Search results for: Stochastic ordering.

Authors: Faramarz Khosravi, Gokhan Izbirak

Abstract:

A weighted statistical stochastic based Analytical Hierarchy Process (AHP) model for modeling the potential barriers and enablers of sustainability for measuring and assessing the sustainability level is proposed. For context-dependent potential barriers and enablers, the proposed model takes the basis of the properties of the variables describing the sustainability functions and was developed into a realistic analytical model for the sustainable behavior of an organization. This thus serves as a means for measuring the sustainability of the organization. The main focus of this paper was the application of the AHP tool in a statistically-based model for measuring sustainability. Hence a strong weighted stochastic AHP based procedure was achieved. A case study scenario of a widely reported major Canadian electric utility was adopted to demonstrate the applicability of the developed model and comparatively examined its results with those of an equal-weighted model method. Variations in the sustainability of a company, as fluctuations, were figured out during the time. In the results obtained, sustainability index for successive years changed form 73.12%, 79.02%, 74.31%, 76.65%, 80.49%, 79.81%, 79.83% to more exact values 73.32%, 77.72%, 76.76%, 79.41%, 81.93%, 79.72%, and 80,45% according to priorities of factors that have found by expert views, respectively. By obtaining relatively necessary informative measurement indicators, the model can practically and effectively evaluate the sustainability extent of any organization and also to determine fluctuations in the organization over time.

Keywords: AHP, sustainability fluctuation, environmental indicators, performance measurement, environmental sustainability.

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Authors: H. D. Ibrahim, H. C. Chinwenyi, A. H. Usman

Abstract:

Valuing derivatives (options, futures, swaps, forwards, etc.) is one uneasy task in financial mathematics. The two ways this problem can be effectively resolved in finance is by the use of two methods (Martingales and Partial Differential Equations (PDEs)) to obtain their respective options price valuation formulas. This research paper examined two different stochastic financial models which are Constant Elasticity of Variance (CEV) model and Black-Karasinski term structure model. Assuming their respective option price valuation formulas, we proved the analogous of the Martingales and PDEs options price valuation formulas for the two different Stochastic Differential Equation (SDE) models. This was accomplished by using the applications of Girsanov theorem for defining an Equivalent Martingale Measure (EMM) and the Feynman-Kac theorem. The results obtained show the systematic proof for analogous of the two (Martingales and PDEs) options price valuation formulas beginning with the Martingales option price formula and arriving back at the Black-Scholes parabolic PDEs and vice versa.

Keywords: Option price valuation, Martingales, Partial Differential Equations, PDEs, Equivalent Martingale Measure, Girsanov Theorem, Feyman-Kac Theorem, European Put Option.

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Authors: H. D. Ibrahim, H. C. Chinwenyi, T. Danjuma

Abstract:

An option is defined as a financial contract that provides the holder the right but not the obligation to buy or sell a specified quantity of an underlying asset in the future at a fixed price (called a strike price) on or before the expiration date of the option. This paper examined two approaches for derivation of Partial Differential Equation (PDE) options price valuation formula for the Heston stochastic volatility model. We obtained various PDE option price valuation formulas using the riskless portfolio method and the application of Feynman-Kac theorem respectively. From the results obtained, we see that the two derived PDEs for Heston model are distinct and non-unique. This establishes the fact of incompleteness in the model for option price valuation.

Keywords: Option price valuation, Partial Differential Equations, Black-Scholes PDEs, Ito process.

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Authors: Hao Wu, Jonathan L. Shapiro

Abstract:

The Bayesian Optimization Algorithm (BOA) is an algorithm based on the estimation of distributions. It uses techniques from modeling data by Bayesian networks to estimating the joint distribution of promising solutions. To obtain the structure of Bayesian network, different search algorithms can be used. The key point that BOA addresses is whether the constructed Bayesian network could generate new and useful solutions (strings), which could lead the algorithm in the right direction to solve the problem. Undoubtedly, this ability is a crucial factor of the efficiency of BOA. Varied search algorithms can be used in BOA, but their performances are different. For choosing better ones, certain suitable method to present their ability difference is needed. In this paper, a greedy search algorithm and a stochastic search algorithm are used in BOA to solve certain optimization problem. A method using Kullback-Leibler (KL) Divergence to reflect their difference is described.

Keywords: Bayesian optimization algorithm, greedy search, KL divergence, stochastic search.

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Authors: Shuangquan Liu, Jinwen Wang, Dada Wang

Abstract:

A case study of the generation scheduling optimization of the multi-hydroplants on the Yuan River Basin in China is reported in this paper. Concerning the uncertainty of the inflows, the long/mid-term generation scheduling (LMTGS) problem is solved by a stochastic model in which the inflows are considered as stochastic variables. For the short-term generation scheduling (STGS) problem, a constraint violation priority is defined in case not all constraints are satisfied. Provided the stage-wise separable condition and low dimensions, the hydroplant-based operational region schedules (HBORS) problem is solved by dynamic programming (DP). The coordination of LMTGS and STGS is presented as well. The feasibility and the effectiveness of the models and solution methods are verified by the numerical results.

Keywords: generation scheduling, multi-hydroplants, optimization.

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Authors: Lukumba Phiri, Simon Tembo, Kumbuso Joshua Nyoni

Abstract:

In Zambia, recent initiatives by various power operators like ZESCO, CEC, and consumers like the mines, to upgrade power systems into smart grids, target an even tighter integration with information technologies to enable the integration of renewable energy sources, local and bulk generation, and demand response. Thus, for the reliable operation of smart grids, its information infrastructure must be secure and reliable in the face of both failures and cyberattacks. Due to the nature of the systems, ICS/SCADA cybersecurity and governance face additional challenges compared to the corporate networks, and critical systems may be left exposed. There exist control frameworks internationally such as the NIST framework, however, they are generic and do not meet the domain-specific needs of the SCADA systems. Zambia is also lagging in cybersecurity awareness and adoption, and therefore there is a concern about securing ICS controlling key infrastructure critical to the Zambian economy as there are few known facts about the true posture. In this paper, we present a stochastic Edged-based Anomaly Detection for SCADA systems (SEADS) framework for threat modeling and risk assessment. SEADS enables the calculation of steady-steady probabilities that are further applied to establish metrics like system availability, maintainability, and reliability.

Keywords: Anomaly detection, SmartGrid, edge, maintainability, reliability, stochastic process.

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Authors: Anatoli Torokhti, Phil Howlett

Abstract:

A theory for optimal filtering of infinite sets of random signals is presented. There are several new distinctive features of the proposed approach. First, a single optimal filter for processing any signal from a given infinite signal set is provided. Second, the filter is presented in the special form of a sum with p terms where each term is represented as a combination of three operations. Each operation is a special stage of the filtering aimed at facilitating the associated numerical work. Third, an iterative scheme is implemented into the filter structure to provide an improvement in the filter performance at each step of the scheme. The final step of the scheme concerns signal compression and decompression. This step is based on the solution of a new rank-constrained matrix approximation problem. The solution to the matrix problem is described in this paper. A rigorous error analysis is given for the new filter.

Keywords: Optimal filtering, data compression, stochastic signals.

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Authors: Ali Ben Abbes, ImedRiadh Farah, Vincent Barra

Abstract:

Remotely sensed data are a significant source for monitoring and updating databases for land use/cover. Nowadays, changes detection of urban area has been a subject of intensive researches. Timely and accurate data on spatio-temporal changes of urban areas are therefore required. The data extracted from multi-temporal satellite images are usually non-stationary. In fact, the changes evolve in time and space. This paper is an attempt to propose a methodology for changes detection in urban area by combining a non-stationary decomposition method and stochastic modeling. We consider as input of our methodology a sequence of satellite images I₁, I₂, … I_n at different periods (t = 1, 2, ..., n). Firstly, a preprocessing of multi-temporal satellite images is applied. (e.g. radiometric, atmospheric and geometric). The systematic study of global urban expansion in our methodology can be approached in two ways: The first considers the urban area as one same object as opposed to non-urban areas (e.g. vegetation, bare soil and water). The objective is to extract the urban mask. The second one aims to obtain a more knowledge of urban area, distinguishing different types of tissue within the urban area. In order to validate our approach, we used a database of Tres Cantos-Madrid in Spain, which is derived from Landsat for a period (from January 2004 to July 2013) by collecting two frames per year at a spatial resolution of 25 meters. The obtained results show the effectiveness of our method.

Keywords: Multi-temporal satellite image, urban growth, Non-stationarity, stochastic modeling.

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Authors: Igor Astrov, Andrus Pedai

Abstract:

This paper focuses on a critical component of the situational awareness (SA), the neural control of depth flight of an autonomous underwater vehicle (AUV). Constant depth flight is a challenging but important task for AUVs to achieve high level of autonomy under adverse conditions. With the SA strategy, we proposed a multirate neural control of an AUV trajectory for a nontrivial mid-small size AUV “r2D4" stochastic model. This control system has been demonstrated and evaluated by simulation of diving maneuvers using software package Simulink. From the simulation results it can be seen that the chosen AUV model is stable in the presence of noises, and also can be concluded that the proposed research technique will be useful for fast SA of similar AUV systems in real-time search-and-rescue operations.

Keywords: Autonomous underwater vehicles, multirate systems, neurocontrollers, situational awareness.

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Authors: P. Beraldi, M. E. Bruni

Abstract:

Data Envelopment Analysis (DEA) is one of the most widely used technique for evaluating the relative efficiency of a set of homogeneous decision making units. Traditionally, it assumes that input and output variables are known in advance, ignoring the critical issue of data uncertainty. In this paper, we deal with the problem of efficiency evaluation under uncertain conditions by adopting the general framework of the stochastic programming. We assume that output parameters are represented by discretely distributed random variables and we propose two different models defined according to a neutral and risk-averse perspective. The models have been validated by considering a real case study concerning the evaluation of the technical efficiency of a sample of individual firms operating in the Italian leather manufacturing industry. Our findings show the validity of the proposed approach as ex-ante evaluation technique by providing the decision maker with useful insights depending on his risk aversion degree.

Keywords: DEA, Stochastic Programming, Ex-ante evaluation technique, Conditional Value at Risk.

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Authors: Zundong Zhang, Limin Jia, Xiaoliang Sun

Abstract:

The Beijing road traffic system, as a typical huge urban traffic system, provides a platform for analyzing the complex characteristics and the evolving mechanisms of urban traffic systems. Based on dynamic network theory, we construct the dynamic model of the Beijing road traffic system in which the dynamical properties are described completely. Furthermore, we come into the conclusion that urban traffic systems can be viewed as static networks, stochastic networks and complex networks at different system phases by analyzing the structural randomness. As well as, we demonstrate the evolving process of the Beijing road traffic network based on real traffic data, validate the stochastic characteristics and the scale-free property of the network at different phases

Keywords: Dynamic Network Models, Structural Randomness, Scale-free Property, Multi-mode character

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Authors: Josip Vasilj, Petar Sarajcev, Damir Jakus

Abstract:

One of the major difficulties introduced with wind power penetration is the inherent uncertainty in production originating from uncertain wind conditions. This uncertainty impacts many different aspects of power system operation, especially the balancing power requirements. For this reason, in power system development planing, it is necessary to evaluate the potential uncertainty in future wind power generation. For this purpose, simulation models are required, reproducing the performance of wind power forecasts. This paper presents a wind power forecast error simulation models which are based on the stochastic process simulation. Proposed models capture the most important statistical parameters recognized in wind power forecast error time series. Furthermore, two distinct models are presented based on data availability. First model uses wind speed measurements on potential or existing wind power plant locations, while the seconds model uses statistical distribution of wind speeds.

Keywords: Wind power, Uncertainty, Stochastic process, Monte Carlo simulation.

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Authors: Jihad S. Daba, J. P. Dubois

Abstract:

Understanding the statistics of non-isotropic scattering multipath channels that fade randomly with respect to time, frequency, and space in a mobile environment is very crucial for the accurate detection of received signals in wireless and cellular communication systems. In this paper, we derive stochastic models for the probability density function (PDF) of the shift in the carrier frequency caused by the Doppler Effect on the received illuminating signal in the presence of a dominant line of sight. Our derivation is based on a generalized Clarke’s and a two-wave partially developed scattering models, where the statistical distribution of the frequency shift is shown to be consistent with the power spectral density of the Doppler shifted signal.

Keywords: Doppler shift, filtered Poisson process, generalized Clark’s model, non-isotropic scattering, partially developed scattering, Rician distribution.

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Authors: Franklin Nantui Mabe, Samuel A. Donkoh, Seidu Al-Hassan

Abstract:

Rice yields among agro-ecological zones are heterogeneous. Farmers, researchers and policy makers are making frantic efforts to bridge rice yield gaps between agro-ecological zones through the promotion of improved agricultural technologies (IATs). Farmers are also modifying these IATs and blending them with indigenous farming practices (IFPs) to form farmer innovation systems (FISs). Also, different metafrontier models have been used in estimating productivity performances and their drivers. This study used the two-step stochastic metafrontier model to estimate the productivity performances of rice farmers and their determining factors in GSZ, FSTZ and CSZ. The study used both primary and secondary data. Farmers in CSZ are the most technically efficient. Technical inefficiencies of farmers are negatively influenced by age, sex, household size, education years, extension visits, contract farming, access to improved seeds, access to irrigation, high rainfall amount, less lodging of rice, and well-coordinated and synergized adoption of technologies. Albeit farmers in CSZ are doing well in terms of rice yield, they still have the highest potential of increasing rice yield since they had the lowest TGR. It is recommended that government through the ministry of food and agriculture, development partners and individual private companies promote the adoption of IATs as well as educate farmers on how to coordinate and synergize the adoption of the whole package. Contract farming concept and agricultural extension intensification should be vigorously pursued to the latter.

Keywords: Efficiency, farmer innovation systems, improved agricultural technologies, two-step stochastic metafrontier approach.

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Authors: Sungkyung Kim, Jee-Hyeon Na, Dong-Seung Kwon

Abstract:

Future mobile networks following 5th generation will be characterized by one thousand times higher gains in capacity; connections for at least one hundred billion devices; user experience capable of extremely low latency and response times. To be close to the capacity requirements and higher reliability, advanced technologies have been studied, such as multiple connectivity, small cell enhancement, heterogeneous networking, and advanced interference and mobility management. This paper is focused on the multiple connectivity in heterogeneous cellular networks. We investigate the performance of coverage and user throughput in several deployment scenarios. Using the stochastic geometry approach, the SINR distributions and the coverage probabilities are derived in case of dual connection. Also, to compare the user throughput enhancement among the deployment scenarios, we calculate the spectral efficiency and discuss our results.

Keywords: Heterogeneous networks, multiple connectivity, small cell enhancement, stochastic geometry.

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Authors: Seyed Mehran Kazemi, Bahare Fatemi

Abstract:

Sudoku is a logic-based combinatorial puzzle game which is popular among people of different ages. Due to this popularity, computer softwares are being developed to generate and solve Sudoku puzzles with different levels of difficulty. Several methods and algorithms have been proposed and used in different softwares to efficiently solve Sudoku puzzles. Various search methods such as stochastic local search have been applied to this problem. Genetic Algorithm (GA) is one of the algorithms which have been applied to this problem in different forms and in several works in the literature. In these works, chromosomes with little or no information were considered and obtained results were not promising. In this paper, we propose a new way of applying GA to this problem which uses more-informed chromosomes than other works in the literature. We optimize the parameters of our GA using puzzles with different levels of difficulty. Then we use the optimized values of the parameters to solve various puzzles and compare our results to another GA-based method for solving Sudoku puzzles.

Keywords: Genetic algorithm, optimization, solving Sudoku puzzles, stochastic local search.

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Authors: Benjamin D. Leiby, Darryl K. Ahner

Abstract:

This study demonstrates an alternative stochastic imputation approach for large datasets when preferred commercial packages struggle to iterate due to numerical problems. A large country conflict dataset motivates the search to impute missing values well over a common threshold of 20% missingness. The methodology capitalizes on correlation while using model residuals to provide the uncertainty in estimating unknown values. Examination of the methodology provides insight toward choosing linear or nonlinear modeling terms. Static tolerances common in most packages are replaced with tailorable tolerances that exploit residuals to fit each data element. The methodology evaluation includes observing computation time, model fit, and the comparison of known  values to replaced values created through imputation. Overall, the country conflict dataset illustrates promise with modeling first-order interactions, while presenting a need for further refinement that mimics predictive mean matching.

Keywords: Correlation, country conflict, imputation, stochastic regression.

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Authors: Seon Soon Choi

Abstract:

The fatigue crack growth is stochastic because of the fatigue behavior having an uncertainty and a randomness. Therefore, it is necessary to determine the probability distribution of a grown crack size at a specific fatigue crack propagation life for maintenance of structure as well as reliability estimation. The essential purpose of this study is to present the good probability distribution fit for the grown crack size at a specified fatigue life in a rolled magnesium alloy under different specimen thickness conditions. Fatigue crack propagation experiments are carried out in laboratory air under three conditions of specimen thickness using AZ31 to investigate a stochastic crack growth behavior. The goodness-of-fit test for probability distribution of a grown crack size under different specimen thickness conditions is performed by Anderson-Darling test. The effect of a specimen thickness on variability of a grown crack size is also investigated.

Keywords: Crack size, Fatigue crack propagation, Magnesium alloys, Probability distribution, Specimen thickness.

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Authors: K. Sudprasert, M. Precharattana, N. Nuttavut, D. Triampo, B. Pattanasiri, Y. Lenbury, W. Triampo

Abstract:

The study of non-equilibrium systems has attracted increasing interest in recent years, mainly due to the lack of theoretical frameworks, unlike their equilibrium counterparts. Studying the steady state and/or simple systems is thus one of the main interests. Hence in this work we have focused our attention on the driven lattice gas model (DLG model) consisting of interacting particles subject to an external field E. The dynamics of the system are given by hopping of particles to nearby empty sites with rates biased for jumps in the direction of E. Having used small two dimensional systems of DLG model, the stochastic properties at nonequilibrium steady state were analytically studied. To understand the non-equilibrium phenomena, we have applied the analytic approach via master equation to calculate probability function and analyze violation of detailed balance in term of the fluctuation-dissipation theorem. Monte Carlo simulations have been performed to validate the analytic results.

Keywords: Non-equilibrium, lattice gas, stochastic process

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Authors: Milad Eghtedari Naeini, Gholamreza Heravi

Abstract:

In this paper, based on the past project cost and time performance, a model for forecasting project cost performance is developed. This study presents a probabilistic project control concept to assure an acceptable forecast of project cost performance. In this concept project activities are classified into sub-groups entitled control accounts. Then obtain the Stochastic S-Curve (SS-Curve), for each sub-group and the project SS-Curve is obtained by summing sub-groups- SS-Curves. In this model, project cost uncertainties are considered through Beta distribution functions of the project activities costs required to complete the project at every selected time sections through project accomplishment, which are extracted from a variety of sources. Based on this model, after a percentage of the project progress, the project performance is measured via Earned Value Management to adjust the primary cost probability distribution functions. Then, accordingly the future project cost performance is predicted by using the Monte-Carlo simulation method.

Keywords: Monte Carlo method, Probabilistic model, Project forecasting, Stochastic S-curve

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Authors: Abdolsalam Ghaderi

Abstract:

In this paper, the single-depot capacitated location-routing problem under uncertainty is presented. The problem aims to find the optimal location of a single depot and the routing of vehicles to serve the customers when the parameters may change under different circumstances. This problem has many applications, especially in the area of supply chain management and distribution systems. To get closer to real-world situations, travel time of vehicles, the fixed cost of vehicles usage and customers’ demand are considered as a source of uncertainty. A combined approach including robust optimization and stochastic programming was presented to deal with the uncertainty in the problem at hand. For this purpose, a mixed integer programming model is developed and a heuristic algorithm based on Variable Neighborhood Search(VNS) is presented to solve the model. Finally, the computational results are presented and future research directions are discussed.

Keywords: Location-routing problem, robust optimization, Stochastic Programming, variable neighborhood search.

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Authors: Seon Soon Choi

Abstract:

It is necessary to predict a fatigue crack propagation life for estimation of structural integrity. Because of an uncertainty and a randomness of a structural behavior, it is also required to analyze stochastic characteristics of the fatigue crack propagation life at a specified fatigue crack size. The essential purpose of this study is to find the effect of load ratio on probability distribution of the fatigue crack propagation life at a specified grown crack size and to confirm the good probability distribution in magnesium alloys under various fatigue load ratio conditions. To investigate a stochastic crack growth behavior, fatigue crack propagation experiments are performed in laboratory air under several conditions of fatigue load ratio using AZ31. By Anderson-Darling test, a goodness-of-fit test for probability distribution of the fatigue crack propagation life is performed. The effect of load ratio on variability of fatigue crack propagation life is also investigated.

Keywords: Load ratio, fatigue crack propagation life, Magnesium alloys, probability distribution.

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Authors: Jonathan H. Perez, Fumihiko Tanaka, Daisuke Hamanaka, Toshitaka Uchino

Abstract:

A finite element analysis was conducted to determine the effect of moisture diffusion and hygroscopic swelling in rice. A parallel simple stochastic modeling was performed to predict the number of grains cracked as a result of moisture absorption and hygroscopic swelling. Rice grains were soaked in thermally (25 oC) controlled water and then tested for compressive stress. The destructive compressive stress tests revealed through compressive stress calculation that the peak force required to cause cracking in grains soaked in water reduced with time as soaking duration was extended. Results of the experiment showed that several grains had their value of the predicted compressive stress below the von Mises stress and were interpreted as grains which become cracked and/or broke during soaking. The technique developed in this experiment will facilitate the approximation of the number of grains which will crack during soaking.

Keywords: Cracking, Finite element analysis, hygroscopic swelling, moisture diffusion, von Mises stress.

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Authors: Shan Gao, Zaiming Liu

Abstract:

This paper treats a discrete-time batch arrival queue with single working vacation. The main purpose of this paper is to present a performance analysis of this system by using the supplementary variable technique. For this purpose, we first analyze the Markov chain underlying the queueing system and obtain its ergodicity condition. Next, we present the stationary distributions of the system length as well as some performance measures at random epochs by using the supplementary variable method. Thirdly, still based on the supplementary variable method we give the probability generating function (PGF) of the number of customers at the beginning of a busy period and give a stochastic decomposition formulae for the PGF of the stationary system length at the departure epochs. Additionally, we investigate the relation between our discretetime system and its continuous counterpart. Finally, some numerical examples show the influence of the parameters on some crucial performance characteristics of the system.

Keywords: Discrete-time queue, batch arrival, working vacation, supplementary variable technique, stochastic decomposition.

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Authors: Madhukar Nagare, Pankaj Dutta

Abstract:

Inventory decisional environment of short life-cycle products is full of uncertainties arising from randomness and fuzziness of input parameters like customer demand requiring modeling under hybrid uncertainty. Prior inventory models incorporating fuzzy demand have unfortunately ignored stochastic variation of demand. This paper determines an unambiguous optimal order quantity from a set of n fuzzy observations in a newsvendor inventory setting in presence of fuzzy random variable demand capturing both fuzzy perception and randomness of customer demand. The stress of this paper is in providing solution procedure that attains optimality in two steps with demand information availability in linguistic phrases leading to fuzziness along with stochastic variation. The first step of solution procedure identifies and prefers one best fuzzy opinion out of all expert opinions and the second step determines optimal order quantity from the selected event that maximizes profit. The model and solution procedure is illustrated with a numerical example.

Keywords: Fuzzy expected value, Fuzzy random demand, Hybrid uncertainty, Optimal order quantity, Single-period inventory

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Authors: Malay K. Pakhira, Rajat K. De

Abstract:

In this paper, a pipelined version of genetic algorithm, called PLGA, and a corresponding hardware platform are described. The basic operations of conventional GA (CGA) are made pipelined using an appropriate selection scheme. The selection operator, used here, is stochastic in nature and is called SA-selection. This helps maintaining the basic generational nature of the proposed pipelined GA (PLGA). A number of benchmark problems are used to compare the performances of conventional roulette-wheel selection and the SA-selection. These include unimodal and multimodal functions with dimensionality varying from very small to very large. It is seen that the SA-selection scheme is giving comparable performances with respect to the classical roulette-wheel selection scheme, for all the instances, when quality of solutions and rate of convergence are considered. The speedups obtained by PLGA for different benchmarks are found to be significant. It is shown that a complete hardware pipeline can be developed using the proposed scheme, if parallel evaluation of the fitness expression is possible. In this connection a low-cost but very fast hardware evaluation unit is described. Results of simulation experiments show that in a pipelined hardware environment, PLGA will be much faster than CGA. In terms of efficiency, PLGA is found to outperform parallel GA (PGA) also.

Keywords: Hardware evaluation, Hardware pipeline, Optimization, Pipelined genetic algorithm, SA-selection.

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Authors: Amadi Ugwulo Chinyere, Lewis D. Gbarayorks, Emem N. H. Inamete

Abstract:

In this paper, the mandatory contribution, additional voluntary contribution (AVC) and administrative charges are merged together to determine the optimal investment strategy (OIS) for a pension plan member (PPM) in a defined contribution (DC) pension scheme under the modified constant elasticity of variance (M-CEV) model. We assume that the voluntary contribution is a stochastic process and a portfolio consisting of one risk free asset and one risky asset modeled by the M-CEV model is considered. Also, a stochastic differential equation consisting of PPM’s monthly contributions, voluntary contributions and administrative charges is obtained. More so, an optimization problem in the form of Hamilton Jacobi Bellman equation which is a nonlinear partial differential equation is obtained. Using power transformation and change of variables method, an explicit solution of the OIS and the value function are obtained under constant absolute risk averse (CARA). Furthermore, numerical simulations on the impact of some sensitive parameters on OIS were discussed extensively. Finally, our result generalizes some existing result in the literature.

Keywords: DC pension fund, modified constant elasticity of variance, optimal investment strategies, voluntary contribution, administrative charges.

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Authors: H. C. Chinwenyi, H. D. Ibrahim, F. A. Ahmed

Abstract:

In modern financial mathematics, valuing derivatives such as options is often a tedious task. This is simply because their fair and correct prices in the future are often probabilistic. This paper examines three different Stochastic Differential Equation (SDE) models in finance; the Constant Elasticity of Variance (CEV) model, the Balck-Karasinski model, and the Heston model. The various Martingales option price valuation formulas for these three models were obtained using the replicating portfolio method. Also, the numerical solution of the derived Martingales options price valuation equations for the SDEs models was carried out using the Monte Carlo method which was implemented using MATLAB. Furthermore, results from the numerical examples using published data from the Nigeria Stock Exchange (NSE), all share index data show the effect of increase in the underlying asset value (stock price) on the value of the European Put Option for these models. From the results obtained, we see that an increase in the stock price yields a decrease in the value of the European put option price. Hence, this guides the option holder in making a quality decision by not exercising his right on the option.

Keywords: Equivalent Martingale Measure, European Put Option, Girsanov Theorem, Martingales, Monte Carlo method, option price valuation, option price valuation formula.

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Authors: Yilun Shang

Abstract:

In this paper, we deal with the fundamental concepts and properties of ergodicity coefficients in a hierarchical sense by making use of partition. Moreover, we establish a hierarchial Hajnal’s inequality improving some previous results.

Keywords: Stochastic matrix, ergodicity coefficient, partition.

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Authors: S. Hamid Mirmohammadi, Shahrazad Tamjidzad

Abstract:

This paper is concerned with the single-item continuous review inventory system in which demand is stochastic and discrete. The budget consumed for purchasing the ordered items is not restricted but it incurs extra cost when exceeding specific value. The unit purchasing price depends on the quantity ordered under the all-units discounts cost structure. In many actual systems, the budget as a resource which is occupied by the purchased items is limited and the system is able to confront the resource shortage by charging more costs. Thus, considering the resource shortage costs as a part of system costs, especially when the amount of resource occupied by the purchased item is influenced by quantity discounts, is well motivated by practical concerns. In this paper, an optimization problem is formulated for finding the optimal (r, Q) policy, when the system is influenced by the budget limitation and a discount pricing simultaneously. Properties of the cost function are investigated and then an algorithm based on a one-dimensional search procedure is proposed for finding an optimal (r, Q) policy which minimizes the expected system costs.

Keywords: (r, Q) policy, Stochastic demand, backorders, limited resource, quantity discounts.

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