Dépouillements

The behavioralist visits the factory / Tanjim Hossain in Management science, Vol. 58 N° 12 (Décembre 2012) 

Public ISBD [article]  in Management science > Vol. 58 N° 12 (Décembre 2012) . - pp. 2151-2167 Titre : The behavioralist visits the factory : Increasing productivity using simple framing manipulations Type de document : texte imprimé Auteurs : Tanjim Hossain, Auteur ; John A. List, Auteur Année de publication : 2013 Article en page(s) : pp. 2151-2167 Note générale : Management Langues : Anglais (eng) Mots-clés : Framing  effect  Natural  field  experiment  Worker  productivity  Loss  aversion Résumé : Recent discoveries in behavioral economics have led to important new insights concerning what can happen in markets. Such gains in knowledge have come primarily via laboratory experiments—a missing piece of the puzzle in many cases is parallel evidence drawn from naturally occurring field counterparts. We provide a small movement in this direction by taking advantage of a unique opportunity to work with a Chinese high-tech manufacturing facility. Our study revolves around using insights gained from one of the most influential lines of behavioral research—framing manipulations—in an attempt to increase worker productivity in the facility. Using a natural field experiment, we report several insights. For example, conditional incentives framed as both “losses” and “gains” increase productivity for both individuals and teams. In addition, teams more acutely respond to bonuses posed as losses than as comparable bonuses posed as gains. The magnitude of this framing effect is roughly 1%: that is, total team productivity is enhanced by 1% purely due to the framing manipulation. Importantly, we find that neither the framing nor the incentive effect lose their significance over time; rather, the effects are observed over the entire sample period. Moreover, we learn that repeated interaction with workers and conditionality of the bonus contract are substitutes for sustenance of incentive effects in the long run. ISSN : 0025-1909 En ligne : http://mansci.journal.informs.org/content/58/12/2151.abstract [article] The behavioralist visits the factory : Increasing productivity using simple framing manipulations [texte imprimé] / Tanjim Hossain, Auteur ; John A. List, Auteur . - 2013 . - pp. 2151-2167. Management Langues : Anglais (eng) in Management science > Vol. 58 N° 12 (Décembre 2012) . - pp. 2151-2167 Mots-clés : Framing  effect  Natural  field  experiment  Worker  productivity  Loss  aversion Résumé : Recent discoveries in behavioral economics have led to important new insights concerning what can happen in markets. Such gains in knowledge have come primarily via laboratory experiments—a missing piece of the puzzle in many cases is parallel evidence drawn from naturally occurring field counterparts. We provide a small movement in this direction by taking advantage of a unique opportunity to work with a Chinese high-tech manufacturing facility. Our study revolves around using insights gained from one of the most influential lines of behavioral research—framing manipulations—in an attempt to increase worker productivity in the facility. Using a natural field experiment, we report several insights. For example, conditional incentives framed as both “losses” and “gains” increase productivity for both individuals and teams. In addition, teams more acutely respond to bonuses posed as losses than as comparable bonuses posed as gains. The magnitude of this framing effect is roughly 1%: that is, total team productivity is enhanced by 1% purely due to the framing manipulation. Importantly, we find that neither the framing nor the incentive effect lose their significance over time; rather, the effects are observed over the entire sample period. Moreover, we learn that repeated interaction with workers and conditionality of the bonus contract are substitutes for sustenance of incentive effects in the long run. ISSN : 0025-1909 En ligne : http://mansci.journal.informs.org/content/58/12/2151.abstract

Selling to conspicuous consumers / Necati Tereyağoğlu in Management science, Vol. 58 N° 12 (Décembre 2012) 

Public ISBD [article]  in Management science > Vol. 58 N° 12 (Décembre 2012) . - pp. 2168-2189 Titre : Selling to conspicuous consumers : Pricing, production, and sourcing decisions Type de document : texte imprimé Auteurs : Necati Tereyağoğlu, Auteur ; Senthil Veeraraghavan, Auteur Année de publication : 2013 Article en page(s) : pp. 2168-2189 Note générale : Management Langues : Anglais (eng) Mots-clés : Strategic  customer  behavior  Game  theory  Conspicuous  consumption  Pricing  Scarcity  Sourcing Résumé : Consumers often purchase goods that are “hard to find” to conspicuously display their exclusivity and social status. Firms that produce such conspicuously consumed goods such as designer apparel, fashion goods, jewelry, etc., often face challenges in making optimal pricing and production decisions. Such firms are confronted with precipitous trade-off between high sales volume and high margins, because of the highly uncertain market demand, strategic consumer behavior, and the display of conspicuous consumption. In this paper, we propose a model that addresses pricing and production decisions for a firm, using the rational expectations framework. We show that, in equilibrium, firms may offer high availability of goods despite the presence of conspicuous consumption. We show that scarcity strategies are harder to adopt as demand variability increases, and we provide conditions under which scarcity strategies could be successfully adopted to improve profits. Finally, to credibly commit to scarcity strategy, we show that firms can adopt sourcing strategies, such as sourcing from an expensive production location/supplier or using expensive raw materials. ISSN : 0025-1909 En ligne : http://mansci.journal.informs.org/content/58/12.toc [article] Selling to conspicuous consumers : Pricing, production, and sourcing decisions [texte imprimé] / Necati Tereyağoğlu, Auteur ; Senthil Veeraraghavan, Auteur . - 2013 . - pp. 2168-2189. Management Langues : Anglais (eng) in Management science > Vol. 58 N° 12 (Décembre 2012) . - pp. 2168-2189 Mots-clés : Strategic  customer  behavior  Game  theory  Conspicuous  consumption  Pricing  Scarcity  Sourcing Résumé : Consumers often purchase goods that are “hard to find” to conspicuously display their exclusivity and social status. Firms that produce such conspicuously consumed goods such as designer apparel, fashion goods, jewelry, etc., often face challenges in making optimal pricing and production decisions. Such firms are confronted with precipitous trade-off between high sales volume and high margins, because of the highly uncertain market demand, strategic consumer behavior, and the display of conspicuous consumption. In this paper, we propose a model that addresses pricing and production decisions for a firm, using the rational expectations framework. We show that, in equilibrium, firms may offer high availability of goods despite the presence of conspicuous consumption. We show that scarcity strategies are harder to adopt as demand variability increases, and we provide conditions under which scarcity strategies could be successfully adopted to improve profits. Finally, to credibly commit to scarcity strategy, we show that firms can adopt sourcing strategies, such as sourcing from an expensive production location/supplier or using expensive raw materials. ISSN : 0025-1909 En ligne : http://mansci.journal.informs.org/content/58/12.toc

Robust simulation of global warming policies using the DICE model / Zhaolin Hu in Management science, Vol. 58 N° 12 (Décembre 2012) 

Public ISBD [article]  in Management science > Vol. 58 N° 12 (Décembre 2012) . - pp. 2190-2206 Titre : Robust simulation of global warming policies using the DICE model Type de document : texte imprimé Auteurs : Zhaolin Hu, Auteur ; Jing Cao, Auteur ; L. Jeff Hong, Auteur Année de publication : 2013 Article en page(s) : pp. 2190-2206 Note générale : Management Langues : Anglais (eng) Mots-clés : Environment  Global  warming  Programming  Semidefinite  Simulation  Applications Résumé : Integrated assessment models that combine geophysics and economics features are often used to evaluate and compare global warming policies. Because there are typically profound uncertainties in these models, a simulation approach is often used. This approach requires the distribution of the uncertain parameters clearly specified. However, this is typically impossible because there is often a significant amount of ambiguity (e.g., estimation error) in specifying the distribution. In this paper, we adopt the widely used multivariate normal distribution to model the uncertain parameters. However, we assume that the mean vector and covariance matrix of the distribution are within some ambiguity sets. We then show how to find the worst-case performance of a given policy for all distributions constrained by the ambiguity sets. This worst-case performance provides a robust evaluation of the policy. We test our algorithm on a famous integrated model of climate change, known as the Dynamic Integrated Model of Climate and the Economy (DICE model). We find that the DICE model is sensitive to the means and covariance of the parameters. Furthermore, we find that, based on the DICE model, moderately tight environmental policies robustly outperform the no controls policy and the famous aggressive policies proposed by Stern and Gore. ISSN : 0025-1909 En ligne : http://mansci.journal.informs.org/content/58/12/2190.abstract [article] Robust simulation of global warming policies using the DICE model [texte imprimé] / Zhaolin Hu, Auteur ; Jing Cao, Auteur ; L. Jeff Hong, Auteur . - 2013 . - pp. 2190-2206. Management Langues : Anglais (eng) in Management science > Vol. 58 N° 12 (Décembre 2012) . - pp. 2190-2206 Mots-clés : Environment  Global  warming  Programming  Semidefinite  Simulation  Applications Résumé : Integrated assessment models that combine geophysics and economics features are often used to evaluate and compare global warming policies. Because there are typically profound uncertainties in these models, a simulation approach is often used. This approach requires the distribution of the uncertain parameters clearly specified. However, this is typically impossible because there is often a significant amount of ambiguity (e.g., estimation error) in specifying the distribution. In this paper, we adopt the widely used multivariate normal distribution to model the uncertain parameters. However, we assume that the mean vector and covariance matrix of the distribution are within some ambiguity sets. We then show how to find the worst-case performance of a given policy for all distributions constrained by the ambiguity sets. This worst-case performance provides a robust evaluation of the policy. We test our algorithm on a famous integrated model of climate change, known as the Dynamic Integrated Model of Climate and the Economy (DICE model). We find that the DICE model is sensitive to the means and covariance of the parameters. Furthermore, we find that, based on the DICE model, moderately tight environmental policies robustly outperform the no controls policy and the famous aggressive policies proposed by Stern and Gore. ISSN : 0025-1909 En ligne : http://mansci.journal.informs.org/content/58/12/2190.abstract

Reflected knowledge and trust in global collaboration / Mark Mortensen in Management science, Vol. 58 N° 12 (Décembre 2012) 

Public ISBD [article]  in Management science > Vol. 58 N° 12 (Décembre 2012) . - pp. 2207-2224 Titre : Reflected knowledge and trust in global collaboration Type de document : texte imprimé Auteurs : Mark Mortensen, Auteur ; Tsedal B. Neeley, Auteur Année de publication : 2013 Article en page(s) : pp. 2207-2224 Note générale : Management Langues : Anglais (eng) Mots-clés : Global  work  Organizational  studies  Behavior  Trust Résumé : Scholars argue that direct knowledge about distant colleagues is crucial for fostering trust in global collaboration. However, their arguments focus mainly on how trust accrues from knowledge about distant collaborators' personal characteristics, relationships, and behavioral norms. We suggest that an equally important trust mechanism is “reflected knowledge,” knowledge that workers gain about the personal characteristics, relationships, and behavioral norms of their own site through the lens of their distant collaborators. Based on surveys gathered from 140 employees in a division of a global chemical company, we found that direct knowledge and reflected knowledge enhanced trust in distinct ways. Although both enhanced feelings of closeness with others, results indicate that direct knowledge increased focal actors' understanding of their distant colleagues, whereas reflected knowledge promoted feelings of being understood. We discuss implications of reflected knowledge to theories of trust and interpersonal dynamics in globally distributed collaboration. ISSN : 0025-1909 En ligne : http://mansci.journal.informs.org/content/58/12/2207.abstract [article] Reflected knowledge and trust in global collaboration [texte imprimé] / Mark Mortensen, Auteur ; Tsedal B. Neeley, Auteur . - 2013 . - pp. 2207-2224. Management Langues : Anglais (eng) in Management science > Vol. 58 N° 12 (Décembre 2012) . - pp. 2207-2224 Mots-clés : Global  work  Organizational  studies  Behavior  Trust Résumé : Scholars argue that direct knowledge about distant colleagues is crucial for fostering trust in global collaboration. However, their arguments focus mainly on how trust accrues from knowledge about distant collaborators' personal characteristics, relationships, and behavioral norms. We suggest that an equally important trust mechanism is “reflected knowledge,” knowledge that workers gain about the personal characteristics, relationships, and behavioral norms of their own site through the lens of their distant collaborators. Based on surveys gathered from 140 employees in a division of a global chemical company, we found that direct knowledge and reflected knowledge enhanced trust in distinct ways. Although both enhanced feelings of closeness with others, results indicate that direct knowledge increased focal actors' understanding of their distant colleagues, whereas reflected knowledge promoted feelings of being understood. We discuss implications of reflected knowledge to theories of trust and interpersonal dynamics in globally distributed collaboration. ISSN : 0025-1909 En ligne : http://mansci.journal.informs.org/content/58/12/2207.abstract

Managers and students as newsvendors / Gary E. Bolton in Management science, Vol. 58 N° 12 (Décembre 2012) 

Public ISBD [article]  in Management science > Vol. 58 N° 12 (Décembre 2012) . - pp. 2225-2233 Titre : Managers and students as newsvendors Type de document : texte imprimé Auteurs : Gary E. Bolton, Auteur ; Axel Ockenfels, Auteur ; Ulrich W. Thonemann, Auteur Année de publication : 2013 Article en page(s) : pp. 2225-2233 Note générale : Management Langues : Anglais (eng) Mots-clés : Newsvendor  game  Laboratory  experiment  Manager  behavior  Information  usage Résumé : We compare how experienced procurement managers and students solve the newsvendor problem. We find that managers broadly exhibit the same kind of pull-to-center bias as students do. Also, managers use information and task training no better than students. The performance of managers is positively affected by the level of their education and their level in the organizational hierarchy. We discuss implications for theory and for how ordering might be improved in practice. ISSN : 0025-1909 En ligne : http://mansci.journal.informs.org/content/58/12/2225.abstract [article] Managers and students as newsvendors [texte imprimé] / Gary E. Bolton, Auteur ; Axel Ockenfels, Auteur ; Ulrich W. Thonemann, Auteur . - 2013 . - pp. 2225-2233. Management Langues : Anglais (eng) in Management science > Vol. 58 N° 12 (Décembre 2012) . - pp. 2225-2233 Mots-clés : Newsvendor  game  Laboratory  experiment  Manager  behavior  Information  usage Résumé : We compare how experienced procurement managers and students solve the newsvendor problem. We find that managers broadly exhibit the same kind of pull-to-center bias as students do. Also, managers use information and task training no better than students. The performance of managers is positively affected by the level of their education and their level in the organizational hierarchy. We discuss implications for theory and for how ordering might be improved in practice. ISSN : 0025-1909 En ligne : http://mansci.journal.informs.org/content/58/12/2225.abstract

On the efficiency-fairness trade-off / Bertsimas, Dimitris in Management science, Vol. 58 N° 12 (Décembre 2012) 

Public ISBD [article]  in Management science > Vol. 58 N° 12 (Décembre 2012) . - pp. 2234-2250 Titre : On the efficiency-fairness trade-off Type de document : texte imprimé Auteurs : Bertsimas, Dimitris, Auteur ; Vivek F. Farias, Auteur ; Nikolaos Trichakis, Auteur Année de publication : 2013 Article en page(s) : pp. 2234-2250 Note générale : Management Langues : Anglais (eng) Mots-clés : Programming  Nonlinear  Theory  Decision  analysis  Multiple  criteria  Games-group  decisions  Bargaining  Fairness Résumé : This paper deals with a basic issue: How does one approach the problem of designing the “right” objective for a given resource allocation problem? The notion of what is right can be fairly nebulous; we consider two issues that we see as key: efficiency and fairness. We approach the problem of designing objectives that account for the natural tension between efficiency and fairness in the context of a framework that captures a number of resource allocation problems of interest to managers. More precisely, we consider a rich family of objectives that have been well studied in the literature for their fairness properties. We deal with the problem of selecting the appropriate objective from this family. We characterize the trade-off achieved between efficiency and fairness as one selects different objectives and develop several concrete managerial prescriptions for the selection problem based on this trade-off. Finally, we demonstrate the value of our framework in a case study that considers air traffic management. ISSN : 0025-1909 En ligne : http://mansci.journal.informs.org/content/58/12/2234.abstract [article] On the efficiency-fairness trade-off [texte imprimé] / Bertsimas, Dimitris, Auteur ; Vivek F. Farias, Auteur ; Nikolaos Trichakis, Auteur . - 2013 . - pp. 2234-2250. Management Langues : Anglais (eng) in Management science > Vol. 58 N° 12 (Décembre 2012) . - pp. 2234-2250 Mots-clés : Programming  Nonlinear  Theory  Decision  analysis  Multiple  criteria  Games-group  decisions  Bargaining  Fairness Résumé : This paper deals with a basic issue: How does one approach the problem of designing the “right” objective for a given resource allocation problem? The notion of what is right can be fairly nebulous; we consider two issues that we see as key: efficiency and fairness. We approach the problem of designing objectives that account for the natural tension between efficiency and fairness in the context of a framework that captures a number of resource allocation problems of interest to managers. More precisely, we consider a rich family of objectives that have been well studied in the literature for their fairness properties. We deal with the problem of selecting the appropriate objective from this family. We characterize the trade-off achieved between efficiency and fairness as one selects different objectives and develop several concrete managerial prescriptions for the selection problem based on this trade-off. Finally, we demonstrate the value of our framework in a case study that considers air traffic management. ISSN : 0025-1909 En ligne : http://mansci.journal.informs.org/content/58/12/2234.abstract

The impact of royalty contract revision in a multistage strategic R&D alliance / Wenqiang Xiao in Management science, Vol. 58 N° 12 (Décembre 2012) 

Public ISBD [article]  in Management science > Vol. 58 N° 12 (Décembre 2012) . - pp. 2251-2271 Titre : The impact of royalty contract revision in a multistage strategic R&D alliance Type de document : texte imprimé Auteurs : Wenqiang Xiao, Auteur ; Yi Xu, Auteur Année de publication : 2013 Article en page(s) : pp. 2251-2271 Note générale : Management Langues : Anglais (eng) Mots-clés : Research  and  development  Royalty  contract  Renegotiation  Incentives  R&D  alliance Résumé : This paper investigates the impact of royalty revision on incentives and profits in a two-stage (research and development (R&D) stage and marketing stage) alliance with a marketer and an innovator. The marketer offers royalty contracts to the innovator. We find that the potential for royalty revision leads to more severe distortions in the optimal initial royalty contracts offered by the marketer. We show that if the innovator plays a significant role in the marketing stage, the marketer should offer a low royalty rate initially and then revise the royalty rate up later. Otherwise, she should do the opposite. We identify two major effects of royalty revision. First, royalty revision provides the marketer with a flexibility to dynamically adjust royalty rates across the two stages of the alliance to better align the innovator's incentives. This incentive-realigning effect improves the marketer's profit. Second, royalty revision makes it harder for the marketer to obtain private information from the innovator, because the innovator worries that the marketer will take advantage of the information to revise the initial contract to a more favorable one to herself later. This information-revealing effect hurts the marketer's profit. We characterize in what kind of alliances marketers would benefit the most from royalty revision so that managers should clearly establish the expectation for royalty revision, and in what kind of alliances markerters would not benefit from royalty revision so that managers should commit not to revise the initial royalty contract. With royalty contracts that are contingent on the R&D outcome of the R&D stage, we find that contingent contract structure could be either substitutable (by fully capturing the incentive re-aligning effect) or complementary (by weakening the information revealing effect) to royalty revision, depending on whether the innovator plays a significant role in the marketing stage. Managers may need to use a contingent contract (if possible) either to replace or with royalty revision accordingly to improve profits. ISSN : 0025-1909 En ligne : http://mansci.journal.informs.org/content/58/12/2251.abstract [article] The impact of royalty contract revision in a multistage strategic R&D alliance [texte imprimé] / Wenqiang Xiao, Auteur ; Yi Xu, Auteur . - 2013 . - pp. 2251-2271. Management Langues : Anglais (eng) in Management science > Vol. 58 N° 12 (Décembre 2012) . - pp. 2251-2271 Mots-clés : Research  and  development  Royalty  contract  Renegotiation  Incentives  R&D  alliance Résumé : This paper investigates the impact of royalty revision on incentives and profits in a two-stage (research and development (R&D) stage and marketing stage) alliance with a marketer and an innovator. The marketer offers royalty contracts to the innovator. We find that the potential for royalty revision leads to more severe distortions in the optimal initial royalty contracts offered by the marketer. We show that if the innovator plays a significant role in the marketing stage, the marketer should offer a low royalty rate initially and then revise the royalty rate up later. Otherwise, she should do the opposite. We identify two major effects of royalty revision. First, royalty revision provides the marketer with a flexibility to dynamically adjust royalty rates across the two stages of the alliance to better align the innovator's incentives. This incentive-realigning effect improves the marketer's profit. Second, royalty revision makes it harder for the marketer to obtain private information from the innovator, because the innovator worries that the marketer will take advantage of the information to revise the initial contract to a more favorable one to herself later. This information-revealing effect hurts the marketer's profit. We characterize in what kind of alliances marketers would benefit the most from royalty revision so that managers should clearly establish the expectation for royalty revision, and in what kind of alliances markerters would not benefit from royalty revision so that managers should commit not to revise the initial royalty contract. With royalty contracts that are contingent on the R&D outcome of the R&D stage, we find that contingent contract structure could be either substitutable (by fully capturing the incentive re-aligning effect) or complementary (by weakening the information revealing effect) to royalty revision, depending on whether the innovator plays a significant role in the marketing stage. Managers may need to use a contingent contract (if possible) either to replace or with royalty revision accordingly to improve profits. ISSN : 0025-1909 En ligne : http://mansci.journal.informs.org/content/58/12/2251.abstract

Do investment banks' relationships with investors impact pricing? / Brian J. Henderson in Management science, Vol. 58 N° 12 (Décembre 2012) 

Public ISBD [article]  in Management science > Vol. 58 N° 12 (Décembre 2012) . - pp. 2272-2291 Titre : Do investment banks' relationships with investors impact pricing? : The case of convertible bond issues Type de document : texte imprimé Auteurs : Brian J. Henderson, Auteur ; Heather Tookes, Auteur Année de publication : 2013 Article en page(s) : pp. 2272-2291 Note générale : Management Langues : Anglais (eng) Mots-clés : Corporate  finance  Securities  issuance  Convertible  bonds  Underpricing Résumé : This study examines the role of repeat interactions between placement agents (investment banks) and investors in the initial pricing of convertible bonds. Under the assumption that attracting repeat investors can reduce search frictions in primary issue markets, we test the hypothesis that banks' relationships with investors actually allow more favorable pricing for issuing firms (in contrast to the “favoritism” hypothesis, under which banks use underpricing to reward favored clients). In the empirical analysis we also allow for a potentially important alternative channel through which search frictions might impact initial pricing: expected after-market liquidity. Using a sample of 601 Rule 144A issues for the years 1997–2007, we document robust negative relationships between at-issue discounts and both types of frictions. Our findings suggest that search frictions play a meaningful role in initial convertible bond pricing and, specifically, that intermediaries can add substantial value through repeated interactions with investors. ISSN : 0025-1909 En ligne : http://mansci.journal.informs.org/content/58/12/2272.abstract [article] Do investment banks' relationships with investors impact pricing? : The case of convertible bond issues [texte imprimé] / Brian J. Henderson, Auteur ; Heather Tookes, Auteur . - 2013 . - pp. 2272-2291. Management Langues : Anglais (eng) in Management science > Vol. 58 N° 12 (Décembre 2012) . - pp. 2272-2291 Mots-clés : Corporate  finance  Securities  issuance  Convertible  bonds  Underpricing Résumé : This study examines the role of repeat interactions between placement agents (investment banks) and investors in the initial pricing of convertible bonds. Under the assumption that attracting repeat investors can reduce search frictions in primary issue markets, we test the hypothesis that banks' relationships with investors actually allow more favorable pricing for issuing firms (in contrast to the “favoritism” hypothesis, under which banks use underpricing to reward favored clients). In the empirical analysis we also allow for a potentially important alternative channel through which search frictions might impact initial pricing: expected after-market liquidity. Using a sample of 601 Rule 144A issues for the years 1997–2007, we document robust negative relationships between at-issue discounts and both types of frictions. Our findings suggest that search frictions play a meaningful role in initial convertible bond pricing and, specifically, that intermediaries can add substantial value through repeated interactions with investors. ISSN : 0025-1909 En ligne : http://mansci.journal.informs.org/content/58/12/2272.abstract

Pathwise optimization for optimal stopping problems / Vijay V. Desai in Management science, Vol. 58 N° 12 (Décembre 2012) 

Public ISBD [article]  in Management science > Vol. 58 N° 12 (Décembre 2012) . - pp. 2292-2308 Titre : Pathwise optimization for optimal stopping problems Type de document : texte imprimé Auteurs : Vijay V. Desai, Auteur ; Vivek F. Farias, Auteur ; Ciamac C. Moallemi, Auteur Année de publication : 2013 Article en page(s) : pp. 2292-2308 Note générale : Management Langues : Anglais (eng) Mots-clés : Dynamic  programming  Optimal  control  Optimal  stopping  American  options  Bermudian  options Résumé : We introduce the pathwise optimization (PO) method, a new convex optimization procedure to produce upper and lower bounds on the optimal value (the “price”) of a high-dimensional optimal stopping problem. The PO method builds on a dual characterization of optimal stopping problems as optimization problems over the space of martingales, which we dub the martingale duality approach. We demonstrate via numerical experiments that the PO method produces upper bounds of a quality comparable with state-of-the-art approaches, but in a fraction of the time required for those approaches. As a by-product, it yields lower bounds (and suboptimal exercise policies) that are substantially superior to those produced by state-of-the-art methods. The PO method thus constitutes a practical and desirable approach to high-dimensional pricing problems. Furthermore, we develop an approximation theory relevant to martingale duality approaches in general and the PO method in particular. Our analysis provides a guarantee on the quality of upper bounds resulting from these approaches and identifies three key determinants of their performance: the quality of an input value function approximation, the square root of the effective time horizon of the problem, and a certain spectral measure of “predictability” of the underlying Markov chain. As a corollary to this analysis we develop approximation guarantees specific to the PO method. Finally, we view the PO method and several approximate dynamic programming methods for high-dimensional pricing problems through a common lens and in doing so show that the PO method dominates those alternatives. ISSN : 0025-1909 En ligne : http://mansci.journal.informs.org/content/58/12/2292.abstract [article] Pathwise optimization for optimal stopping problems [texte imprimé] / Vijay V. Desai, Auteur ; Vivek F. Farias, Auteur ; Ciamac C. Moallemi, Auteur . - 2013 . - pp. 2292-2308. Management Langues : Anglais (eng) in Management science > Vol. 58 N° 12 (Décembre 2012) . - pp. 2292-2308 Mots-clés : Dynamic  programming  Optimal  control  Optimal  stopping  American  options  Bermudian  options Résumé : We introduce the pathwise optimization (PO) method, a new convex optimization procedure to produce upper and lower bounds on the optimal value (the “price”) of a high-dimensional optimal stopping problem. The PO method builds on a dual characterization of optimal stopping problems as optimization problems over the space of martingales, which we dub the martingale duality approach. We demonstrate via numerical experiments that the PO method produces upper bounds of a quality comparable with state-of-the-art approaches, but in a fraction of the time required for those approaches. As a by-product, it yields lower bounds (and suboptimal exercise policies) that are substantially superior to those produced by state-of-the-art methods. The PO method thus constitutes a practical and desirable approach to high-dimensional pricing problems. Furthermore, we develop an approximation theory relevant to martingale duality approaches in general and the PO method in particular. Our analysis provides a guarantee on the quality of upper bounds resulting from these approaches and identifies three key determinants of their performance: the quality of an input value function approximation, the square root of the effective time horizon of the problem, and a certain spectral measure of “predictability” of the underlying Markov chain. As a corollary to this analysis we develop approximation guarantees specific to the PO method. Finally, we view the PO method and several approximate dynamic programming methods for high-dimensional pricing problems through a common lens and in doing so show that the PO method dominates those alternatives. ISSN : 0025-1909 En ligne : http://mansci.journal.informs.org/content/58/12/2292.abstract

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