Skip to content

Announcement: Thematic Semester on « Commodity Derivatives Markets: Industrial Organization, Regulation and Financialization »

This project aims to examine recent developments in commodity derivatives markets. The changed industrial organization and the financialization of these markets are major phenomena, both of which call for changes in regulation.

Organized from March to November 2015, the thematic semester will include an opening conference, a series of thematic seminars, a summer school and a closing conference.

Link to the Thematic Semester’s webpage

Information Flows across the Futures Term Structure: Evidence from Crude Oil Prices

couverture cahier 64 lautier copyby Delphine Lautier, Franck Raynaud & Michel A. Robe

We apply the concepts of conditional entropy, information transfers and directed graphs to investigate empirically the propagation of price fluctuations across a futures term structure. We focus on price relationships for North American crude oil futures because this key market experienced several structural changes between 2000 and 2014: financialization (starting in 2003), infrastructure limitations (in 2008-2011) and regulatory changes (in 2012-2014) in addition to big demand and supply shocks in the underlying asset market. We find large variations over time in the amount of information shared by contracts with different maturities. Although on average short-dated contracts (up to 6 months) emit more information than backdated ones, a dynamic analysis reveals that, after 2012, similar amounts of information flow backward and forward along the futures maturity curve. The mutual information share increased substantially starting in 2004 but fell back sharply in 2012-2014. In the crude oil space, our findings point to a puzzling re-segmentation of the futures market by maturity in 2012-2014. More broadly, they have implications for the Samuelson effect and raise questions about the causes of market segmentation.

Download the paper

More working papers

Integration of commodity derivative markets: Has it gone too far?

couverture cahier 63 lautierby Delphine Lautier, Julien Ling and Franck Raynaud

We examine the impact of two financial crises on commodity derivative markets: the subprime crisis and the bankruptcy of Lehman Brothers. These crises are « external » to the commodity markets because they occurred in the financial sphere. Still, because commodity markets are now highly integrated with each other and with other financial markets, such events could have had an impact. In order to fully comprehend this possible impact, we rely on tools inspired by the graph theory that allow for the study of large databases. We examine the daily price fluctuations recorded in 14 derivative markets from 2000 to 2009 in three dimensions: the observation time, the space dimension – the same underlying asset can be traded simultaneously in two different places – and the maturity of the transactions. We perform an event study in which we first focus on the efficiency of the price shock’s transmission to the commodity markets during the crises. Then we concentrate on whether the paths of shock transmission are modified. Finally, relying on the measure proposed by Bonacich (1987) for social networks, we focus on whether the centrality of the price system changes.

Download the paper

More working papers

Explicit investment rules with time-to-build and uncertainty

by René Aïd, Salvatore Federico, Huyên Pham & Bertrand Villeneuve

We establish explicit socially optimal rules for an irreversible investment decision  with time-to-build and uncertainty. Assuming a price sensitive demand function  with a random intercept, we provide comparative statics and economic interpretations  for three models of demand (arithmetic Brownian, geometric Brownian, and the  Cox-Ingersoll-Ross). Committed capacity, that is, the installed capacity plus the investment  in the pipeline, must never drop below the best predictor of future demand,  minus two biases. The discounting bias takes into account the fact that investment is  paid upfront for future use; the precautionary bias multiplies a type of risk aversion  index by the local volatility. Relying on the analytical forms, we discuss in detail the  economic effects.

Download the paper

More working papers

The Impact of Hazardous Industrial Facilities on Housing Prices: A Comparison of Parametric and Semiparametric Hedonic Price Models

by Céline Grislain-Letrémy & Arthur Katossky

The willingness of households to pay for prevention against industrial risks can be revealed by real estate markets. By using very rich microdata, we study housing prices in the vicinity of hazardous industries near three important French cities. We show that the impact of hazardous plants on the housing values strongly differs among these three areas, even if the areas all surround chemical and petrochemical industries. We compare the results from both standard parametric and more flexible, semiparametric models of hedonic property. We show that the parametric model might structurally lead to important biases in the estimated value of the impact of hazardous plants on housing values and in the variations of this impact with respect to the distance from the plants.

Download the paper

More working papers

La comptabilité des émissions de carbone par enjeux – Définition, justification et comparaison avec les modèles existants

by Antoine Rose

Les initiatives de comptabilité des émissions de carbone se sont multipliées au cours des dernières années, à mesure que la problématique du changement climatique s’est imposée. Pour chaque agent économique, la problématique climatique se traduit par des questions, des enjeux et des objectifs différents, si bien qu’une diversité de comptabilités carbones s’est développée. Cet article propose d’examiner ces modèles comptables : Inventaires Nationaux, comptes NAMEA, Bilan Carbone) à travers leurs règles d’allocation des émissions de gaz à effet de serre (GES) aux acteurs et activités économiques. L’article replace ainsi les règles techniques des comptabilités carbones dans la perspective du débat plus fondamental autour de la définition de la responsabilité des agents économiques. Enfin il définit un nouveau type d’allocation des émissions de (GES) aux activités économiques, fondé sur le concept de « responsabilité fondamentale » : la « comptabilité carbone par enjeux ». Ce nouveau type de comptabilité est appliqué à la cartographie des émissions de GES induites par un portefeuille bancaire.

Download the paper

More working papers

Natural Disasters: Exposure and Underinsurance

by Céline Grislain-Letrémy

Insurance coverage for natural disasters remains low in many exposed areas. A limited supply of insurance is commonly identified as a primary causal factor in this low insurance coverage. The French overseas departments provide a rare natural experiment of a well-developed supply of natural disasters insurance in highly exposed regions. The French system of natural disasters insurance is underwritten and regulated by the French government; instituted initially for metropolitan France only, it was extended to overseas departments in the state of emergency following Hurricane Hugo in 1989. This natural experiment makes it possible to analyze the determinants of insurance coverage on the demand side. Based on unique household-level microdata, I estimate an insurance market model which had not yet been empirically tested. Using this structural approach, I show that underinsurance in the French overseas departments is neither due to perception biases nor to unaffordable insurance, but mainly to uninsurable housing and to the anticipation of assistance, which crowds out insurance. Individual insurance decisions are influenced by neighbors’ insurance choices through peer effects and neighborhood eligibility for assistance.

Download the paper

More working papers

Nouvelles modélisations économiques, un texte d’Ivar Ekeland

Publié dans Agathe Euzen, Laurence Eymard, Françoise Gaill (dirs). Le développement durable à découvert. CNRS Editions. 2013.

La question du développement est au cœur de la théorie économique. Malthus (1766-1834) a clairement identifié les deux limites, que la nature pose à la croissance de la population : la famine et la maladie. La révolution industrielle et scientifique a fait sauter ces deux barrières, et depuis, la population humaine et son niveau de vie sont engagés dans un processus de croissance exponentielle, de l’ordre de 3 % par an…

Télécharger le texte

A new class of problems in the calculus of variations

by Ivar Ekeland, Yiming Long & Qinglong Zhou

In economic theory, and in optimal control, it has been customary to discount future gains at a constant rate δ > 0 (…). That future gains should be discounted is well grounded in fact. On the one hand, humans prefer to enjoy goods sooner than later (and to suffer bads later than sooner), as every child-rearing parent knows. On the other hand, it is also a reflection of our own mortality: 10 years from now, I may simply no longer be around to enjoy whatever I have been promised. These are two good reasons why people are willing to pay a little bit extra to hasten the delivery date, or will require compensation for postponement, which is the essence of discounting. On the other hand, there is no reason why the discount rate should be constant, i.e. why the discount factor should be an exponential e−δt.

Download the paper

More working papers

Les Nouveaux Outils du Développement Durable

Conférence Les Nouveaux Outils du Développement Durable : Méthodes Quantitatives pour l’Economie et la Finance de l’Energie et des Ressources Naturelles

Université Paris Dauphine – Salle Raymond Aron – 24 & 25 octobre 2013

L’objectif de cette conférence est de faire le point sur les travaux réalisés depuis 7 ans au sein de la Chaire et au sein des « Initiatives de recherche », projets de recherche parrainés par la Chaire et ciblés sur des sujets plus précis (assurance récolte, microstructure des marchés financiers, finance des marchés de l’énergie…).

Autour de conférences invitées, six ateliers seront organisés sur 2 jours portant sur des méthodologies novatrices (jeux à champ moyen) ou des thèmes ciblés (les outils de la micro assurance pour les agriculteurs des pays en développement, la finance des marchés de l’énergie, etc). On alternera les présentations de chercheurs senior et les présentations de jeunes chercheurs.

Plus d’informations sur le site de la Conférence

Faisabilité de l’apprentissage des paramètres d’un algorithme de trading sur des données réelles

par Sophie Laruelle

Considérons qu’un trader ou un algorithme de trading interagissant avec les marchés durant les enchères continues puisse être modélisé par une procédure itérative ajustant le prix auquel il poste ses ordres à un rythme donné, (Laruelle, Lehalle & Pagès, 2013)  propose une procédure minimisant son coût d’exécution. Ils prouvent la convergence p.s. de l’algorithme sous des hypothèses sur la fonction de coût et donnent des critères pratiques sur les paramètres du modèle qui assurent que les conditions pour utiliser l’algorithme sont vérifiées (notamment, en utilisant un principe de co-monotonie fonctionnel). Ici on va estimer les paramètres du flux d’exécution d’ordres. Tout d’abord on fait une étude de stabilité des paramètres et ensuite on construit des algorithmes adaptatifs pour estimer ces paramètres “en-ligne”.

Download the paper

More working papers

Efficiency of the Price Formation Process in Presence of High Frequency Participants: a Mean Field Game analysis

by Aimé Lachapelle, Jean-Michel Lasry, Charles-Albert Lehalle & Pierre-Louis Lions

This paper deals with a stochastic order-driven market model with waiting costs, for order books with heterogeneous traders. Offer and demand of liquidity drive price formation and traders anticipate future evolutions of the order book. The natural framework we use is mean field game theory, a class of stochastic differential games with a continuum of anonymous players. Several sources of heterogeneity are considered including the mean size of orders. Thus we are able to consider the coexistence of Institutional Investors and High Frequency Traders (HFT). We provide both analytical solutions and numerical experiments. Implications on classical quantities are explored: order book size, prices, and effective bid/ask spread. According to the model, in markets with Institutional Investors only we show the existence of inefficient liquidity imbalances in equilibrium, with two symmetrical situations corresponding to what we call liquidity calls for liquidity. During these situations the transaction price significantly moves away from the fair price. However this macro phenomenon is stabilized in markets with both Institutional Investors and HFT, although a more precise study shows that the benefits of the new situation go to HFT only, leaving Institutional Investors even with lower Profit & Loss.

Download the paper

More working papers

Skin in the Game and Moral Hazard

by Gilles Chemla & Christopher A. Hennessy

What determines equilibrium securitization levels, and should they be regulated? To address these questions we develop a model where originators can exert unobservable effort to increase asset quality, subsequently having private information regarding quality when selling ABS to rational investors. In equilibrium, all originators have low/zero retentions if they are financially constrained and/or prices are sufficiently informative. Asymmetric information lowers effort incentives in all equilibria. Effort is promoted by junior retentions, investor sophistication, and informative prices. Optimal regulation promotes effort while accounting for investor-level externalities. It entails either a menu of junior retentions or a single junior retention with size decreasing in price informativeness. Mandated market opacity is only optimal amongst regulations failing to induce originator effort.

Download the paper

More working papers

Stratégie optimale de stockage de déchets radioactifs à vie longue sous contrainte de capacité

by Bertrand Villeneuve

L’article modélise un programme de gestion de déchets nucléaires à haute activité. La physique du refroidissement permet d’entreposer un certain temps un colis chaud afin d’économiser le volume de stockage définitif : en effet, les colis plus froids peuvent être davantage serrés. La durée optimale théorique d’entreposage sans contrainte est caractérisée. Les diverses contraintes (contrainte sur la capacité de stockage, contrainte sur la durée d’entreposage, contrainte sur la capacité d’entreposage) sont envisagées. Elles conduisent à des traitements très différenciés selon les millésimes.

Download the paper

More working papers

The Ocean as a Global System

Available at www.amazon.fr

The Ocean as a Global System: Economics and Governance of Fisheries and Energy Resources

This book gathers together contributions from the Symposium “The Ocean: Green Shipping and Sustainable Energy”, held in Paris on 28-29 April 2011. The aim of the conference was to address critical issues regarding the ocean, considered successively as a global ecosystem, as a global energy system and as a global regulation system. The first part of the book is concerned with the current state and the future of fisheries. The second part deals with energy-related maritime activities, while the third  offers a global perspective on these issues.

Ivar Ekeland, Damien Fessler, Jean-Michel Lasry et Delphine Lautier, The Ocean as a Global System, Economics and Governance of Fisheries and Energy Resources, Eska, 2012.

Contents

A simple equilibrium model for a commodity market with spot trades and futures contracts

by Ivar Ekeland, Delphine Lautier & Bertrand Villeneuve

We propose a simple model which offers a unified theoretical framework for the analysis of price and quantity relationships in commodity markets. We study the simultaneous equilibrium in the physical and futures markets. We demonstrate the existence and uniqueness of this equilibrium and we provide explicit expressions. We provide insights into the hedging function of the futures market and the informational role of prices. The model is particularly efficient for precise qualitative and quantitative comparative statics. Among other possibilities, we compare equilibrium variables with and without futures markets and we show that the level and volatility of spot prices increases with the number of speculators. We also provide neat predictions on the political economy of potential reforms of market structure.

Download the paper

More working papers

The Economics of Sustainable Development

Available at www.amazon.fr

This book brings together the lecture notes from the seminars held at the Finance and Sustainable Development Chair from 2007 to 2009. The first part is concerned with climate change policies, with particular emphasis on the relevance of traditional economic theories. The second part deals with economic concepts and methodologies associated with sustainable development. It presents the precautionary principle, discusses the concept of externalities and introduces the methodology of mean field games. The third part is devoted to models and empirical applications in various fields, such as water resources, gas emissions, and a sustainable development path. The fourth part deals with carbon markets, along with their theoretical justification and historical development. The last part focuses on socially responsible investment and gives insights in regard to its definition, its links with sustainable development, and the way it could be used for investment strategies.

Jean-Michel Lasry, Delphine Lautier & Damien Fessler (editors), The Economics of Sustainable Development, Economica, 2010

Contents

Optimal selling rules for monetary invariant criteria: tracking the maximum of a portfolio with negative drift

by Romuald ELIE & Gilles-Edouard ESPINOSA

Considering a positive portfolio diffusion X with negative drift, we investigate optimal stopping problems of the form (…) This paper unifies optimal selling rules observed by [5] for quadratic absolute distance criteria with bang-bang type ones observed in [1, 4, 9]. More precisely, we provide a verification result for the general stopping problem of interest and derive the exact solution for two classical criteria f of the literature. (…). These results reinforce the idea that optimal stopping problems of similar type lead easily to selling rules of very different nature. Nevertheless, our numerical experiments suggest that the practical optimal selling rule for the relative quadratic error criterion is in fact very close to immediate selling.

Download the paper

More working papers

Exact replication under Delta constraints

by Jean-François Chassagneux, Romuald Elie & Idris Kharroubi

This paper deals with the super-replication of non path-dependent European claims under additional convex constraints on the number of shares held in the portfolio. The corresponding super-replication price of a given claim has been widely studied in the literature and its terminal value, which dominates the claim of interest, is the so-called facelift transform of the claim. We investigate under which conditions the super-replication price and strategy of a large class of claims coincide with the exact replication price and strategy of the facelift transform of this claim. In dimension 1, we observe that this property is satisfied for any local volatility model. In any dimension, we exhibit a necessary and sufficient condition for this property, which combines the dynamics of the stock together with the characteristics of the closed convex set of constraints. The obtention of this condition relies on the introduction of the notion of first order viability property for linear parabolic PDEs. We investigate in details several practical cases of interest: multidimensional Black Scholes model, non-tradable assets or short selling restrictions.

Download the paper

More working papers

Economic growth and sustainable development: how should we discount the future?

by Qinglong Zhou, Ivar Ekeland, Yiming Long

In 1987, the Brundtland Commission famously defined sustainable development as “developmentthat meets the needs of the present without compromising the needs of the future”. This paper is concerned with translating this definition in the framework of the neoclassical one-sector model of economic growth. We investigate and compare three possible criteria for sustainable development. The first one, which was introduced by Chichilnisky, the second one, which was introduced by Ekeland and Lazrak, and the third one, which goes back to Ramsey himself. We define and investigate equilibrium strategies. For the Chichilnisky criterion, there is a unique equilibrium strategy, which is just the optimal strategy for the neoclassical model. In the other two cases, there is a continuum of equilibrium strategies. We conclude that the most satisfying candidates for sustainable development are the equilibrium strategies for the third criterion (H-criterion).

Download the paper

More working papers