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Training moral sensitivity through video games: a review of suitable game mechanisms

The goal of this study is to support game designers in the selection and implementation of game mechanisms to promote players’ moral sensitivity. A lack of moral sensitivity may lead people to behave unethically, without awareness for their actions’ moral implications. In this study, we conduct a theory-based evaluation of 20 distinct game mechanisms in view of their potential to…

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English / 20/07/2018

Are ratings the worst form of credit assessment apart from all the others?

We present a prediction model to forecast corporate defaults. In a theoretical model, under incomplete information in a market with publicly traded equity, we show that our approach must outperform ratings, Altman’s Z-score, and Merton’s distance to default. We reconcile the statistical and structural approaches under a common framework, i.e., our approach nests Altman’s and Merton’s…

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English / 01/01/2018

Rethinking large-scale economic modeling for efficiency: optimizations for GPU and Xeon Phi clusters

We propose a massively parallelized and optimized framework to solve high-dimensional dynamic stochastic economic models on modern GPU- and MIC-based clusters. First, we introduce a novel approach for adaptive sparse grid index compression alongside a surplus matrix reordering, which significantly reduces the global memory throughput of the compute kernels and maps randomly accessed…

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English / 01/01/2018

Shareholder Risk Measures

The aim of this paper is to put forward a new family of risk measures that as the coherent/convex risk measures impose a preference order on random cash flows and can be interpreted as prices. But at the difference of the axiomatic approach of Artzner, Delbaen, Eber and Heath (1999) and the subsequent extensions of this model, our risk measures are associated with the optimal…

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English / 01/01/2018

Cumulative prospect theory and mean-variance analysis: a rigorous comparison

We propose a numerical optimization approach that can be used to solve portfolio selection problems including several assets and involving objective functions from cumulative prospect theory (CPT). Implementing the suggested algorithm, we compare asset allocations that are derived for CPT based on two different methods: maximizing CPT along the mean–variance efficient frontier so…

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English / 01/12/2017

The Code is the Model

Conventionally, agent-based models are specified in a combination of natural language and mathematical terms, and their implementation seen as an afterthought. I challenge this view and argue that it is the source code that represents the model best, with natural language and mathematical descriptions serving as documentation. This modeling paradigm is inspired by agile software…

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English / 01/12/2017

The Sovereign Debt Crisis: Rebalancing or Freezes?

Using high-frequency data we document that episodes of market turmoil in the European sovereign bond market are on average associated with large decreases in trading volume. The response of trading volume to market stress is conditional on transaction costs. Low transaction cost turmoil episodes are associated with volume increases (investors rebalance), while high transaction cost…

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English / 30/10/2017

Capital Regulation and Credit Fluctuations

We provide a rationale for imposing counter-cyclical capital ratios on banks. In our simple model, bankers cannot pledge the entire future revenues to investors, which limits borrowing in good and bad times. Complete markets do not sufficiently stabilize credit fluctuations, as banks allocate too much borrowing capacity to good states and too little to bad states. As a consequence,…

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English / 01/10/2017

Shadow banking and competition: Decomposing market power by activity

The term “shadow banking” refers to credit intermediation performed outside the regulated perimeter of traditional lenders. Banks, however, do play a significant role in it. The authors review the origins and characteristics of the shadow banking system, investigate how banks control various steps of the securitization process, and analyze the nexus with competition. They use a…

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English / 29/09/2017

Autoregressive Lag-Order Selection Using Conditional Saddlepoint Approximations

A new method for determining the lag order of the autoregressive polynomial in regression models with autocorrelated normal disturbances is proposed. It is based on a sequential testing procedure using conditional saddlepoint approximations and permits the desire for parsimony to be explicitly incorporated, unlike penalty-based model selection methods. Extensive simulation results…

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English / 19/09/2017

Portfolio Diversification and Systemic Risk in Interbank Networks

The recent credit crisis of 2007/08 has raised a debate about the so-called knife-edge properties of financial markets. The paper contributes to the debate shedding light on the controversial relation between risk-diversification and financial stability. We model a financial network where assets held by borrowers to meet their obligations, include claims against other borrowers and…

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English / 01/09/2017

Strategic technology adoption and hedging under incomplete markets

We investigate the implications of technological innovation and non-diversifiable risk on entrepreneurial entry and optimal portfolio choice. In a real options model where two risk-averse individuals strategically decide on technology adoption, we show that the impact of non-diversifiable risk on the option timing decision is ambiguous and depends on the frequency of technological…

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English / 01/08/2017

Mitigating Global Warming: A Real Options Approach

Mitigation and adaptation represent two solutions to the issue of global warming. While mitigation aims at reducing CO2 emissions and preventing climate change, adaptation encompasses a broad scope of techniques used to reduce the impacts of climate change once they have occurred. Both have direct costs on a country’s Gross Domestic Product, but costs also arise from temperature…

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English / 01/08/2017

In the short run blasé, In the long run risqué

We identify the impact of short-term interest rates on credit risk-taking in the short and long run by analyzing a comprehensive credit register from Spain, a country where for the last twenty years monetary policy was mostly decided abroad. Duration analyses show that lower overnight rates prior to loan origination lead banks to lend more to borrowers with a worse credit history and…

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English / 01/08/2017

A default system with overspilling contagion

In classical contagion models, default systems are Markovian conditionally on the observation of their stochastic environment, with interacting intensities. This necessitates that the environment evolves autonomously and is not influenced by the history of the default events. We extend the classical literature and allow a default system to have a contagious impact on its environment…

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English / 18/07/2017

The identification of beliefs from asset demand

The demand for assets as prices and initial wealth vary identifies beliefs and attitudes towards risk. We derive conditions that guarantee identification with no knowledge either of the cardinal utility index or of the distribution of future endowments or payoffs of assets; the argument applies even if the asset market is incomplete and demand is observed only locally.

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English / 01/07/2017

Market uncertainty and risk transfer in REDD projects

The central role played by deforestation in the increase in global CO2 emissions has recently justified the development of new schemes which offer compensation in exchange for reductions in emissions from deforestation (Reducing Emissions from Deforestation and Forest Degradation, REDD). The design of REDD projects can be based on market prices to set how deforesters are compensated…

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English / 01/07/2017

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