Informs 2015

431 / 552

INFORMS Philadelphia – 2015
429
4 - Macroprudential Bank Capital Regulation in a Competitive
Financial System
Christian Opp, University of Pennsylvania, The Wharton School,
Philadelphia, United States of America, ,
Markus Opp, Milton Harris
We develop a tractable general equilibrium model to analyze the effects of
macroprudential bank capital regulation in an economy where firms of
heterogeneous quality and risk seek financing from competitive banks and public
markets. Our analysis provides an exact characterization of economy-wide capital
allocation and highlights that tighter capital requirements can cause more banks
to engage in value-destroying risk-shifting when banks face external financing
frictions.
WC07
07-Room 307, Marriott
Risk Management and Financial Regulation
Cluster: Risk Management
Invited Session
Chair: Xianhua Peng, Assistant Professor, Hong Kong University of
Science and Technology, Department of Mathematics, Hong Kong,
Hong Kong - PRC,
1 - The Level of Risk-free Rate in China
Chen Yang, National University of Singapore, Department of
Mathematics, Blk S17, 10 Lower Kent Ridge Road, Singapore,
119076, Singapore, , Min Dai, Steven Kou,
Zhenfei Ye
In terms of the dual fund, an innovative structured fund capable of capturing the
characteristics of both bond market and equity market, we propose an estimation
of the level of China’s risk-free rate under the Black-Scholes framework, and
semi-model-free bounds based on minimal model specification. The level of
estimation is uniformly higher than the commonly used risk-free rate proxies,
which confirms the presence of a downward bias in the level of proxies as
suggested by empirical studies.
2 - Bonus Caps, Deferrals and Bankers’ Risk-taking
Xuchuan Yuan, Risk Management Institute, National University
of Singapore, 21 Heng Mui Keng Terrace I3 Building, #04-03,
Singapore, Singapore, , Jussi Keppo,
Esa Jokivuolle
We model a banker’s future bonuses as a series of call options on profits and show
that bonus caps and deferrals reduce risk-taking. Optimal risk-taking depends on
the cost of risk-taking. We calibrate the model to US banking data and show that
increasing the bonus payment interval has no material impact, whereas capping
the bonus to the base salary substantially reduces risk-taking. Our results suggest
the bonus cap reduces risk-taking whereas bonus clawbacks in Dodd-Frank Act
seem ineffective.
3 - A Dual-curve Market Model for Interest Rate Derivatives
Lixin Wu, Professor, Department of Mathematics, Hong Kong
University of Science and Technology,
After the 2007 financial crisis, the differences among the forward rates of various
tenors are too significant to ignore, which necessitates multi-curve modeling. We
introduce the term structure of “mean-loss rates,” and adapt the LIBOR market
model to the post-crisis reality of interest-rate markets by jointly modeling a
forward-rate curve and a mean-loss rate curve of the same tenor. We then
demonstrate how the “reshuffle premium” causes the basis spreads, a belief held
by market participants.
WC08
08-Room 308, Marriott
Finance Theory and Empirics
Contributed Session
Chair: Wenqing Zhang, Assistant Professor, University of Minnesota
Duluth, 1318 Kirby Drive, LSBE, UMD, Duluth, MN, 55812,
United States of America,
1 - Expected Commodity Returns and Pricing Models
Gonzalo Cortazar, Pontificia Universidad Católica de Chile,
Vicuna Mackenna 4860, Santiago, Chile,
Ivo Kovacevic, Eduardo Schwartz
Commodity pricing models provide true (in addition to risk neutral) distributions
which are measured with large errors. To increase reliability risk premium
parameters should be obtained from other sources and we show that this can be
done without losing any precision in the pricing of futures contracts. We show
how the risk premium parameters can be obtained from estimations of expected
futures returns and provide alternative procedures for estimating these expected
futures returns.
2 - Sequential Global Sourcing Investment Decision Making under
Extreme Situations
Wenqing Zhang, Assistant Professor, University of Minnesota
Duluth, 1318 Kirby Drive, LSBE, UMD, Duluth, MN, 55812,
United States of America,
Prasad Padmanabhan, Chia-hsing Huang
Uncertainty plays an important role in determining a decision maker’s choice
when making sequential global sourcing investment decisions. This paper
presents evidence that firms hiring adventurous managers may be able to
generally reap dividends when faced with negative cash flows (extreme or
normal) when the cost ratios are small, the investment horizons are high, and the
discount rates are small.
WC09
09-Room 309, Marriott
Innovation and Entrepreneurship I
Contributed Session
Chair: Magali Delmas, UCLA, Anderson School of Management, Los
Angeles, United States of America,
1 - Optimal Product Launch Times for a Small Firm in a
Competitive Environment
Jacqueline Ng, Northwestern University, 2145 Sheridan Road,
Evanston, Il, 60208, United States of America,
, Izak Duenyas,
Seyed Iravani
We consider the optimal production introduction policy for a small firm that
produces a single base product that progresses through a series of product
generations over time against a large rival firm. We develop a dynamic
programming model to analyze the small firm’s new product introduction
strategy, and prove the optimality of a threshold policy. We then compare and
contrast the optimal policy with the common time-pacing and event-pacing
product introduction policies used in practice.
2 - A Case Study - Problem Based Learning Works to Foster the
Entrepreneurial Minded Engineer
Don Reimer, College Professor, LTU, 21000 West Ten Mile Road,
Southfield, United States of America, Ahad Ali
This abstract focuses tools that have successfully engaged engineering students in
actively participating in learning the skills. Through the use of Problem Bases
Learning (PBL) as an interactive tool, engineering students are engaged.
Examples of engineering students engaged in PBL will be used in case studies of a
class currently being offered at LTU. The case study – Tires, Tires, Tires
Everywhere will be used to demonstrate the use of PBL in the classroom.
3 - The Dynamics of Energy Conservation: Novelty and
Framing Effects
Omar I. Asensio, UCLA, Institute of the Environment, Los
Angeles, United States of America,
Magali Delmas
Using a field experiment with high frequency data, we investigate dynamic
consumer responses to information-based interventions designed to encourage
conservation behavior in the residential electricity sector. We discuss novelty and
framing effects as temporal mechanisms resulting from new consumer
innovations in appliance level metering and information technologies. Our results
on dynamic decision-making are based on 52 million observations at 1/30Hz for
118 residences over 8 months.
WC10
10-Room 310, Marriott
E-Business/Commerce I
Contributed Session
Chair: Wei Zhang, Assistant Professor, University of Hong Kong,
University of Hong Kong, Hong Kong, China,
1 - How Many Crowd Workers should a Requester Hire on Amazon
Mechanical Turk?
Arthur Carvalho, Assistant Professor, Rotterdam School of
Management, Erasmus University, Burgemeester Oudlaan 50,
J Building, Room 35-5th Floor, Rotterdam, NA, 3038BG,
Netherlands, , Stanko Dimitrov, Kate Larson
We investigate the optimal number of workers a requester should hire on the
crowdsourcing platform Amazon Mechanical Turk. In particular, we report the
results of three studies involving different tasks and payment schemes.
Surprisingly, we find that the optimal number of workers a requester should hire
is around 10 to 11, no matter the underlying task and payment scheme. To derive
such a result, we employ a principled analysis based on segmented linear
regression.
WC10