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Author Ahn, Daniel Pyounghyun
Title Essays on finance, international economics, and national security
book jacket
Descript 133 p
Note Source: Dissertation Abstracts International, Volume: 69-01, Section: A, page: 0300
Adviser: Martin Feldstein
Thesis (Ph.D.)--Harvard University, 2008
This dissertation is comprised of three stand-alone chapters, subtitled "Heterogeneous Talent, Market Efficiency, and Investor Performance," "Optimal Control of the US Strategic Petroleum Reserve," and "The US Strategic Petroleum Reserve and Cartel Deterrence" respectively
The first chapter builds upon the Grossman-Stiglitz (1980) costly information framework by introducing a continuum of agents heterogeneous in talent. Agents decide whether to purchase noisy "data," and apply their talent to refine the precision of the signal within the data. There will be a cutoff level of talent below which agents will not purchase data and hold little to no amounts of the risky asset. More talented agents will actively hold more risky assets and gain higher returns. Increasing the initial precision of the data improves market efficiency, causes informed traders to exit the market, and reduces investor performance
The second chapter presents a simple continuous-time model of the US Strategic Petroleum Reserve (SPR) and derives optimal price stabilization policy. Oil prices are assumed to follow a mean-reverting stochastic process. Importantly, the SPR can be exhausted, presenting a "liquidity" constraint to the optimization problem. The derived optimal policy has a "real option" intuition. Comparing the simulated paths for optimal policy with actual empirical data, the model suggests that the US government deviated considerably from optimal policy during the oil panics of the 1970s, but closely followed optimal policy in the late 1980s and 1990s. However, since 2001, the model suggests that the US government is using the SPR suboptimally for price management once again
The third chapter presents a novel purpose for the SPR for national energy security. In a repeated game framework, the chapter demonstrates how a reserve of sufficient size can potentially deter an oil cartel such as OPEC from any noncompetitive quantity-setting behavior indefinitely, thus achieving indirect energy independence. The paper derives the minimal levels of reserves necessary to maintain a competitive pricing "steady-fill" state in dynamic equilibrium. A calibration of the model returns feasible target levels for the SPR, on the order of 400 days worth of cover
School code: 0084
Host Item Dissertation Abstracts International 69-01A
Subject Economics, General
Economics, Finance
Alt Author Harvard University
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