abstract: Two thirds of the U.S. power systems are operated under market structures. A good market design should maximize social welfare and give market participants proper incentives to follow market solutions. Pricing schemes play very important roles in market design. Locational marginal pricing scheme is the core pricing scheme in energy markets. Locational marginal prices are good pricing signals for dispatch marginal costs. However, the locational marginal prices alone are not incentive compatible since energy markets are non-convex markets. Locational marginal prices capture dispatch costs but fail to capture commitment costs such as startup cost, no-load cost, and shutdown cost. As a result, uplift payments are paid to generators in markets in order to provide incentives for generators to follow market solutions. The uplift payments distort pricing signals. In this thesis, pricing schemes in electric energy markets are studied. In the first part, convex hull pricing scheme is studied and the pricing model is extended with network constraints. The subgradient algorithm is applied to solve the pricing model. In the second part, a stochastic dispatchable pricing model is proposed to better address the non-convexity and uncertainty issues in day-ahead energy markets. In the third part, an energy storage arbitrage model with the current locational marginal price scheme is studied. Numerical test cases are studied to show the arguments in this thesis. The overall market and pricing scheme design is a very complex problem. This thesis gives a thorough overview of pricing schemes in day-ahead energy markets and addressed several key issues in the markets. New pricing schemes are proposed to improve market efficiency. / Dissertation/Thesis / Masters Thesis Electrical Engineering 2016

O trabalho inicia apresentando a teoria econômica, incluindo as teorias empresariais e das estruturas de mercado e constrói um alinhamento entre estratégia de negócios e de formação de preços, explorando os principais conceitos derivados. Estes conceitos terão sua aplicabilidade verificada através de estudos de casos em empresas nacionais. Estes estudos exploram empresas de diferentes mercados com produtos ou serviços em diferentes estágios de ciclo de vida. As análises pretendem mostrar como alinhar as estratégias de negócio e competição das empresas e suas estratégias e táticas operacionais de formação de preços. Os resultados obtidos indicam que apesar das empresas procurarem alinhar seus objetivos estratégicos com os objetivos de formação de preço ainda há possíveis oportunidades no uso de técnicas e conceitos em dimensões estratégicas específicas de seu negócio, bem como oportunidades advindas da integração e estruturação destes processos. / The work initiates introducing the economic theory, including the managerial and market structures theories and builds an alignment between business and pricing strategies, exploring the main derived concepts. These concepts are to be verified through a multiple case study in Brazilian companies. These studies explore companies acting in different market structures with products and services in different life cycle stages. The analyses intend to show how to align company’s business and competition strategies with its pricing strategies and operational tactics. The gotten results indicate that despite the companies are looking for the alignment between its strategical and pricing objectives they still have improvements opportunities derived from the use of techniques and concepts in specific strategical dimensions of its business, as well as of the integration and organization of these processes.

In North America, automobile prices are largely determined through negotiation. Recognizing that some consumers have a strong aversion to negotiation, some manufacturers and dealers are now offering consumers the option of buying cars at a “no-haggle”, or fixed price. This dissertation consists of three essays which address how a fixed price alternative impacts both consumer behavior and firm strategies. The first essay explores the conditions under which a dealer would simultaneously offer a “no-haggle” Internet price and a negotiable price on the lot (which we term a dual-channel), and studies the marketing strategies adopted under this structure. We use consumer haggling cost as a key to understanding a dealer’s choice of pricing strategy. We find that a dual-channel is optimal for the dealer when there is sufficient diversity in consumer haggling cost. We also find that it is optimal for a dealer to specify a higher-than-cost “minimum acceptable price” to the salesperson as a price floor for negotiations. Surprisingly, a dual-channel may serve fewer customers while still being more profitable than a single channel structure. The second essay examines the competitive implications of a no-haggle pricing policy. By using Toyota’s fixed pricing policy in Canada as a natural experiment, we explore the impact of such a strategy on the prices and sales of Toyota and that of its close competitor, Honda. We find that the program has had important competitive consequences. While prices of both Toyota and Honda were higher in provinces with the program, there was an increase in Honda’s sales but with no effect on the sales of Toyota. The third essay determines the impact of a consumer’s bargaining behavior and information she collects on the final price paid. Using an extensive dataset, we find that a consumer’s negotiation skill and attitude toward negotiating significantly influences the negotiation outcome. In particular, consumers that enjoy negotiating have a greater propensity to search for price information which then allows them to obtain a better deal. In addition, we find that, while Internet users pay a lower price, the savings depend on the type of information collected by the buyer. / Business, Sauder School of / Graduate

From option pricing using the Black and Scholes model, to determining the signi cance of regression coe cients in a capital asset pricing model (CAPM), the assumption of normality was pervasive throughout the eld of nance. This was despite evidence that nancial returns were non-normal, skewed and heavy- tailed. In addition to non-normality, there remained questions about the e ect of rm size on returns. Studies examining these di erences were limited to ex- amining the mean return, with respect to an asset pricing model, and did not consider higher moments. Janse van Rensburg, Sharp and Friskin (in press) attempted to address both the problem of non-normality and size simultaneously. They (Janse van Rens- burg et al in press) tted a mixture of two normal distributions, with common mean but di erent variances, to a small capitalisation portfolio and a large cap- italisation portfolio. Comparison of the mixture distributions yielded valuable insight into the di erences between the small and large capitalisation portfolios' risk. Janse van Rensburg et al (in press), however, identi ed several shortcom- ings within their work. These included data problems, such as survivorship bias and the exclusion of dividends, and the questionable use of standard statistical tests in the presence of non-normality. This study sought to correct the problems noted in the paper by Janse van Rensburg et al (in press) and to expand upon their research. To this end survivorship bias was eliminated and an e ective dividend was included into the return calculations. Weekly data were used, rather than the monthly data of Janse van Rensburg et al (in press). More portfolios, over shorter holding periods, were considered. This allowed the authors to test whether Janse van Rensburg et al's (in press) ndings remained valid under conditions di erent to their original study. Inference was also based on bootstrapped statistics, in order to circumvent problems associated with non-normality. Additionally, several di erent speci cations of the normal mixture distribution were considered, as opposed to only the two-component scale mixture. In the following, Chapter 2 provided a literature review of previous studies on return distributions and size e ects. The data, data preparation and portfolio formation were discussed in Chapter 3. Chapter 4 gave an overview of the statistical methods and tests used throughout the study. The empirical results of these tests, prior to risk adjustment, were presented in Chapter 5. The impact of risk adjustment on the distribution of returns was documented in Chapter 6. The study ended, Chapter 7, with a summary of the results and suggestions for future research.

We develop and test asset pricing model formulations that are simultaneously conditional and nonlinear. Formulations based upon five popular asset pricing models are tested against the widely studied Fama and French (1993) twenty-five size and book-to-market sorted portfolios. Test results indicate that the conditional nonlinear specification of the Fama and French (1993) three state variable model (FF3) is the only specification not rejected by the data and thus capable of pricing the "size" and "book-to-market" effects simultaneously. The pricing performance of the FF3 conditional nonlinear pricing kernel is corifirmed by robustness tests on out-of-sample data as well as tests with alternative instrumental and conditioning variables. While Bansal and Viswanathan (1993) and Chapman (1997) find unconditional nonlinear pricing kernels sufficient to capture the size effect alone, our results indicate that similar unconditional nonlinear pricing kernels considered here do not price the size and book-to-market effects simultaneously. However, nested model tests indicate that, in isolation, both conditioning information and nonlinearity significantly improve the pricing kernel performance for all five asset pricing models. The success of the conditional nonlinear FF3 model also suggests that the combination of conditioning and nonlinearity is critical to pricing kernel design. Implications for both academic researchers and practitioners are considered. / Business, Sauder School of / Finance, Division of / Graduate

This thesis consists of two essays which contribute to different but related aspects of the empirical asset pricing literature. The common theme is that incorrect restrictions can lead to inaccurate decisions. The first essay demonstrates that failure to account for the Federal Reserve experiment can lead to incorrect assumptions about the explosiveness of short-term interest rate volatility, while the second essay demonstrates that we need to incorporate skewness to develop models that adequately account for the cross-section of equity returns. Essay 1 empirically compares the Markov-switching and stochastic volatility diffusion models of the short rate. The evidence supports the Markov-switching diffusion model. Estimates of the elasticity of volatility parameter for single-regime models unanimously indicate an explosive volatility process, whereas the Markov-switching models estimates are reasonable. We find that either Markov-switching or stochastic volatility, but not both, is needed to adequately fit the data. A robust conclusion is that volatility depends on the level of the short rate. Finally, the Markov-switching model is the best for forecasting. A technical contribution of this paper is a presentation of quasi-maximum likelihood estimation techniques for the Markov-switching stochastic-volatility model. Essay 2 proposes a new approach to estimating and testing nonlinear pricing models using GMM. The methodology extends the GMM based conditional mean-variance asset pricing tests of Harvey (1989) and He et al (1996) to include preferences over moments higher than variance. In particular we explore the empirical usefulness of the conditional coskewness of an assets return with the market return in explaining the cross-section of equity returns. The methodology is both flexible and parsimonious. We avoid modelling any asset specific parameters and avoid making restrictive assumptions on the dynamics of co-moments. By using GMM to estimate the models' parameters we also avoid making any assumptions about the distribution of the data. The empirical results indicate that coskewness is useful in explaining the cross-section of equity returns, and that both covariance and coskewness are time varying. We also find that the usefulness of coskewness is robust to the inclusion of Fama and French's (1993) SMB and HML factor returns. There is an interesting debate raging in the empirical asset pricing literature comparing the SDF versus beta methodologies. This paper's technique is a conditional version of the beta methodology, which turns out to be directly comparable with the SDF methodology with only minor modifications. Our SDF version imposes the CAPM's restrictions that the coefficients in the pricing kernel are known functions of the moments of market returns, which are modelled using macro-variables. We find that the SDF implied by the three-moment CAPM provides a better fit in this data set than current practice of parameterizing the coefficients on market returns in the SDF. This has an interesting application to the current SDF versus beta methodology debate. / Business, Sauder School of / Finance, Division of / Graduate

In this paper we prove a topological lemma on real valued random variables which implies the basic ingredients for the proof of the Fundamental Theorem of Asset Pricing in the two period case. In particular, previous results of Stricker and of Schachermayer are special cases of our result. Our proof is considerably shorter and more transparent than previous proofs of related special cases. / Series: Working Papers SFB "Adaptive Information Systems and Modelling in Economics and Management Science"

Road pricing has emerged as an effective means of managing road traffic demand while simultaneously raising additional revenues to transportation agencies. Research on the factors that govern travel decisions has shown that user preferences may be a function of the demographic characteristics of the individuals and the perceived trip attributes. However, it is not clear what are the actual trip attributes considered in the travel decision- making process, how these attributes are perceived by travelers, and how the set of trip attributes change as a function of the time of the day or from day to day. In this study, operational Intelligent Transportation Systems (ITS) archives are mined and the aggregated preferences for a priced system are extracted at a fine time aggregation level for an extended number of days. The resulting information is related to corresponding time-varying trip attributes such as travel time, travel time reliability, charged toll, and other parameters. The time-varying user preferences and trip attributes are linked together by means of a binary choice model (Logit) with a linear utility function on trip attributes. The trip attributes weights in the utility function are then dynamically estimated for each time of day by means of an adaptive, limited-memory discrete Kalman filter (ALMF). The relationship between traveler choices and travel time is assessed using different rules to capture the logic that best represents the traveler perception and the effect of the real-time information on the observed preferences. The impact of travel time reliability on traveler choices is investigated considering its multiple definitions. It can be concluded based on the results that using the ALMF algorithm allows a robust estimation of time-varying weights in the utility function at fine time aggregation levels. The high correlations among the trip attributes severely constrain the simultaneous estimation of their weights in the utility function. Despite the data limitations, it is found that, the ALMF algorithm can provide stable estimates of the choice parameters for some periods of the day. Finally, it is found that the daily variation of the user sensitivities for different periods of the day resembles a well-defined normal distribution.

Determining and predicting the exact prices of apartments is a complex task. It requires the data on the factors that directly influence the price of the apartment, such as the number of rooms or location of the apartment, and the information about the factors that indirectly affect the price, such as the availability of public transport and public goods near the apartment. One of the limitations of our work is the lack of data on the availability of indirect factors, and so in this paper we purely focus, and determine to what extent direct factors influence the formation of the final price. We find the influence of each of these factors with the help of the hedonic pricing, and the method of linear regression. After the first regression we identified which variable is least significant for our work and removed it. In our case it happened to be the variable Floor that identifies the level of the apartment. Further, we also test other types of regressions, such as semi – log regression, double – log regression, and quadratic regression. This is done to identify which of the regressions demonstrates the clearest picture on the effects of the variables. In other words, in which of the regressions the variables have the most significant parameter values. We found the Regression Five, a quadratic regression, to be an equation with the most significant parameter values. We also identified that the variables Rooms (indicating the number of rooms in the apartments) and Share (indicating the corporate share in the building) to have the biggest impact on the formation of the final price. Thus, we conclude that the variables Rooms and Share have the most significant influence on the price, whereas a quadratic regression (in this paper Regression Five) presents an equation with the most significant values of parameters and the highest degree of explanation.

Questa tesi comprende due saggi. Il saggio 1 si concentra sull'effetto del rischio macroeconomico su Value Premium. In questo documento, esaminiamo in che misura il Value Premium è influenzato dalla percezione del rischio macroeconomico da parte dell'investitore. Indaghiamo l'impatto dell'effetto macro sui multipli fondamentali che risulta dalla decomposizione market-to-book di Rhodes-Kropf Robinson e Viswanathan (2005). Poiché questi multipli contengono le aspettative degli investitori sia sui tassi di crescita sia sui tassi di sconto, le loro stime variabili nel tempo dovrebbero acquisire informazioni sul sentimento dell'investitore in merito alle prospettive economiche. Scopriamo che il rendimento del Tesoro a 10 anni e la pendenza della Struttura a termine hanno un impatto significativo su diversi multipli fondamentali con un conseguente effetto sulla stima del valore intrinseco dell'impresa. La nostra configurazione empirica ci consente di stimare i componenti di mercato per libro utilizzando valori fondamentali solidi che sono ortogonali agli effetti dell'incertezza macroeconomica. Il nostro risultato chiave è che quando eliminiamo l'effetto delle aspettative degli investitori sullo scenario economico, il premio di valore premia, quasi interamente, il rischio dimensionale. Adeguandosi all'esposizione dimensionale, i multipli di contabilità ortogonale rimuovono l'effetto macro riducendo il rendimento in eccesso di una valutazione errata. Saggio 2 si concentra sull'effetto dei vincoli di leva sul Value Premium. Introduciamo una giustificazione teorica basata sull'avversione dell'investitore nei confronti della leva finanziaria (Frazzini e Pedersen, 2014) e fornendo prove empiriche sulla connessione dell'anomalia a bassa beta e sui rendimenti superiori ottenuti dalle azioni di valore. Studiamo le variazioni nelle serie temporali beta di portafogli ordinate in base al componente stimato dalla decomposizione market-to-book di Rhodes-Kropf Robinson e Viswanathan (2005). Scopriamo che in media i portafogli sottovalutati hanno una beta variabile nel tempo più piccola rispetto a sopravvalutata. Indaghiamo anche la sensibilità della componente di svalutazione delle azioni a bassa beta rispetto ai macro proxy delle condizioni di finanziamento. Coerentemente con la teoria dell'avversione alla leva finanziaria, i risultati empirici mostrano un'interazione negativa tra questa componente e le condizioni di finanziamento che confermano l'effetto negativo sui prezzi per le azioni low-beta quando aumentano le restrizioni sulla leva finanziaria. , costruiamo strategie long-short basate sulla componente di valutazione errata del market-to-book. Il nostro risultato empirico chiave è che l'eccesso di rendimento della componente market-to-book, più attribuibile al prezzo errato dell'impresa, è influenzato negativamente dal peggioramento delle condizioni di finanziamento. Questa evidenza supporta la teoria dell'avversione della leva finanziaria nella spiegazione del rendimento superiore di portafogli sottovalutati. / This thesis includes two essays. Essay 1 concentrates on the effect of macroeconomic risk on Value Premium. In this paper, we examine to what extent the Value Premium is affected by the investor's perception of macroeconomic risk. We investigate the impact of the macro effect on the fundamental multiples which results from the market-to-book decomposition of Rhodes-Kropf Robinson, and Viswanathan (2005). Since these multiples contain investor's expectations both on growth rates and discount rates their time-varying estimates should capture information on the investor's sentiment about economic perspectives. We find that 10 Year Treasury yield and the slope of Term Structure have a significant impact on several fundamental multiples with a consequential effect on the estimate of firm intrinsic value. Our empirical setup allow us to estimate market-to-book components by using firm fundamental values which are orthogonal to the effects of macroeconomics uncertainty. Our key result is that when we remove the effect of investor's expectations on the economic scenario the value premium rewards, almost entirely, the size risk. Adjusting for the size exposure, orthogonal accounting multiples remove the macro effect reducing the excess return of firm misvaluation. Essay 2 focuses on the effect of leverage constraints on the Value Premium. We introduce a theoretical justification based on investor's aversion to leverage (Frazzini and Pedersen, 2014) and by providing empirical evidence about the connection of low-beta anomaly and the superior returns earned by value stocks. We study variations in beta time-series of portfolios sorted on the component estimated by the market-to-book decomposition of Rhodes-Kropf Robinson, and Viswanathan (2005). We find that on average undervalued portfolios have a smaller time-varying beta than overvalued. We also investigate the sensitivity of the misvaluation component of low-beta stocks to macro proxies of funding conditions. Consistently with Leverage Aversion Theory, empirical results show a negative interaction between this component and funding conditions confirming the negative effect on prices for low-beta stocks when leverage constraints increase.To test the effect of leverage constraints on the excess return originated by the firm's mispricing, we construct long-short strategies based on the misvaluation component of market-to-book.Our key empirical result is that the excess return of the market-to-book component, most attributable to the firm's mispricing, is negatively affected by the worsening of funding conditions. This evidence supports the Leverage Aversion Theory in explaining the superior return of undervalued portfolios.