Covid-19 meets game theory: a proposed experiment

Researchers around the globe are searching for a "combo-drug" against Covid-19 by trying to combine various existing drugs. Given a set of such drugs, various algorithms (based, for example, on artificial intelligence) are used to identify the efficacy of different shares of the constituent drugs in the combo-drug. Namely, the relative weight of each drug in a "cooperative" scheme of therapy is sought-after. In the current note we propose to identify these weights using the theory of cooperative games, and in particular the Shapley value, one of the fundamental solution concepts of such games. We derive the weight of each drug by its (normalized) average marginal contribution over all possible "coalitions" of drugs it is used with, where a drug's marginal contribution to a coalition is defined as the increase in the coalition's probability to act against a virus should the drug become its "member". Hence we endow each drug with a consistent measure of significance (which is due to the consistency that Shapley value is associated with). At a theoretical level, we build the cooperative game, and compute the Shapley values, within a milestone model in drug combination theory, the Bliss independence model. At a practical level, the predictions of our game-theoretic model can be tested by using in-vitro experiments, namely experiments that are conducted in test tubes.

Systemic risk measurement: bucketing global systemically important banks

The general consensus on the need to enhance the resilience of the financial system has led to the imposition of higher capital requirements for certain institutions, supposedly based on their contribution to systemic risk. Global Systemically Important Banks (G-SIBs) are divided into buckets based on their required additional capital buffers ranging from 1% to 3.5%. We measure the marginal contribution to systemic risk of 26 G-SIBs using the Distressed Insurance Premium methodology proposed by Huang et al. (J Bank Financ 33:2036–2049, 2009) and examine ranking consistency with that using the SRISK of Acharya et al. (Am Econ Rev 102:59–64, 2012). We then compare the bucketing using the two academic approaches and supervisory buckets. Because it leads to capital surcharges, bucketing should be consistent, irrespective of methodology. Instead, discrepancies in the allocation between buckets emerge and this suggests the complementary use of other methodologies.

Choosing Factors for the Vietnamese Stock Market

In this paper, we test the applicability of different Fama–French (FF) factor models in Vietnam, we investigate the value factor redundancy and examine the choice of the profitability factor. Our empirical evidence shows that the FF five-factor model has more explanatory power than the FF three-factor model. The value factor remains important after the inclusion of profitability and investment factors. Operating profitability performs better than cash and return-on-equity (ROE) profitability as a proxy for the profitability factor in FF factor modeling. The value factor and operating profitability have the biggest marginal contribution to a maximum squared Sharpe ratio for the five-factor model factors, highlighting the value factor (HML) non-redundancy in describing stock returns in Vietnam.

Skill, power and marginal contribution in committees

Power is an important basic concept in Political Science and Economics. Applying an extended version of the uncertain dichotomous choice model proposed, the objective of this paper is to clarify the relationship between two different types of power a voter may have: skill-dependent (s-d) power and marginal contribution (mc). It is then shown that, under the optimal committee decision rule, inequality in skills may result in higher inequality of the two types of power and that the distribution of the second type of power (mc) can be even more unequal than the distribution of the first type of s-d power. Using simulations, and assuming evenly spread skills, this possibility is proved to be robust. The significance of the finding is due to the effect of power on reward, whether it is defined in terms of status or in terms of monetary payment.

Contagion in Derivatives Markets

A major credit shock can induce large intraday variation margin payments between counterparties in derivatives markets, which may force some participants to default on their payments. These payment shortfalls become amplified as they cascade through the network of exposures. Using detailed Depository Trust & Clearing Corporation data, we model the full network of exposures, shock-induced payments, initial margin collected, and liquidity buffers for about 900 firms operating in the U.S. credit default swaps market. We estimate the total amount of contagion, the marginal contribution of each firm to contagion, and the number of defaulting firms for a systemic shock to credit spreads. A novel feature of the model is that it allows for a range of behavioral responses to balance sheet stress, including delayed or partial payments. The model provides a framework for analyzing the relative effectiveness of different policy options, such as increasing margin requirements or mandating greater liquidity reserves. This paper was accepted by Karl Diether, finance.

Relationships between Hydropower Generation and Rainfall-Gauged and Ungauged Catchments from Sri Lanka

The relationship between the rainfall and minihydropower generation in a catchment is highly nonlinear. Therefore, the prediction of minihydropower generation is complex. However, the prediction is important in optimizing the control of electricity generation under various environmental conditions. Ongoing climate variabilities have completely changed the minihydropower generation to some parts of the world, and it is significant. Therefore, this paper presents results from two soft-computing studies in searching the relationships between rainfall and the generated hydropower. The first study was carried out for a gauged catchment; however, the second was carried for an ungauged catchment. Results revealed that there is an acceptable correlation in between the rainfall and hydropower generation for the gauged catchment and a marginal contribution to the ungauged catchment.