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.

Launch Envelope Optimization of Virtual Sliding Target Guidance Scheme

This paper presents an optimization of the performance of a recently proposed virtual sliding target (VST) guidance scheme in terms of maximization of its launch envelope for three- dimensional (3-D) engagements. The objective is to obtain the launch envelope of the missile using the VST guidance scheme for different lateral launch angles with respect to the line of sight (LOS) and demonstrate its superiority over kinematics-based guidance laws like proportional navigation (PN). The VST scheme uses PN as its basic guidance scheme and exploits the relation between the atmospheric properties, missile aerodynamic characteristics, and the optimal trajectory of the missile. The missile trajectory is shaped by controlling the instantaneous position and the speed of a virtual target which the missile pursues during the midcourse phase. In the proposed method it is shown that an appropriate value of initial position for the virtual target in 3-D, combined with optimized virtual target parameters, can significantly improve the launch envelope performance. The paper presents the formulation of the optimization problem, obtains the approximate models used to make the optimization problem more tractable, and finally presents the optimized performance of the missile in terms of launch envelope and shows significant improvement over kinematic-based guidance laws. The paper also proposes modification to the basic VST scheme. Some simulations using the full-fledged six degrees-of-freedom (6-DOF) models are also presented to validate the models and technique used.

Asymptotic analysis of option pricing in a Markov modulated market

We address asymptotic analysis of option pricing in a regime switching market where the risk free interest rate, growth rate and the volatility of the stocks depend on a finite state Markov chain. We study two variations of the chain namely, when the chain is moving very fast compared to the underlying asset price and when it is moving very slow. Using quadratic hedging and asymptotic expansion, we derive corrections on the locally risk minimizing option price.

Risk Minimizing Option Pricing for a Class of Exotic Options in a Markov-Modulated Market

We address risk minimizing option pricing in a regime switching market where the floating interest rate depends on a finite state Markov process. The growth rate and the volatility of the stock also depend on the Markov process. Using the minimal martingale measure, we show that the locally risk minimizing prices for certain exotic options satisfy a system of Black-Scholes partial differential equations with appropriate boundary conditions. We find the corresponding hedging strategies and the residual risk. We develop suitable numerical methods to compute option prices.

Pricing Defaultable Bonds in a Markov Modulated Market

We address the problem of pricing defaultable bonds in a Markov modulated market. Using Merton's structural approach we show that various types of defaultable bonds are combination of European type contingent claims. Thus pricing a defaultable bond is tantamount to pricing a contingent claim in a Markov modulated market. Since the market is incomplete, we use the method of quadratic hedging and minimal martingale measure to derive locally risk minimizing derivative prices, hedging strategies and the corresponding residual risks. The price of defaultable bonds are obtained as solutions to a system of PDEs with weak coupling subject to appropriate terminal and boundary conditions. We solve the system of PDEs numerically and carry out a numerical investigation for the defaultable bond prices. We compare their credit spreads with some of the existing models. We observe higher spreads in the Markov modulated market. We show how business cycles can be easily incorporated in the proposed framework. We demonstrate the impact on spreads of the inclusion of rare states that attempt to capture a tight liquidity situation. These states are characterized by low risk-free interest rate, high payout rate and high volatility.

Predatory Fish Select for Coordinated Collective Motion in Virtual Prey

Movement in animal groups is highly varied and ranges from seemingly disordered motion in swarms to coordinated aligned motion in flocks and schools. These social interactions are often thought to reduce risk from predators, despite a lack of direct evidence. We investigated risk-related selection for collective motion by allowing real predators ( bluegill sunfish) to hunt mobile virtual prey. By fusing simulated and real animal behavior, we isolated predator effects while controlling for confounding factors. Prey with a tendency to be attracted toward, and to align direction of travel with, near neighbors tended to form mobile coordinated groups and were rarely attacked. These results demonstrate that collective motion could evolve as a response to predation, without prey being able to detect and respond to predators.

Control of a Duct Flow Network for Wind Display in a Virtual Environment

Control of flow in duct networks has a myriad of applications ranging from heating, ventilation, and air-conditioning to blood flow networks. The system considered here provides vent velocity inputs to a novel 3-D wind display device called the TreadPort Active Wind Tunnel. An error-based robust decentralized sliding-mode control method with nominal feedforward terms is developed for individual ducts while considering cross coupling between ducts and model uncertainty as external disturbances in the output. This approach is important due to limited measurements, geometric complexities, and turbulent flow conditions. Methods for resolving challenges such as turbulence, electrical noise, valve actuator design, and sensor placement are presented. The efficacy of the controller and the importance of feedforward terms are demonstrated with simulations based upon an experimentally validated lumped parameter model and experiments on the physical system. Results show significant improvement over traditional control methods and validate prior assertions regarding the importance of decentralized control in practice.

Network congestion management by fuzzy inference using virtual flows

Effective network overload alleviation is very much essential in order to maintain security and integrity from the operational viewpoint of deregulated power systems. This paper aims at developing a methodology to reschedule the active power generation from the sources in order to manage the network congestion under normal/contingency conditions. An effective method has been proposed using fuzzy rule based inference system. Using virtual flows concept, which provides partial contributions/counter flows in the network elements is used as a basis in the proposed method to manage network congestions to the possible extent. The proposed method is illustrated on a sample 6 bus test system and on modified IEEE 39 bus system.

Combining product information and process information to build virtual assembly situations for knowledge acquisition

Assembly is an important part of the product development process. To avoid potential issues during assembly in specialized domains such as aircraft assembly, expert knowledge to predict such issues is helpful. Knowledge based systems can act as virtual experts to provide assistance. Knowledge acquisition for such systems however, is a challenge, and this paper describes one part of an ongoing research to acquire knowledge through a dialog between an expert and a knowledge acquisition system. In particular this paper discusses the use of a situation model for assemblies to present experts with a virtual assembly and help them locate the specific context of the knowledge they provide to the system.

SeaMo plus : a virtual real-time multimedia service framework on handhelds to enable remote real-time patient monitoring for mobile doctors

The key requirements for enabling real-time remote healthcare service on a mobile platform, in the present day heterogeneous wireless access network environment, are uninterrupted and continuous access to the online patient vital medical data, monitor the physical condition of the patient through video streaming, and so on. For an application, this continuity has to be sufficiently transparent both from a performance perspective as well as a Quality of Experience (QoE) perspective. While mobility protocols (MIPv6, HIP, SCTP, DSMIP, PMIP, and SIP) strive to provide both and do so, limited or non-availability (deployment) of these protocols on provider networks and server side infrastructure has impeded adoption of mobility on end user platforms. Add to this, the cumbersome OS configuration procedures required to enable mobility protocol support on end user devices and the user's enthusiasm to add this support is lost. Considering the lack of proper mobility implementations that meet the remote healthcare requirements above, we propose SeaMo+ that comprises a light-weight application layer framework, termed as the Virtual Real-time Multimedia Service (VRMS) for mobile devices to provide an uninterrupted real-time multimedia information access to the mobile user. VRMS is easy to configure, platform independent, and does not require additional network infrastructure unlike other existing schemes. We illustrate the working of SeaMo+ in two realistic remote patient monitoring application scenarios.

Resource usage monitoring for KVM based virtual machines

Realization of cloud computing has been possible due to availability of virtualization technologies on commodity platforms. Measuring resource usage on the virtualized servers is difficult because of the fact that the performance counters used for resource accounting are not virtualized. Hence, many of the prevalent virtualization technologies like Xen, VMware, KVM etc., use host specific CPU usage monitoring, which is coarse grained. In this paper, we present a performance monitoring tool for KVM based virtualized machines, which measures the CPU overhead incurred by the hypervisor on behalf of the virtual machine along-with the CPU usage of virtual machine itself. This fine-grained resource usage information, provided by the above tool, can be used for diverse situations like resource provisioning to support performance associated QoS requirements, identification of bottlenecks during VM placements, resource profiling of applications in cloud environments, etc. We demonstrate a use case of this tool by measuring the performance of web-servers hosted on a KVM based virtualized server.