Research articles for the 2019-08-27

Christmas Jump in LIBOR
Vikenty Mikheev,Serge E. Miheev

A short-term pattern in LIBOR dynamics was discovered. Namely, 2-month LIBOR experiences a jump after Xmas. The sign and size of the jump depend on the data trend on 21 days before Xmas.

Construction of Martingale Measure in the Hazard Process Model of Credit Risk
Marek Capiński,Tomasz Zastawniak

In credit risk literature, the existence of an equivalent martingale measure is stipulated as one of the main assumptions in the hazard process model. Here we show by construction the existence of a measure that turns the discounted stock and defaultable bond prices into martingales by identifying a no-arbitrage condition, in as weak a sense as possible, which facilitates such a construction.

Future competitive bioenergy technologies in the German heat sector: Findings from an economic optimization approach
Matthias Jordan,Volker Lenz,Markus Millinger,Katja Oehmichen,Daniela Thrän

Meeting the defined greenhouse gas (GHG) reduction targets in Germany is only possible by switching to renewable technologies in the energy sector. A major share of that reduction needs to be covered by the heat sector, which accounts for ~35% of the energy based emissions in Germany. Biomass is the renewable key player in the heterogeneous heat sector today. Its properties such as weather independency, simple storage and flexible utilization open up a wide field of applications for biomass. However, in a future heat sector fulfilling GHG reduction targets and energy sectors being increasingly connected: which bioenergy technology concepts are competitive options against other renewable heating systems? In this paper, the cost optimal allocation of the limited German biomass potential is investigated under longterm scenarios using a mathematical optimization approach. The model results show that bioenergy can be a competitive option in the future. Especially the use of biomass from residues can be highly competitive in hybrid combined heat and power (CHP) pellet combustion plants in the private household sector. However, towards 2050, wood based biomass use in high temperature industry applications is found to be the most cost efficient way to reduce heat based emissions by 95% in 2050.

Interaction of a Hydrogen Refueling Station Network for Heavy-Duty Vehicles and the Power System in Germany for 2050
Philipp Kluschke,Fabian Neumann

A potential solution to reduce greenhouse gas (GHG) emissions in the transport sector is to use alternatively fueled vehicles (AFV). Heavy-duty vehicles (HDV) emit a large share of GHG emissions in the transport sector and are therefore the subject of growing attention from global regulators. Fuel cell and green hydrogen technologies are a promising option to decarbonize HDVs, as their fast refueling and long vehicle ranges are in line with current logistic operation concepts. Moreover, the application of green hydrogen in transport could enable more effective integration of renewable energies (RE) across different energy sectors. This paper explores the interplay between HDV Hydrogen Refueling Stations (HRS) that produce hydrogen locally and the power system by combining an infrastructure location planning model and an energy system optimization model that takes grid expansion options into account. Two scenarios - one sizing refueling stations in symbiosis with the power system and one sizing them independently of it - are assessed regarding their impacts on the total annual energy system costs, regional RE integration and the levelized cost of hydrogen (LCOH). The impacts are calculated based on locational marginal pricing for 2050. Depending on the integration scenario, we find average LCOH of between 5.66 euro/kg and 6.20 euro/kg, for which nodal electricity prices are the main determining factor as well as a strong difference in LCOH between north and south Germany. From a system perspective, investing in HDV-HRS in symbiosis with the power system rather than independently promises cost savings of around one billion-euros per annum. We therefore conclude that the co-optimization of multiple energy sectors is important for investment planning and has the potential to exploit synergies.

Martingale transport with homogeneous stock movements
Stephan Eckstein,Michael Kupper

We study a variant of the martingale optimal transport problem in a multi-period setting to derive robust price bounds of a financial derivative. On top of marginal and martingale constraints, we introduce a time-homogeneity assumption, which restricts the variability of the forward-looking transitions of the martingale across time. We provide a dual formulation in terms of superhedging and discuss relaxations of the time-homogeneity assumption by adding market frictions. In financial terms, the introduced time-homogeneity corresponds to time-consistent call prices, given the state of the stock. The time homogeneity assumption leads to improved price bounds and the possibility to utilize more market data. The approach is illustrated with two numerical examples.

Multitask Learning Deep Neural Networks to Combine Revealed and Stated Preference Data
Shenhao Wang,Qingyi Wang,Jinhua Zhao

It is an enduring question how to combine revealed preference (RP) and stated preference (SP) data to analyze travel behavior. This study presents a framework of multitask learning deep neural networks (MTLDNNs) for this question, and demonstrates that MTLDNNs are more generic than the traditional nested logit (NL) method, due to its capacity of automatic feature learning and soft constraints. About 1,500 MTLDNN models are designed and applied to the survey data that was collected in Singapore and focused on the RP of four current travel modes and the SP with autonomous vehicles (AV) as the one new travel mode in addition to those in RP. We found that MTLDNNs consistently outperform six benchmark models and particularly the classical NL models by about 5% prediction accuracy in both RP and SP datasets. This performance improvement can be mainly attributed to the soft constraints specific to MTLDNNs, including its innovative architectural design and regularization methods, but not much to the generic capacity of automatic feature learning endowed by a standard feedforward DNN architecture. Besides prediction, MTLDNNs are also interpretable. The empirical results show that AV is mainly the substitute of driving and AV alternative-specific variables are more important than the socio-economic variables in determining AV adoption. Overall, this study introduces a new MTLDNN framework to combine RP and SP, and demonstrates its theoretical flexibility and empirical power for prediction and interpretation. Future studies can design new MTLDNN architectures to reflect the speciality of RP and SP and extend this work to other behavioral analysis.

Online Rental Housing Market Representation and the Digital Reproduction of Urban Inequality
Geoff Boeing

As the rental housing market moves online, the Internet offers divergent possible futures: either the promise of more-equal access to information for previously marginalized homeseekers, or a reproduction of longstanding information inequalities. Biases in online listings' representativeness could impact different communities' access to housing search information, reinforcing traditional information segregation patterns through a digital divide. They could also circumscribe housing practitioners' and researchers' ability to draw broad market insights from listings to understand rental supply and affordability. This study examines millions of Craigslist rental listings across the US and finds that they spatially concentrate and over-represent whiter, wealthier, and better-educated communities. Other significant demographic differences exist in age, language, college enrollment, rent, poverty rate, and household size. Most cities' online housing markets are digitally segregated by race and class, and we discuss various implications for residential mobility, community legibility, gentrification, housing voucher utilization, and automated monitoring and analytics in the smart cities paradigm. While Craigslist contains valuable crowdsourced data to better understand affordability and available rental supply in real-time, it does not evenly represent all market segments. The Internet promises information democratization, and online listings can reduce housing search costs and increase choice sets. However, technology access/preferences and information channel segregation can concentrate such information-broadcasting benefits in already-advantaged communities, reproducing traditional inequalities and reinforcing residential sorting and segregation dynamics. Technology platforms like Craigslist construct new institutions with the power to shape spatial economies.

Optimal life-cycle consumption and investment decisions under age-dependent risk preferences
Andreas Lichtenstern,Pavel V. Shevchenko,Rudi Zagst

In this article we solve the problem of maximizing the expected utility of future consumption and terminal wealth to determine the optimal pension or life-cycle fund strategy for a cohort of pension fund investors. The setup is strongly related to a DC pension plan where additionally (individual) consumption is taken into account. The consumption rate is subject to a time-varying minimum level and terminal wealth is subject to a terminal floor. Moreover, the preference between consumption and terminal wealth as well as the intertemporal coefficient of risk aversion are time-varying and therefore depend on the age of the considered pension cohort. The optimal consumption and investment policies are calculated in the case of a Black-Scholes financial market framework and hyperbolic absolute risk aversion (HARA) utility functions. We generalize Ye (2008) (2008 American Control Conference, 356-362) by adding an age-dependent coefficient of risk aversion and extend Steffensen (2011) (Journal of Economic Dynamics and Control, 35(5), 659-667), Hentschel (2016) (Doctoral dissertation, Ulm University) and Aase (2017) (Stochastics, 89(1), 115-141) by considering consumption in combination with terminal wealth and allowing for consumption and terminal wealth floors via an application of HARA utility functions. A case study on fitting several models to realistic, time-dependent life-cycle consumption and relative investment profiles shows that only our extended model with time-varying preference parameters provides sufficient flexibility for an adequate fit. This is of particular interest to life-cycle products for (private) pension investments or pension insurance in general.