Search Results (8)

The paper analyses optimal spending of an endowment fund. The purpose is to find a spending rule which is optimal for the owners and which secures that the fund will last “forever”. This we do by finding closed form solutions of the optimal consumption to wealth ratio. We solve this problem using the life cycle model, where the agent can have preferences represented by expected utility or recursive utility. We apply our results to a sovereign wealth fund, and demonstrate that the optimal spending rate is significantly lower than the fund’s expected real rate of return, a rule which is in common use. Employing the latter as the spending rate, implies that the fund’s value deteriorates both in probability and in expectation, as time goes. For both kinds of long term convergence we find closed form threshold values. Spending below these values secures a sustainable fund. Full article

This paper provides a mathematical proof and theoretical analysis of the one-to-one consistency between higher-order Omega and Almost Stochastic Dominance rules when evaluating fund performance. The consistency between higher-order Omega and Almost Nth-degree Stochastic Dominance reinforces the effectiveness of applying the higher-order Omega function in fund performance measurement, as the Almost Stochastic Dominance rules are more likely to be observed in real life. This study also clarifies that the higher-order Omega decreases when threshold L increases. The ranking of funds based on higher-order Omega changes at different thresholds. Hence, it is critical to specify the L so that the consistency holds. Through evaluating the performance of eleven U.S. funds between 2010 and 2020, we demonstrate the applications of the Nth-order Omega in the concept of Almost Stochastic Dominance rules. Furthermore, the empirical results also show the superiority of the Nth-order Omega over the traditional fund performance measure, i.e., Sharpe ratio and the lower-order Omega. The ranking of fund performance based on higher-order Omega is consistent with Almost Stochastic Dominance rules. Full article

This paper focuses on the performance of Lithuanian life-cycle second-pillar pension funds. Every such fund first specifies its benchmark and then attempts to follow the benchmark in some way. This is a form of regulation, meaning that every such fund is somehow regulated and controlled by the central bank authorities. The goal of this paper is twofold: (i) to analyse the returns of the pension funds with respect to their benchmarks and (ii) to determine whether less strict regulation leads to a better outperformance of the fund with respect to the benchmark. In order to achieve this, we introduced a new performance measure called the dominance-tracking index, which combines the ideas of almost stochastic dominance relations and tracking errors. While the tracking error and its modifications measure the strength of the regulation, almost stochastic dominance provides information about preferences between the funds and their benchmarks. Therefore, the new index was constructed in such a way as to take into account both approaches. The empirical section of the study then presents the results separately for the considered pension managers and participants’ age groups as usual in the life-cycle pension funds analysis. Finally, by taking into account various periods, we studied the effects of the COVID-19 crisis. Full article

While entropy was introduced in the second half of the 19th century in the international vocabulary as a scientific term, in the 20th century it became common in colloquial use. Popular imagination has loaded “entropy” with almost every negative quality in the universe, in life and in society, with a dominant meaning of disorder and disorganization. Exploring the history of the term and many different approaches to it, we show that entropy has a universal stochastic definition, which is not disorder. Hence, we contend that entropy should be used as a mathematical (stochastic) concept as rigorously as possible, free of metaphoric meanings. The accompanying principle of maximum entropy, which lies behind the Second Law, gives explanatory and inferential power to the concept, and promotes entropy as the mother of creativity and evolution. As the social sciences are often contaminated by subjectivity and ideological influences, we try to explore whether maximum entropy, applied to the distribution of a wealth-related variable, namely annual income, can give an objective description. Using publicly available income data, we show that income distribution is consistent with the principle of maximum entropy. The increase in entropy is associated to increases in society’s wealth, yet a standardized form of entropy can be used to quantify inequality. Historically, technology has played a major role in the development of and increase in the entropy of income. Such findings are contrary to the theory of ecological economics and other theories that use the term entropy in a Malthusian perspective. Full article

The momentum flux in a canonical turbulent boundary layer is known to have a time-series signature that is characterised by a highly intermittent variation, which includes very short periods of intense flux activity. Here, we study the variation in these flux signal characteristics across almost a decade of flow Reynolds number (Reτ) by analysing datasets acquired using miniature cross-wire probes with matched spatial resolution. The analysis is facilitated by conditionally sampling the signal based on the quadrant (Qi; i = 1–4) and magnitude of the flux, revealing fractional cumulative contribution from Q4 to increase at a much faster rate than from Q2 with Reτ. An episodic description of the flux signal is subsequently undertaken, which associates this rapid increase in Q4 contributions with the emergence of extreme and rare flux events with Reτ. The same dataset is also used to test Townsend’s hypothesis on the active and inactive components of the momentum flux, which are obtained for the first time by implementing a spectral linear stochastic estimation-based decomposition methodology. While the active component is found to be the dominant contributor to the mean momentum flux consistent with Townsend’s hypothesis, the inactive component is found to be small but non-zero, owing to the non-linear interactions associated with the modulation phenomenon. Finally, an episodic description of the active and inactive momentum flux signal is undertaken to highlight the starkly different time series characteristics of the two flux components. The inactive flux signal is found to comprise individual statistically significant events associated with all four quadrants, leading to a small net contribution to the total flux. Full article

Despite environmental taxation’s presumed advantages for long-term sustainable development goals, the problematic institutional conditions associated with high levels of corruption could become a significant obstacle undermining these efforts. Taking the example of the Czech Republic as a benchmark, the aim of this article is to evaluate the impact of corruption and its implications on the size of the official and the shadow economy in the sector burdened with environmental excise tax while confronting it with the sector not burdened with such tax. In terms of methodology, an extended DSGE (Dynamic stochastic general equilibrium) model has been used. In the case of the shadow economy, the two sectors, burdened and not burdened with environmental taxes, followed a similar trend. However, concerning the official economy, this research found out that if environmental taxation is not applied, then lower, non-systemic corruption has a positive effect on the size of production as the effect of increased workforce motivation clearly dominates, suppressing the effect of reduced capital accumulation. Conversely, in the sector burdened with environmental taxation, corruption has an almost unequivocally negative effect on the production economy. In this sense, corruption has the capacity to limit the implementation of sustainable development policies including the European Green Deal, especially if it is systemic in nature. Full article

Systemic acquired resistance (SAR) is a mechanism through which plants may respond to initial challenge by a pathogen through activation of inducible defense responses, thereby increasing resistance to subsequent infection attempts. Fitness costs are assumed to be incurred by plants induced for SAR, and several studies have attempted to quantify these costs. We developed a mathematical model, motivated by game-theoretic concepts, to simulate competition between hypothetical plant populations with and without SAR to examine conditions under which the phenomenon of SAR may have evolved. Data were gathered from various studies on fitness costs of induced resistance on life history traits in different plant hosts and scaled as a proportion of the values in control cohorts in each study (i.e., healthy plants unprimed for SAR). With unprimed healthy control plants set to a fitness value of 1, primed healthy plants incurred a fitness cost of about 10.4% (0.896, n = 157), primed diseased plants incurred a fitness cost of about 15.5% (0.845, n = 54), and unprimed diseased plants incurred a fitness cost of about 28.9% (0.711, n = 69). Starting from a small proportion of the population (0.5%) and competing against a population with constitutive defenses alone in stochastic simulations, the SAR phenotype almost always dominated the population after 1000 generations when the probability of disease was greater than or equal to 0.5 regardless of the probability for priming errors. Full article

Traditional stochastic dominance rules are so strict and qualitative conditions that generally a stochastic dominance relation between two alternatives does not exist. To solve the problem, we firstly supplement the definitions of almost stochastic dominance (ASD). Then, we propose a new definition of stochastic dominance degree (SDD) that is based on the idea of ASD. The new definition takes both the objective mean and stakeholders’ subjective preference into account, and can measure both standard and almost stochastic dominance degree. The new definition contains four kinds of SDD corresponding to different stakeholders (rational investors, risk averters, risk seekers, and prospect investors). The operator in the definition can also be changed to fit in with different circumstances. On the basis of the new SDD definition, we present a method to solve stochastic multiple criteria decision-making problem. The numerical experiment shows that the new method could produce a more accurate result according to the utility situations of stakeholders. Moreover, even when it is difficult to elicit the group utility distribution of stakeholders, or when the group utility distribution is ambiguous, the method can still rank alternatives. Full article