Search results for: factor copula model

Authors: Giriraj Achari, Malay Bhattacharyya

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In this paper, the effectiveness of Copula Markov Switching Multifractal (MSM) models at forecasting Value-at-Risk of a two-stock portfolio is studied. The innovations are allowed to be drawn from distributions that can capture skewness and leptokurtosis, which are well documented empirical characteristics observed in financial returns. The candidate distributions considered for this purpose are Johnson-SU, Pearson Type-IV and α-Stable distributions. The two univariate marginal distributions are combined using the Student-t copula. The estimation of all parameters is performed by Maximum Likelihood Estimation. Finally, the models are compared in terms of accurate Value-at-Risk (VaR) forecasts using tests of unconditional coverage and independence. It is found that Copula-MSM-models with leptokurtic innovation distributions perform slightly better than Copula-MSM model with Normal innovations. Copula-MSM models, in general, produce better VaR forecasts as compared to traditional methods like Historical Simulation method, Variance-Covariance approach and Copula-Generalized Autoregressive Conditional Heteroscedasticity (Copula-GARCH) models.

Keywords: Copula, Markov Switching, multifractal, value-at-risk

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Authors: Duhania O. Mahara, Santi W. Purnami, Aulia N. Fitria, Merissa N. Z. Wirontono, Revina Musfiroh, Shofi Andari, Sagiran Sagiran, Estiana Khoirunnisa, Wahyudi Widada

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For assessing interventions in numerous disease areas, the use of multiple time-to-event outcomes is common. An individual might experience two different events called bivariate time-to-event data, the events may be correlated because it come from the same subject and also influenced by individual characteristics. The bivariate time-to-event case can be applied by copula-based bivariate Cox survival model, using the Clayton and Frank copulas to analyze the dependence structure of each event and also the covariates effect. By applying this method to modeling the recurrent event infection of hemodialysis insertion on chronic kidney disease (CKD) patients, from the AIC and BIC values we find that the Clayton copula model was the best model with Kendall’s Tau is (τ=0,02).

Keywords: bivariate cox, bivariate event, copula function, survival copula

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Authors: Yibin Qiu, Yubo Ouyang, Shihan Li, Guorui Zhang, Qi Li, Weirong Chen

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This paper aims at exploring the impacts of high dimensional dependencies of wind speed among wind farms on probabilistic optimal power flow. To obtain the reactive power optimization faster and more accurately, a mixture vine Copula structure model combining the K-means clustering, C vine copula and D vine copula is proposed in this paper, through which a more accurate correlation model can be obtained. Moreover, a Modified Backtracking Search Algorithm (MBSA), the three-point estimate method is applied to probabilistic optimal power flow. The validity of the mixture vine copula structure model and the MBSA are respectively tested in IEEE30 node system with measured data of 3 adjacent wind farms in a certain area, and the results indicate effectiveness of these methods.

Keywords: mixture vine copula structure model, three-point estimate method, the probability integral transform, modified backtracking search algorithm, reactive power optimization

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Authors: Xiaoyu Shen, Fang Fang, Chujun Qiu

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Herewith we present a Fourier method for credit risk quantification and allocation in the factor-copula model framework. The key insight is that, compared to directly computing the cumulative distribution function of the portfolio loss via Monte Carlo simulation, it is, in fact, more efficient to calculate the transformation of the distribution function in the Fourier domain instead and inverting back to the real domain can be done in just one step and semi-analytically, thanks to the popular COS method (with some adjustments). We also show that the Euler risk allocation problem can be solved in the same way since it can be transformed into the problem of evaluating a conditional cumulative distribution function. Once the conditional or unconditional cumulative distribution function is known, one can easily calculate various risk metrics. The proposed method not only fills the niche in literature, to the best of our knowledge, of accurate numerical methods for risk allocation but may also serve as a much faster alternative to the Monte Carlo simulation method for risk quantification in general. It can cope with various factor-copula model choices, which we demonstrate via examples of a two-factor Gaussian copula and a two-factor Gaussian-t hybrid copula. The fast error convergence is proved mathematically and then verified by numerical experiments, in which Value-at-Risk, Expected Shortfall, and conditional Expected Shortfall are taken as examples of commonly used risk metrics. The calculation speed and accuracy are tested to be significantly superior to the MC simulation for real-sized portfolios. The computational complexity is, by design, primarily driven by the number of factors instead of the number of obligors, as in the case of Monte Carlo simulation. The limitation of this method lies in the "curse of dimension" that is intrinsic to multi-dimensional numerical integration, which, however, can be relaxed with the help of dimension reduction techniques and/or parallel computing, as we will demonstrate in a separate paper. The potential application of this method has a wide range: from credit derivatives pricing to economic capital calculation of the banking book, default risk charge and incremental risk charge computation of the trading book, and even to other risk types than credit risk.

Keywords: credit portfolio, risk allocation, factor copula model, the COS method, Fourier method

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Authors: Hueiwang Anna Jeng, Norou Diawara, Nancy Welch, Cynthia Jackson, Rekha Singh, Kyle Curtis, Raul Gonzalez, David Jurgens, Sasanka Adikari

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Modeling effort is needed to predict the COVID-19 trends for developing management strategies and adaptation measures. The objective of this study was to assess whether SARS-CoV-2 viral load in wastewater could serve as a predictor for forecasting COVID-19 cases, hospitalization cases, and death cases using copula-based time series modeling. SARS-CoV-2 RNA load in raw wastewater in Chesapeake VA was measured using the RT-qPCR method. Gaussian copula time series marginal regression model, incorporating an autoregressive moving average model and the copula function, served as a forecasting model. COVID-19 cases were correlated with wastewater viral load, hospitalization cases, and death cases. The forecasted trend of COVID-19 cases closely paralleled one of the reported cases, with over 90% of the forecasted COVID-19 cases falling within the 99% confidence interval of the reported cases. Wastewater SARS-CoV-2 viral load could serve as a predictor for COVID-19 cases and hospitalization cases.

Keywords: COVID-19, modeling, time series, copula function

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Authors: Alam Ali, Ashok Kumar Pathak

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Nowadays, copulas have attracted significant attention for modeling multivariate observations, and the foremost feature of copula functions is that they give us the liberty to study the univariate marginal distributions and their joint behavior separately. The copula parameter apprehends the intrinsic dependence among the marginal variables, and it can be estimated using parametric, semiparametric, or nonparametric techniques. This work aims to compare the coverage rates between an Elliptical and an Archimedean family of copulas via a fully parametric estimation technique.

Keywords: elliptical copula, archimedean copula, estimation, coverage rate

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Authors: Alam Ali, Ashok Kumar Pathak

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Path analysis is a statistical technique used to evaluate the strength of the direct and indirect effects of variables. One or more structural regression equations are used to estimate a series of parameters in order to find the better fit of data. Sometimes, exogenous variables do not show a significant strength of their direct and indirect effect when the assumption of classical regression (ordinary least squares (OLS)) are violated by the nature of the data. The main motive of this article is to investigate the efficacy of the copula-based regression approach over the classical regression approach and calculate the direct and indirect effects of variables when data violates the OLS assumption and variables are linked through an elliptical copula. We perform this study using a well-organized numerical scheme. Finally, a real data application is also presented to demonstrate the performance of the superiority of the copula approach.

Keywords: path analysis, copula-based regression models, direct and indirect effects, k-fold cross validation technique

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Authors: Islem Kedidi, Rihab Bedoui Bensalem, Faysal Manssouri

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In traditional models of insurance data, the number and size of claims are assumed to be independent. Relaxing the independence assumption, this article explores the Vine copula to model dependence structure between multivariate frequency and average severity of insurance claim. To illustrate this approach, we use the Wisconsin local government property insurance fund which offers several insurance protections for motor vehicles, property and contractor’s equipment claims. Results show that the C-vine copula can better characterize the multivariate dependence structure between frequency and severity. Furthermore, we find significant dependencies especially between frequency and average severity among different coverage types.

Keywords: dependency modeling, government insurance, insurance claims, vine copula

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Authors: Imen Dhaou

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This study examines conditional Value at Risk by applying the GJR-EVT-Copula model, and finds the optimal portfolio for eight Dow Jones Islamic-conventional pairs. Our methodology consists of modeling the data by a bivariate GJR-GARCH model in which we extract the filtered residuals and then apply the Peak over threshold model (POT) to fit the residual tails in order to model marginal distributions. After that, we use pair-copula to find the optimal portfolio risk dependence structure. Finally, with Monte Carlo simulations, we estimate the Value at Risk (VaR) and the conditional Value at Risk (CVaR). The empirical results show the VaR and CVaR values for an equally weighted portfolio of Dow Jones Islamic-conventional pairs. In sum, we found that the optimal investment focuses on Islamic-conventional US Market index pairs because of high investment proportion; however, all other index pairs have low investment proportion. These results deliver some real repercussions for portfolio managers and policymakers concerning to optimal asset allocations, portfolio risk management and the diversification advantages of these markets.

Keywords: CVaR, Dow Jones Islamic index, GJR-GARCH-EVT-pair copula, portfolio optimization

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Authors: Jiemiao Chen, Shuoxun Xu

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The main goal of our research is to apply the Vine copula measuring dependency between price, temperature, and precipitation indices to calculate a fair crop insurance premium. This research is focused on Worth, Iowa, United States, over the period from 2000 to 2020, where the farmers are dependent on precipitation and average temperature during the growth period of corn. Our proposed insurance considers both the natural risk and the price risk in agricultural production. We first estimate the distributions of crops using parametric methods based on Goodness of Fit tests, and then Vine Copula is applied to model dependence between yield price, crop yield, and weather indices. Once the vine structure and its parameters are determined based on AIC/BIC criteria and forecasting price and yield are obtained from the ARIMA model, we calculate this crop insurance premium using the simulation data generated from the vine copula by the Monte Carlo Simulation method. It is shown that, compared with traditional crop insurance, our proposed insurance is more fair and thus less costly for the farmers and government.

Keywords: vine copula, weather index, crop insurance premium, insurance risk management, Monte Carlo simulation

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Authors: Ishapathik Das, Sumen Sen, N. Rao Chaganty, Pooja Sengupta

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Dependent multivariate count data occur in several research studies. These data can be modeled by a multivariate Poisson or Negative binomial distribution constructed using copulas. However, when some of the counts are inflated, that is, the number of observations in some cells are much larger than other cells, then the copula based multivariate Poisson (or Negative binomial) distribution may not fit well and it is not an appropriate statistical model for the data. There is a need to modify or adjust the multivariate distribution to account for the inflated frequencies. In this article, we consider the situation where the frequencies of two cells are higher compared to the other cells, and develop a doubly inflated multivariate Poisson distribution function using multivariate Gaussian copula. We also discuss procedures for regression on covariates for the doubly inflated multivariate count data. For illustrating the proposed methodologies, we present a real data containing bivariate count observations with inflations in two cells. Several models and linear predictors with log link functions are considered, and we discuss maximum likelihood estimation to estimate unknown parameters of the models.

Keywords: copula, Gaussian copula, multivariate distributions, inflated distributios

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Authors: Adrian O'Hagan, Robert McLoughlin

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Considerable focus in the world of insurance risk quantification is placed on modeling loss values from lines of business (LOBs) that possess upper tail dependence. Copulas such as the Joe, Gumbel and Student-t copula may be used for this purpose. The copula structure imparts a desired level of tail dependence on the joint distribution of claims from the different LOBs. Alternatively, practitioners may possess historical or simulated data that already exhibit upper tail dependence, through the impact of catastrophe events such as hurricanes or earthquakes. In these circumstances, it is not desirable to induce additional upper tail dependence when modeling the joint distribution of the loss values from the individual LOBs. Instead, it is of interest to accurately assess the degree of tail dependence already present in the data. The empirical copula and its associated upper tail dependence coefficient are presented in this paper as robust, efficient means of achieving this goal.

Keywords: empirical copula, extreme events, insurance loss reserving, upper tail dependence coefficient

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Authors: Lakshmi Prayaga, Chandra Prayaga. Aaron Wade, Gopi Shankar Mallu, Harsha Satya Pola

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Synthetic data generated by Generative Adversarial Networks and Autoencoders is becoming more common to combat the problem of insufficient data for research purposes. However, generating synthetic data is a tedious task requiring extensive mathematical and programming background. Open-source platforms such as the Synthetic Data Vault (SDV) and Mostly AI have offered a platform that is user-friendly and accessible to non-technical professionals to generate synthetic data to augment existing data for further analysis. The SDV also provides for additions to the generic GAN, such as the Gaussian copula. We present the results from two synthetic data sets (CTGAN data and CTGAN with Gaussian Copula) generated by the SDV and report the findings. The results indicate that the ROC and AUC curves for the data generated by adding the layer of Gaussian copula are much higher than the data generated by the CTGAN.

Keywords: synthetic data generation, generative adversarial networks, conditional tabular GAN, Gaussian copula

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Authors: Chandra Prayaga, Aaron Wade, Lakshmi Prayaga, Gopi Shankar Mallu

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This paper presents the use of machine learning algorithms to predict the success of students in an introductory physics course. Data having 140 rows pertaining to the performance of two batches of students was used. The lack of sufficient data to train robust machine learning models was compensated for by generating synthetic data similar to the real data. CTGAN and CTGAN with Gaussian Copula (Gaussian) were used to generate synthetic data, with the real data as input. To check the similarity between the real data and each synthetic dataset, pair plots were made. The synthetic data was used to train machine learning models using the PyCaret package. For the CTGAN data, the Ada Boost Classifier (ADA) was found to be the ML model with the best fit, whereas the CTGAN with Gaussian Copula yielded Logistic Regression (LR) as the best model. Both models were then tested for accuracy with the real data. ROC-AUC analysis was performed for all the ten classes of the target variable (Grades A, A-, B+, B, B-, C+, C, C-, D, F). The ADA model with CTGAN data showed a mean AUC score of 0.4377, but the LR model with the Gaussian data showed a mean AUC score of 0.6149. ROC-AUC plots were obtained for each Grade value separately. The LR model with Gaussian data showed consistently better AUC scores compared to the ADA model with CTGAN data, except in two cases of the Grade value, C- and A-.

Keywords: machine learning, student success, physics course, grades, synthetic data, CTGAN, gaussian copula CTGAN

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Authors: Serge Provost, Yishan Zang

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Copulas are currently utilized in finance, reliability theory, machine learning, signal processing, geodesy, hydrology and biostatistics, among several other fields of scientific investigation. It follows from Sklar's theorem that the joint distribution function of a multidimensional random vector can be expressed in terms of its associated copula and marginals. Since marginal distributions can easily be determined by making use of a variety of techniques, we address the problem of securing the distribution of the copula. This will be done by using several approaches. For example, we will obtain bivariate least-squares approximations of the empirical copulas, modify the kernel density estimation technique and propose a criterion for selecting appropriate bandwidths, differentiate linearized empirical copulas, secure Bernstein polynomial approximations of suitable degrees, and apply a corollary to Sklar's result. Illustrative examples involving actual observations will be presented. The proposed methodologies will as well be applied to a sample generated from a known copula distribution in order to validate their effectiveness.

Keywords: copulas, Bernstein polynomial approximation, least-squares polynomial approximation, kernel density estimation, density approximation

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Authors: Zhichao Jiao, Craig Farnham, Jihui Yuan, Kazuo Emura

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It is common to use the outdoor design weather data to select the air-conditioning capacity in the building design stage. The outdoor design weather data are usually comprised of multiple meteorological elements for a 24-hour period separately, but the dependency between the elements is not well considered, which may cause an overestimation of selecting air-conditioning capacity. Considering the dependency between the air temperature and global solar radiation, we used the copula approach to model the joint distributions of those two weather elements and suggest a new method of selecting more credible outdoor design conditions based on the specific simultaneous occurrence probability of air temperature and global solar radiation. In this paper, the 10-year period hourly weather data from 2001 to 2010 in Osaka, Japan, was used to analyze the dependency structure and joint distribution, the result shows that the Joe-Frank copula fit for almost all hourly data. According to calculating the simultaneous occurrence probability and the common exceeding probability of air temperature and global solar radiation, the results have shown that the maximum difference in design air temperature and global solar radiation of the day is about 2 degrees Celsius and 30W/m2, respectively.

Keywords: energy conservation, design weather database, HVAC, copula approach

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Authors: Hina Munir Abbasi

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The current paper examines the relationship and diversification ability of Islamic stock indices /conventional stocks indices and Real Estate Investment Trust (REITs).To represent conditional dependency between stocks and REITs in a more realistic way, new modeling technique, time-varying copula with switching dependence is used. It represents reliance structure more accurately and realistically than a single copula regime as dependence may alter between positive and negative correlation regimes with time. The fluctuating behavior of markets has significant impact on economic variables; especially the downward trend during crisis. Overall addition of Real Estate Investment Trust in stocks portfolio reduces risks and provide better diversification benefit. Results varied depending upon the circumstances of the country. REITs provides better diversification benefits for Islamic Stocks, when both markets are bearish and can provide hedging benefit for conventional stocks portfolio.

Keywords: conventional stocks, real estate investment trust, copula, diversification, risk spillover, safe heaven

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Authors: Yo Fukutani, Shuji Moriguchi, Takuma Kotani, Terada Kenjiro

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If risk management of the assets owned by companies, risk assessment of real estate portfolio, and risk identification of the entire region are to be implemented, it is necessary to consider simultaneous damage to multiple buildings. In this research, the Sagami Trough earthquake tsunami that could have a significant effect on the Japanese capital region is focused on, and a method is proposed for simultaneous damage assessment using copulas that can take into consideration the correlation of tsunami depths and building damage between two sites. First, the tsunami inundation depths at two sites were simulated by using a nonlinear long-wave equation. The tsunamis were simulated by varying the slip amount (five cases) and the depths (five cases) for each of 10 sources of the Sagami Trough. For each source, the frequency distributions of the tsunami inundation depth were evaluated by using the response surface method. Then, Monte-Carlo simulation was conducted, and frequency distributions of tsunami inundation depth were evaluated at the target sites for all sources of the Sagami Trough. These are marginal distributions. Kendall’s tau for the tsunami inundation simulation at two sites was 0.83. Based on this value, the Gaussian copula, t-copula, Clayton copula, and Gumbel copula (n = 10,000) were generated. Then, the simultaneous distributions of the damage rate were evaluated using the marginal distributions and the copulas. For the correlation of the tsunami inundation depth at the two sites, the expected value hardly changed compared with the case of no correlation, but the damage rate of the ninety-ninth percentile value was approximately 2%, and the maximum value was approximately 6% when using the Gumbel copula.

Keywords: copulas, Monte-Carlo simulation, probabilistic risk assessment, tsunamis

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Authors: A. Chateauneuf, M. Mostoufi, D. Vyncke

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Monte Carlo (MC) simulation is a technique that provides approximate solutions to a broad range of mathematical problems. A drawback of the method is its high computational cost, especially in a high-dimensional setting, such as estimating the Tail Value-at-Risk for large portfolios or pricing basket options and Asian options. For these types of problems, one can construct an upper bound in the convex order by replacing the copula by the comonotonic copula. This comonotonic upper bound can be computed very quickly, but it gives only a rough approximation. In this paper we introduce the Comonotonic Monte Carlo (CoMC) simulation, by using the comonotonic approximation as a control variate. The CoMC is of broad applicability and numerical results show a remarkable speed improvement. We illustrate the method for estimating Tail Value-at-Risk and pricing basket options and Asian options when the logreturns follow a Black-Scholes model or a variance gamma model.

Keywords: control variate Monte Carlo, comonotonicity, option pricing, scientific computing

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Authors: V. V. Singh

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We have studied the reliability measures of a system, which consists of two subsystems i.e. subsystem-1 and subsystem-2 in series configuration under different types of failure. The subsystem-1 has three identical units in parallel configuration and operating under 2-out-of-3: G policy and connected to subsystem-2 in series configuration. Each subsystem has different types of failure and repair rates. An important cause for failure of system is unsuitability of the environmental conditions, like overheating, weather conditions, heavy rainfall, storm etc. The environmental failure is taken into account in the proposed repairable system. Supplementary variable technique is used to study of system and some traditional measures such as; availability, reliability, MTTF and profit function are obtained for different values of parameters. In the proposed model, some particular cases of failure rates are explicitly studied.

Keywords: environmental failure, human failure, availability, MTTF, reliability, profit analysis, Gumbel-Hougaard family copula

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Authors: Yong-Sung Kim, Je-Seok Shin, Ho-Jun Jo, Jin-O Kim

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Home Energy Management System (HEMS) which makes the residential consumers contribute to the demand response is attracting attention in recent years. An aim of HEMS is to minimize their electricity cost by controlling the use of their appliances according to electricity price. The use of appliances in HEMS may be affected by some conditions such as external temperature and electricity price. Therefore, the user’s usage pattern of appliances should be modeled according to the external conditions, and the resultant usage pattern is related to the user’s comfortability on use of each appliances. This paper proposes a methodology to model the usage pattern based on the historical data with the copula function. Through copula function, the usage range of each appliance can be obtained and is able to satisfy the appropriate user’s comfort according to the external conditions for next day. Within the usage range, an optimal scheduling for appliances would be conducted so as to minimize an electricity cost with considering user’s comfort. Among the home appliance, electric heater (EH) is a representative appliance which is affected by the external temperature. In this paper, an optimal scheduling algorithm for an electric heater (EH) is addressed based on the method of branch and bound. As a result, scenarios for the EH usage are obtained according to user’s comfort levels and then the residential consumer would select the best scenario. The case study shows the effects of the proposed algorithm compared with the traditional operation of the EH, and it also represents impacts of the comfort level on the scheduling result.

Keywords: load scheduling, usage pattern, user’s comfort, copula function, branch and bound, electric heater

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Authors: Souhir Ben Amor, Heni Boubaker, Lotfi Belkacem

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This aims of this paper is to forecast the electricity spot prices. First, we focus on modeling the conditional mean of the series so we adopt a generalized fractional -factor Gegenbauer process (k-factor GARMA). Secondly, the residual from the -factor GARMA model has used as a proxy for the conditional variance; these residuals were predicted using two different approaches. In the first approach, a local linear wavelet neural network model (LLWNN) has developed to predict the conditional variance using the Back Propagation learning algorithms. In the second approach, the Gegenbauer generalized autoregressive conditional heteroscedasticity process (G-GARCH) has adopted, and the parameters of the k-factor GARMA-G-GARCH model has estimated using the wavelet methodology based on the discrete wavelet packet transform (DWPT) approach. The empirical results have shown that the k-factor GARMA-G-GARCH model outperform the hybrid k-factor GARMA-LLWNN model, and find it is more appropriate for forecasts.

Keywords: electricity price, k-factor GARMA, LLWNN, G-GARCH, forecasting

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Authors: Roengchai Tansuchat, Woraphon Yamaka, Paravee Maneejuk

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From the past recent, the global financial crisis, economic instability, and large fluctuation in agricultural commodity price have led to increased concerns about the volatility transmission among them. The problem is further exacerbated by commodities volatility caused by other commodity price fluctuations, hence the decision on hedging strategy has become both costly and useless. Thus, this paper is conducted to analysis the volatility spillover effect among major agriculture including corn, soybeans, wheat and rice, to help the commodity suppliers hedge their portfolios, and manage the risk and co-volatility of them. We provide a switching regime approach to analyzing the issue of volatility spillovers in different economic conditions, namely upturn and downturn economic. In particular, we investigate relationships and volatility transmissions between these commodities in different economic conditions. We purposed a Copula-based multivariate Markov Switching GARCH model with two regimes that depend on an economic conditions and perform simulation study to check the accuracy of our proposed model. In this study, the correlation term in the cross-hedge ratio is obtained from six copula families – two elliptical copulas (Gaussian and Student-t) and four Archimedean copulas (Clayton, Gumbel, Frank, and Joe). We use one-step maximum likelihood estimation techniques to estimate our models and compare the performance of these copula using Akaike information criterion (AIC) and Bayesian information criteria (BIC). In the application study of agriculture commodities, the weekly data used are conducted from 4 January 2005 to 1 September 2016, covering 612 observations. The empirical results indicate that the volatility spillover effects among cereal futures are different, as response of different economic condition. In addition, the results of hedge effectiveness will also suggest the optimal cross hedge strategies in different economic condition especially upturn and downturn economic.

Keywords: agricultural commodity futures, cereal, cross-hedge, spillover effect, switching regime approach

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Authors: Sook Ching Yee, Angela Siew Hoong Lee

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Big data technologies have become a trend to exploit business opportunities and provide valuable business insights through the analysis of big data. However, there are still many organizations that have yet to adopt big data technologies especially small and medium organizations (SME). This study uses the technology acceptance model (TAM) to look into several constructs in the TAM and other additional constructs which are positive affect, negative affect, organizational factor and motivational factor. The conceptual model proposed in the study will be tested on the relationship and influence of positive affect, negative affect, organizational factor and motivational factor towards the intention to use big data technologies to produce an outcome. Empirical research is used in this study by conducting a survey to collect data.

Keywords: big data technologies, motivational factor, negative affect, organizational factor, positive affect, technology acceptance model (TAM)

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Authors: Betty Johanna Garzon Rozo, Jonathan Crook, Fernando Moreira

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Operational risk losses are heavy tailed and are likely to be asymmetric and extremely dependent among business lines/event types. We propose a new methodology to assess, in a multivariate way, the asymmetry and extreme dependence between severity distributions, and to calculate the capital for Operational Risk. This methodology simultaneously uses (i) several parametric distributions and an alternative mix distribution (the Lognormal for the body of losses and the Generalized Pareto Distribution for the tail) via extreme value theory using SAS®, (ii) the multivariate skew t-copula applied for the first time for operational losses and (iii) Bayesian theory to estimate new n-dimensional skew t-copula models via Markov chain Monte Carlo (MCMC) simulation. This paper analyses a newly operational loss data set, SAS Global Operational Risk Data [SAS OpRisk], to model operational risk at international financial institutions. All the severity models are constructed in SAS® 9.2. We implement the procedure PROC SEVERITY and PROC NLMIXED. This paper focuses in describing this implementation.

Keywords: operational risk, loss distribution approach, extreme value theory, copulas

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Authors: Christian Bucio Pacheco, Miriam Magnolia Sosa Castro, María Alejandra Cabello Rosales

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This paper aims to analyze the contagion effect among the stock markets of the BRIC+M block (Brazil, Russia, India, China plus Mexico). The contagion effect is proved through increasing on dependence parameters during crisis periods. The dependence parameters are estimated through copula approach in a period of time from July 1997 to December 2015. During this period there are instability and calm episodes, allowing to analyze changes in the relations of dependence. Empirical results show strong evidence of time-varying dependence among the BRIC+M markets and an increasing dependence relation during global financial crisis period.

Keywords: BRIC+M Block, Contagion effect, Copula, dependence

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Authors: Deeksha Arora

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The study aims to explore the applicability of the widely used asset pricing models, namely, Capital Asset Pricing Model (CAPM) and the Fama-French Four Factor Model in the Indian equity market. The study will be based on the companies that form part of the Nifty Fifty Index for a period of five years: 2011 to 2016. The asset pricing model is examined by forming portfolios on the basis of three variables – market capitalization (size effect), book-to-market equity ratio (value effect) and profitability. The study provides a basis to test the presence of the Fama-French Four factor model in Indian stock market. This study may provide a basis for future research in the generalized asset pricing model comprising of multiple risk factors.

Keywords: book to market equity, Fama French four factor model, market capitalization, profitability, size effect, value effect

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Authors: Andres F. Ramirez, Carlos F. Valencia

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The increasing interest in renewable energies strategies application and the path for diminishing the use of carbon related energy sources have encouraged the development of novel strategies for integration of solar energy into the electricity network. A correct inclusion of the fluctuating energy output of a photovoltaic (PV) energy system into an electric grid requires improvements in the forecasting and simulation methodologies for solar energy potential, and the understanding not only of the mean value of the series but the associated underlying stochastic process. We present a methodology for synthetic generation of solar irradiance (shortwave flux) and air temperature bivariate time series based on copula functions to represent the cross-dependence and temporal structure of the data. We explore the advantages of using this nonlinear time series method over traditional approaches that use a transformation of the data to normal distributions as an intermediate step. The use of copulas gives flexibility to represent the serial variability of the real data on the simulation and allows having more control on the desired properties of the data. We use discrete zero mass density distributions to assess the nature of solar irradiance, alongside vector generalized linear models for the bivariate time series time dependent distributions. We found that the copula autoregressive methodology used, including the zero mass characteristics of the solar irradiance time series, generates a significant improvement over state of the art strategies. These results will help to better understand the fluctuating nature of solar energy forecasting, the underlying stochastic process, and quantify the potential of a photovoltaic (PV) energy generating system integration into a country electricity network. Experimental analysis and real data application substantiate the usage and convenience of the proposed methodology to forecast solar irradiance time series and solar energy across northern hemisphere, southern hemisphere, and equatorial zones.

Keywords: copula autoregressive, solar irradiance forecasting, solar energy forecasting, time series generation

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Authors: Ibrahim A. Elshaer, Alaa M. Shaker

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Several previous empirical studies have operationalized service quality as either a multidimensional or unidimensional construct. While few earlier studies investigated some practices of the assumed dimensional structure of service quality, no study has been found to have tested the construct’s dimensionality using confirmatory factor analysis (CFA). To gain a better insight into the dimensional structure of service quality construct, this paper tests its dimensionality using three CFA models (higher order factor model, oblique factor model, and one factor model) on a set of data collected from 390 British tourists visited Egypt. The results of the three tests models indicate that service quality construct is multidimensional. This result helps resolving the problems that might arise from the lack of clarity concerning the dimensional structure of service quality, as without testing the dimensional structure of a measure, researchers cannot assume that the significant correlation is a result of factors measuring the same construct.

Keywords: service quality, dimensionality, confirmatory factor analysis, Egypt

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Authors: Ainura Tursunalieva, Irene Hudson

Abstract:

Continuous improvement of both the quality and safety of health care is an important goal in Australia and internationally. The intensive care unit (ICU) receives patients with a wide variety of and severity of illnesses. Accurately identifying patients at risk of developing complications or dying is crucial to increasing healthcare efficiency. Thus, it is essential for clinicians and researchers to have a robust framework capable of evaluating the risk profile of a patient. ICU scoring systems provide such a framework. The Acute Physiology and Chronic Health Evaluation III and the Simplified Acute Physiology Score II are ICU scoring systems frequently used for assessing the severity of acute illness. These scoring systems collect multiple risk factors for each patient including physiological measurements then render the assessment outcomes of individual risk factors into a single numerical value. A higher score is related to a more severe patient condition. Furthermore, the Mortality Probability Model II uses logistic regression based on independent risk factors to predict a patient’s probability of mortality. An important overlooked limitation of SAPS II and MPM II is that they do not, to date, include interaction terms between a patient’s vital signs. This is a prominent oversight as it is likely there is an interplay among vital signs. The co-existence of certain conditions may pose a greater health risk than when these conditions exist independently. One barrier to including such interaction terms in predictive models is the dimensionality issue as it becomes difficult to use variable selection. We propose an innovative scoring system which takes into account a dependence structure among patient’s vital signs, such as systolic and diastolic blood pressures, heart rate, pulse interval, and peripheral oxygen saturation. Copulas will capture the dependence among normally distributed and skewed variables as some of the vital sign distributions are skewed. The estimated dependence parameter will then be incorporated into the traditional scoring systems to adjust the points allocated for the individual vital sign measurements. The same dependence parameter will also be used to create an alternative copula-based model for predicting a patient’s probability of mortality. The new copula-based approach will accommodate not only a patient’s trajectories of vital signs but also the joint dependence probabilities among the vital signs. We hypothesise that this approach will produce more stable assessments and lead to more time efficient and accurate predictions. We will use two data sets: (1) 250 ICU patients admitted once to the Chui Regional Hospital (Kyrgyzstan) and (2) 37 ICU patients’ agitation-sedation profiles collected by the Hunter Medical Research Institute (Australia). Both the traditional scoring approach and our copula-based approach will be evaluated using the Brier score to indicate overall model performance, the concordance (or c) statistic to indicate the discriminative ability (or area under the receiver operating characteristic (ROC) curve), and goodness-of-fit statistics for calibration. We will also report discrimination and calibration values and establish visualization of the copulas and high dimensional regions of risk interrelating two or three vital signs in so-called higher dimensional ROCs.

Keywords: copula, intensive unit scoring system, ROC curves, vital sign dependence

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