Economics Insights @ CBS

We examine the ability of a dynamic asset-pricing model to explain the returns on G7-country stock market indices. We extend Campbell's (1996) asset-pricing model to investigate international equity returns. We also utilize and evaluate recent evidence on the predictability of stock returns. We find some evidence for the role of hedging demands in explaining stock returns and compare the predictions of the dynamic model to those from the static CAPM. Both models fail in their predictions of average returns on portfolios of high book-to-market stocks across countries.

This paper deals with Markov decision processes with a countable state space. We demonstrate that a single, relatively simple condition suffices to guarantee that the value-iteration method converges and that an optimal policy can be computed via this method, once the existence of a solution to the average cost optimality equation has been established via any of the many available sets of existence conditions.

We analyze a randomized version of the deterministic linear programming (DLP) method for computing network bid prices. The method consists of simulating a sequence of realizations of itinerary demand and solving deterministic linear programs to allocate capacity to itineraries for each realization. The dual prices from this sequence are then averaged to form a bid price approximation. This randomized linear programming (RLP) method is only slightly more complicated to implement than the DLP method.

This survey reviews the forty-year history of research on transportation revenue management (also known as yield management). We cover developments in forecasting, overbooking, seat inventory control, and pricing, as they relate to revenue management, and suggest future research directions. The survey includes a glossary of revenue management terminology and a bibliography of over 190 references.