Search results for: Stochastic process.

Authors: M. Reni Sagayaraj, S. Anand Gnana Selvam, R. Reynald Susainathan

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We analyze stochastic integrals associated with a mutation process. To be specific, we describe the cell population process and derive the differential equations for the joint generating functions for the number of mutants and their integrals in generating functions and their applications. We obtain first-order moments of the processes of the two-way mutation process in first-order moment structure of X (t) and Y (t) and the second-order moments of a one-way mutation process. In this paper, we obtain the limiting behaviour of the integrals in limiting distributions of X (t) and Y (t).

Keywords: stochastic integrals, single–server queue model, catastrophes, busy period

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Authors: Mary Chriselda A

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This paper deals with the fact that the Hubble's parameter is not constant and tends to vary stochastically with time. This premise has been proven by converting it to a stochastic differential equation using the Ornstein-Uhlenbeck process. The formulated stochastic differential equation is further solved analytically using the Euler and the Kolmogorov Forward equations, thereby obtaining the probability density function using the Fourier transformation, thereby proving that the Hubble's parameter varies stochastically. This is further corroborated by simulating the observations using Python and R-software for validation of the premise postulated. We can further draw conclusion that the randomness in forces affecting the white noise can eventually affect the Hubble’s Parameter leading to scale invariance and thereby causing stochastic fluctuations in the density and the rate of expansion of the Universe.

Keywords: Chapman Kolmogorov forward differential equations, fourier transformation, hubble's parameter, ornstein-uhlenbeck process , stochastic differential equations

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Authors: Yuyang Cheng, Marcos Escobar-Anel

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This paper introduces a multivariate 4/2 stochastic covariance process generalizing the one-dimensional counterparts presented in Grasselli (2017). Our construction permits stochastic correlation not only among stocks but also among volatilities, also known as co-volatility movements, both driven by more convenient 4/2 stochastic structures. The parametrization is flexible enough to separate these types of correlation, permitting their individual study. Conditions for proper changes of measure and closed-form characteristic functions under risk-neutral and historical measures are provided, allowing for applications of the model to risk management and derivative pricing. We apply the model to an expected utility theory problem in incomplete markets. Our analysis leads to closed-form solutions for the optimal allocation and value function. Conditions are provided for well-defined solutions together with a verification theorem. Our numerical analysis highlights and separates the impact of key statistics on equity portfolio decisions, in particular, volatility, correlation, and co-volatility movements, with the latter being the least important in an incomplete market.

Keywords: stochastic covariance process, 4/2 stochastic volatility model, stochastic co-volatility movements, characteristic function, expected utility theory, verication theorem

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Authors: Leila Jafari, Viliam Makis

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In this paper, the joint optimization of the economic manufacturing quantity (EMQ), safety stock level, and condition-based maintenance (CBM) is presented for a partially observable, deteriorating system subject to random failure. The demand is stochastic and it is described by a Poisson process. The stochastic model is developed and the optimization problem is formulated in the semi-Markov decision process framework. A modification of the policy iteration algorithm is developed to find the optimal policy. A numerical example is presented to compare the optimal policy with the policy considering zero safety stock.

Keywords: condition-based maintenance, economic manufacturing quantity, safety stock, stochastic demand

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Authors: Meriem Bahij, Ahmed Nafidi, Boujemâa Achchab, Sílvio M. A. Gama, José A. O. Matos

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Stochastic modeling concerns the use of probability to model real-world situations in which uncertainty is present. Therefore, the purpose of stochastic modeling is to estimate the probability of outcomes within a forecast, i.e. to be able to predict what conditions or decisions might happen under different situations. In the present study, we present a model of a stochastic diffusion process based on the bi-Weibull distribution function (its trend is proportional to the bi-Weibull probability density function). In general, the Weibull distribution has the ability to assume the characteristics of many different types of distributions. This has made it very popular among engineers and quality practitioners, who have considered it the most commonly used distribution for studying problems such as modeling reliability data, accelerated life testing, and maintainability modeling and analysis. In this work, we start by obtaining the probabilistic characteristics of this model, as the explicit expression of the process, its trends, and its distribution by transforming the diffusion process in a Wiener process as shown in the Ricciaardi theorem. Then, we develop the statistical inference of this model using the maximum likelihood methodology. Finally, we analyse with simulated data the computational problems associated with the parameters, an issue of great importance in its application to real data with the use of the convergence analysis methods. Overall, the use of a stochastic model reflects only a pragmatic decision on the part of the modeler. According to the data that is available and the universe of models known to the modeler, this model represents the best currently available description of the phenomenon under consideration.

Keywords: diffusion process, discrete sampling, likelihood estimation method, simulation, stochastic diffusion process, trends functions, bi-parameters weibull density function

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Authors: Raphael Naryongo, Philip Ngare, Anthony Waititu

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This paper deals with numerical simulation of Wishart processes for a single asset risky pricing model whose volatility is described by Wishart affine diffusion processes. The multi-factor specification of volatility will make the model more flexible enough to fit the stock market data for short or long maturities for better returns. The Wishart process is a stochastic process which is a positive semi-definite matrix-valued generalization of the square root process. The aim of the study is to model the log asset stock returns under the double Wishart stochastic volatility model. The solution of the log-asset return dynamics for Bi-Wishart processes will be obtained through Euler-Maruyama discretization schemes. The numerical results on the asset returns are compared to the existing models returns such as Heston stochastic volatility model and double Heston stochastic volatility model

Keywords: euler schemes, log-asset return, infinitesimal generator, wishart diffusion affine processes

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Authors: Arcady Ponosov

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Many well-known age-structured population models are derived from the celebrated McKendrick-von Foerster equation (MFE), also called the biological conservation law. A similar technique is suggested for the stochastically perturbed MFE. This technique is shown to produce stochastic versions of the deterministic population models, which appear to be very different from those one can construct by simply appending additive stochasticity to deterministic equations. In particular, it is shown that stochastic Nicholson’s blowflies model should contain both additive and multiplicative stochastic noises. The suggested transformation technique is similar to that used in the deterministic case. The difference is hidden in the formulas for the exact solutions of the simplified boundary value problem for the stochastically perturbed MFE. The analysis is also based on the theory of stochastic delay differential equations.

Keywords: boundary value problems, population models, stochastic delay differential equations, stochastic partial differential equation

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Authors: Rouhallah Bagheri, Morteza Mahmoudi, Hadi Moheb-Alizadeh

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This paper aims at developing a multi-objective model for supplier selection and order allocation problem in stochastic environment, where purchasing cost, percentage of delivered items with delay and percentage of rejected items provided by each supplier are supposed to be stochastic parameters following any arbitrary probability distribution. In this regard, dependent chance programming is used which maximizes probability of the event that total purchasing cost, total delivered items with delay and total rejected items are less than or equal to pre-determined values given by decision maker. The abovementioned stochastic multi-objective programming problem is then transformed into a stochastic single objective programming problem using minimum deviation method. In the next step, the further problem is solved applying a genetic algorithm, which performs a simulation process in order to calculate the stochastic objective function as its fitness function. Finally, the impact of stochastic parameters on the given solution is examined via a sensitivity analysis exploiting coefficient of variation. The results show that whatever stochastic parameters have greater coefficients of variation, the value of the objective function in the stochastic single objective programming problem is deteriorated.

Keywords: supplier selection, order allocation, dependent chance programming, genetic algorithm

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Authors: Nadarajah I. Ramesh

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Much of the research on stochastic point process models for rainfall has focused on Poisson cluster models constructed from either the Neyman-Scott or Bartlett-Lewis processes. The doubly stochastic Poisson process provides a rich class of point process models, especially for fine-scale rainfall modelling. This paper provides an account of recent development on this topic and presents the results based on some of the fine-scale rainfall models constructed from this class of stochastic point processes. Amongst the literature on stochastic models for rainfall, greater emphasis has been placed on modelling rainfall data recorded at hourly or daily aggregation levels. Stochastic models for sub-hourly rainfall are equally important, as there is a need to reproduce rainfall time series at fine temporal resolutions in some hydrological applications. For example, the study of climate change impacts on hydrology and water management initiatives requires the availability of data at fine temporal resolutions. One approach to generating such rainfall data relies on the combination of an hourly stochastic rainfall simulator, together with a disaggregator making use of downscaling techniques. Recent work on this topic adopted a different approach by developing specialist stochastic point process models for fine-scale rainfall aimed at generating synthetic precipitation time series directly from the proposed stochastic model. One strand of this approach focused on developing a class of doubly stochastic Poisson process (DSPP) models for fine-scale rainfall to analyse data collected in the form of rainfall bucket tip time series. In this context, the arrival pattern of rain gauge bucket tip times N(t) is viewed as a DSPP whose rate of occurrence varies according to an unobserved finite state irreducible Markov process X(t). Since the likelihood function of this process can be obtained, by conditioning on the underlying Markov process X(t), the models were fitted with maximum likelihood methods. The proposed models were applied directly to the raw data collected by tipping-bucket rain gauges, thus avoiding the need to convert tip-times to rainfall depths prior to fitting the models. One advantage of this approach was that the use of maximum likelihood methods enables a more straightforward estimation of parameter uncertainty and comparison of sub-models of interest. Another strand of this approach employed the DSPP model for the arrivals of rain cells and attached a pulse or a cluster of pulses to each rain cell. Different mechanisms for the pattern of the pulse process were used to construct variants of this model. We present the results of these models when they were fitted to hourly and sub-hourly rainfall data. The results of our analysis suggest that the proposed class of stochastic models is capable of reproducing the fine-scale structure of the rainfall process, and hence provides a useful tool in hydrological modelling.

Keywords: fine-scale rainfall, maximum likelihood, point process, stochastic model

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Authors: Rouhallah Bagheri, Morteza Mahmoudi, Hadi Moheb-Alizadeh

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In this paper, we develop a supplier selection and order allocation multi-objective model in stochastic environment in which purchasing cost, percentage of delivered items with delay and percentage of rejected items provided by each supplier are supposed to be stochastic parameters following any arbitrary probability distribution. To do so, we use dependent chance programming (DCP) that maximizes probability of the event that total purchasing cost, total delivered items with delay and total rejected items are less than or equal to pre-determined values given by decision maker. After transforming the above mentioned stochastic multi-objective programming problem into a stochastic single objective problem using minimum deviation method, we apply a genetic algorithm to get the later single objective problem solved. The employed genetic algorithm performs a simulation process in order to calculate the stochastic objective function as its fitness function. At the end, we explore the impact of stochastic parameters on the given solution via a sensitivity analysis exploiting coefficient of variation. The results show that as stochastic parameters have greater coefficients of variation, the value of objective function in the stochastic single objective programming problem is worsened.

Keywords: dependent chance programming, genetic algorithm, minimum deviation method, order allocation, supplier selection

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Authors: María L. Jalón, Feargal Brennan

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A non-stationary stochastic optimization methodology is applied to an OWC (oscillating water column) to find the design that maximizes the wave energy extraction. Different temporal cycles are considered to represent the long-term variability of the wave climate at the site in the optimization problem. The results of the non-stationary stochastic optimization problem are compared against those obtained by a stationary stochastic optimization problem. The comparative analysis reveals that the proposed non-stationary optimization provides designs with a better fit to reality. However, the stationarity assumption can be adequate when looking at averaged system response.

Keywords: non-stationary stochastic optimization, oscillating water, temporal variability, wave energy

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Authors: Lev Idels, Arcady Ponosov

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Stochastic fractional differential equations have recently attracted considerable attention, as they have been used to model real-world processes, which are subject to natural memory effects and measurement uncertainties. Compared to conventional hereditary differential equations, one of the advantages of fractional differential equations is related to more realistic geometric properties of their trajectories that do not intersect in the phase space. In this report, a Peano-like existence theorem for nonlinear stochastic fractional differential equations is proven under very general hypotheses. Several specific classes of equations are checked to satisfy these hypotheses, including delay equations driven by the fractional Brownian motion, stochastic fractional neutral equations and many others.

Keywords: delay equations, operator methods, stochastic noise, weak solutions

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Authors: Arcady Ponosov, Ramazan Kadiev

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Input-to-State Stability (ISS) is widely used in deterministic control theory but less known in the stochastic case. Roughly speaking, the theory explains when small perturbations of the right-hand sides of the system on the entire semiaxis cause only small changes in the solutions of the system, again on the entire semiaxis. This property is crucial in many applications. In the report, we explain how to define and study ISS for systems of linear stochastic differential equations with or without delays. The central result connects ISS with the property of Lyapunov stability. This relationship is well-known in the deterministic setting, but its stochastic version is new. As an application, a method of studying asymptotic Lyapunov stability for stochastic delay equations is described and justified. Several examples are provided that confirm the efficiency and simplicity of the framework.

Keywords: asymptotic stability, delay equations, operator methods, stochastic perturbations

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Authors: Likewin Thomas, M. V. Manoj Kumar, B. Annappa

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The aim of this study was to develop an Artificial Neural Network0 s recommendation model for an online process using the complexity of load, performance, and average servicing time of the resources. Here, the proposed model investigates the resource performance using stochastic gradient decent method for learning ranking function. A probabilistic cost function is implemented to identify the optimal θ values (load) on each resource. Based on this result the recommendation of resource suitable for performing the currently executing task is made. The test result of CoSeLoG project is presented with an accuracy of 72.856%.

Keywords: ADALINE, neural network, gradient decent, process mining, resource behaviour, polynomial regression model

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Authors: Amirhossein Khazali, Mohsen Kalantar

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Energy storage units can play an important role to provide an economic and secure operation of future energy systems. In this paper, a stochastic energy and reserve market clearing scheme is presented considering storage energy units. The approach is proposed to deal with stochastic and non-dispatchable renewable sources with a high level of penetration in the energy system. A two stage stochastic programming scheme is formulated where in the first stage the energy market is cleared according to the forecasted amount of wind generation and demands and in the second stage the real time market is solved according to the assumed scenarios.

Keywords: energy and reserve market, energy storage device, stochastic programming, wind generation

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Authors: Fakhreddin Abedi, Wah June Leong

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Exponential stability of stochastic differential equations with non trivial solutions is provided in terms of Lyapunov functions. The main result of this paper establishes that, under certain hypotheses for the dynamics f(.) and g(.), practical exponential stability in probability at the small neighborhood of the origin is equivalent to the existence of an appropriate Lyapunov function. Indeed, we establish exponential stability of stochastic differential equation when almost all the state trajectories are bounded and approach a sufficiently small neighborhood of the origin. We derive sufficient conditions for exponential stability of stochastic differential equations. Finally, we give a numerical example illustrating our results.

Keywords: exponential stability in probability, stochastic differential equations, Lyapunov technique, Ito's formula

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Authors: Chi Zhang, Hua-Peng Chen

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With the increasingly demanding resources in the word, renewable and clean energy has been considered as an alternative way to replace traditional ones. Thus, one of practical examples for using wind energy is wind turbine, which has gained more attentions in recent research. Like most offshore structures, the blades, which is the most critical components of the wind turbine, will be subjected to millions of loading cycles during service life. To operate safely in marine environments, the blades are typically made from fibre reinforced composite materials to resist fatigue delamination and harsh environment. The fatigue crack development of blades is uncertain because of indeterminate mechanical properties for composite and uncertainties under offshore environment like wave loads, wind loads, and humid environments. There are three main delamination failure modes for composite blades, and the most common failure type in practices is subjected to mixed mode loading, typically a range of opening (mode 1) and shear (mode 2). However, the fatigue crack development for mixed mode cannot be predicted as deterministic values because of various uncertainties in realistic practical situation. Therefore, selecting an effective stochastic model to evaluate the mixed mode behaviour of wind turbine blades is a critical issue. In previous studies, gamma process has been considered as an appropriate stochastic approach, which simulates the stochastic deterioration process to proceed in one direction such as realistic situation for fatigue damage failure of wind turbine blades. On the basis of existing studies, various Paris Law equations are discussed to simulate the propagation of the fatigue crack growth. This paper develops a Paris model with the stochastic deterioration modelling according to gamma process for predicting fatigue crack performance in design service life. A numerical example of wind turbine composite materials is investigated to predict the mixed mode crack depth by Paris law and the probability of fatigue failure by gamma process. The probability of failure curves under different situations are obtained from the stochastic deterioration model for comparisons. Compared with the results from experiments, the gamma process can take the uncertain values into consideration for crack propagation of mixed mode, and the stochastic deterioration process shows a better agree well with realistic crack process for composite blades. Finally, according to the predicted results from gamma stochastic model, assessment strategies for composite blades are developed to reduce total lifecycle costs and increase resistance for fatigue crack growth.

Keywords: Reinforced fibre composite, Wind turbine blades, Fatigue delamination, Mixed failure mode, Stochastic process.

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Authors: Haowen Xi

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We propose and solve exactly a class of non-linear generalization of the Black-Scholes process of stochastic differential equations describing price bubble and crashes dynamics. As a result of nonlinear positive feedback, the faster-than-exponential price positive growth (bubble forming) and negative price growth (crash forming) are found to be the power-law finite-time singularity in which bubbles and crashes price formation ending at finite critical time tc. While most literature on the market bubble and crash process focuses on the nonlinear positive feedback mechanism aspect, very few studies concern the noise level on the same process. The present work adds to the market bubble and crashes literature by studying the external sources noise influence on the critical time tc of the bubble forming and crashes forming. Two main results will be discussed: (1) the analytical expression of expected value of the critical time is found and unexpected critical slowing down due to the coupling external noise is predicted; (2) numerical simulations of the nonlinear stochastic equation is presented, and the probability distribution of Prob(tc) is found to be the inverse gamma function.

Keywords: bubble, crash, finite-time-singular, numerical simulation, price dynamics, stochastic differential equations

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Authors: Farzad Sharifi, Raziyeh Shamsi

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In this paper, we obtain the projection of inefficient units in data envelopment analysis (DEA) in the case of stochastic inputs and outputs using the multi-objective programming (MOP) structure. In some problems, the inputs might be stochastic while the outputs are deterministic, and vice versa. In such cases, we propose molti-objective DEA-R model, because in some cases (e.g., when unnecessary and irrational weights by the BCC model reduces the efficiency score), an efficient DMU is introduced as inefficient by the BCC model, whereas the DMU is considered efficient by the DEA-R model. In some other case, only the ratio of stochastic data may be available (e.g; the ratio of stochastic inputs to stochastic outputs). Thus, we provide multi objective DEA model without explicit outputs and prove that in-put oriented MOP DEA-R model in the invariable return to scale case can be replacing by MOP- DEA model without explicit outputs in the variable return to scale and vice versa. Using the interactive methods for solving the proposed model, yields a projection corresponding to the viewpoint of the DM and the analyst, which is nearer to reality and more practical. Finally, an application is provided.

Keywords: DEA, MOLP, STOCHASTIC, DEA-R

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Authors: R. Shamsi, F. Sharifi

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In this paper, we obtain the projection of inefficient units in data envelopment analysis (DEA) in the case of stochastic inputs and outputs using the multi-objective programming (MOP) structure. In some problems, the inputs might be stochastic while the outputs are deterministic, and vice versa. In such cases, we propose a multi-objective DEA-R model because in some cases (e.g., when unnecessary and irrational weights by the BCC model reduce the efficiency score), an efficient decision-making unit (DMU) is introduced as inefficient by the BCC model, whereas the DMU is considered efficient by the DEA-R model. In some other cases, only the ratio of stochastic data may be available (e.g., the ratio of stochastic inputs to stochastic outputs). Thus, we provide a multi-objective DEA model without explicit outputs and prove that the input-oriented MOP DEA-R model in the invariable return to scale case can be replaced by the MOP-DEA model without explicit outputs in the variable return to scale and vice versa. Using the interactive methods for solving the proposed model yields a projection corresponding to the viewpoint of the DM and the analyst, which is nearer to reality and more practical. Finally, an application is provided.

Keywords: DEA-R, multi-objective programming, stochastic data, data envelopment analysis

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Authors: Maria C. Mariani, Md Al Masum Bhuiyan, Osei K. Tweneboah, Hector G. Huizar

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This work is devoted to the study of modeling geophysical time series. A stochastic technique with time-varying parameters is used to forecast the volatility of data arising in geophysics. In this study, the volatility is defined as a logarithmic first-order autoregressive process. We observe that the inclusion of log-volatility into the time-varying parameter estimation significantly improves forecasting which is facilitated via maximum likelihood estimation. This allows us to conclude that the estimation algorithm for the corresponding one-step-ahead suggested volatility (with ±2 standard prediction errors) is very feasible since it possesses good convergence properties.

Keywords: Augmented Dickey Fuller Test, geophysical time series, maximum likelihood estimation, stochastic volatility model

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Authors: Xiang Zhang, David Rey, S. Travis Waller

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Stochastic User Equilibrium (SUE) model is a widely used traffic assignment model in transportation planning, which is regarded more advanced than Deterministic User Equilibrium (DUE) model. However, a problem exists that the performance of the SUE model depends on its error term parameter. The objective of this paper is to propose a systematic method of determining the appropriate error term parameter value for the SUE model. First, the significance of the parameter is explored through a numerical example. Second, the parameter calibration method is developed based on the Logit-based route choice model. The calibration process is realized through multiple nonlinear regression, using sequential quadratic programming combined with least square method. Finally, case analysis is conducted to demonstrate the application of the calibration process and validate the better performance of the SUE model calibrated by the proposed method compared to the SUE models under other parameter values and the DUE model.

Keywords: parameter calibration, sequential quadratic programming, stochastic user equilibrium, traffic assignment, transportation planning

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Authors: Andre M. Carvalho, Pedro Sebastiao

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This article is based on a dissertation that intends to analyze and make a model, intelligently, algorithms based on stochastic processes of a gamification application applied to marketing. Gamification is used in our daily lives to engage us to perform certain actions in order to achieve goals and gain rewards. This strategy is an increasingly adopted way to encourage and retain customers through game elements. The application of gamification aims to encourage children between 6 and 10 years of age to have healthy habits and the purpose of serving as a model for use in marketing. This application was developed in unity; we implemented intelligent algorithms based on stochastic processes, web services to respond to all requests of the application, a back-office website to manage the application and the database. The behavioral analysis of the use of game elements and stochastic processes in children’s motivation was done. The application of algorithms based on stochastic processes in-game elements is very important to promote cooperation and to ensure fair and friendly competition between users which consequently stimulates the user’s interest and their involvement in the application and organization.

Keywords: engage, games, gamification, randomness, stochastic processes

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Authors: Jihad Daba, Jean-Pierre Dubois

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Multi path fading noise degrades the performance of cellular communication, most notably in femto- and pico-cells in 3G and 4G systems. When the wireless channel consists of a small number of scattering paths, the statistics of fading noise is not analytically tractable and poses a serious challenge to developing closed canonical forms that can be analysed and used in the design of efficient and optimal receivers. In this context, noise is multiplicative and is referred to as stochastically local fading. In many analytical investigation of multiplicative noise, the exponential or Gamma statistics are invoked. More recent advances by the author of this paper have utilized a Poisson modulated and weighted generalized Laguerre polynomials with controlling parameters and uncorrelated noise assumptions. In this paper, we investigate the statistics of multi-diversity stochastically local area fading channel when the channel consists of randomly distributed Rayleigh and Rician scattering centers with a coherent specular Nakagami-distributed line of sight component and an underlying doubly stochastic Poisson process driven by a lognormal intensity. These combined statistics form a unifying triply stochastic filtered marked Poisson point process model.

Keywords: cellular communication, femto and pico-cells, stochastically local area fading channel, triply stochastic filtered marked Poisson point process

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Authors: Majid Khalili, Hamed Tayebi

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This paper considers a stochastic flexible job-shop scheduling (SFJSS) problem in the presence of production disruptions, and reactive scheduling is implemented in order to find the optimal solution under uncertainty. In this problem, there are two main disruptions including machine failure which influences operation time, and modification or cancellation of the order delivery date during production. In order to decrease the negative effects of these difficulties, two derived strategies from reactive scheduling are used; the first one is relevant to being able to allocate multiple machine to each job, and the other one is related to being able to select the best alternative process from other job while some disruptions would be created in the processes of a job. For this purpose, a Mixed Integer Linear Programming model is proposed.

Keywords: flexible job-shop scheduling, reactive scheduling, stochastic environment, mixed integer linear programming

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Authors: Loïc Warscotte, Jehan Boreux

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The scientific literature of changepoint detection is vast. Today, a lot of methods are available to detect abrupt changes or slight drift in a signal, based on CUSUM or EWMA charts, for example. However, these methods rely on strong assumptions, such as the stationarity of the stochastic underlying process, or even the independence and Gaussian distributed noise at each time. Recently, the breakthrough research on locally stationary processes widens the class of studied stochastic processes with almost no assumptions on the signals and the nature of the changepoint. Despite the accurate description of the mathematical aspects, this methodology quickly suffers from impractical time and space complexity concerning the signals with high-rate data collection, if the characteristics of the process are completely unknown. In this paper, we then addressed the problem of making this theory usable to our purpose, which is monitoring a high-speed weigh-in-motion system (HS-WIM) towards direct enforcement without supervision. To this end, we first compute bounded approximations of the initial detection theory. Secondly, these approximating bounds are empirically validated by generating many independent long-run stochastic processes. The abrupt changes and the drift are both tested. Finally, this relaxed methodology is tested on real signals coming from a HS-WIM device in Belgium, collected over several months.

Keywords: changepoint, weigh-in-motion, process, non-parametric

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Authors: Ezgi Nevruz, Kasirga Yildirak, Ashis SenGupta

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Comparing or ranking risks is the main motivating factor behind the human trait of making choices. Cumulative prospect theory (CPT) is a preference theory approach that evaluates perception and bias in decision making under risk and uncertainty. We aim to investigate the aggregate claims of different risk classes in terms of their comparability and amenability to ordering when the impact of risk perception is considered. For this aim, we prioritize the aggregate claims taken as actuarial risks by using various stochastic ordering relations. In order to prioritize actuarial risks, we use stochastic relations such as stochastic dominance and stop-loss dominance that are proposed in the frame of partial order theory. We take into account the dependency of the individual claims exposed to similar environmental risks. At first, we modify the zero-utility premium principle in order to obtain a solution for the stop-loss premium under CPT. Then, we propose a stochastic stop-loss dominance of the aggregate claims and find a relation between the stop-loss dominance and the first-order stochastic dominance under the dependence assumption by using properties of the familiar as well as some emerging multivariate claim distributions.

Keywords: cumulative prospect theory, partial order theory, risk perception, stochastic dominance, stop-loss dominance

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Authors: Dávid Kovács, Bálint Csanády, Dániel Boros, Iván Ivkovic, Lóránt Nagy, Dalma Tóth-Lakits, László Márkus, András Lukács

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The modeling practice of financial instruments has seen significant change over the last decade due to the recognition of time-dependent and stochastically changing correlations among the market prices or the prices and market characteristics. To represent this phenomenon, the Stochastic Correlation Process (SCP) has come to the fore in the joint modeling of prices, offering a more nuanced description of their interdependence. This approach has allowed for the attainment of realistic tail dependencies, highlighting that prices tend to synchronize more during intense or volatile trading periods, resulting in stronger correlations. Evidence in statistical literature suggests that, similarly to the volatility, the SCP of certain stock prices follows rough paths, which can be described using fractional differential equations. However, estimating parameters for these equations often involves complex and computation-intensive algorithms, creating a necessity for alternative solutions. In this regard, the Fractional Ornstein-Uhlenbeck (fOU) process from the family of fractional processes offers a promising path. We can effectively describe the rough SCP by utilizing certain transformations of the fOU. We employed neural networks to understand the behavior of these processes. We had to develop a fast algorithm to generate a valid and suitably large sample from the appropriate process to train the network. With an extensive training set, the neural network can estimate the process parameters accurately and efficiently. Although the initial focus was the fOU, the resulting model displayed broader applicability, thus paving the way for further investigation of other processes in the realm of financial mathematics. The utility of SCP extends beyond its immediate application. It also serves as a springboard for a deeper exploration of fractional processes and for extending existing models that use ordinary Wiener processes to fractional scenarios. In essence, deploying both SCP and fractional processes in financial models provides new, more accurate ways to depict market dynamics.

Keywords: fractional Ornstein-Uhlenbeck process, fractional stochastic processes, Heston model, neural networks, stochastic correlation, stochastic differential equations, stochastic volatility

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Authors: Mojtaba Aghamiri Esfahani, Mohammad Karkon, Seyed Majid Hosseini Nezhad, Reza Hosseini-Ara

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In this study, the effect of uncertainty in elastic modulus of a plate on free vibration response is investigated. For this purpose, the elastic modulus of the plate is modeled as stochastic variable with normal distribution. Moreover, the distance autocorrelation function is used for stochastic field. Then, by applying the finite element method and Monte Carlo simulation, stochastic finite element relations are extracted. Finally, with a numerical test, the effect of uncertainty in the elastic modulus on free vibration response of a plate is studied. The results show that the effect of uncertainty in elastic modulus of the plate cannot play an important role on the free vibration response.

Keywords: stochastic finite elements, plate bending, free vibration, Monte Carlo, Neumann expansion method.

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Authors: Jai Heui Kim, Sotheara Veng

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This paper studies the portfolio optimization problem for a pension fund under a hybrid model of stochastic volatility and constant elasticity of variance (CEV) using asymptotic analysis method. When the volatility component is fast mean-reverting, it is able to derive asymptotic approximations for the value function and the optimal strategy for general utility functions. Explicit solutions are given for the exponential and hyperbolic absolute risk aversion (HARA) utility functions. The study also shows that using the leading order optimal strategy results in the value function, not only up to the leading order, but also up to first order correction term. A practical strategy that does not depend on the unobservable volatility level is suggested. The result is an extension of the Merton's solution when stochastic volatility and elasticity of variance are considered simultaneously.

Keywords: asymptotic analysis, constant elasticity of variance, portfolio optimization, stochastic optimal control, stochastic volatility

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