Jim Chen's SSRN abstracts

Welcome to Jim Chen's SSRN abstracts. This is a human-friendly display of the RSS feed  for Mr. Chen's official SSRN page (http://ssrn.com/author=68651), reorganized by reverse chronological order rather than number of downloads. To receive updates as Mr. Chen posts new papers or updates old papers, please use the following form:

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New: Models for Predicting Business Bankruptcies and Their Application to Banking and to Financial Regulation, https://www.ssrn.com/abstract=3329147 (February 14, 2019)

Models for predicting business bankruptcies have evolved rapidly. Machine learning is displacing traditional statistical methodologies. Three distinct techniques for approaching the classification problem in bankruptcy prediction have emerged: single classification, hybrid classification, and classifier ensembles. Methodological heterogeneity through the introduction and integration of machine-learning algorithms (especially support vector machines, decision trees, and genetic algorithms) has improved the accuracy of bankruptcy prediction models. Greater accuracy promotes external processes of banks by minimizing credit risk and by facilitating regulatory compliance.
New: Second-Order Inequality: Clarifying and Modeling the Gini Coefficient with Measures of Internal Asymmetry, https://www.ssrn.com/abstract=3302339 (January 2, 2019)

This paper presents a physical model of the Gini coefficient and its corresponding Lorenz curve. If the Lorenz curve is scaled to 1, then 1 represents gross domestic income, gross domestic product, or societal wealth. The value 1 also represents total population. On these assumptions, the value of x ∈ [0, 1] where the first derivative of the Gini coefficient equals one represents the population quantile that enjoys per capita income or wealth. This paper also describes methods for evaluating the internal asymmetry of any distribution corresponding to a particular Gini coefficient. It concludes with worked examples from Oxfam’s survey of global inequality and from French data on wealth inequality.
REVISION: The Fragile Menagerie: Biodiversity Loss, Climate Change, and the Law, https://www.ssrn.com/abstract=2862882 (August 30, 2018)

The greatest vectors of biodiversity loss in the Anthropocene epoch are climate change, habitat destruction, invasive species, pollution, population, and overkill. Perversely enough, the legal understanding of extinction mechanisms remains frozen in time, like a cave dweller in ice. Climate change, habitat destruction, and alien invasive species should figure more prominently than overkill and the marketing of products derived from endangered species. The law, however, imposes its clearest and harshest sanctions precisely where the drivers of extinction are weakest: when humans consciously capture or kill other living things. The Endangered Species Act has been adapted to address habitat destruction on private land and to mitigate climate change. Nevertheless, the law’s lack of congruence with conservation biology impedes efforts to preserve biodiversity and mitigate climate change.
REVISION: Speculative Undertakings: Rate Regulation as a Branch of Corporate Finance, https://www.ssrn.com/abstract=3103627 (August 24, 2018)

The law of regulated industries, particularly the legislative command that the government ensure “just and reasonable rates” for regulated services, is a highly specialized application of financial economics. Ratemaking, to put it bluntly, represents a regulatory exercise in capital asset pricing. As a matter of economics, this article describes ratemaking as a variation on the theme of uncertainty in mathematical finance. As a matter of law, this article describes legal principles guiding the determination of the rate of return on property dedicated to public use. It closely analyzes two regulatory valuation methods derived from the 1923 Bluefield Water Works decision (“attracting capital” and “comparable earnings”), as well as a third approach based on the capital asset pricing model. Discretionary elements in rate regulation make it impossible to wholly alleviate uncertainty in the pricing of utility infrastructure. Utility rate regulation therefore constitutes a speculative ...
REVISION: Legal Responses in the United States to Biodiversity Loss and Climate Change, https://www.ssrn.com/abstract=2864062 (August 24, 2018)

The greatest vectors of biodiversity loss today are climate change, habitat destruction, invasive species, pollution, population, and overkill. Climate change, habitat destruction, and alien invasive species should figure more prominently than overkill and the marketing of products derived from endangered species. The law, however, imposes its clearest, harshest sanctions precisely where the drivers of extinction are weakest: when humans consciously capture or kill other living things. More helpfully, the Endangered Species Act has been adapted to address habitat destruction on private land and to mitigate climate change.
REVISION: Truth and Beauty: Finance in Econophysical Translation, https://www.ssrn.com/abstract=3067353 (August 24, 2018)

My recent book, Econophysics and Capital Asset Pricing: Splitting the Atom of Systematic Risk, splits beta, the capital asset pricing model’s basic unit of systematic risk, into subatomic (or “baryonic”) components, by analogy to the Standard Model of particle physics. This essay offers preliminary thoughts on the application of physics to other dimensions of finance. A more comprehensive approach would integrate Econophysics and Capital Asset Pricing’s spatial representation of comovement between individual firms, capital markets, and the real economy, with the informational and temporal dimensions of finance. This essay also places efforts at representing finance through physics in their broader scientific and aesthetic context.
REVISION: Baryonic Beta Dynamics: An Econophysical Model of Systematic Risk, https://www.ssrn.com/abstract=3062414 (August 24, 2018)

This essay seeks to rehabilitate the capital asset pricing model by splitting beta, the basic unit of systematic risk, into subatomic (or “baryonic”) components. By analogy to quantum chromodynamics and other aspects of the Standard Model of particle physics, this essay bifurcates beta on either side of mean returns and into distinct components reflecting relative volatility and correlation, as well as cash-flow and discount-rate effects. Splitting the atom of systematic risk answers some of the most troubling anomalies and puzzles in finance, including abnormal returns on small-cap and value stocks, the low-volatility anomaly, and the equity premium puzzle.
New: Agriculture, End to End, https://www.ssrn.com/abstract=3218894 (August 9, 2018)

Agriculture consists of a process for converting energy and biological information into physical products for human consumption. Increasingly sophisticated biotechnology in agricultural inputs makes manifest this definition of agriculture as information flow. The architectural ideal in information science is the end-to-end principle. All intelligence within an information platform arises from its ends. The corollary of the end-to-end principle, however, is that intervening layers facilitating the transmission of intelligence become “dumb pipe,” whose sole contribution consists of efficient transport of information. Within its own domain, agriculture has become dumb pipe. The rise of bioengineered inputs has rendered obsolete the evolutionary contribution of farmers. At the other end of the value chain, consumer-driven preferences in food restrict the inputs that farmers may deploy. “Intelligence” propelled by preferences and tastes among affluent consumers constrain choices ...
New: Seeing Is Believing — Foreword to Nicholas L. Georgakopoulos, Illustrating Finance Policy with Mathematica, https://www.ssrn.com/abstract=3194399 (July 4, 2018)

Truth routinely manifests itself through mathematics. Just as law uses words to animate its enterprise, nature speaks through the language of mathematics. Through this volume, Illustrating Finance Policy with Mathematica, Nicholas L. Georgakopoulos enriches the Palgrave Macmillan, series, Quantitative Perspectives on Behavioral Economics and Finance, by demonstrating the mathematical underpinnings of law and finance in vivid, visual terms.
New: Higher-Moment Asset Pricing and Environmental Economics, https://www.ssrn.com/abstract=3188101 (June 13, 2018)

This essay presents higher-moment asset pricing, a generalized approach to finance that combines a mathematically informed understanding of economic fundamentals with psychologically and biologically inspired behavioral insights. It ultimately seeks to apply higher-moment asset pricing to a wide range of valuation and decisionmaking problems in environmental economics.
REVISION: On Exactitude in Financial Regulation: Value-at-Risk, Expected Shortfall, and Expectiles, https://www.ssrn.com/abstract=3136278 (June 12, 2018)

This article reviews two leading measures of financial risk and an emerging alternative. Embraced by the Basel accords, value-at-risk and expected shortfall are the leading measures of financial risk. Expectiles offset the weaknesses of value-at-risk (VaR) and expected shortfall. Indeed, expectiles are the only elicitable law-invariant coherent risk measures. After reviewing practical concerns involving backtesting and robustness, this article more closely examines regulatory applications of expectiles. Expectiles are most readily evaluated as a special class of quantiles. For ease of regulatory implementation, expectiles can be defined exclusively in terms of VaR, expected shortfall, and the thresholds at which those competing risk measures are enforced. Moreover, expectiles are in harmony with gain/loss ratios in financial risk management. Expectiles may address some of the flaws in VaR and expected shortfall — subject to the reservation that no risk measure can achieve exactitude ...
REVISION: The Legal Instinct: Lawmaking as a Branch of Biolaw, https://www.ssrn.com/abstract=3099338 (May 27, 2018)

In her 2017 book, Rules for a Flat World, Gillian Hadfield upbraids the legal profession and the legal academy for ascribing supremacy, even exclusivity, to traditional legal institutions. Legal infrastructure, especially in the poorest countries, depends on entrepreneurs willing to shatter these myths. Hadfield prescribes possible solutions to the problem of inspiring and fostering entrepreneurship for legal infrastructure. This review essay describes how Rules for a Flat World envisions the reinvention of markets for legal rules and institutions in the image of Silicon Valley startups. This essay also describes humans’ intrinsic longing for social ordering and dispute resolution. If the legal instinct is biologically based and mediated, then lawmaking should be evaluated as a branch of biolaw.

  

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