Papers by Karl Schmedders
International Economic Review, Jan 23, 2015
Many assets derive their value not only from future cash flows but also from their ability to ser... more Many assets derive their value not only from future cash flows but also from their ability to serve as collateral. In this paper, we investigate this collateral value and its impact on asset returns in an infinite-horizon general equilibrium model with heterogeneous agents facing collateral constraints for borrowing. We document that borrowing against collateral substantially increases the return volatility of long-lived assets. Moreover, otherwise identical assets with different degrees of collateralizability exhibit substantially different return dynamics because their prices contain a sizable collateral premium that varies over time. This premium can be positive even for assets that never pay dividends.
Social Science Research Network, 2014
QB-AR-14-072-EN-N (online) We thank audiences at the IMF, the 2013 CEF conference in Vancouver, t... more QB-AR-14-072-EN-N (online) We thank audiences at the IMF, the 2013 CEF conference in Vancouver, the University of Zurich, the Macroeconomic Financial Modelling (MFM) and Macroeconomic Fragility conference in Cambridge, MA, the University of Berne, and in particular our discussants Andrea Vedolin and Jianju Miao for helpful comments. We are grateful to
What Managers Need to Know About Data Exchanges: The Era of Big-data Silos is Fading. Shared Data is the Future
MIT Sloan Management Review, Jun 9, 2020
Closing Time
Kellogg School of Management eBooks, 2017
Increasing the Value of Search Subscriptions for Housing Market Analyses
Social Science Research Network, 2017
The drastic increase in the number of vacant accommodations in some regions of Switzerland and th... more The drastic increase in the number of vacant accommodations in some regions of Switzerland and the simultaneous housing shortage in others are the result of not knowing where people want to live and, therefore, of having built accommodations in the wrong locations. In order to better understand what people are searching for, the Swiss start-up Realmatch360 began to analyze search subscriptions to real estate platforms. Using search subscriptions allows the company to get a better understanding of people’s preferences for housing and even to identify unmet demand. In this paper, we propose powerful approaches based on unsupervised learning to maximize the benefits of using search subscriptions exhibiting many missing entries for housing market analyses.
New and Revised Results for 'Building Reputation for Contract Renewal: Implications for Performance Dynamics and Contract Duration
Social Science Research Network, 2016
In this paper we present some new results for the dynamic agent model by Iossa and Rey (2014, &qu... more In this paper we present some new results for the dynamic agent model by Iossa and Rey (2014, "Building Reputation for Contract Renewal: Implications for Performance Dynamics and Contract Duration,'' Journal of the European Economic Association, 12, 549−574) while also correcting some errors in that article. Iossa and Rey study the performance of an agent who repeatedly receives multi-period contracts and determine the optimal duration of such contracts in the context of an infinitely repeated multi-period agent model. We amend the characterization of the unique Markov perfect equilibrium for this model. In addition, we review the original welfare analysis of the model and either provide corrected proofs when possible or provide counterexamples. Our counterexamples overturn the main comparative statics results of the original analysis. We demonstrate that both the agent's optimal investment decision and the optimal contract duration depend non-monotonically on the information persistence and the agent's discount factor. In the final part of the analysis, we establish new results on the agent's optimal investment decision.
Asset Pricing with Disagreement about Climate Risks
SSRN Electronic Journal
Steps Toward Fostering Peer-to-Peer Blockchain-Based Data Markets
Distribution and Asset Prices
Swiss Stock Exchange. It merges 3 existing foundations: the International
European Central Bank
Established at the initiative of the Swiss Bankers ' Association, the Swiss Finance Institut... more Established at the initiative of the Swiss Bankers ' Association, the Swiss Finance Institute is a private foundation funded by the Swiss banks and Swiss Stock Exchange. It merges 3 existing foundations: the International Center FAME, the Swiss Banking School and the Stiftung "Banking and Finance " in Zurich. With its university partners, the Swiss Finance Institute pursues the objective of forming a competence center in banking and finance commensurate to the importance of the Swiss financial center. It will be active in research, doctoral training and executive education while also proposing activities fostering interactions between academia and the industry. The Swiss Finance Institute supports and promotes promising research projects in selected subject areas. It develops its activity in complete symbiosis with the NCCR FinRisk.
Dynamic Principal–Agent Models
This paper contributes to the theoretical and numerical analysis of discrete time dynamic princip... more This paper contributes to the theoretical and numerical analysis of discrete time dynamic principal-agent problems with continuous choice sets. We first provide a new and simplified proof for the recursive reformulation of the sequential dynamic principal-agent relationship. Next we prove the existence of a unique solution for the principal's value function, which solves the dynamic programming problem in the recursive formulation. By showing that the Bellman operator is a contraction mapping, we also obtain a convergence result for the value function iteration. To compute a solution for the problem, we have to solve a collection of static principal{agent problems at each iteration. Under the assumption that the agent's expected utility is a rational function of his action, we can transform the bi-level optimization problem into a standard nonlinear program. The final results of our solution method are numerical approximations of the policy and value functions for the dynami...
We investigate the investment and market behaviour of power producers on European electricity mar... more We investigate the investment and market behaviour of power producers on European electricity markets. The key driver of investment and production in a liberalised environment is the market price (with the exception of investments in new renewables, which are also policy driven). Market players usually do not cooperate to maximise social welfare, such that the assumption of purely production cost related decisions of a central planner may not be correct. Hence, the main goal is to model prices under different policy scenarios. The employed numerical model is a game-theoretic electricity market model for Switzerland and its surrounding countries. The players are aggregated on country level for this first phase of model development that was initiated by this BFE-EWG project. The model is technology detailed having different power-supply options including also thermal production constraints as well as hydropower energy storage. We analyse different scenarios at the target year 2035, where nuclear power is assumed to be phased out in Germany and Switzerland, under different assumptions of fossil fuel and CO2 prices, of availability of lignite power in Germany, and different price-demand elasticities than today. The main conclusions include that changes in the supply mix in Switzerland (hydro availability, deployment of new renewables etc.) have minor influence on Swiss wholesale electricity prices; the trade with the surrounding countries determine the price for Switzerland, which is a price-taker. The gas price will determine strongly the wholesale price in Switzerland, even when Switzerland is not installing gas plants in our profit-driven market modelling; new renewables are installed exogenously driven by the policy per scenario. Nevertheless, under low gas (and CO2) prices, Swiss electricity price levels and price volatility can stay approximately as of today, even under the expected capacity changes in Switzerland and surrounding countries.
Quantitative Economics, 2020
We consider discrete‐time dynamic principal–agent problems with continuous choice sets and potent... more We consider discrete‐time dynamic principal–agent problems with continuous choice sets and potentially multiple agents. We prove the existence of a unique solution for the principal's value function only assuming continuity of the functions and compactness of the choice sets. We do this by a contraction mapping theorem and so also obtain a convergence result for the value function iteration. To numerically compute a solution for the problem, we have to solve a collection of static principal–agent problems at each iteration. As a result, in the discrete‐time setting solving the static problem is the difficult step. If the agent's expected utility is a rational function of his action, then we can transform the bi‐level optimization problem into a standard nonlinear program. The final results of our solution method are numerical approximations of the policy and value functions for the dynamic principal–agent model. We illustrate our solution method by solving variations of two ...
Relative Existence for Recursive Utility
SSRN Electronic Journal, 2019
Existence theorems for endowment economies with growth and sophisticated recursive preferences ha... more Existence theorems for endowment economies with growth and sophisticated recursive preferences have proven difficult to come by. We offer a simple proof technique that covers many models of interest, such as the Bansal-Yaron long-run risk model, models with stochastic volatility and jumps, models with volatility of volatility and models with consumption disasters and time-varying intensities. We also prove existence for models with smooth ambiguity aversion and learning. Collectively these results cover many of the leading asset pricing models today.
SSRN Electronic Journal, 2017
This paper examines the effect of agent belief heterogeneity on long-run risk models. We find tha... more This paper examines the effect of agent belief heterogeneity on long-run risk models. We find that for the long-run risk explanation to explain the equity premium, it is insufficient for long-run risk to merely exist: agents must all agree that it exists. Agents who believe in a lower persistence level dominate the economy rather quickly, even if their belief is wrong. This drives the equity premium down below the level observed in the data. On the positive side, we show that belief heterogeneity can generate significant excess volatility, which explains the large volatility of the price-dividend ratio observed in the data.
Orangia Highways (A)
Kellogg School of Management Cases, 2017
The decision maker is in charge of procurement auctions at the department of transportation of Or... more The decision maker is in charge of procurement auctions at the department of transportation of Orangia (a fictitious U.S. state). Students are asked to assist him in estimating the winning bids in various auctions concerning highway repair jobs using data on past auctions. The decision maker is faced with various professional, statistical, and ethical dilemmas.To analyze highway procurement auctions from the buyer-auctioneer perspective, establish basic facts regarding the project price-to-estimated cost ratio, set up and estimate a structural regression model to predict the winning bid, and compute the probability the winning price will be below estimated cost. Difficulties include heteroskedasticity, logarithmic specification, and omitted variable bias. Also to estimate a Logit regression and predict bidder collusion probability.
Fueling Sales at EuroPet
EuroPet S.A. was a multinational company operating gas stations in many European countries. There... more EuroPet S.A. was a multinational company operating gas stations in many European countries. There was a growing propensity for supermarkets to attach gas stations to their retail operations, which was developing into a major threat to EuroPet. As a result, in the mid-1990s, the company began to develop and brand its own convenience stores co-located with its gas stations. However, the company was spending much more on advertising the convenience stores than its competitors did. Management now had to decide if the increase in sales attributed to advertising efforts justified the advertising spend by analyzing the market data from one large metropolitan area: Marseille, France. Students will learn: how to use cross-tabs and other marketing research tools to identify segmentation descriptors; how to analyze data and interpret results; and how these research results could guide new product development and positioning strategies in order to effectively target relevant customer segments.
Social Science Research Network, 2007
This paper develops a method to compute the equilibrium correspondence for exchange economies wit... more This paper develops a method to compute the equilibrium correspondence for exchange economies with semi-algebraic preferences. Given a class of semi-algebraic exchange economies parameterized by individual endowments and possibly other exogenous variables such as preference parameters or asset payoffs, there exists a semi-algebraic correspondence that maps parameters to positive numbers such that for generic parameters each competitive equilibrium can be associated with an element of the correspondence and each endogenous variable (i.e. prices and consumptions) is a rational function of that value of the correspondence and the parameters. This correspondence can be characterized as zeros of a univariate polynomial equation that satisfy additional polynomial inequalities. This polynomial as well as the rational functions that determine equilibrium can be computed using versions of Buchberger's algorithm which is part of most computer algebra systems. The computation is exact whenever the input data (i.e. preference parameters etc.) are rational. Therefore, the result provides theoretical foundations for a systematic analysis of multiplicity in applied general equilibrium.
Swiss medical weekly, 2019
AIMS OF THE STUDY Healthy adults have had the option to receive prescriptionless vaccination agai... more AIMS OF THE STUDY Healthy adults have had the option to receive prescriptionless vaccination against influenza in pharmacies of several Swiss cantons since the 2015/16 influenza season. We aimed to assess in a cost-benefit analysis the resulting net benefits for the Swiss economy and public health, and the benefits that could be expected if an extension of the current vaccination recommendations was implemented. METHODS The proportion of influenza vaccines administered in pharmacies was calculated from data provided by pharmacies entering information in phS-net.ch, data from vaccines covered by insurance companies, and vaccine supply data. The economic and public health impact was estimated in a cost-benefit analysis based on published data. RESULTS In the 2016/17 and 2017/18 influenza seasons, 7306 of a total of 1.07 million (0.7%) and 15,617 of a total of 1.15 million (1.4%) influenza vaccine doses, respectively, were administered in pharmacies in Switzerland. The net cost savings...
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Papers by Karl Schmedders