measuring the influence of canadian carbon stabilization programs on natural gas exports to the united states via a bottom up intertemporal spatial price equilibrium model abstract in this paper we present the results of a study of the impact of canadian carbon stabilization programs on exports of natural gas to the united states this work was based on a study conducted for the us environmental protection agency the gas systems analysis model gsam developed by icf consulting for the us department of energy was used to gauge the overall impact of the stabilization programs on the north american natural gas market gsam is an intertemporal spatial price equilibrium spe type model of the north american natural gas system salient features of this model include characterization of over 17 000 gas production reservoirs with explicit reservoir level geologic and economic information used to build up the supply side of the market on the demand side four sectors residential commercial industrial and electric power generation are characterized in the model lastly both above and below ground storage facilities as well as a comprehensive pipeline network are used with the supply and demand side characterizations to arrive at estimates of market equilibrium prices and quantities and flows

optimal electricity market for wind power abstract this paper is about electricity market operation when looking from the wind power producers point of view the focus in on market time horizons how many hours there is between the closing and delivering the bids the case is for the nordic countries the nordpool electricity market and the danish wind power production real data from year 2001 was used to study the benefits of a more flexible market to wind power producer as a result of reduced regulating market costs from better hourly predictions to the market wind power producer would gain up to 8 more if the time between market bids and delivery was shortened from the day ahead elspot market hourly bids by noon for 12 36 h ahead an after sales market where surplus or deficit production could be traded 2 h before delivery could benefit the producer almost as much gaining 7

evaluating the impacts of real time pricing on the usage of wind generation one of the impediments to large scale use of wind generation within power systems is its nondispatchability and variable and uncertain real time availability operating constraints on conventional generators such as minimum generation points forbidden zones and ramping limits as well as system constraints such as power flow limits and ancillary service requirements may force a system operator to curtail wind generation in order to ensure feasibility furthermore the pattern of wind availability and electricity demand may not allow wind generation to be fully utilized in all hours one solution to these issues which could reduce these inflexibilities is the use of real time pricing rtp tariffs which can both smooth out the diurnal load pattern in order to reduce the impact of binding unit operating and system constraints on wind utilization and allow demand to increase in response to the availability of costless wind generation we use and analyze a detailed unit commitment model of the texas power system with different estimates of demand elasticities to demonstrate the potential increases in wind generation from implementing rtp

dynamic allocations for currency futures under switching regimes signals abstract over the last decades speculative investors in the fx market have profited in the well known currency carry trade strategy ct however during currencies or global financial crashes ct produces substantial losses in this work we present a methodology that enhances ct performance significantly for our final strategy constructed backtests show that the mean semivolatility ratio can be more than doubled with respect to benchmark ct to do the latter we first identify and classify ct returns according to their behavior in different regimes using a hidden markov model hmm the model helps to determine when to open and close positions depending whether the regime is favorable to ct or not finally we employ a mean semivariance allocation model to improve allocations when positions are opened

a large scale linear complementarity model of the north american natural gas market abstract the north american natural gas market has seen significant changes recently due to deregulation and restructuring for example third party marketers can contract for transportation and purchase of gas to sell to end users while the intent was a more competitive market the potential for market power exists we analyze this market using a linear complementarity equilibrium model including producers storage and peak gas operators third party marketers and four end use sectors the marketers are depicted as nash cournot players determining supply to meet end use consumption all other players are in perfect competition results based on national petroleum council scenarios are presented

what is the cost of negative bidding by wind a unit commitment analysis of cost and emissions we use a unit commitment uc model to quantify the operational impacts of subsidizing wind generation when energy prices are negative such prices occur increasingly often in u s and european union eu markets subsidies such as production tax credits feed in tariffs and renewable energy credits motivate renewable generators to submit negative price offers this lessened flexibility increases system operation and management costs and in some cases hbox co 2 emissions when energy prices are negative our simulations of large negative bids can also be interpreted as representing eu policies of granting wind absolute dispatch priority applications to four hypothetical systems with high wind penetration and distinct generation mixes quantify the uc and dispatch effects of negative bids larger negative bids lead to less wind spillage reducing the 2 8 average curtailment under 0 bids to 1 0 more conventional plant startups higher system costs and in many cases higher total rm co 2 emissions by up to 2 in some systems wind power s effective incremental emissions are as high as coal s this impact depends strongly on generation mix carbon price and the size of the negative bids in general there can be significant economic and often environmental benefits to reforming renewable support policies to encourage flexibility in operations

dynamic linkages among real interest rates in international capital markets abstract short run and long run dynamic linkages among weekly real interest rates for g 10 countries are examined using a variety of time series tests these tests give special attention to the time series properties of nominal interest rates ex ante expected rates of inflation and real interest rates term structure information is used to recover a theoretically consistent measure of ex ante expected inflation in sample and out of sample granger causality tests are also examined to evaluate lead lag relationships among real interest rates the results provide strong support for well integrated markets particularly in the long run the results imply leadership roles for the us in international asset markets

a convex model of risk based unit commitment for day ahead market clearing considering wind power uncertainty the integration of wind power requires the power system to be sufficiently flexible to accommodate its forecast errors in the market clearing process the scheduling of flexibility relies on the manner in which the wind power uncertainty is addressed in the unit commitment uc model this paper presents a novel risk based day ahead unit commitment ruc model that considers the risks of the loss of load wind curtailment and branch overflow caused by wind power uncertainty these risks are formulated in detail using the probabilistic distributions of wind power probabilistic forecast and are considered in both the objective functions and the constraints the ruc model is shown to be convex and is transformed into a mixed integer linear programming milp problem using relaxation and piecewise linearization the proposed ruc model is tested using a three bus system and an ieee rts79 system with wind power integration the results show that the model can dynamically schedule the spinning reserves and hold the transmission capacity margins according to the uncertainty of the wind power a comparison between the results of the ruc a deterministic uc and two scenario based uc models shows that the risk modeling facilitates a strategic market clearing procedure with a reasonable computational expense

trading wind generation in short term energy markets even with state of the art forecasting methods the short term generation of wind farms cannot be predicted with a high degree of accuracy in a market situation these forecasting errors lead to commercial risk through imbalance costs when advance contracting this situation is one that needs to be addressed due to the steady increase in the amount of grid connected wind generation combined with the rise of deregulated market orientated electricity systems in the presence of imbalance prices and uncertain generation a method is required to determine the optimum level of contract energy to be sold on the advance markets such a method is presented here using markov probabilities for a wind farm and demonstrates substantial reductions in the imbalance costs the effect of market closure delays and forecasting window lengths are also shown

capital market integration over the past decade the case of the us dollar abstract this study investigates changing capital market integration over the decade 1973 83 as measured by the relationship between eurodollar and domestic us dollar yields the findings reveal that capital market integration has increased appreciably since the end of 1981

the national energy modeling system a large scale energy economic equilibrium model the national energy modeling system nems is a large scale mathematical model that computes equilibrium fuel prices and quantities in the u s energy sector and is currently in use at the u s department of energy doe at present to generate these equilibrium values nems iteratively solves a sequence of linear programs and nonlinear equations this is a nonlinear gauss seidel approach to arrive at estimates of market equilibrium fuel prices and quantities in this paper we present existence and uniqueness results for nems type models based on a nonlinear complementarity variational inequality problem format also we document mathematically for the first time how the inputs and the outputs for each nems module link together

optimal generation mix with short term demand response and wind penetration demand response defined as the ability of load to respond to short term variations in electricity prices plays an increasingly important role in balancing short term supply and demand especially during peak periods and in dealing with fluctuations in renewable energy supplies however demand response has not been included in standard models for defining the optimal generation technology mix three different methodologies are proposed to integrate short term responsiveness into a generation technology mix optimization model considering operational constraints elasticities are included to adjust the demand profile in response to price changes including cross price elasticities that account for load shifts among hours as energy efficiency programs also influence the load profile interactions of efficiency investments and demand response are also modeled comparison of model results for a single year optimization with and without demand response shows peak reduction and valley filling effects impacting the optimal amounts and mix of generation capacity increasing demand elasticity also increases the installed amount of wind capacity suggesting that demand response yields environmental benefits by facilitating integration of renewable energy

a mixed complementarity based equilibrium model of natural gas markets we present a new multiseasonal multiyear natural gas market equilibrium model based on the concept of a competitive equilibrium involving the market participants producers storage reservoir operators peak gas operators pipeline operators marketers and consumers the first three classes are depicted as price takers consistent with perfect competition the pipeline operations are described with regulated tariffs but also involve congestion pricing as a mechanism to allocate scarce pipeline capacity the marketers are price takers in all markets except in sales to consumers in which they compete as nash cournot players finally consumers are described by demand curves for each of the four sectors residential commercial industrial and electric power we show that the equilibrium model is an instance of a mixed nonlinear complementarity problem ncp and provide sufficient detail not generally seen in previous complementarity models of natural gas the ncp formulation is derived from considering the karush kuhn tucker optimality conditions of the optimization problems faced by these participants under mild conditions we show that this ncp has a solution and under additional reasonable conditions we show that the market prices are unique we also validate the model on a representative sample network with nine market participants and three seasons using four scenarios

interest rate linkages within the european monetary system further analysis j costas karfakis and demetrios m moschos 1990 examine the interest rate linkages within the european monetary system ems concluding that the german interest rate plays a dominate role within the ems the authors reexamine the interest rate linkages within the ems with the addition of the interest rate of the united states their results suggest that both the united states and german interest rates play an important but not dominant role in ems interest rate linkages copyright 1993 by ohio state university press

convergence of real capital market interest rates evidence from inflation indexed bonds this paper investigates the convergence of long term ex ante real interest rates rirs obtained from canadian french uk and u s inflation indexed government bonds in contrast to previous research our evidence suggests full convergence in the long run and hence capital market integration for the same sample period global convergence is rejected for rirs measured in conventional terms from these results we conclude that previous tests of the long run real interest rate parity might have suffered from weak measurement of real capital market interest rates

interest rate linkages in the eurocurrency market contemporaneous and out of sample granger causality tests abstract this paper examines linkages among major eurocurrency interest rates during 1994 2002 eurocurrency interest rate causal linkages are found to be much stronger with additional allowance for contemporaneous causality test results than the inference based solely on granger causality tests the impact of u s interest rates is clearly not dominant in the eurocurrency markets while the japanese interest rates are found to be quite influential german interest rates both cause and are caused by several other eurocurrency interest rates by contrast interest rates on the new currency the euro do not have a substantial influence on other eurocurrency interest rates which underscores its emerging status

are real interest rates equal across countries an empirical investigation of international parity conditions this paper conducts empirical tests of the equality of real interest rates across countries the empirical evidence strongly rejects the hypothesis of real rate equality and the joint hypotheses of uncovered interest parity and ex ante relative ppp or the unbiasedness of forward rate forecasts and ex ante relative ppp the evidence suggests that it is worth studying open economy macroeconomic models which allow 1 domestic real rates to differ from world rates 2 time varying risk premiums in the forward market or 3 deviations from ex ante relative ppp the relationship of real interest rates across countries is of central importance to our understanding of open economy macroeconomics in some models where there is costless international arbitrage in goods and financial assets real interest rates for comparable securities should be equal across countries this has been a feature of much of the early research in the monetary approach to exchange rates e g frenkel 11 and bilson 2 on the other hand finance theory indicates that risk premia may well differ for comparable securities denominated in different currencies solnick 27 roll and solnick 26 stulz 28 fama and farber 7 hansen and hodrick 17 and dornbusch 6 and more recent theoretical models in the exchange rate literature such as dornbusch 5 frankel 10 and mussa 24 depend on real rates differing between countries in the short run the proposition that real rates are equal across countries is worth studying

does the real interest parity hypothesis hold evidence for developed and emerging markets we present empirical evidence on the real interest parity hypothesis for a set of emerging and developed countries this is done by carrying out a set of unit root tests on the real interest differentials with respect to the us our results support the hypothesis of a rapid reversion towards a zero differential for developed countries and towards a positive one for emerging markets mean reversion is faster for emerging market economies we also find that this adjustment tends to be highly asymmetric and markedly different for developed and emerging markets our evidence reveals a high degree of market integration for developed countries and highlights the importance of risk premia for emerging markets

value of price responsive load for wind integration in unit commitment the ability of load to respond to short term variations in electricity prices plays an increasingly important role in balancing short term supply and demand especially during peak periods and in dealing with fluctuations in renewable energy supplies however price responsive load has not been included in standard models for defining the optimal scheduling of generation units in short term here elasticities are included to adjust the demand profile in response to price changes including cross price elasticities that account for load shifts among hours the resulting peak reductions and valley fill alter the optimal unit commitment enhancing demand response also increases the amount of wind power that can be economically injected further wind power uncertainty can be managed at a lower cost by adjusting electricity consumption in case of wind forecast errors which is another way in which demand response facilitates the integration of intermittent renewables

factoring the elasticity of demand in electricity prices as electricity markets are liberalized consumers become exposed to more volatile electricity prices and may decide to modify the profile of their demand to reduce their electricity costs this paper analyzes the effect that the market structure can have on the elasticity of the demand for electricity it then describes how the consumers behavior can be modeled using a matrix of self and cross elasticities it is shown how these elasticities can be taken into consideration when scheduling generation and setting the price of electricity in a pool based electricity market these concepts are illustrated using a 26 generator system

sensitivity analysis for the general spatial economic equilibrium problem we consider the general spatial economic equilibrium problem where the supplies and demands at each market for each commodity may depend on the price on this as well as other prices of other commodities at other markets and the transportation cost on each link for each commodity may depend on the flow on this as well as other flows of other commodities on other links in the network for this model we perform stability and sensitivity analysis assuming that the supply demand and transportation cost functions are monotone we first show that the multicommodity equilibrium price pattern depends continuously upon the market supply and demand functions and the multicommodity equilibrium shipment pattern depends continuously upon the transportation cost functions we then focus on the delicate question of predicting the direction of the change in the price and shipment pattern and the incurred supplies demands and transportation costs resulting from changes in the supply demand and transportation cost fu

dynamic asset allocation for varied financial markets under regime switching framework asset allocation among diverse financial markets is essential for investors especially under situations such as the financial crisis of 2008 portfolio optimization is the most developed method to examine the optimal decision for asset allocation we employ the hidden markov model to identify regimes in varied financial markets a regime switching model gives multiple distributions and this information can convert the static mean variance model into an optimization problem under uncertainty which is the case for unobservable market regimes we construct a stochastic program to optimize portfolios under the regime switching framework and use scenario generation to mathematically formulate the optimization problem in addition we build a simple example for a pension fund and examine the behavior of the optimal solution over time by using a rolling horizon simulation we conclude that the regime information helps portfolios avoid risk during left tail events

a new decomposition method for multiregional economic equilibrium models this paper discusses decomposition of a multiregional economic equilibrium model that is characterized by a cost minimizing linear programming lp model of the supply side and a vector valued function that gives demand prices as functions of the quantities demanded our motivation is to ease model development and maintenance by a solution method that links separately developed regional models only when a consistent multiregion solution is desired a heuristic strategy is described to extend any existing lp decomposition principle to a procedure for decomposing an equilibrium model by region this strategy is applied to extend dantzig wolfe decomposition to the multiregional economic equilibrium model and several theoretical results are derived for the resulting algorithm the central result is a proof of asymptotic convergence under usefully general conditions the extended dantzig wolfe procedure is illustrated with an existing two region model of canadian energy supplies and demands

a stochastic version of a stackelberg nash cournot equilibrium model we consider a stochastic version of the stackelberg nash cournot model proposed by murphy et al 1983 ln the first stage the leader chooses and announces his production level taking into account the reaction of the followers the decision of the leader is taken when market demand is uncertain in the second stage the followers knowing the leader s output react to this level according to the cournot assumption at this stage demand is known we study the extension of the murphy et al model and give a numerical illustration of this model using the european gas market

examining market power in the european natural gas market in this paper we develop a mixed complementarity equilibrium model for the european natural gas market this model has producers as cournot players with conjectured supply functions relative to their rivals as such these producers can withhold production to increase downstream prices for greater profits the other players are taken to be perfectly competitive and are combined with extensive pipeline seasonal and other data reflecting the current state of the market four market scenarios are run to analyze the extent of market power by these producers as well as the importance of pipeline and storage capacity

real interest rate equalization and the integration of international financial markets abstract this paper argues that conventional regression tests of real interest rate equality may be misleading because they neglect to consider transactions costs a transactions cost band may inhibit the one to one correspondence between changes in real rates in alternative countries that is presumed by conventional tests statistical problems which may lead to incorrect inferences in conventional tests are also discussed alternative tests which overcome these limitations are developed and applied to real interest rates for ten different countries the alternative tests generate much stronger support for interest parity than is found in the existing literature

the real time price elasticity of electricity the real time price elasticity of electricity contains important information on the demand response of consumers to the volatility of peak prices despite the importance empirical estimates of the real time elasticity are hardly available this paper provides a quantification of the real time relationship between total peak demand and spot market prices we find a low value for the real time price elasticity which may partly be explained from the fact that not all users observe the spot market price if we correct for this phenomenon we find the elasticity to be fairly low for consumers currently active in the spot market if this conclusion applies to all users this would imply a limited scope for government intervention in supply security issues

who drives real interest rates around the pacific rim the usa or japan abstract this paper investigates the relative influence of us and japanese real interest rates in the determination of local pacific rim rates where influence is defined by the presence of common stochastic trends furthermore the degree to which long run real interest parity holds is examined the cointegration testing methodology of johansen 1988 is adopted for this analysis which allows for multiple cointegrating vectors the results indicate that hong kong malaysia and taiwan are linked with both the usa and japan in terms of cointegration and positive covariation while only singapore is solely linked with the usa on the other hand korea and perhaps indonesia and thailand appear to be more closely linked with japan real interest parity holds for only the following interest rate pairs usa singapore usa taiwan and japan taiwan

inflation and the distribution of price changes across markets a causal analysis recent advances in time series methodology are applied to the investigation of causal relationships between monthly changes in the consumer price index and changes in its dispersion across different consumption categories this dispersion is associated with the degree to which relative prices are changing past inflation rates seem useful in forecasting changes in relative prices but not vice versa there is also a significant contemporaneous correlation between these series hence it is concluded that fluctuations in the inflation rate help cause fluctuations in relative prices but not vice versa unless the entire effect occurs within a month the analysis also serves to illustrate a new way to implement the granger causality concept

impulse response analysis of cointegrated systems abstract impulse response or dynamic multiplier analysis of vector autoregressive systems with cointegrated variables is considered the asymptotic distribution of the responses estimated with johansen s 1988 maximum likelihood procedure is derived the results are illustrated with an analysis of a west german money demand system the investigation shows that a direct interpretation of the cointegration relations may be difficult or misleading thereby the virtue of impulse response analysis for applied work is illustrated

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

numerical approximations of optimal portfolios in mispriced asymmetric levy markets abstract we present numerical approximations of optimal portfolios in mispriced levy markets under asymmetric information for informed and uninformed investors having logarithmic preference we apply our numerical scheme to kou 2002 jump diffusion markets by deriving analytic formulas for the first two derivatives of the underlying portfolio objective function which depend only on the levy measure of the jump generating process optimal portfolios are then simulated using the box muller algorithm newton s method and incomplete beta functions convergence dynamics and trajectories of sample paths of optimal portfolios for both investors are presented at different levels of information asymmetry mispricing horizon asymmetry in the kou density jump intensity volatility mean reversion speed and sharpe ratios we also apply the proposed newton s algorithm to compute optimal portfolios for investors in variance gamma markets via instantaneous centralized moments of returns

exchange rate theory and practice this volume grew out of a national bureau of economic research conference on exchange rates held in bellagio italy in 1982 in it the world s most respected international monetary economists discuss three significant new views on the economics of exchange rates rudiger dornbusch s overshooting model jacob frenkel s and michael mussa s asset market variants and pentti kouri s current account portfolio approach their papers test these views with evidence from empirical studies and analyze a number of exchange rate policies in use today including those of the european monetary system

economic analysis of transmission expansion planning with price responsive demand and quadratic losses by successive lp the growth of demand response programs and renewable generation is changing the economics of transmission planners and regulators require tools to address the implications of possible technology policy and economic developments for the optimal configuration of transmission grids we propose a model for economic evaluation and optimization of inter regional transmission expansion as well as the optimal response of generators investments to locational incentives that accounts for kirchhoff s laws and three important nonlinearities the first is consumer response to energy prices modeled using elastic demand functions the second is resistance losses the third is the product of line susceptance and flows in the linearized dc load flow model we develop a practical method combining successive linear programming with gauss seidel iteration to co optimize ac and dc transmission and generation capacities in a linearized dc network while considering hundreds of hourly realizations of renewable supply and load we test our approach for a european electricity market model including 33 countries the examples indicate that demand response can be a valuable resource that can significantly affect the economics location and amounts of transmission and generation investments further representing losses and kirchhoff s laws is also important in transmission policy analyses

security constrained resource planning in electricity markets we propose a security based competitive generation resource planning model in electricity markets the objective of the model is to introduce the impact of transmission security in a multi genco generation resource planning the proposed approach is based on effective decomposition and coordination strategies lagrangian relaxation and benders decomposition are applied to decompose the original planning problem into tractable optimization subproblems locational price signal and security signal are defined for the simulation of competition among gencos and the coordination of security between gencos and the regulatory body iso the numerical examples exhibit the effectiveness of the proposed generation planning model in electricity markets

real interest rate parity new measures and tests abstract international financial theory implies that for international comparisons the appropriate measure of the real interest rate is one defined in terms of traded goods prices alone new measures of the real interest rate are constructed using changes in price indexes for traded goods as deflators these new measures are tested for international real rate equality and the results are compared to those of similar tests using measures based on the change in the cpi and the wpi there are important differences between the traded goods real rate measures and those based on either the cpi or the wpi however in general the tests support the hypothesis that the real interest rate is approximately measured in terms of traded goods jel f30

subproblem approximation in dantzig wolfe decomposition of variational inequality models with an application to a multicommodity economic equilibrium model we present a modification to dantzig wolfe decomposition of variational inequality vi problems that allows for approximation of the vi mapping in the subproblem the approximation is parameterized by the most recent master problem solution and it must satisfy two simple requirements in an electronic companion online appendix we show that the proofs of convergence and other important properties go through with subproblem approximation the approximation procedure is illustrated by an application to a class of multicommodity economic equilibrium models mceems the standard dantzig wolfe decomposition by commodity does not allow the subproblem to be decomposed into separate subproblems for each commodity but we show two ways to approximate the subproblem s inverse demand function and both ways allow the subproblem to be broken into separate single commodity problems a further approximation is combined with each of the inverse demand approximations in effect an approximate supply or demand curve is introduced into each commodity s subproblem for transfers of commodities between different subproblems thus allowing the subproblems to produce better proposals an illustration is included for an mceem that represents energy markets in canada

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

a markov model of heteroskedasticity risk and learning in the stock market abstract we examine a variety of models in which the variance of a portfolio s excess return depends on a state variable generated by a first order markov process a model in which the state is known to economic agents is estimated it suggests that the mean excess return moves inversely with the level of risk we then estimate a model in which agents are uncertain of the state the estimates indicate that agents are consistently surprised by high variance periods so there is a negative correlation between movements in volatility and in excess returns

dynamics of real interest differentials an empirical investigation abstract linear dynamic stochastic processes are derived for the ex ente real interest differentials from those followed by the ex post processes under the assumption of rational expectations the technique is used to test the equality of ex ante real rates between u s and a number of oecd countries the evidence against the short run equality of ex ante real rates is overwhelming in the long run the rates are co integrated but not always equal it takes approximately six months for the differentials to converge to their long run values

dynamic speculation and hedging in commodity futures markets with a stochastic convenience yield the main objective of this paper is to address in an a continuous time framework the issue of using storable commodity futures as vehicles for hedging purposes when in particular the convenience yield as well as the market prices of risk evolve randomly over time following the martingale route and by operating a suitable constant relative risk aversion utility function crra specific change of numeraire we solve the investor s dynamic optimization program to obtain quasi analytical solutions for optimal demands which can be expressed in terms of two discount bonds traded and synthetic contrary to the existing literature we explicitly derive the individual optimal proportions invested in the spot commodity in a discount bond and in the futures contracts which can be computed in a simple recursive way we suggest various decompositions allowing an investor to assess the sensitivity of the optimal demands to the state variables and to specify the role played by each risky asset empirical evidence shows that the convenience yield has a strong impact on the speculation and hedging positions and the interaction among time varying risk premia determines the magnitude and the sign of these positions

smart demand response in china challenges and drivers abstract smart demand response sdr induces change in electricity consumption by end users in response to price signals or incentives via smart infrastructures in china sdr programs are instrumental in peak shaving renewables integration emissions reduction and grid reliability improvement previous literature has not captured the effects of the latest development of electricity market reform on sdr our work is distinguished from prior work by a comprehensively identifying china specific sdr challenges by contrasting these with international experience b identifying effective drivers to overcome new market challenges and c recommending policies and providing insights into china s future sdr development our paper identifies three major challenges for sdr development and adoption in china namely financial and market consumer and infrastructural challenges in parallel we identify drivers to overcome these challenges including electricity market reform introduction of new market entrants and development of decentralized electricity systems finally we put forth china specific policy recommendations including continuous market reform performance based regulations for national utilities a level playing field for new market entrants and investments on consumer based technologies these measures aim to create equitable compensations to sdr align the interests of utilities with sdr initiatives provide incentives for consumer outreach and improve the responsiveness of consumers to sdr signals

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

estimating stochastic discount factor models with hidden regimes applications to commodity pricing abstract we develop new likelihood based methods to estimate factor based stochastic discount factors sdf that may accommodate hidden markov dynamics in the factor loadings we use these methods to investigate whether it is possible to find a sdf that jointly prices the cross section of eight u s portfolios of stocks treasuries corporate bonds and commodities in particular we test a range of possible different specification of the sdf including single state and hidden markov models and compare their statistical and pricing performances in addition we assess whether and to which extent a selection of these models replicates the observed moments of the return series and especially correlations we report that regime switching models clearly outperform single state ones both in term of statistical and pricing accuracy however while a four state model is selected by the information criteria a two state three factor full vector autoregression model outperforms the others as far as the pricing accuracy is concerned

analysis of the imbalance price scheme in the spanish electricity market a wind power test case this work investigates the interaction between wind power and electricity markets the paper is focused on balancing markets pricing policies the proposal of a new imbalance price scheme is included and conveniently evaluated this proposed scheme tries to minimise the use of ancillary services to compensate for deviations in searching for a more efficient market design the effectiveness of imbalance prices as market signals is also examined and policy recommendations regarding imbalance services are discussed two test cases are included that analyse the participation of a wind power producer in the spanish electricity market using a stochastic optimisation strategy for this purpose the uncertainty of the variables is considered i e wind power production and prediction intraday and imbalance prices test cases were run with real data for 10 months and realistic results are presented along with a hypothetical test case the regulation of the imbalance prices may not be adequate for the spanish electricity market because an error drop is not sufficiently encouraged therefore we suggest the application of a new imbalance price scheme which includes an additional constraint the conclusions of this paper can be assumed to be general policy recommendations

short and long run time of use price elasticities in swiss residential electricity demand abstract this paper presents an empirical analysis on the residential demand for electricity by time of day this analysis has been performed using aggregate data at the city level for 22 swiss cities for the period 2000 2006 for this purpose we estimated two log log demand equations for peak and off peak electricity consumption using static and dynamic partial adjustment approaches these demand functions were estimated using several econometric approaches for panel data for example lsdv and re for static models and lsdv and corrected lsdv estimators for dynamic models the attempt of this empirical analysis has been to highlight some of the characteristics of the swiss residential electricity demand the estimated short run own price elasticities are lower than 1 whereas in the long run these values are higher than 1 the estimated short run and long run cross price elasticities are positive this result shows that peak and off peak electricity are substitutes in this context time differentiated prices should provide an economic incentive to customers so that they can modify consumption patterns by reducing peak demand and shifting electricity consumption from peak to off peak periods

a model for efficient consumer pricing schemes in electricity markets suppliers in competitive electricity markets regularly respond to prices that change hour by hour or even more frequently but most consumers respond to price changes on a very different time scale i e they observe and respond to changes in price as reflected on their monthly bills in this paper we examine mixed complementarity programming models of equilibrium that can bridge the speed of response gap between suppliers and consumers yet adhere to the principle of marginal cost pricing of electricity we develop a computable equilibrium model to estimate ex ante time of use tou prices for a retail electricity market it is intended that the proposed models would be useful 1 for jurisdictions e g ontario where consumers prices are regulated but suppliers offer into a competitive market 2 for forecasting forward prices in unregulated markets and 3 in evaluation and welfare analysis of the policies regarding regulated tou pricing compared to regulated single pricing

some evidence on the international inequality of real interest rates abstract this paper undertakes econometric tests of the hypothesis that ex ante real interest rates are equal across countries with highly integrated capital markets the issue is of practical importance because the violation of real rate equality is a necessary condition for monetary policy to influence the open economy through the real interest rate channel although an empirical literature concerning real rate equality already exists previous investigators have focused on pre tax real rates this paper contributes to the literature by attempting to incorporate the effects of taxation into the analysis

distribution of costs induced by the integration of res e power this article focuses on the distribution of costs induced by the integration of electricity generation from renewable energy sources res e the treatment to distribute these costs on different market actors is crucial for its development for this purpose individual actors of electricity markets and several cost categories are identified according to the defined cost structure possible treatments to distribute the individual cost categories on different relevant actors are described finally an evaluation of the cost distribution treatments based on an economic analysis is given economic efficiency recommends that clearly attributable shallow grid connection as well as deep grid costs are charged to the corresponding res e producer and that the res e producers are also charged the regulating power costs however deep grid integration costs should be updated to reflect evolving scarcities also regulating power costs should reflect actual scarcity and thus be symmetric and based on real time prices taking into account the overall system imbalance moreover the time span between the closure of the spot market and actual delivery should be chosen as short as possible to enable accurate res e production forecasts

the persistence of real interest differentials abstract this paper applies kalman filtering techniques to estimate the persistence of ex ante real interest differentials identification results for state space models applicable in other contexts are presented and exploited in the model estimation ex ante real interest differentials for the period 1973 1987 are found to be relatively short lived and mean reverting to zero thus providing empirical support for theoretical models of economic interdependence characterized by real rate equality in the long run steady state for the sample considered the variability of the differentials relative to the u s is found to be larger than that relative to germany

energy modeling for policy studies energy policy modeling owes a great debt to the disciplines of operations research valuable modeling tools were available when the energy crisis struck unexpectedly in turn the immediate response to problem driven policy modeling produced methodological challenges and innovations that have application outside the domain of energy the early days of the explosive growth of energy modeling for policy studies provide illustrations of the interaction of problem identification model formulation problem analysis and policy implementation in the tradition of operations research

the international linkage of real interest rates the european us connection abstract in this paper we present evidence on several questions regarding the movement in short term real interest rates in eight countries have ex ante real estates in the united states and europe been high during recent years has there been a link between us real rates and those in other countries can this link be quantified the basic finding in this paper is that real rates have climbed dramatically from the 1970s to the 1980s in both the european countries and the united states there is also strong evidence that there is a positive association between movements in us real rates and those in europe however european real rates typically do not move one for one with us real rates still leaving open the possibility that european monetary policy can influence domestic economic activity

a multivariate latent factor decomposition of international bond yield spreads a factor analysis of long term bond spreads is performed by decomposing international interest rate spreads into national and global factors the factors are latent and are assumed to have garch type specifications as well as exhibiting serial dependence an indirect estimator is used to compute estimates of the unknown parameters the sampling performance of this estimator is investigated and compared with an alternative direct estimator based on the kalman predictor the factor model is applied to weekly data on long bond spreads between five countries australia japan germany canada and the uk and the usa over the period 1991 to 1999 the resulting factor decomposition is used to examine the international investor s optimal portfolio decision in a mean variance framework copyright 2000 john wiley sons ltd

computing market equilibria with price regulations using mathematical programming one approach to modeling and solving for economic equilibria relies on mathematical programming these models solve for competitive equilibria however policy analysis often requires measuring the impacts of government price regulations that differ from the competitive equilibrium in this paper we provide a unified framework for computing market equilibrium in mathematical programming models in the presence of government price regulations the iterative procedure that we use is essentially a gauss seidel algorithmic strategy the paper concludes by showing how to represent tax rebate programs average cost pricing and price ceilings

on convergence of the pies algorithm for computing equilibria equilibria in market models with continuous market supply functions can be obtained by computing fixed points with an activity analysis representation of production fixed point algorithms would converge slowly further since the market model here is of a partial equilibrium nature the market demand function may not exhibit the integratability condition precluding the formulation of the market equilibrium problem as an economic surplus maximization problem we examine an iterative algorithm the pies method for locating equilibria in markets whose production is described by optimization over a finite set of activities and whose econometric demand function does not possess the integrability property convergence properties of the algorithm along with existence and uniqueness of market equilibrium are summarized

pure competition regulated and stackelberg equilibria application to the energy system of quebec abstract we present a general methodology to study the electricity market of a country or region under various pricing mechanisms the approach is based on modifications of a large scale techno economic model and is applied to a realistic model for the province of quebec mathematical programming and a new decomposition procedure are used to simulate different electricity pricing schemes and their effects on the producer s and consumers decisions three types of pricing are analyzed each one corresponding to a different equilibrium marginal cost pricing leading to a pure competition equilibrium an affine function of the marginal cost leading to a regulated equilibrium and monopolistic pricing chosen by the producer to minimize its costs while knowing the optimal consumers reaction to the proposed price of electricity stackelberg type equilibrium the three equilibria are described and justified and a large scale application to the province of quebec is presented and discussed in some detail

evaluating the impacts of real time pricing on the cost and value of wind generation one of the costs associated with integrating wind generation into a power system is the cost of redispatching the system in real time due to day ahead wind resource forecast errors one possible way of reducing these redispatch costs is to introduce demand response in the form of real time pricing rtp which could allow electricity demand to respond to actual real time wind resource availability using price signals a day ahead unit commitment model with day ahead wind forecasts and a real time dispatch model with actual wind resource availability is used to estimate system operations in a high wind penetration scenario system operations are compared to a perfect foresight benchmark in which actual wind resource availability is known day ahead the results show that wind integration costs with fixed demands can be high both due to real time redispatch costs and lost load it is demonstrated that introducing rtp can reduce redispatch costs and eliminate loss of load events finally social surplus with wind generation and rtp is compared to a system with neither and the results demonstrate that introducing wind and rtp into a market can result in superadditive surplus gains

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

financial integration of east asian economies evidence from real interest parity in this article we investigate the financial linkages between the east asian economies with japan and the united states we test for long run real interest rate parity rip using an array of panel data techniques including recent techniques developed by breuer et al 2002 and carrion i silvestre et al 2005 this study offers two important results first the failure to account for structural breaks in the industrialized countries and asian emerging economies is likely to provide evidence of nonstationary series that are stationary second we found strong evidence that the parity condition holds in all the asian countries the failure of earlier studies to confirm mean reversion of real interest rate differential rid may reflect the choice of estimation testing procedure rather than any inherent deficiency in the rip

analysis of the value for unit commitment of improved load forecasts load forecast errors can yield suboptimal unit commitment decisions the economic cost of inaccurate forecasts is assessed by a combination of forecast simulation unit commitment optimization and economic dispatch modeling for several different generation load systems the forecast simulation preserves the error distributions and correlations actually experienced by users of a neural net based forecasting system underforecasts result in purchases of expensive peaking or spot market power overforecasts inflate start up and fixed costs because too much capacity is committed the value of improved accuracy is found to depend on load and generator characteristics for the systems considered here a reduction of 1 in mean absolute percentage error mape decreases variable generation costs by approximately 0 1 0 3 when mape is in the range of 3 5 these values are broadly consistent with the results of a survey of 19 utilities using estimates obtained by simpler methods a conservative estimate is that a 1 reduction in forecasting error for a 10 000 mw utility can save up to 1 6 million annually

asset allocation with correlation a composite trade off abstract we assess the ability of minimum variance portfolio allocation strategies accounting for time varying correlation between assets to provide performance benefits relative to an equally weighted portfolio prior to transaction costs correlation based strategies emphatically outperform the equally weighted benchmark this finding is strongest for short horizon correlation forecasts and attributed to dynamic correlation as opposed to variance forecasts thus estimation error is not found to be the primary obstacle to successful portfolio optimization rather frequent rebalancing and associated transaction costs pose a significant challenge limiting portfolio turnover through short selling restrictions and greater rebalancing error tolerance results in regular outperformance of the correlation based strategies even for large transaction costs taken together these findings provide evidence of a trade off between optimal portfolio performance forecasting horizon rebalancing frequency and transaction costs