• Title/Summary/Keyword: incomplete market

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Analysis on Incomplete Information in an Electricity Market using Game Theory (게임이론을 이용한 전력시장 정보의 불완비성 해석)

  • Lee, Kwang-Ho;Shin, Jae-Hong
    • The Transactions of the Korean Institute of Electrical Engineers A
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    • v.55 no.5
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    • pp.214-219
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    • 2006
  • Oligopoly differs from perfect competition and monopoly in that a firm must consider rival firms' behavior to determine its own best policy. This interrelationship among firms is the issue examined in this paper. In the oligopoly market, the complete information market means that each producer has full information about itself, the market, and its rivals. That is, each producer knows the market demand function, its own cost function and the cost functions of rivals. On the other hand, the incomplete information market means that in general each producer lacks full information about the market or its rivals. Here, we assume that each firm doesn't know the cost functions and the strategic biddings of its rivals. The main purpose of this paper is to analyze firm' strategic behaviors and equilibrium in an electricity market with incomplete information. In the case study, the complete information market and the incomplete market are compared at the Nash Equilibrium from the viewpoints of market price, transaction quantities, consumer benefits, and Social Welfare.

Valuation of Options in Incomplete Markets (불완전시장 하에서의 옵션가격의 결정)

  • Park, Byungwook
    • Journal of the Korean Operations Research and Management Science Society
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    • v.29 no.2
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    • pp.45-57
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    • 2004
  • The purpose of this paper is studying the valuation of option prices in Incomplete markets. A market is said to be incomplete if the given traded assets are insufficient to hedge a contingent claim. This situation occurs, for example, when the underlying stock process follows jump-diffusion processes. Due to the jump part, it is impossible to construct a hedging portfolio with stocks and riskless assets. Contrary to the case of a complete market in which only one equivalent martingale measure exists, there are infinite numbers of equivalent martingale measures in an incomplete market. Our research here is focusing on risk minimizing hedging strategy and its associated minimal martingale measure under the jump-diffusion processes. Based on this risk minimizing hedging strategy, we characterize the dynamics of a risky asset and derive the valuation formula for an option price. The main contribution of this paper is to obtain an analytical formula for a European option price under the jump-diffusion processes using the minimal martingale measure.

A Study on the electricity Market with incomplete information (불완비 정보의 전력시장에 대한 연구)

  • Shin, Jae-Hong;Lee, Kwang-Ho
    • Proceedings of the KIEE Conference
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    • pp.778-780
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    • 2005
  • Electric power industry throughout the world is restructured. The electric power industry has a characteristics of an oligopoly with an imperfect competition. In Korea rules, all information is not available. So the strategy under such incomplete information market differ firm those under complete information system in game theory. This paper presents a analysis technique if Korea ma rket model with incomplete information.

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THE RELATIVE ENTROPY UNDER THE R-CGMY PROCESSES

  • Kwon, YongHoon;Lee, Younhee
    • Journal of the Chungcheong Mathematical Society
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    • v.28 no.1
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    • pp.109-117
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    • 2015
  • We consider the relative entropy for two R-CGMY processes, which are CGMY processes with Y equal to 1, to choose an equivalent martingale measure (EMM) when the underlying asset of a derivative follows a R-CGMY process in the financial market. Since the R-CGMY process leads to an incomplete market, we have to use a proper technique to choose an EMM among a variety of EMMs. In this paper, we derive the closed form expression of the relative entropy for R-CGMY processes.

The Case Studies on the application of incomplete information game in Deregulated Power Pools (불완비정보게임의 전력시장 적용 사례연구)

  • Jang, Se-Hwan;Kim, Jin-Ho
    • Proceedings of the KIEE Conference
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    • pp.361-362
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    • 2006
  • This paper presents the result of survey and analysis on a theoretical approach to the application of incomplete information game in deregulated Power Pools. The deregulation power market arc modeled by the incomplete information game. The case where participants have incomplete information about the operation costs of other participants are highlighted. Pool participants define transactions to maximize their benefit in non-cooperative situation, the ISO defines transactions among participants by looking for minimum price that satisfies the demand in the Pool. The incomplete information game determines Nash equilibrium satisfied Pool participants and the ISO.

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An Application of Game theory to Power Transactions under Incomplete Information (불완전정보 전력거래 해석을 위한 게임이론의 적용)

  • Kang, Dong-Joo;Park, Man-Guen;Kim, Bal-Ho;Park, Jong-Bae
    • Proceedings of the KIEE Conference
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    • pp.19-21
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    • 2000
  • This paper presents a game theory application for analyzing power transactions and market design in a deregulated energy marketplace such as PoolCo. The conventional least-cost approaches for the generation resource schedule can not exactly handle recent real-world situations. A systematic tool using game theory for the market participants is presented such that it determines the net profits through the optimal bidding strategies including the strategies for the bidding prices and bidding generations. We treat this power transaction game as incomplete information one, which means each market participants does not know other's cost function. And the demand elasticity of the energy price is considered for the realistic modeling of the deregulated marketplace.

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The Estimation of Incomplete Information in Electricity Markets by Using Load Pattern Changes (부하패턴을 이용한 전력시장 정보의 불완비성 추정에 관한 연구)

  • Shin, Jae-Hong;Lee, Kwang-Ho
    • The Transactions of The Korean Institute of Electrical Engineers
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    • v.56 no.5
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    • pp.848-853
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    • 2007
  • This paper presents a methodology of estimating incomplete information in electricity markets for analyzing the gaming behavior of Generating Companies (GENCOs). Each GENCO needs to model its opponents' unknown information of strategic biddings and cost functions. In electricity markets with complete information, each GENCO knows its rivals' payoff functions and tries to maximize its own profit at Nash equilibriurnl Nli) by acknowledging the rivals' cost function. On the other hand, in the incomplete information markets, each GENCO lacks information about its rivals. Load patterns can change continuously due to many factors such as weather, price, contingency, etc. In this paper, we propose the method of the estimation of the opponents' cost function using market price, transaction quantities. and customer load patterns. A numerical example with two GENCOs is illustrated to show the basic idea and effectiveness of the proposed methodology.

Effects of Additional Constraints on Performance of Portfolio Selection Models with Incomplete Information : Case Study of Group Stocks in the Korean Stock Market (불완전 정보 하에서 추가적인 제약조건들이 포트폴리오 선정 모형의 성과에 미치는 영향 : 한국 주식시장의 그룹주 사례들을 중심으로)

  • Park, Kyungchan;Jung, Jongbin;Kim, Seongmoon
    • Korean Management Science Review
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    • v.32 no.1
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    • pp.15-33
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    • 2015
  • Under complete information, introducing additional constraints to a portfolio will have a negative impact on performance. However, real-life investments inevitably involve use of error-prone estimations, such as expected stock returns. In addition to the reality of incomplete data, investments of most Korean domestic equity funds are regulated externally by the government, as well as internally, resulting in limited maximum investment allocation to single stocks and risk free assets. This paper presents an investment framework, which takes such real-life situations into account, based on a newly developed portfolio selection model considering realistic constraints under incomplete information. Additionally, we examined the effects of additional constraints on portfolio's performance under incomplete information, taking the well-known Samsung and SK group stocks as performance benchmarks during the period beginning from the launch of each commercial fund, 2005 and 2007 respectively, up to 2013. The empirical study shows that an investment model, built under incomplete information with additional constraints, outperformed a model built without any constraints, and benchmarks, in terms of rate of return, standard deviation of returns, and Sharpe ratio.

Option Pricing with Bounded Expected Loss under Variance-Gamma Processes

  • Song, Seong-Joo;Song, Jong-Woo
    • Communications for Statistical Applications and Methods
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    • v.17 no.4
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    • pp.575-589
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    • 2010
  • Exponential L$\acute{e}$evy models have become popular in modeling price processes recently in mathematical finance. Although it is a relatively simple extension of the geometric Brownian motion, it makes the market incomplete so that the option price is not uniquely determined. As a trial to find an appropriate price for an option, we suppose a situation where a hedger wants to initially invest as little as possible, but wants to have the expected squared loss at the end not exceeding a certain constant. For this, we assume that the underlying price process follows a variance-gamma model and it converges to a geometric Brownian motion as its quadratic variation converges to a constant. In the limit, we use the mean-variance approach to find the asymptotic minimum investment with the expected squared loss bounded. Some numerical results are also provided.

The Analysis on Standardization Competition between a Leader and a Follower and their strategies through Dynamic Incomplete Information Game (Dynamic Incomplete Information Game을 이용한 선도기업과 추종기업 간의 표준화 경쟁과 전략 분석)

  • Park, Wung;Kwak, Yong-Won;Min, Jae-Hong
    • Proceedings of the Korean Institute of Information and Commucation Sciences Conference
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    • pp.804-807
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    • 2003
  • Recently, standardization is essential strategic tool for a firm to preoccupy a market. Also WTO TBT(Technical Barriers to Trade) makes importance of standardization greater in telecommunication industry. Therefore countries, not to speak of firms, recognize standards essential strategy to preoccupy markets. In this paper, we will examine the standardization competition between a leader and a follower and their strategies through dynamic incomplete information game model.

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