[FAM-news] this friday's talks

Sandra Trenovatz sandra@fam.tuwien.ac.at
Wed, 09 Jul 2003 17:40:17 +0200


Timetable
http://www.fam.tuwien.ac.at/events/

This Friday there are two talks from guests from Germany. Both applied for
the open position in our department.

Fr, 11.07.2003, 9:30, Sem 107
Juri Hinz (Eberhard-Karls Universität Tübingen, D)
''Modeling electricity auctions'' 
 
Fr, 11.07.2003, 14:30, Sem 107
Angelika Esser (Goethe University, Frankfurt, D)
''Modeling feedback effects with stochastic liquidity''


Abstracts:

Juri Hinz (Eberhard-Karls Universität Tübingen, D)
''Modeling electricity auctions''
The recent worldwide introduction of competition to electricity production
and trading raises a number of interesting problems concerning optimal
market design, risk estimation, and strategy optimization for power
producers. We address the last problem, discussing an auction model which
captures key features of real-time electricity trading. It turns out that,
under certain conditions, the expected total payment to electricity
producers is independent on particular auction type. This result is similar
to the revenue equivalence theorem for classical auctions and could help to
compare different electricity auction formats. 
 
Angelika Esser (Goethe University, Frankfurt, D)
''Modeling feedback effects with stochastic liquidity''
We model the interactions between the trading activities of a large
investor, the stock price, and the market liquidity. Our framework
generalizes the model of Frey (2000) where liquidity is constant by
introducing a stochastic liquidity factor. This innovation has two
implications. First, we can analyse trading strategies for the large
investor that are affected by a changing market depth. Second, the
sensitivity of stock prices to the trading strategy of the large investor
can vary due to changes in liquidity. Features of our model are demonstrated
using Monte Carlo simulation for different scenarios. The flexibility of our
framework is illustrated by an application that deals with the pricing of a
liquidity derivative. The claim under consideration compensates a large
investor who follows a stop loss strategy for the liquidity risk that is
associated with a stop loss order. The derivative matures when the asset
price falls below a stop loss limit for the first time and then pays the
price difference between the asset price immediately before and after the
execution of the stop loss order. The setup to price the liquidity
derivative is calibrated for one example using real world limit order book
data so that one gets an impression about the order of magnitude of the
liquidity effect.