Risk Minimizing Option Pricing in a Semi-Markov Modulated Market

We address risk minimizing option pricing in a semi-Markov modulated market where the floating interest rate depends on a finite state semi-Markov process. The growth rate and the volatility of the stock also depend on the semi-Markov process. Using the Föllmer–Schweizer decomposition we find the locally risk minimizing price for European options and the corresponding hedging strategy. We develop suitable numerical methods for computing option prices.

Portfolio Optimization in a Semi-Markov Modulated Market

We address a portfolio optimization problem in a semi-Markov modulated market. We study both the terminal expected utility optimization on finite time horizon and the risk-sensitive portfolio optimization on finite and infinite time horizon. We obtain optimal portfolios in relevant cases. A numerical procedure is also developed to compute the optimal expected terminal utility for finite horizon problem.

An imprecise fuzzy risk approach for water quality management of a river system

Uncertainty plays an important role in water quality management problems. The major sources of uncertainty in a water quality management problem are the random nature of hydrologic variables and imprecision (fuzziness) associated with goals of the dischargers and pollution control agencies (PCA). Many Waste Load Allocation (WLA)problems are solved by considering these two sources of uncertainty. Apart from randomness and fuzziness, missing data in the time series of a hydrologic variable may result in additional uncertainty due to partial ignorance. These uncertainties render the input parameters as imprecise parameters in water quality decision making. In this paper an Imprecise Fuzzy Waste Load Allocation Model (IFWLAM) is developed for water quality management of a river system subject to uncertainty arising from partial ignorance. In a WLA problem, both randomness and imprecision can be addressed simultaneously by fuzzy risk of low water quality. A methodology is developed for the computation of imprecise fuzzy risk of low water quality, when the parameters are characterized by uncertainty due to partial ignorance. A Monte-Carlo simulation is performed to evaluate the imprecise fuzzy risk of low water quality by considering the input variables as imprecise. Fuzzy multiobjective optimization is used to formulate the multiobjective model. The model developed is based on a fuzzy multiobjective optimization problem with max-min as the operator. This usually does not result in a unique solution but gives multiple solutions. Two optimization models are developed to capture all the decision alternatives or multiple solutions. The objective of the two optimization models is to obtain a range of fractional removal levels for the dischargers, such that the resultant fuzzy risk will be within acceptable limits. Specification of a range for fractional removal levels enhances flexibility in decision making. The methodology is demonstrated with a case study of the Tunga-Bhadra river system in India.

Risk minimization in water quality control problems of a river system

Methodologies are presented for minimization of risk in a river water quality management problem. A risk minimization model is developed to minimize the risk of low water quality along a river in the face of conflict among various stake holders. The model consists of three parts: a water quality simulation model, a risk evaluation model with uncertainty analysis and an optimization model. Sensitivity analysis, First Order Reliability Analysis (FORA) and Monte-Carlo simulations are performed to evaluate the fuzzy risk of low water quality. Fuzzy multiobjective programming is used to formulate the multiobjective model. Probabilistic Global Search Laussane (PGSL), a global search algorithm developed recently, is used for solving the resulting non-linear optimization problem. The algorithm is based on the assumption that better sets of points are more likely to be found in the neighborhood of good sets of points, therefore intensifying the search in the regions that contain good solutions. Another model is developed for risk minimization, which deals with only the moments of the generated probability density functions of the water quality indicators. Suitable skewness values of water quality indicators, which lead to low fuzzy risk are identified. Results of the models are compared with the results of a deterministic fuzzy waste load allocation model (FWLAM), when methodologies are applied to the case study of Tunga-Bhadra river system in southern India, with a steady state BOD-DO model. The fractional removal levels resulting from the risk minimization model are slightly higher, but result in a significant reduction in risk of low water quality. (c) 2005 Elsevier Ltd. All rights reserved.

Reservoir Operation for Hydropower Optimization: A Chance-Constrained Approach

This paper presents a chance-constrained linear programming formulation for reservoir operation of a multipurpose reservoir. The release policy is defined by a chance constraint that the probability of irrigation release in any period equalling or exceeding the irrigation demand is at least equal to a specified value P (called reliability level). The model determines the maximum annual hydropower produced while meeting the irrigation demand at a specified reliability level. The model considers variation in reservoir water level elevation and also the operating range within which the turbine operates. A linear approximation for nonlinear power production function is assumed and the solution obtained within a specified tolerance limit. The inflow into the reservoir is considered random. The chance constraint is converted into its deterministic equivalent using a linear decision rule and inflow probability distribution. The model application is demonstrated through a case study.

Fuzzy optimization model for water quality management of a river system - Closure

A fuzzy waste-load allocation model, FWLAM, is developed for water quality management of a river system using fuzzy multiple-objective optimization. An important feature of this model is its capability to incorporate the aspirations and conflicting objectives of the pollution control agency and dischargers. The vagueness associated with specifying the water quality criteria and fraction removal levels is modeled in a fuzzy framework. The goals related to the pollution control agency and dischargers are expressed as fuzzy sets. The membership functions of these fuzzy sets are considered to represent the variation of satisfaction levels of the pollution control agency and dischargers in attaining their respective goals. Two formulations—namely, the MAX-MIN and MAX-BIAS formulations—are proposed for FWLAM. The MAX-MIN formulation maximizes the minimum satisfaction level in the system. The MAX-BIAS formulation maximizes a bias measure, giving a solution that favors the dischargers. Maximization of the bias measure attempts to keep the satisfaction levels of the dischargers away from the minimum satisfaction level and that of the pollution control agency close to the minimum satisfaction level. Most of the conventional water quality management models use waste treatment cost curves that are uncertain and nonlinear. Unlike such models, FWLAM avoids the use of cost curves. Further, the model provides the flexibility for the pollution control agency and dischargers to specify their aspirations independently.

A probabilistic constrained nonlinear optimization framework to optimize RED parameters

The random early detection (RED) technique has seen a lot of research over the years. However, the functional relationship between RED performance and its parameters viz,, queue weight (omega(q)), marking probability (max(p)), minimum threshold (min(th)) and maximum threshold (max(th)) is not analytically availa ble. In this paper, we formulate a probabilistic constrained optimization problem by assuming a nonlinear relationship between the RED average queue length and its parameters. This problem involves all the RED parameters as the variables of the optimization problem. We use the barrier and the penalty function approaches for its Solution. However (as above), the exact functional relationship between the barrier and penalty objective functions and the optimization variable is not known, but noisy samples of these are available for different parameter values. Thus, for obtaining the gradient and Hessian of the objective, we use certain recently developed simultaneous perturbation stochastic approximation (SPSA) based estimates of these. We propose two four-timescale stochastic approximation algorithms based oil certain modified second-order SPSA updates for finding the optimum RED parameters. We present the results of detailed simulation experiments conducted over different network topologies and network/traffic conditions/settings, comparing the performance of Our algorithms with variants of RED and a few other well known adaptive queue management (AQM) techniques discussed in the literature.

A Global Constraint On Relative Rotation To Avoid Lumped Compliant Mechanisms In Topology Optimization

Some of the well known formulations for topology optimization of compliant mechanisms could lead to lumped compliant mechanisms. In lumped compliance, most of the elastic deformation in a mechanism occurs at few points, while rest of the mechanism remains more or less rigid. Such points are referred to as point-flexures. It has been noted in literature that high relative rotation is associated with point-flexures. In literature we also find a formulation of local constraint on relative rotations to avoid lumped compliance. However it is well known that a global constraint is easier to handle than a local constraint, by a numerical optimization algorithm. The current work presents a way of putting global constraint on relative rotations. This constraint is also simpler to implement since it uses linearized rotation at the center of finite-elements, to compute relative rotations. I show the results obtained by using this constraint oil the following benchmark problems - displacement inverter and gripper.

Theoretical Optimization of Metal Para-Normal Silicon Schottky-Barrier Solar-Cell

The theoretical optimization of the design parametersN A ,N D andW P has been done for efficient operation of Au-p-n Si solar cell including thermionic field emission, dependence of lifetime and mobility on impurity concentrations, dependence of absorption coefficient on wavelength, variation of barrier height and hence the optimum thickness ofp region with illumination. The optimized design parametersN D =5×1020 m−3,N A =3×1024 m−3 andW P =11.8 nm yield efficiencyη=17.1% (AM0) andη=19.6% (AM1). These are reduced to 14.9% and 17.1% respectively if the metal layer series resistance and transmittance with ZnS antireflection coating are included. A practical value ofW P =97.0 nm gives an efficiency of 12.2% (AM1).

Architecture Optimization of Aerospace Computing Systems

Simultaneous consideration of both performance and reliability issues is important in the choice of computer architectures for real-time aerospace applications. One of the requirements for such a fault-tolerant computer system is the characteristic of graceful degradation. A shared and replicated resources computing system represents such an architecture. In this paper, a combinatorial model is used for the evaluation of the instruction execution rate of a degradable, replicated resources computing system such as a modular multiprocessor system. Next, a method is presented to evaluate the computation reliability of such a system utilizing a reliability graph model and the instruction execution rate. Finally, this computation reliability measure, which simultaneously describes both performance and reliability, is applied as a constraint in an architecture optimization model for such computing systems. Index Terms-Architecture optimization, computation

Steady state optimization of an ammonia reactor

A hybrid simulation technique for identification and steady state optimization of a tubular reactor used in ammonia synthesis is presented. The parameter identification program finds the catalyst activity factor and certain heat transfer coefficients that minimize the sum of squares of deviation from simulated and actual temperature measurements obtained from an operating plant. The optimization program finds the values of three flows to the reactor to maximize the ammonia yield using the estimated parameter values. Powell's direct method of optimization is used in both cases. The results obtained here are compared with the plant data.

Analytical studies of gain optimization in CO2-N2 gasdynamic lasers employing two-dimensional wedge nozzles

An analytical method has been proposed to optimise the small-signaloptical gain of CO2-N2 gasdynamic lasers (gdl) employing two-dimensional (2D) wedge nozzles. Following our earlier work the equations governing the steady, inviscid, quasi-one-dimensional flow in the wedge nozzle of thegdl are reduced to a universal form so that their solutions depend on a single unifying parameter. These equations are solved numerically to obtain similar solutions for the various flow quantities, which variables are subsequently used to optimize the small-signal-gain. The corresponding optimum values like reservoir pressure and temperature and 2D nozzle area ratio also have been predicted and graphed for a wide range of laser gas compositions, with either H2O or He as the catalyst. A large number of graphs are presented which may be used to obtain the optimum values of small signal gain for a wide range of laser compositions without further computations.

Ant Colony Optimization Algorithms for Shortest Path Problems

We propose four variants of recently proposed multi-timescale algorithm in [1] for ant colony optimization and study their application on a multi-stage shortest path problem. We study the performance of the various algorithms in this framework. We observe, that one of the variants consistently outperforms the algorithm [1].

Statistical Optimization of Iron Electrodes for Alkaline Storage Batteries

A pressed-plate Fe electrode for alkalines storage batteries, designed using a statistical method (fractional factorial technique), is described. Parameters such as the configuration of the base grid, electrode compaction temperature and pressure, binder composition, mixing time, etc. have been optimised using this method. The optimised electrodes have a capacity of 300 plus /minus 5 mA h/g of active material (mixture of Fe and magnetite) at 7 h rate to a cut-off voltage of 8.86V vs. Hg/HgO, OH exp 17 ref.

The credit risk(+) model with general sector correlations

We consider an enhancement of the credit risk+ model to incorporate correlations between sectors. We model the sector default rates as linear combinations of a common set of independent variables that represent macro-economic variables or risk factors. We also derive the formula for exact VaR contributions at the obligor level.