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Decentralized interaction and co-adaptation in the repeated prisoner's dilemma

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  • Klos, Tomas B.

    (Groningen University)

Abstract

The purpose of this paper is to propose a nonparametric interest rate term structure model and investigate its implications on term structure dynamics and prices of interest rate derivative securities. The nonparametric spot interest rate process is estimated from the observed short-term interest rates following a robust estimation procedure and the market price of interest rate risk is estimated as implied from the historical term structure data. That is, instead of imposing a priori restrictions on the model, data are allowed to speak for themselves, and at the same time the model retains a parsimonious structure and the computational tractability. The model is implemented using historical Canadian interest rate term structure data. The parametric models with closed form solutions for bond and bond option prices, namely the Vasicek (1977) and CIR (1985) models, are also estimated for comparison purpose. The empirical results not only provide strong evidence that the traditional spot interest rate models and market prices of interest rate risk are severely misspecified but also suggest that different model specifications have significant impact on term structure dynamics and prices of interest rate derivative securities.

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File URL: http://irs.ub.rug.nl/ppn/162095945
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Bibliographic Info

Paper provided by University of Groningen, Research Institute SOM (Systems, Organisations and Management) in its series Research Report with number 97B33.

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Date of creation: 1997
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Handle: RePEc:dgr:rugsom:97b33

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  1. McFadzean, David & Tesfatsion, Leigh S., 1999. "A C++ Platform for the Evolution of Trade Networks," Staff General Research Papers 1639, Iowa State University, Department of Economics.
  2. Schelling, Thomas C, 1969. "Models of Segregation," American Economic Review, American Economic Association, vol. 59(2), pages 488-93, May.
  3. Marks, R E, 1992. "Breeding Hybrid Strategies: Optimal Behaviour for Oligopolists," Journal of Evolutionary Economics, Springer, vol. 2(1), pages 17-38, March.
  4. Ho, Teck-Hua, 1996. "Finite automata play repeated prisoner's dilemma with information processing costs," Journal of Economic Dynamics and Control, Elsevier, vol. 20(1-3), pages 173-207.
  5. Joshua M. Epstein & Robert L. Axtell, 1996. "Growing Artificial Societies: Social Science from the Bottom Up," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262550253, December.
  6. Binmore, Kenneth G. & Samuelson, Larry, 1992. "Evolutionary stability in repeated games played by finite automata," Journal of Economic Theory, Elsevier, vol. 57(2), pages 278-305, August.
  7. Kirchkamp, Oliver, 1995. "Spatial Evolution of Automata in the Prisoners' Dilemma," Discussion Paper Serie B 330, University of Bonn, Germany.
  8. Holland, John H & Miller, John H, 1991. "Artificial Adaptive Agents in Economic Theory," American Economic Review, American Economic Association, vol. 81(2), pages 365-71, May.
  9. Robert Hoffmann & Nigel Waring, 1996. "The Localisation of Interaction and Learning in the Repeated Prisoner's Dilemma," Working Papers 96-08-064, Santa Fe Institute.
  10. Bryan Routledge, . "Co-Evolution and Spatial Interactoin," GSIA Working Papers 1997-46, Carnegie Mellon University, Tepper School of Business.
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Cited by:
  1. Tomas B. Klos & Bart Nooteboom, 1998. "Adaptive Governance: The Role of Loyalty," Research in Economics 98-06-048e, Santa Fe Institute.
  2. Floortje Alkemade & Han Poutré & Hans Amman, 2006. "Robust Evolutionary Algorithm Design for Socio-economic Simulation," Computational Economics, Society for Computational Economics, vol. 28(4), pages 355-370, November.
  3. Klos, Tomas B., 1999. "Governance and matching," Research Report 99B41, University of Groningen, Research Institute SOM (Systems, Organisations and Management).

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