Power law bond price and yield approximation

PurposeThis paper determines a simple transformation that nearly linearizes the bond price formula. The transformed price can be used to derive a highly accurate approximation of the change in a bond price resulting from a change in interest rates.Design/methodology/approachA logarithmic transformation exactly linearizes the price function for a zero coupon bond and a reciprocal transformation exactly linearizes the price function for a perpetuity. A power law transformation combines aspects of both types of transformations and provides a superior approximation of the bond price sensitivity for both short-term and long-term bonds.FindingsIt is demonstrated that the new formula, based on power-law transformation, is a much better approximation than either the traditional duration-convexity approximation and the more recently developed approximations based on logarithmic transformation of the price function.Originality/valueThe new formula will be used by risk managers to perform stress-testing on bond portfolios. The new formula can easily be inverted, making it possible to relate the distribution of prices (which are observable in the market) to the distribution of yields (which are numerical solutions that are not directly observable).

Asset Prices Under Knightian Uncertainty

We extend Lucas’s classic asset-price model by opening the stochastic process driving dividends to Knightian uncertainty arising from unforeseeable change. Implementing Muth’s hypothesis, we represent participants’ expectations as being consistent with our model’s predictions and formalize their ambiguity-averse decisions with maximization of intertemporal multiple-priors utility. We characterize the asset-price function with a stochastic Euler equation and derive a novel prediction that the relationship between prices and dividends undergoes unforeseeable change. Our approach accords participants’ expectations, driven by both fundamental and psychological factors, an autonomous role in driving the asset price over time, without presuming that participants are irrational.

Cooperative advertising and quantity discount in manufacturer-retailer supply chains

Purpose This paper aims to study the impact of existence and lack of discount on the relationships between one manufacturer and one retailer under the cooperative and the non-cooperative games and the members’ profits are compared. Design/methodology/approach In the first approach, the manufacturer’s price function is constant, and in the second approach, this price function is a decreasing function with respect to lot size. These approaches are modeled through three games structure, including two Stackelberg games and one cooperative game. Findings Some numerical instances comprising sensitivity analysis are provided, and then the members’ profits in different scenarios are compared. This paper reveals that in the presented models, whether the members are inclined to change their profits. Practical implications This paper presents a tool of decision-making for the type of relationships of members in two different circumstances, and an approach is also presented to maximize the members’ profit. Originality/value In this paper, the relationships between one manufacturer and one retailer are studied under six different circumstances, where pricing, cooperative advertising and inventory cost are considered simultaneously. Also, a different model is presented to make a balance in individual profits and gain more profit for each member compared to the cooperative and non-cooperative game.

Property valuation: the hedonic pricing model: the application of search-and-matching models

PurposeThe aim of this education briefing is to comment upon how basic hedonic pricing models for the valuation of property can be expanded and developed. In this case, the briefing illustrates the use of the new economic approach to the analysis of housing markets, namely the search-and-matching models.Design/methodology/approachThis education briefing discusses the connection of two important economic theories: the hedonic price theory and the search-and-matching theory.FindingsThis education briefing gives an example of a (non-linear) form of the hedonic price function.Practical implicationsIn cases of mass appraisals, hedonic pricing models can provide a broad indication of value across submarkets and this education briefing demonstrates a theoretical model that can be used to provide a theoretical groundwork for the use of a concave hedonic price function in empirical estimates.Originality/valueThis education briefing shows how basic hedonic pricing models can be enhanced by a search-and-matching approach to determine property values.

Dynamical analysis of the spread of African swine fever with the live pig price in China

<abstract><p>Pork makes up the highest proportion of household expenditure on meat in China and supply and demand have been basically stable in the past decade. However, the catastrophic outbreak of African swine fever (ASF) in August 2018 disrupted the balance and reduced the national herd by half within six months. The consequence was a gross lack of supply to the market and consumer demand was unable to be met. Accordingly, live pig prices rose sharply from 2019. In order to assess the influence of ASF on the price of the live pigs, we use a price function to characterize the relationship between price of the live pigs and the nation's pig stock, and then establish a time delay ASF epidemic dynamical model with the price function. By analyzing the dynamical behaviors of the model, we calculate the basic reproductive number, discuss the stability of equilibrium, and obtain the critical conditions for Hopf bifurcation. The model reasonableness is confirmed by carrying out data fitting and parameter estimation based on price data of the live pigs, the pig stock data and the outbreak data of ASF. By performing sensitivity analysis, we intuitively show the impact of ASF on the price of live pigs and the pig stocks, and assess the key factors affecting the outbreak of ASF. The conclusion is drawn that, with the control measures adopted by related government department in China, the basic reproductive number ($ R_0 = 0.6005 $) means that the ASF epidemic has been controlled. Moreover, the price of the live pig increases linearly with $ R_0 $, while the effect of the number of infected pigs on the subsequent price is non-linear related. Our findings suggest that society and the government should pay more attention to the prevention of animal disease epidemics.</p></abstract>

Inventory Model with Inflation under Credit Period and Shortage

In this study, an deterministic inventory model based on the concept of permissible delay in payments is discussed. Demand is assumed to be price dependent, and a constant price function represents it. Shortages are allowed and partially backlogged. In the realistic environment, it observed that there are several items like dry fruits, vegetables, grocery, and fruits, etc. which deteriorate after a time gap. So this model is also based on non-instantaneous deterioration. This study aims is to optimize the optimal order level and selling price to maximize the retailer`s total profit. Finally, numerical examples solved by using a proposed algorithm to show the validity of the model and sensitivity analysis done on parameters

Driving Route Recommendation With Profit Maximization in Ride Sharing

Due to the positive impact of ride sharing on urban traffic and environment, it has attracted a lot of research attention recently. However, most existing researches focused on the profit maximization or the itinerary minimization of drivers, only rare work has covered on adjustable price function and matching algorithm for the batch requests. In this paper, we propose a request matching algorithm and an adjustable price function that benefits drivers as well as passengers. Our request-matching algorithm consists of an exact search algorithm and a group search algorithm. The exact search algorithm consists of three steps. The first step is to prune some invalid groups according to the total number of passengers and the capacity of vehicles. The second step is to filter out all candidate groups according to the compatibility of requests in same group. The third step is to obtain the most profitable group by the adjustable price function, and recommend the most profitable group to drivers. In order to enhance the efficiency of the exact search algorithm, we further design an improved group search algorithm based on the idea of original simulated annealing. Extensive experimental results show that our method can improve the income of drivers, and reduce the expense of passengers. Meanwhile, ride sharing can also keep the utilization rate of seats 80%, driving distance is reduced by 30%.

The search and matching process in the housing market

Purpose This paper aims to study the relationship between the rental and selling prices, a very important topic that forms the fundamentals of real estate markets. Design/methodology/approach This theoretical paper makes use of a search and matching model of the housing market. The search and matching models are the benchmark models of the “matching” markets, such as the labour market and the housing market, where trade is a decentralised, uncoordinated and time-consuming economic activity. Findings Unlike the previous related literature, where this relation is usually analysed in the context of the present value equation, this paper shows the existence of a “dual” relation between rental and selling prices as follows: one in the homeownership market and another one in the rental market. This “dual” relation connects the rental and homeownership markets and allows to get equilibrium in both markets with positive house prices. Research limitations/implications Several topics could be deepened for making the paper richer and more interesting, although at the cost of much more mathematics. First of all, the introduction of specific functional forms for both the rent function and the sale price function, so as to calculate both the elasticity of rent with respect to sale price and the elasticity of sale price with respect to rent. In this way, it would be possible to understand how each market (rental and homeownership) reacts to shock and policies that affect the other market. Practical implications In general, this framework could help policymakers to design housing policy reforms that take into consideration the effects on both markets. Indeed, some policies could have positive effects on rental markets but perverse effects on homeownership markets and vice versa. Originality/value None of the existing and related works of research have considered how to take advantage of the search and matching approach to derive both a “rent function” and a “sale price function” that connect closely the rental and homeownership markets.