a perspective on the symptoms and causes of the financial crisis abstract prior to the 2007 2008 financial crisis banking sector profits were very high but the profitability of financial intermediation was poor using a novel model of banking this article argues that the high profits were achieved through balance sheet expansion and growing default liquidity and term risk mismatches between assets and liabilities as a result large banks financial leverage rose as they became less liquid setting the conditions for a systemic banking crisis this article argues that the increase in financial leverage was possible due to misguided changes in the regulatory framework specifically the basel i capital accord and reductions in reserve requirements finally this article overviews and assesses the policy response in the aftermath of the crisis

a multiobjective approach to vendor selection abstract purchases from vendors involve significant costs for many firms decisions related to these purchases include the selection of vendors and the determination of order quantities to be placed with the selected vendors such decisions are frequently multiobjective in nature that is they are evaluated by more than one criterion at least 23 criteria for various vendor selection problems have been identified in this article we present a multiobjective approach to systematically analyze the inherent tradeoffs involved in multicriteria vendor selection problems the approach is motivated by and demonstrated with an actual purchasing problem facing a division of a fortune 500 company

a farm firm model of machinery investment decisions this article presents a multiperiod mixed integer programming mmip model of optimal machinery decisions infinite horizon valuation models of replacement and other investment situations are conceptualized in the context of a finite programming model dual properties of the mmip model are used to identify and value opportunity costs involved in investment decisions of farm machinery the interdependent nature of investment and production relationships necessary for solving these values emphasizes the importance of a holistic firm perspective in analyzing farm machinery investment strategies an empirical situation is used to demonstrate model application

lp modeling for asset liability management a survey of choices and simplifications dynamic linear programming lp models for asset liability management alm are quite powerful and flexible but face two challenges 1 many modeling choices not all consistent with one another or with finance theory and 2 solution difficulties due to the large number of scenarios obtained from standard interest rate models we first survey these modeling choices with a view to help researchers make self consistent choices next we review how the dynamic lp model for alm and the representation of uncertainty therein have been simplified in the past to motivate new or hybrid models emphasizing tractability to this end we review existing static lp models as extreme modeling simplifications and aggregation as a simplification of uncertainty

sacrifice and stigma reducing free riding in cults communes and other collectives this paper presents an economic analysis of religious behavior that accounts for the continuing success of groups with strange requirements and seemingly inefficient prohibitions the analysis does not presuppose any special motives for religious activity rather religion is modeled as a club good that displays positive returns to participatory crowding the analysis demonstrates that efficient religions with perfectly rational members may benefit from stigma self sacrifice and bizarre behavioral restrictions the model also addresses sacrifice in nonreligious social clubs fraternities communes political parties work groups and families

religious pluralism and religious participation a game theoretic analysis1 does religious pluralism decrease religious participation or increase it secularization theorists claim the former while religious economies proponents claim the latter and each side has used estimated pluralism participation correlations to support its argument using a formal game theoretic model this article shows how religious market forces and regulations generate plausible pluralism participation correlations whether or not the direct causal mechanisms argued by either side of the debate exist the model generates testable hypotheses concerning the pluralism participation relationship at both local and national levels and yields insights into previous empirical work

making a case for robust optimization models robust optimization searches for recommendations that are relatively immune to anticipated uncertainty in the problem parameters stochasticities are addressed via a set of discrete scenarios this paper presents applications in which the traditional stochastic linear program fails to identify a robust solution despite the presence of a cheap robust point limitations of piecewise linearization are discussed we argue that a concave utility function should be incorporated in a model whenever the decision maker is risk averse examples are taken from telecommunications and financial planning

using the aggregate demand aggregate supply model to identify structural demand side and supply side shocks results using a bivariate var this paper uses the short run restrictions implied by a simple aggregate demand aggregate supply model as an aid in identifying structural shocks combined with the blanchard quah restriction it allows estimation of the slope of the aggregate supply curve the variances of structural demand and supply shocks and the extent to which structural demand and supply shocks are correlated this paper finds that demand and supply shocks are highly correlated and that demand shocks possibly can account for as much as 82 of the long run forecast error variance of real u s gdp

analyzing legal regulations in the norwegian life insurance business using a multistage asset liability management model the legal regulations for the life insurance business in norway have recently been and still are under revision the government s intention is to secure the interests of the customers in life insurance companies however there has been debate as to whether the regulations really are in the customers best interest we apply an asset liability management alm model to analyze the implications of the regulations the model is multistage stochastic and integrates assets and liabilities we employ a four stage model to analyze the legal regulations and conclude that the current legal framework is not in the insurance holders best interests

a nonlinear mixed integer multiperiod firm model abstract we formulate and test an advanced multiperiod model for strategic firm planning this has not been previously considered as a mixed integer nonlinear problem minlp our approach is to show the differences between a linear and a nonlinear mixed integer approach the key property of our model is the simplicity and efficiency of generating optimal firm strategies a cornerstone for managerial acceptance our purpose is to maximize the discounted value of net income and return on investment roi our model has been tested on some major finnish firms and it seems to give reliable results with the data of our sample firm for this paper optimal roi and optimal net income presuppose different strategies when optimizing roi the model balances between cash and fixed assets while optimizing net income results in an intensive investment program even if our sample firm is but one case the results are indicative of some fundamental principles governing managerial decision making

incentives in principal agent relationships this article identifies some of the major issues that have been examined in the literature on incentives the article begins by discussing the frictions that lie at the heart of incentive problems next the principal s optimal response to these frictions is explored taking as given the characteristics of the agents with whom the principal interacts in a nonrepeated setting the design of individualized contracts contests and tournaments is analyzed then the principal s task of selecting the best agent is addressed and repeated agency relationships are considered

dynamic models for fixed income portfolio management under uncertainty abstract we develop multi period dynamic models for fixed income portfolio management under uncertainty using multi stage stochastic programming with recourse the models integrate the prescriptive stochastic programs with descriptive monte carlo simulation models of the term structure of interest rates extensive validation experiments are carried out to establish the effectiveness of the models in hedging against uncertainty and to assess their performance vis a vis single period models an application to tracking the salomon brothers mortgage index is reported with very encouraging results results that establish the efficacy of the models in hedging against out of sample scenarios are also reported for an application from money management the multi period models outperform classical models based on portfolio immunization and single period models

a stochastic convergence model for portfolio selection portfolio selection techniques must provide decision makers with a dynamic model framework that incorporates realistic assumptions regarding financial markets risk preferences and required portfolio characteristics unfortunately multistage stochastic programming sp models for portfolio selection very quickly become intractable as assumptions are relaxed and uncertainty is introduced in this paper i present an alternative model framework for portfolio selection stochastic convergence sc that systematically incorporates uncertainty under a realistic assumption set the optimal portfolio is derived through an iterative procedure where portfolio plans are evaluated under many possible future scenarios then revised until the model converges to the optimal plan this approach allows for scenario analysis over all stochastic components requires no limitation on the structural form of the objective or constraints and permits evaluation over any length planning horizon while maintaining model tractability by aggregating the scenario tree at each stage in the solution process through focused aggregation schemes the sc approach allows for the implementation of a lower partial variance riskmetric which is preferred in investment selection in simulated tests the sc model with scenario aggregation generated portfolios exhibiting performance similar to those generated using the sp model form with no aggregation empirical tests using historical fund returns show that a multiperiod sc decision strategy outperforms various benchmarkstrate gies over a long term test horizon under both asset liability matching and return maximization frameworks

concepts technical issues and uses of the russell yasuda kasai financial planning model this paper discusses technical aspects of the russell yasuda kasai financial planning model these include the models for the discrete distribution scenario generation processes for the uncertain parameters of the model the mathematical approach used to develop the infinite horizon end effects part of the model a comparison of algorithms used in the model s solution and a comparison of the multistage stochastic linear programming model with the previous technology static mean variance analysis experience and benefits of the model in yasuda kasai s financial planning process is also discussed

financial asset pricing theory and stochastic programming models for asset liability management a synthesis practical portfolio investment problems under uncertainty can be modeled well as multiperiod stochastic programs however the numerical optimization methods that need to be used to solve such models seriously limit the level of detail in the uncertainty about future asset rices and returns that can be incorporated somewhat surprisingly the question how this necessarily approximate description of the uncertainty should be constructed has received relatively little attention in the stochastic programming literature moreover many of the descriptions that have been used are not arbitrage free and therefore inconsistent with modern financial asset pricing theory in this paper we will present aggregation methods that can be used in combination with financial asset pricing models to obtain a description of the uncertainty that is arbitrage free consistent with observed market prices as well as concise enough for a stochastic programming model furthermore we will discuss how these aggregation methods can form the basis of an iterative solution approach

a formalization and test of the religious economies model the religious economies argument maintains that religious pluralism promotes religious participation although this theory has been much debated by sociologists of religion evaluation has been hindered by the lack of a formal model this paper offers a formalization that builds on the product differentiation framework from industrial organization economics the model suggests a new measure of religious competition and a new empirical test one religious market may be regarded as more competitive than another religious market if the set of denominations present in the first contains the set of denominations present in the second given this partial order on the set of religious markets the model predicts that more competitive markets will have higher religious participation this prediction is examined for two data sets previously considered in the literature new york towns in 1865 and u s counties in 1990 although the analysis highlights an important theoretical ambiguity regarding the strategic interdependence of denominational effort choices and reports a negative empirical finding that more competitive u s counties tend to have lower religious participation the paper proceeds constructively attempting to identify viable directions for future research within the religious economies paradigm

interpreting permanent shocks to output when aggregate demand may not be neutral in the long run this paper studies a popular statistical model of permanent and transitory shocks to output using a set of arguably more plausible structural assumptions one way to structurally interpret the model is by assuming aggregate demand has no long run output effect however many economic theories are inconsistent with that assumption instead we reinterpret the statistical model assuming a positive shock to aggregate supply lowers the price level and in the long run raises output while a positive shock to aggregate demand raises the price level under these assumptions a puzzling finding from the empirical literature implies that a positive aggregate demand shock had a long run positive effect on output in pre world war i economies

permanent and transitory shocks in real output estimates from nineteenth century and postwar economies this paper reexamines olivier j blanchard and danny quah s 1989 aggregate supply demand model interpretation of output shocks using data from ten countries although postwar data support their interpretation the model is not supported by nineteenth century data in the postwar period permanent output shocks cause the price level to move in the opposite direction like supply shocks and temporary output shocks cause the price level to move in the same direction like demand shocks but with pre world war i data permanent output shocks typically cause price level movements in the same direction the results are systematic and cannot be explained by data problems

bankadviser an industrial evaluation system abstract bankadviser is a multicriteria industrial evaluation system it provides evaluations of individual items such as firms industries companies industrial clients within a set of similar ones the evaluations take into account not only the own scores of the item but also those of the other ones in the set positioning the evaluation procedure is based on financial data from the balance sheet and the income statement of each item bankadviser is particularly useful for decision makers financial analysts banks insurance companies when they have to make decisions about their industrial clients the system allows one to manage the data about the clients to analyse their economic profile to detect their strong and weak features to evaluate any risk associated with them decisions such as whether or not to provide a loan fix the loan modalities interest terms offer guarantee for foreign activities cover some deficits can easily be finalized after the bankadviser evaluation bankadviser is a visual interactive modelling system it is interactive because for each item the user has the opportunity to run through one part of the information to another because he can ask for additional information on the strong or the weak features of the profile because comparison with similar items can be given on request it is a modelling system because an intricate multicriteria situation is modelled by using the extended promethee mcdm methodology bankadviser has been implemented on a microcomputer for the sake of an effective presentation the paper has been written according to the structure of the microcomputer software it is illustrated by data of a real world application

a dynamic bank portfolio planning model with multiple scenarios multiple goals and changing priorities abstract the paper discusses a practical application of a two stage linear goal programming model to the management of the domestic and foreign currency denominated assets and liabilities of a large bank in finland the planning horizon includes three one year planning periods a number of alternative scenarios are used to describe uncertainty concerning future developments in these periods the scenarios are related to general economic conditions as well as the state of the domestic and foreign financial markets the bank is assumed to have multiple conflicting goals with different and changing priorities the goals deal with expected profits risk liquidity capital adequacy growth customer relationships and several other aspects of the bank s operations

do people play nash equilibrium lessons from evolutionary game theory evolutionary game theory provides an answer to two of the central questions in economic modeling when is it reasonable to assume that people are rational and when is it reasonable to assume that behavior is part of a nash equilibrium and if it is reasonable which equilibrium the traditional answers are not compelling and much of evolutionary modeling is motivated by the need for a better answer evolutionary game theory suggests that in a range of settings agents do eventually play a nash equilibrium moreover evolutionary modeling has shed light on the relative plausibility of different nash equilibria

multiple criteria decision making combined with finance a categorized bibliographic study abstract this paper provides a categorized bibliography on the application of the techniques of multiple criteria decision making mcdm to problems and issues in finance a total of 265 references have been compiled and classified according to the methodological approaches of goal programming multiple objective programming the analytic hierarchy process etc and to the application areas of capital budgeting working capital management portfolio analysis etc the bibliography provides an overview of the literature on mcdm combined with finance shows how contributions to the area have come from all over the world facilitates access to the entirety of this heretofore fragmented literature and underscores the often multiple criterion nature of many problems in finance

an economic capital model integrating credit and interest rate risk in the banking book banks often measure credit and interest rate risk in the banking book separately and then add the risk measures to determine economic capital this approach misses complex interactions between the two risk types we develop a framework where these risks are analysed jointly since banking book positions are generally not marked to market our model is based on book value accounting our simulations show that interactions matter and that ignoring them leads to risk overstatement the magnitude of the errors depends on the structure of the balance sheet and on the repricing characteristics of assets and liabilities

discretized reality and spurious profits in stochastic programming models for asset liability management in the literature on stochastic programming models for practical portfolio investment problems relatively little attention has been devoted to the question how the necessarily approximate description of the asset price uncertainty in these models influences the optimal solution in this paper we will show that it is important that asset prices in such a description are arbitrage free descriptions which have been suggested in the literature are often inconsistent with observed market prices and or use sampling to obtain a set of scenarios about the future we will show that this effectively introduces arbitrage opportunities in the optimization model for an investor who cannot exploit arbitrage opportunities directly because of market imperfections and trading restrictions we will illustrate that the presence of such arbitrage opportunities may cause substantial biases in the optimal investment strategy

formulation of the russell yasuda kasai financial planning model this paper describes the formulation of the russell yasuda kasai financial planning model including the motivation for the model the presentation complements the discussion of the technical details of the financial modeling process and the managerial impact of its use to help allocate the firm s assets over time discussed in carin o et al 1994 1998 respectively the multistage stochastic linear program incorporates yasuda kasai s asset and liability mix over a five year horizon followed by an infinite horizon steady state end effects period the objective is to maximize expected long run profits less expected penalty costs from constraint violations over the infinite horizon scenarios are used to represent the uncertain parameter distributions the constraints represent the institutional cash flow legal tax and other limitations on the asset and liability mix over time

high performance computing for asset liability management financial institutions require sophisticated tools for risk management for companywide risk management both sides of the balance sheet should be considered resulting in an integrated asset liability management approach stochastic programming models suit these needs well and have already been applied in the field of asset liability management to improve financial operations and risk management the dynamic aspect of the financial planning problems inevitably leads to multiple decision stages trading dates in the stochastic program and results in an explosion of dimensionality in this paper we show that dedicated model generation specialized solution techniques based on decomposition and high performance computing are the essential elements to tackle these large scale financial planning problems it turns out that memory management is a major bottleneck when solving very large problems given an efficient solution approach and a parallel computing facility we report on the solution of an asset liability management model for an actual dutch pension fund with 4 826 809 scenarios 12 469 250 constraints and 24 938 502 variables which is the largest stochastic linear program ever solved a closer look at the optimal decisions reveals that the initial asset mix is more stable for larger models demonstrating the potential benefits of the high performance computing approach for alm

an interest rate risk management model for commercial banks abstract this paper develops a goal programming model to assist a commercial bank in managing its exposure to interest rate risk the bank s objective is to immunize its equity position against innovations in interest rates while maximizing its market value to accomplish this task a duration gap framework is developed that does not require interest rate forecasts as decision variables the model includes assets liabilities and off balance sheet derivative securities the focus is on a protective put strategy that uses options on interest rate futures but to provide contrast a short interest rate futures position is examined as well application of the model to an illustrative environment indicates that for larger interest rate changes the option strategy provides better protection against interest rate risk than the short futures position

optimal deleveraging with nonlinear temporary price impact abstract in this paper we first propose a portfolio management model where the objective is to balance equity and liability the asset price dynamics includes both permanent and temporary price impact where the permanent impact is a linear function of the cumulative trading amount and the temporary impact is a k th between 0 and 1 order power function of the instantaneous trading rate we construct efficient frontiers to visualize the tradeoff between equity and liability and obtain analytical properties regarding the optimal trading strategies in the second part we further consider an optimal deleveraging problem with leverage constraints it reduces to a non convex polynomial optimization program with polynomial and box constraints a lagrangian method for solving the problem is presented and the quality of the solution is studied

the provision of incentives in firms i ncentives are the essence of economics despite many wide ranging claims about their supposed importance there has been little empirical assessment of incentive provision for workers the purpose of this paper is to critically overview existing work on the provision of incentives since the interests of workers and their employers are not always aligned a large theoretical literature has emphasized how firms design compensation contracts to induce employees to operate in the firm s interest this literature has reached into many areas of compensation and has pointed to a multitude of different mechanisms that can be used to induce workers to act in the interests of their employers these include piece rates options discretionary bonuses promotions profit sharing efficiency wages deferred compensation and so on my objective here is to evaluate this literature in the light of a growing empirical literature on compensation where possible i will address the literature from two perspectives first an underlying assumption of this literature is that individuals respond to contracts that reward performance accordingly i consider whether agents behave in this way and whether these responses are always in the firm s interest second i address whether firms write contracts with these responses in mind in other words do contracts look like the predictions of the theory incentives are provided to workers

the church versus the mall what happens when religion faces increased secular competition recently economists have begun to consider the causes and consequences of religious participation an unanswered question in this literature is the effect upon individuals of changes in the opportunity cost of religious participation in this paper we identify a policy driven change in the opportunity cost of religious participation based on state laws that prohibit retail activity on sunday known as blue laws many states have repealed these laws in recent years raising the opportunity cost of religious participation we use a variety of data sets to show that when a state repeals its blue laws religious attendance falls and that church donations and spending fall as well these results do not seem to be driven by declines in religiosity prior to the law change nor do we see comparable declines in membership in or giving to nonreligious organizations after a state repeals its laws we then assess the effects of changes in these laws on drinking and drug use behavior in the nlsy we find that repealing blue laws leads to an increase in drinking and drug use and that this increase is found only among the initially religious individuals who were affected by the blue laws the effect is economically significant for example the gap in heavy drinking between religious and nonreligious individuals falls by about half after the laws are repealed

a bank asset and liability management model in managing its assets and liabilities in light of uncertainties in cash flows cost of funds and return on investments a bank must determine its optimal trade off between risk return and liquidity in this paper we develop a multiperiod stochastic linear programming model alm that includes the essential institutional legal financial and bank related policy considerations and their uncertainties yet is computationally tractable for realistically sized problems a version of the model was developed for the vancouver city savings credit union for a 5 year planning period the results indicate that alm is theoretically and operationally superior to a corresponding deterministic linear programming model and that the effort required for the implementation of alm and its computational requirements are comparable to those of the deterministic model moreover the qualitative and quantitative characteristics of the solutions are sensitive to the model s stochastic elements such as the asymmetry of cash flow distributions we also compare alm with the stochastic decision tree sdt model developed by s p bradley and d b crane alm is computationally more tractable on realistically sized problems than sdt and simulation results indicate that alm generates superior policies

dynamic models of religious conformity and conversion theory and calibrations abstract this paper develops overlapping generations models to explain and simulate changes in the proportion of secular and religious people the church is modeled as generating an externality associated with conformity enhancing education observed changes in the number of nonbelievers are explained by different birth rates among secular and religious parents and the relative proportion of young nonconformists calibrations for the conformity rates among secular and religious people show that the observed long run increase in the difference between percentage of secular people in europe and the united states can be attributed to lower conformity rates prevailing in europe

stochastic network programming for financial planning problems several financial planning problems are posed as dynamic generalized network models with stochastic parameters examples include asset allocation for portfolio selection international cash management and programmed trading arbitrage despite the large size of the resulting stochastic programs the network structure can be exploited within the solution strategy giving rise to efficient implementations empirical results are presented indicating the benefits of the stochastic network approach for the asset allocation case

on line portfolio selection using stochastic programming abstract this paper is dedicated to the problem of dynamic portfolio optimization for the case when the number of decision periods is large and new information about market arrives during each such period we propose the family of adaptive portfolio selection policies which rebalance the current portfolio during each decision period by adopting portfolio from a specified family with the best performance on the past data in the absence of transaction costs the general conditions are found under which this policy yields asymptotically the same performance as the best portfolio from the same family constructed with the full knowledge of the future these results are extended for the case of nonzero transaction costs by introducing a class of threshold portfolio optimization policies which rebalance current portfolio only when its performance differs from performance of the best portfolio by a given threshold the value of this threshold is adapted to the changing market conditions we show that it is possible to select a sequence of threshold values in such a way that the asymptotic influence of transaction costs on portfolio performance is negligible and overall portfolio performance is asymptotically the same as the performance of portfolio with the perfect knowledge of the future we do not assume neither specific probabilistic structure of the market data nor their stationarity our theory is illustrated by numerical experiments with real data finally we discuss the relevance of our results in the context of high performance computing

from data to model and back to data a bond portfolio management problem abstract the bond portfolio management problem is formulated as a multiperiod stochastic program using interest rate scenarios the scenarios are sampled from the binomial lattice from a black derman toy model the paper analyzes the sensitivity of the solution of the resulting large scale mathematical program with respect to the model inputs the numerical results are for the italian bond market

scenario generation and stochastic programming models for asset liability management in this paper we develop and test scenario generation methods for asset liability management models we propose a multi stage stochastic programming model for a dutch pension fund both randomly sampled event trees and event trees fitting the mean and the covariance of the return distribution are used for generating the coefficients of the stochastic program in order to investigate the performance of the model and the scenario generation procedures we conduct rolling horizon simulations the average cost and the risk of the stochastic programming policy are compared to the results of a simple fixed mix model we compare the average switching behavior of the optimal investment policies our results show that the performance of the multi stage stochastic program could be improved drastically by choosing an appropriate scenario generation method

strategic financial management in a multinational financial conglomerate a multiple goal stochastic programming approach abstract the paper discusses a multi stage stochastic programming approach to the strategic financial management of a multi company financial conglomerate the planning system creates a comprehensive strategy which simultaneously covers a number of future scenarios within a multi period planning horizon multiple conflicting goals may be specified for the group level company level or individual business area level and the decision maker s preferences are allowed to change over time to reflect changing operating conditions and trade off relationships between the goals special features include among other things full market valuation throughout the model integrated treatment of different types of risks explicit modelling of various types of intra group transactions and relationships extensive structures to deal with distressed assets and the covering of losses within the group as well as consideration of potential portfolio effects of a diversified group structure on the cost of funding

short term financial planning under uncertainty this paper presents a stochastic linear programming formulation of a firm s short term financial planning problem this framework allows a more realistic representation of the uncertainties fundamental to this problem than previous models in addition using wets s algorithm for linear simple recourse problems this formulation has approximately the same computational complexity as the mean approximation i e the deterministic program obtained by replacing all random elements by their means using this formulation we empirically investigate the effects of differing distributions and penalty costs we conclude that even with symmetric penalty costs and distributions the mean model is significantly inferior to the stochastic linear programming formulation thus we are able to demonstrate that ignoring the stochastic components in linear programming formulations can be very costly without having significant computational savings

modeling financial reinsurance in the casualty insurance business via stochastic programming abstract in this paper we examine the rationale for financial reinsurance in the casualty insurance business as opposed to regular reinsurance financial reinsurance refers to an investment strategy that uses the financial markets to hedge insurance risk the casualty insurer takes positions in derivatives on underlying assets whose prices are highly positively or negatively correlated with specific insurance risks we formulate the asset liability management problem for a mutually owned casualty insurer in the context of a dynamic stochastic portfolio selection model using numerical studies of the resulting large scale non linear program we compare properties of optimal portfolios with and without the possibility of financial reinsurance we let an alleged representative policyholder endowed with a linear plus negative exponential utility function evaluate the various optimal portfolios when policyholders utility functions exhibit reasonable levels of risk aversion we find that portfolios reflecting financial reinsurance dominate portfolios that are not financially reinsured

vector forecasting and dynamic portfolio selection empirical efficiency of recursive multiperiod strategies abstract in the paper we present a dynamic portfolio selection system the system combines recent results from the domains of time series analysis portfolio theory and multiperiod linear programming under uncertainty the performance of the decision support system is tested empirically against a dynamic super criterion defined in the study we demonstrate that suitable combination of ex ante and ex post information with initial balances for the planning horizon yields better portfolio efficiency through time than a strategy relying purely on ex ante information the system was programmed on abo academy s vax 8800 computer mainly in fortran with access to the imsl library and ifps optimum

operational research and financial management abstract the use of operational research in financial management is reviewed its application to both short term problems of cash management and long term problems of capital investment is critically examined the contribution that operational research has made to modern theories of finance and their use is explored and differences in orientation are discussed the increasing complexity of financial management problems facing many corporations is providing more opportunities for the operational researcher whose role in this area is being reappraised

ahp based synergy allocation to the partners in a merger abstract many corporations try to overcome vulnerabilities by external alliances with other corporations this paper concentrates on the merger case in member states of the european community under the premise that synergies are to be expected from such a transaction in this context synergy will be understood as the difference between the capitalized earning power of the merger firm and the sum of the capitalized earning powers the companies could expect when operating alone this article presents a method to allocate the financial effect to the partners in a merger based on the formal procedure of the analytic hierarchy process the method allocates synergy to the partners according to the impact intensities of their performance potentials on this synergistic effect

which countries have state religions among 188 countries 72 had no state religion in 2000 1970 and 1900 58 had a state religion throughout and 58 had 1 or 2 transitions we use a hotelling spatial competition model to analyze the likelihood that the religion market would be monopolized similar forces influence a government s decision to establish a state religion consistent with the model the probability of state religion in 1970 and 2000 is increasing with the adherence rate to the main religion has a nonlinear relation with population and has little relation with per capita gdp the probability of state religion decreases sharply under communism but lagged communism has only a weak effect with costly adjustment for institutions the probability of state religion in 1970 or 2000 depends substantially on the status in 1900 this persistence is much stronger for countries with no major regime change than for countries with such a change

evolution and game theory introduced by john von neumann and oskar morgenstern 1944 energized by the addition of john nash s 1950 equilibrium concept and popularized by the strategic revolution of the 1980s noncooperative game theory has become a standard tool in economics in the process attention has increasingly been focused on game theory s conceptual foundations two questions have taken center stage should we expect nash equilibrium play that is should we expect the choice of each player to be a best response to the choices of the other players if so which of the multiple nash equilibria that arise in many games should we expect in the 1980s game theorists addressed these questions with models based on the assumptions that players are perfectly rational and have common knowledge of this rationality in the 1990s however emphasis has shifted away from rationalitybased to evolutionary models one reason for this shift was frustration with the limitations of rationality based models these models readily motivated one of the requirements of nash equilibrium that players choose best responses to their beliefs about others behavior but less readily provided the second requirement that these beliefs be correct simultaneously rationality based criteria for choosing among nash equilibria produced alternative equilibrium refinements strengthenings of the nash equilibrium concept designed to exclude implausible nash equilibria with sufficient abandon as to prompt despair at the thought of ever choosing one as the right concept a second reason for the shift away from rationality based game theory was a change in the underlying view of what games represent it was once typical to interpret a game as a literal description of an idealized interaction in which an assumption of perfect rationality appeared quite

budgeting costs of nursing in a hospital this paper examines issues in building decision support models for budgeting nursing workforce requirements in a hospital we determine regular time overtime and agency workforce levels for various skill classes in a budget cycle we introduce a family of eight models ranging from a single period aggregate and deterministic model to a multiperiod disaggregate and probabilistic model in a single period model we ignore the time varying nature of demand for nursing hours aggregation is done over the nurse skill class mix for probabilistic models we consider demand uncertainty using empirical data we evaluate the effects of level of sophistication in model building and in information requirements on their relative performances the results suggest that ignoring the time varying nature of demand does not induce gross errors in budget estimates however ignoring demand uncertainty produces underestimates about five to six percent of budget needs a consequence of a madansky madansky a 1960 inequalities for stochastic linear programming problem management sci 6 197 204 inequality it also induces added costs to the system due to implementing nonoptimal regular time workforce levels finally we find that a simple formula using a single period demand estimate gives excellent approximations to the budget estimates obtainable from the more precise models

a stochastic programming model for money management abstract portfolio managers in the new fixed income securities have to cope with various forms of uncertainty in addition to the usual interest rate changes uncertainy in the timing and amount of cashflows changes in the default and other risk premia and so on complicate the portfolio manager s problem we develop here a multi period dynamic portfolio optimization model to address this problem the model specifies a sequence of investment decisions over time that maximize the expected utility of return at the end of the planning horizon the model is a two stage stochastic program with recourse the dynamics of interest rates cashflow uncertainty and liquidity default and other risk premia are explicitly modeled through postulated scenarios simulation procedures are developed to generate these scenarios the optimization models are then integrated with the simulation procedures extensive validation experiments are carried out to establish the effectiveness of the model in dealing with uncertainty in particular the model is compared against the popular portfolio immunization strategy and against a portfolio based on mean absolute deviation optimization

an application of the ahp to bank strategic planning the mergers and acquisitions process abstract strategic planning is one of the most complex and ill structured tasks faced by banks it usually requires adopting a course of action from a large set of alternatives with uncertain long term outcomes which depend to a large extent on unknown and turbulent environments in deriving these strategies bankers usually try to achieve multiple and sometimes conflicting objectives such as profitability growth liquidity and market share subject to constraints on credit and exchange risks and regulatory requirements moreover specific strategies are normally determined by a board of directors whose members have different backgrounds judgments and personal goals this paper describes the application of the ahp methodology to the evaluation of bank mergers and acquisitions m a strategy the model developed for this important problem was tested with the assistance of the board of directors of a billion dollar bank holding company although it is difficult to generalize from one experiment dealing with a single issue there was nothing unique in the situation where the test was performed hence it is safe to assume that the ahp methodology can be applied to other complex and ill defined strategic issues faced by other banking institutions compared with existing techniques on the one hand and with qualitative managerial judgement on the other hand the ahp provides a useful simple and powerful tool for dealing with strategic planning in banking

bank asset and liability management under uncertainty abstract this study presents a multiperiod stochastic linear simple recourse model for asset and liability management in banking the model determines the portfolio of assets and liabilities over the planning horizon given a set of deterministic rates of returns of investments and costs of borrowings and a set of random outstanding deposit levels liquidity and total reserve requirements with a given discrete probability distribution the intention is to develop an optimization tool to assure sustained profitability and good management of risks while balancing sources and uses of funds to meet legal and policy requirements and satisfy withdrawal requests of depositors on time and in full effects of changes in bank policies and banking regulations environmental factors potential risks additional decision alternatives and constraints can be handled and evaluated by the model therefore it can be used both for planning and analysis the model is verified using a turkish sample bank s data over the period 1987 1990 and several sensitivity anallyes are reported as the model takes into account the stochastic behaviour of crucial uncontrollable variables the results of the model can be deemed more realistic compared with the deterministic model

managing interest rate risk in banking institutions abstract this paper develops and employs a multiperiod goal programming model to examine the normative effects of changing interest rates on the rearrangements of depository bank balance sheets and associated profits a two stage state preference framework allows a dynamic interpretation of the model s prescribed decisions as well as a natural incorporation of profit sensitivity to interest rate risk the model includes on and off the balance sheet decision variables experimental results indicate that constraining the latter decision can seriously curtail the bank s ability to achieve its profit objectives

a goal programming model for bank assets and liabilities management abstract assets and liabilities management is one of the most important issues in bank strategic planning in the past this problem has often been addressed through conventional mathematical programming i e linear programming however bank management typically involves several conflicting goals such as the maximisation of returns minimisation of risk expansion of deposits and loans etc the complexity of this problem can be captured more adequately by multiobjective mathematical programming this paper discusses the construction and application at the commercial bank of greece of a goal programming model that takes into account the essential institutional financial legal and bank policy considerations

the performance of stochastic dynamic and fixed mix portfolio models the purpose of this paper is to demonstrate how to evaluate stochastic programming models and more specifically to compare two different approaches to asset liability management the first uses multistage stochastic programming while the other is a static approach based on the so called constant rebalancing or fixed mix particular attention is paid to the methodology used for the comparison the two alternatives are tested over a large number of realistic scenarios created by means of simulation we find that due to the ability of the stochastic programming model to adapt to the information in the scenario tree it dominates the fixed mix approach

religious market competition in a richer world economic growth has not led to a decline in religion despite past predictions that it would using a formal model of religious competition i show how economic growth produces counteracting effects on religious activity in an open religious market and that it has little effect in a religious market that is already secularized due to regulations that prohibit religious competition or in a highly religious market with regulations that inhibit secular activities theories predicting the decline of religion due to rising opportunity costs of religious demand and supply ignore countervailing influences t he opinion is everywhere gaining ground that religion is a mere survival from a primitive age and its extinction only a matter of time crawley 1905 i think what i and most other sociologists of religion wrote in the 1960s about secularization was a mistake our understanding was that secularization and modernity go hand in hand it wasn t a crazy theory there was some evidence for it but i think it s basically wrong most of the world today is certainly not secular it s very religious berger 1997 1

financial planning for the multinational corporation with multiple goals this paper presents a methodology for analyzing the financing problems raised by uncertain exchange rates and the various barriers to free capital flows the stochastic goal programming model developed allows a way to improve the efficiency with which alternative combinations of corporate strategies various environmental assumptions and financing mechanisms can be evaluated

a goal programming approach to investment decisions a case study of fund allocation among different shopping malls abstract this study proposes a unique solution to resource allocation problems by combining goal programming gp with a qualitative forecasting model e g the delphi method and a quantitative forecasting technique e g the poisson gravity model goal programming an extension of linear programming lp is a management science technique for resource allocation in multiple objective environment initially in the proposed model the delphi is used to elicit the experts talents to derive the objectives to be considered in resource allocation subsequently a forecasting technique is utilized to predict the future values for these objectives the information obtained from these two forecasting techniques is then used to construct a gp model to test for its practicality the proposed model was applied to allocate funds among different retail stores in the atlanta retailing system to maximize an investor s revenue first the number of shopping trips taken to different retail centers in the atlanta area were predicted and then these forecasts were treated as goals to be achieved these forecasted goals were subsequently used to formulate a goal programming model to allocate funds for leasing retail stores in different shopping centers within the system the atlanta retailing system was chosen only as an example the proposed methodology can be applied to any resource allocation problem

inventory management with asset based financing most of the traditional models in production and inventory control ignore the financial states of an organization and can lead to infeasible practices in real systems this paper is the first attempt to incorporate asset based financing into production decisions instead of setting a known exogenously determined budgetary constraint as most existing models suggest we model the available cash in each period as a function of assets and liabilities that may be updated periodically according to the dynamics of the production activities furthermore our models allow different interest rates on cash balance and outstanding loans which is an enhancement over most traditional models in that inventory financed by a loan may be more expensive than that by out of pocket cash we demonstrate the importance of joint consideration of production and financing decisions in a start up setting in which the ability to grow the firm is mainly constrained by its limited capital and dependence on bank financing we then explain the motivation for asset based financing by examining the decision making at a bank and a set of retailers in a newsvendor setting