Evaluating multivariate volatility forecasts : how effective are statistical and economic loss functions?

Multivariate volatility forecasts are an important input in many financial applications, in particular portfolio optimisation problems. Given the number of models available and the range of loss functions to discriminate between them, it is obvious that selecting the optimal forecasting model is challenging. The aim of this thesis is to thoroughly investigate how effective many commonly used statistical (MSE and QLIKE) and economic (portfolio variance and portfolio utility) loss functions are at discriminating between competing multivariate volatility forecasts. An analytical investigation of the loss functions is performed to determine whether they identify the correct forecast as the best forecast. This is followed by an extensive simulation study examines the ability of the loss functions to consistently rank forecasts, and their statistical power within tests of predictive ability. For the tests of predictive ability, the model confidence set (MCS) approach of Hansen, Lunde and Nason (2003, 2011) is employed. As well, an empirical study investigates whether simulation findings hold in a realistic setting. In light of these earlier studies, a major empirical study seeks to identify the set of superior multivariate volatility forecasting models from 43 models that use either daily squared returns or realised volatility to generate forecasts. This study also assesses how the choice of volatility proxy affects the ability of the statistical loss functions to discriminate between forecasts. Analysis of the loss functions shows that QLIKE, MSE and portfolio variance can discriminate between multivariate volatility forecasts, while portfolio utility cannot. An examination of the effective loss functions shows that they all can identify the correct forecast at a point in time, however, their ability to discriminate between competing forecasts does vary. That is, QLIKE is identified as the most effective loss function, followed by portfolio variance which is then followed by MSE. The major empirical analysis reports that the optimal set of multivariate volatility forecasting models includes forecasts generated from daily squared returns and realised volatility. Furthermore, it finds that the volatility proxy affects the statistical loss functions’ ability to discriminate between forecasts in tests of predictive ability. These findings deepen our understanding of how to choose between competing multivariate volatility forecasts.

Numerical analysis for a variable-order nonlinear cable equation

In this paper, a variable-order nonlinear cable equation is considered. A numerical method with first-order temporal accuracy and fourth-order spatial accuracy is proposed. The convergence and stability of the numerical method are analyzed by Fourier analysis. We also propose an improved numerical method with second-order temporal accuracy and fourth-order spatial accuracy. Finally, the results of a numerical example support the theoretical analysis.

Linear models for endocytic transformations from live cell imaging

Endocytosis is the process by which cells internalise molecules including nutrient proteins from the extracellular media. In one form, macropinocytosis, the membrane at the cell surface ruffles and folds over to give rise to an internalised vesicle. Negatively charged phospholipids within the membrane called phosphoinositides then undergo a series of transformations that are critical for the correct trafficking of the vesicle within the cell, and which are often pirated by pathogens such as Salmonella. Advanced fluorescent video microscopy imaging now allows the detailed observation and quantification of these events in live cells over time. Here we use these observations as a basis for building differential equation models of the transformations. An initial investigation of these interactions was modelled with reaction rates proportional to the sum of the concentrations of the individual constituents. A first order linear system for the concentrations results. The structure of the system enables analytical expressions to be obtained and the problem becomes one of determining the reaction rates which generate the observed data plots. We present results with reaction rates which capture the general behaviour of the reactions so that we now have a complete mathematical model of phosphoinositide transformations that fits the experimental observations. Some excellent fits are obtained with modulated exponential functions; however, these are not solutions of the linear system. The question arises as to how the model may be modified to obtain a system whose solution provides a more accurate fit.

Order of instruction effects - do they make a difference when teaching senior chemistry with computer based visualizations?

This study investigated whether conceptual development is greater if students learning senior chemistry hear teacher explanations and other traditional teaching approaches first then see computer based visualizations or vice versa. Five Canadian chemistry classes, taught by three different teachers, studied the topics of Le Chatelier’s Principle and dynamic chemical equilibria using scientific visualizations with the explanation and visualizations in different orders. Conceptual development was measured using a 12 item test based on the Chemistry Concepts Inventory. Data was obtained about the students’ abilities, learning styles (auditory, visual or kinesthetic) and sex, and the relationships between these factors and conceptual development due to the teaching sequences were investigated. It was found that teaching sequence is not important in terms of students’ conceptual learning gains, across the whole cohort or for any of the three subgroups.

Accelerated leap methods for simulating discrete stochastic chemical kinetics

Biologists are increasingly conscious of the critical role that noise plays in cellular functions such as genetic regulation, often in connection with fluctuations in small numbers of key regulatory molecules. This has inspired the development of models that capture this fundamentally discrete and stochastic nature of cellular biology - most notably the Gillespie stochastic simulation algorithm (SSA). The SSA simulates a temporally homogeneous, discrete-state, continuous-time Markov process, and of course the corresponding probabilities and numbers of each molecular species must all remain positive. While accurately serving this purpose, the SSA can be computationally inefficient due to very small time stepping so faster approximations such as the Poisson and Binomial τ-leap methods have been suggested. This work places these leap methods in the context of numerical methods for the solution of stochastic differential equations (SDEs) driven by Poisson noise. This allows analogues of Euler-Maruyuma, Milstein and even higher order methods to be developed through the Itô-Taylor expansions as well as similar derivative-free Runge-Kutta approaches. Numerical results demonstrate that these novel methods compare favourably with existing techniques for simulating biochemical reactions by more accurately capturing crucial properties such as the mean and variance than existing methods.

Supplement : Efficient weak second-order stochastic Runge-Kutta methods for non-commutative Stratonvich stochastic differential equations

This paper gives a modification of a class of stochastic Runge–Kutta methods proposed in a paper by Komori (2007). The slight modification can reduce the computational costs of the methods significantly.

Frequency response function based structural damage detection using artificial neural networks

Damage detection in structures has become increasingly important in recent years. While a number of damage detection and localization methods have been proposed, few attempts have been made to explore the structure damage with frequency response functions (FRFs). This paper illustrates the damage identification and condition assessment of a beam structure using a new frequency response functions (FRFs) based damage index and Artificial Neural Networks (ANNs). In practice, usage of all available FRF data as an input to artificial neural networks makes the training and convergence impossible. Therefore one of the data reduction techniques Principal Component Analysis (PCA) is introduced in the algorithm. In the proposed procedure, a large set of FRFs are divided into sub-sets in order to find the damage indices for different frequency points of different damage scenarios. The basic idea of this method is to establish features of damaged structure using FRFs from different measurement points of different sub-sets of intact structure. Then using these features, damage indices of different damage cases of the structure are identified after reconstructing of available FRF data using PCA. The obtained damage indices corresponding to different damage locations and severities are introduced as input variable to developed artificial neural networks. Finally, the effectiveness of the proposed method is illustrated and validated by using the finite element modal of a beam structure. The illustrated results show that the PCA based damage index is suitable and effective for structural damage detection and condition assessment of building structures.

Pattern recognition using invariants defined from higher order spectra - one-dimensional inputs

A new approach to pattern recognition using invariant parameters based on higher order spectra is presented. In particular, invariant parameters derived from the bispectrum are used to classify one-dimensional shapes. The bispectrum, which is translation invariant, is integrated along straight lines passing through the origin in bifrequency space. The phase of the integrated bispectrum is shown to be scale and amplification invariant, as well. A minimal set of these invariants is selected as the feature vector for pattern classification, and a minimum distance classifier using a statistical distance measure is used to classify test patterns. The classification technique is shown to distinguish two similar, but different bolts given their one-dimensional profiles. Pattern recognition using higher order spectral invariants is fast, suited for parallel implementation, and has high immunity to additive Gaussian noise. Simulation results show very high classification accuracy, even for low signal-to-noise ratios.

Higher order spectral analysis of Chua's circuit

Higher order spectral analysis is used to investigate nonlinearities in time series of voltages measured from a realization of Chua's circuit. For period-doubled limit cycles, quadratic and cubic nonlinear interactions result in phase coupling and energy exchange between increasing numbers of triads and quartets of Fourier components as the nonlinearity of the system is increased. For circuit parameters that result in a chaotic Rossler-type attractor, bicoherence and tricoherence spectra indicate that both quadratic and cubic nonlinear interactions are important to the dynamics. When the circuit exhibits a double-scroll chaotic attractor the bispectrum is zero, but the tricoherences are high, consistent with the importance of higher-than-second order nonlinear interactions during chaos associated with the double scroll.

Statistics of tricoherence

Statistics of the estimates of tricoherence are obtained analytically for nonlinear harmonic random processes with known true tricoherence. Expressions are presented for the bias, variance, and probability distributions of estimates of tricoherence as functions of the true tricoherence and the number of realizations averaged in the estimates. The expressions are applicable to arbitrary higher order coherence and arbitrary degree of interaction between modes. Theoretical results are compared with those obtained from numerical simulations of nonlinear harmonic random processes. Estimation of true values of tricoherence given observed values is also discussed

Higher-order spectral analysis of nonlinear ocean surface gravity waves

Higher-order spectral analysis is used to detect the presence of secondary and tertiary forced waves associated with the nonlinearity of energetic swell observed in 8- and 13-m water depths. Higher-order spectral analysis techniques are first described and then applied to the field data, followed by a summary of the results.

Higher-Order spectra of nonlinear polynomial models for Chua's circuit

Polynomial models are shown to simulate accurately the quadratic and cubic nonlinear interactions (e.g. higher-order spectra) of time series of voltages measured in Chua's circuit. For circuit parameters resulting in a spiral attractor, bispectra and trispectra of the polynomial model are similar to those from the measured time series, suggesting that the individual interactions between triads and quartets of Fourier components that govern the process dynamics are modeled accurately. For parameters that produce the double-scroll attractor, both measured and modeled time series have small bispectra, but nonzero trispectra, consistent with higher-than-second order nonlinearities dominating the chaos.

On the behaviour of higher-order spectral features for object recognition in the presence of various types of noise

This paper presents results on the robustness of higher-order spectral features to Gaussian, Rayleigh, and uniform distributed noise. Based on cluster plots and accuracy results for various signal to noise conditions, the higher-order spectral features are shown to be better than moment invariant features.

A node-based smoothed conforming point interpolation method (NS-CPIM) for elasticity problems

This paper formulates a node-based smoothed conforming point interpolation method (NS-CPIM) for solid mechanics. In the proposed NS-CPIM, the higher order conforming PIM shape functions (CPIM) have been constructed to produce a continuous and piecewise quadratic displacement field over the whole problem domain, whereby the smoothed strain field was obtained through smoothing operation over each smoothing domain associated with domain nodes. The smoothed Galerkin weak form was then developed to create the discretized system equations. Numerical studies have demonstrated the following good properties: NS-CPIM (1) can pass both standard and quadratic patch test; (2) provides an upper bound of strain energy; (3) avoid the volumetric locking; (4) provides the higher accuracy than those in the node-based smoothed schemes of the original PIMs.

Towards testing a new first-order decision making model for the procurement of public sector major infrastructure

Given global demand for new infrastructure, governments face substantial challenges in funding new infrastructure and simultaneously delivering Value for Money (VfM). As background to this challenge, a brief review is given of current practice in the selection of major public sector infrastructure in Australia, along with a review of the related literature concerning the Multi-Attribute Utility Approach (MAUA) and the effect of MAUA on the role of risk management in procurement selection. To contribute towards addressing the key weaknesses of MAUA, a new first-order procurement decision making model is mentioned. A brief summary is also given of the research method and hypothesis used to test and develop the new procurement model and which uses competition as the dependent variable and as a proxy for VfM. The hypothesis is given as follows: When the actual procurement mode matches the theoretical/predicted procurement mode (informed by the new procurement model), then actual competition is expected to match optimum competition (based on actual prevailing capacity vis-à-vis the theoretical/predicted procurement mode) and subject to efficient tendering. The aim of this paper is to report on progress towards testing this hypothesis in terms of an analysis of two of the four data components in the hypothesis. That is, actual procurement and actual competition across 87 road and health major public sector projects in Australia. In conclusion, it is noted that the Global Financial Crisis (GFC) has seen a significant increase in competition in public sector major road and health infrastructure and if any imperfections in procurement and/or tendering are discernible, then this would create the opportunity, through the deployment of economic principles embedded in the new procurement model and/or adjustments in tendering, to maintain some of this higher level post-GFC competition throughout the next business cycle/upturn in demand including private sector demand. Finally, the paper previews the next steps in the research with regard to collection and analysis of data concerning theoretical/predicted procurement and optimum competition.