed networks. We propose a novel hazard model to deal with the problem that a user may receive the information from multiple others. The model is estimated using diffusion of ads on Digg.com. We find that a non-reciprocal follower is more likely to adopt than a reciprocal follower and the effects of network embeddedness are more complicated than that in undirected networks. 3 - Monetizing Sharing Traffic through Incentive Design: A Randomized Field Experiment Tianshu Sun, University of Maryland Smith School of Business, 3330 Van Munching Hall, College Park, MD, 20740-2840, United States of America, tianshusun@rhsmith.umd.edu, Siva Viswanathan, Elena Zheleva Customers share product information with each other everyday. While the share of a product indicates clear purchase intent of either sender or recipient, most of such sharing traffic does not lead to successful purchases. In collaboration with a daily deal platform, we conduct a large field experiment to study whether and how firms can monetize sharing traffic, by targeting senders with incentive. Specifically, we examine the impact of incentive design on sender’s purchase as well as referrals 4 - Founder and Funder, Just One Click Apart: How Social Media Facilitates Investor Entrepreneur Match Fujie Jin, the Wharton School, University of Pennsylvania, 500 Jon M Huntsman Hall, 3730 Walnut Street, Philadelphia, PA, 19104, United States of America, jinfujie@wharton.upenn.edu This study examines how entrepreneurs’ social media presence facilitates the funding process across geographic regions. Comparison will be drawn between traditional angel investors or VCs and the new crowdfunding platform to show how entrepreneurs could optimally manage their social media profile to appeal to different investor groups. Chair: James Primbs, Associate Professor, California State University Fullerton, 800 N. State College Blvd., Fullerton, CA, United States of America, jprimbs@fullerton.edu 1 - On Feedback Control-based Stock Trading: Some Back Tests with High-frequency Data B. Ross Barmish, Professor, University of Wisconsin, ECE Department, Madison, WI, 53706, United States of America, barmish@engr.wisc.edu The takeoff point for this paper is a new paradigm for stock trading involving adaptive feedback control loops. I will first overview the key elements of our theory with emphasis on “model-free” trading and money management. Subsequently, I will describe recent back tests of our trading algorithms using high-frequency data. Given that our underlying theory requires continuity of the stock price, it is natural to study whether performance improves as a function of the trading frequency. 2 - Construction of Nonlinear Simultaneous Equations Models for Electricity Supply and Demand Functions Yuji Yamada, Professor, University of Tsukuba, 3-29-1 Otsuka, Bunkyo-ku, Tokyo, 112-0012, Japan, yuji@gssm.otsuka.tsukuba.ac.jp In this work, we develop a new methodology for estimating supply and demand functions in the Japan Electric Power Exchange (JEPX) spot market. To this end, we generalize the standard simultaneous equations approach using linear regressions for nonlinear case and show that the nonlinear structural equations may be constructed based on the reduced equations of a nonparametric regressions model. Then, we demonstrate the proposed approach using empirical data. TB06 06-Room 306, Marriott Engineering Approaches in Finance Sponsor: Financial Services Sponsored Session

3 - Trading a Portfolio of Pairs in the Presence of Transaction Costs James Primbs, Associate Professor, California State University Fullerton, 800 N. State College Blvd., Fullerton, CA, United States of America, jprimbs@fullerton.edu, Yuji Yamada In this work we consider the problem of trading a portfolio of pairs when transaction costs are present. We develop a receding horizon approach based on a power utility function and proportional transaction costs. The resulting methodology is very computational tractable, even for a portfolio of many potentially correlated pairs. Backtested results on historical data are provided. 4 - Backtesting Simultaneous Long-short and Proportional-integral Investment Schemes Sean Warnick, Associate Professor, Brigham Young University, TMCB 2222, Provo, UT, 84602, United States of America, sean.warnick@gmail.com, Scott Condie, Nathan Woodbury Simultaneous Long-Short is an investment strategy analyzed by Barmish and Primbs that uses feedback control techniques to make investment decisions. An extension of the technique uses proportional-integral control to make such decisions. Importantly, these methods use a feedback architecture—and no explicit market model—to manage investments. This study explores the performance of these methods compared to other methods that use some estimate of a market model through various backtests. TB07 07-Room 307, Marriott Quantitative Risk Measurement and Modeling Cluster: Risk Management Invited Session Chair: Nan Chen, Professor, Chinese University of Hong Kong, 709A William Mong Engineering Building, Hong Kong, Hong Kong - PRC, nchen@se.cuhk.edu.hk 1 - On the Measurement of Economic Tail Risk Xianhua Peng, Assistant Professor, Hong Kong University of We show that the only risk measures that satisfy a set of economic axioms for the Choquet expected utility and the statistical property of elicitability (i.e. there exists an objective function such that minimizing the expected objective function yields the risk measure) are the mean functional and the median shortfall, which is the median of tail loss distribution. We argue that median shortfall is a better alternative than expected shortfall for setting capital requirements in Basel Accords. 2 - Leverage, Market Liquidity, and Financial Fragility Nan Chen, Prof, Chinese University of Hong Kong, 709A William Mong Engineering Building, Hong Kong, Hong Kong - PRC, nchen@se.cuhk.edu.hk, Jing Chen We provide a simple model to show how systemic fragility is built up as highly leveraged investors crowd to similar trading strategies. As their wealth grows over time, the destabilizing impact of their trading becomes more imminent, causing amplified volatility, jump risk, and correlation co-movements in the security prices. 3 - A Simulation Measure Approach to Monte Carlo Methods for Default Timing Problems Alex Shkolnik, University of California, Berkeley, CA, United States of America, ads2@berkeley.edu, Kay Giesecke Reduced-form models of name-by-name default timing are widely used to measure portfolio credit risk and to analyze securities exposed to a portfolio of names. Monte Carlo (MC) simulation is a common computational tool in such settings. We introduce a new change of measure perspective for MC simulation for default timing problems. The perspective provides the means of analyzing current methods and suggests a new MC algorithm which outperforms a widely used and standard technique. Science and Technology, Department of Mathematics, Hong Kong, Hong Kong - PRC, maxhpeng@ust.hk

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