Bounded rationality is an important consideration stemming from the fact that agents often have limits on their processing abilities, making the assumption of perfect rationality inapplicable to many real tasks. We propose an information-theoretic approach to the inference of agent decisions under Smithian competition. The model explicitly captures the boundedness of agents (limited in their information-processing capacity) as the cost of information acquisition for expanding their prior beliefs. The expansion is measured as the Kullblack-Leibler divergence between posterior decisions and prior beliefs. When information acquisition is free, the homo economicus agent is recovered, while in cases when information acquisition becomes costly, agents instead revert to their prior beliefs. The maximum entropy principle is used to infer least-biased decisions based upon the notion of Smithian competition formalised within the Quantal Response Statistical Equilibrium framework. The incorporation of prior beliefs into such a framework allowed us to systematically explore the effects of prior beliefs on decision-making in the presence of market feedback, as well as importantly adding a temporal interpretation to the framework. We verified the proposed model using Australian housing market data, showing how the incorporation of prior knowledge alters the resulting agent decisions. Specifically, it allowed for the separation of past beliefs and utility maximisation behaviour of the agent as well as the analysis into the evolution of agent beliefs.

Rapid development of advanced modelling techniques gives an opportunity to develop tools that are more and more accurate. However as usually, everything comes with a price and in this case, the price to pay is to loose interpretability of a model while gaining on its accuracy and precision. For managers to control and effectively manage credit risk and for regulators to be convinced with model quality the price to pay is too high. In this paper, we show how to take credit scoring analytics in to the next level, namely we present comparison of various predictive models (logistic regression, logistic regression with weight of evidence transformations and modern artificial intelligence algorithms) and show that advanced tree based models give best results in prediction of client default. What is even more important and valuable we also show how to boost advanced models using techniques which allow to interpret them and made them more accessible for credit risk practitioners, resolving the crucial obstacle in widespread deployment of more complex, 'black box' models like random forests, gradient boosted or extreme gradient boosted trees. All this will be shown on the large dataset obtained from the Polish Credit Bureau to which all the banks and most of the lending companies in the country do report the credit files. In this paper the data from lending companies were used. The paper then compares state of the art best practices in credit risk modelling with new advanced modern statistical tools boosted by the latest developments in the field of interpretability and explainability of artificial intelligence algorithms. We believe that this is a valuable contribution when it comes to presentation of different modelling tools but what is even more important it is showing which methods might be used to get insight and understanding of AI methods in credit risk context.

Social norms are rules and standards of expected behavior that emerge in societies as a result of information exchange between agents. This paper studies the effects of emergent social norms on the performance of teams. We use the NK-framework to build an agent-based model, in which agents work on a set of interdependent tasks and exchange information regarding their past behavior with their peers. Social norms emerge from these interactions. We find that social norms come at a cost for the overall performance, unless tasks assigned to the team members are highly correlated, and the effect is stronger when agents share information regarding more tasks, but is unchanged when agents communicate with more peers. Finally, we find that the established finding that the team-based incentive schemes improve performance for highly complex tasks still holds in presence of social norms.

Graphical models are a powerful tool to estimate a high-dimensional inverse covariance (precision) matrix, which has been applied for a portfolio allocation problem. The assumption made by these models is a sparsity of the precision matrix. However, when stock returns are driven by common factors, such assumption does not hold. We address this limitation and develop a framework, Factor Graphical Lasso (FGL), which integrates graphical models with the factor structure in the context of portfolio allocation by decomposing a precision matrix into low-rank and sparse components. Our theoretical results and simulations show that FGL consistently estimates the portfolio weights and risk exposure and also that FGL is robust to heavy-tailed distributions which makes our method suitable for financial applications. FGL-based portfolios are shown to exhibit superior performance over several prominent competitors including equal-weighted and Index portfolios in the empirical application for the S&P500 constituents.

Collateralized debt obligation (CDO) has been one of the most commonly used structured financial products and is intensively studied in quantitative finance. By setting the asset pool into different tranches, it effectively works out and redistributes credit risks and returns to meet the risk preferences for different tranche investors. The copula models of various kinds are normally used for pricing CDOs, and the Monte Carlo simulations are required to get their numerical solution. Here we implement two typical CDO models, the single-factor Gaussian copula model and Normal Inverse Gaussian copula model, and by applying the conditional independence approach, we manage to load each model of distribution in quantum circuits. We then apply quantum amplitude estimation as an alternative to Monte Carlo simulation for CDO pricing. We demonstrate the quantum computation results using IBM Qiskit. Our work addresses a useful task in finance instrument pricing, significantly broadening the application scope for quantum computing in finance.

The time value of money is a critical factor not only in risk analysis, but also in insurance and financial applications. In this paper, we consider a special class of set-valued risk statistics from the perspective of time value of money. This new risk statistic can be uesd for the quantification of portfolio risk. By further developing the properties related to these risk statistics, we are able to derive representation results for such risk.

What role does culture play in determining institutions in a country? This paper argues that the establishment of institutions is a process originating predominantly in a nation's culture and tries to discern the role of a cultural background in the governance of countries. We use the six Hofstede's Cultural Dimensions and the six Worldwide Governance Indicators to test the strength of the relationship on 94 countries between 1996 and 2019. We find that the strongest cultural characteristics are Power Distance with negative effect on governance and Long-Term Orientation with positive effect. We also determine how well countries transform their cultural characteristics into institutions using stochastic frontier analysis.

In October of 2020, China announced that it aims to start reducing its carbon dioxide (CO2) emissions before 2030 and achieve carbon neutrality before 20601. The surprise announcement came in the midst of the COVID-19 pandemic which caused a transient drop in China's emissions in the first half of 2020. Here, we show an unprecedented de-carbonization of China's power system in late 2020: although China's power related carbon emissions were 0.5% higher in 2020 than 2019, the majority (92.9%) of the increased power demand was met by increases in low-carbon (renewables and nuclear) generation (increased by 9.3%), as compared to only 0.4% increase for fossil fuels. China's low-carbon generation in the country grew in the second half of 2020, supplying a record high of 36.7% (increased by 1.9% compared to 2019) of total electricity in 2020, when the fossil production dropped to a historical low of 63.3%. Combined, the carbon intensity of China's power sector decreased to an historical low of 519.9 tCO2/GWh in 2020. If the fast decarbonization and slowed down power demand growth from 2019 to 2020 were to continue, by 2030, over half (50.8%) of China's power demand could be provided by low carbon sources. Our results thus reveal that China made progress towards its carbon neutrality target during the pandemic, and suggest the potential for substantial further decarbonization in the next few years if the latest trends persist.