The benefit of modeling jumps in realized volatility for risk prediction : evidence from Chinese mainland stocks

Recent literature has focused on realized volatility models to predict financial risk. This paper studies the benefit of explicitly modeling jumps in this class of models for value at risk (VaR) prediction. Several popular realized volatility models are compared in terms of their VaR forecasting performances through a Monte Carlo study and an analysis based on empirical data of eight Chinese stocks. The results suggest that careful modeling of jumps in realized volatility models can largely improve VaR prediction, especially for emerging markets where jumps play a stronger role than those in developed markets.

Corporate credit risk prediction under stochastic volatility and jumps

This paper examines the impact of allowing for stochastic volatility and jumps (SVJ) in a structural model on corporate credit risk prediction. The results from a simulation study verify the better performance of the SVJ model compared with the commonly used Merton model, and three sources are provided to explain the superiority. The empirical analysis on two real samples further ascertains the importance of recognizing the stochastic volatility and jumps by showing that the SVJ model decreases bias in spread prediction from the Merton model, and better explains the time variation in actual CDS spreads. The improvements are found particularly apparent in small firms or when the market is turbulent such as the recent financial crisis.

Prediction of individual genetic risk to prostate cancer using a polygenic score

BACKGROUND Polygenic risk scores comprising established susceptibility variants have shown to be informative classifiers for several complex diseases including prostate cancer. For prostate cancer it is unknown if inclusion of genetic markers that have so far not been associated with prostate cancer risk at a genome-wide significant level will improve disease prediction. METHODS We built polygenic risk scores in a large training set comprising over 25,000 individuals. Initially 65 established prostate cancer susceptibility variants were selected. After LD pruning additional variants were prioritized based on their association with prostate cancer. Six-fold cross validation was performed to assess genetic risk scores and optimize the number of additional variants to be included. The final model was evaluated in an independent study population including 1,370 cases and 1,239 controls. RESULTS The polygenic risk score with 65 established susceptibility variants provided an area under the curve (AUC) of 0.67. Adding an additional 68 novel variants significantly increased the AUC to 0.68 (P = 0.0012) and the net reclassification index with 0.21 (P = 8.5E-08). All novel variants were located in genomic regions established as associated with prostate cancer risk. CONCLUSIONS Inclusion of additional genetic variants from established prostate cancer susceptibility regions improves disease prediction. Prostate 75:1467–1474, 2015. © 2015 Wiley Periodicals, Inc.

Managing risk in process-aware information systems

This research contributes a fully-operational approach for managing business process risk in near real-time. The approach consists of a language for defining risks on top of process models, a technique to detect such risks as they eventuate during the execution of business processes, a recommender system for making risk-informed decisions, and a technique to automatically mitigate the detected risks when they are no longer tolerable. Through the incorporation of risk management elements in all stages of the lifecycle of business processes, this work contributes to the effective integration of the fields of Business Process Management and Risk Management.

Design, construction and evaluation of systems to predict risk in obstetrics

We present a systematic, practical approach to developing risk prediction systems, suitable for use with large databases of medical information. An important part of this approach is a novel feature selection algorithm which uses the area under the receiver operating characteristic (ROC) curve to measure the expected discriminative power of different sets of predictor variables. We describe this algorithm and use it to select variables to predict risk of a specific adverse pregnancy outcome: failure to progress in labour. Neural network, logistic regression and hierarchical Bayesian risk prediction models are constructed, all of which achieve close to the limit of performance attainable on this prediction task. We show that better prediction performance requires more discriminative clinical information rather than improved modelling techniques. It is also shown that better diagnostic criteria in clinical records would greatly assist the development of systems to predict risk in pregnancy. We present a systematic, practical approach to developing risk prediction systems, suitable for use with large databases of medical information. An important part of this approach is a novel feature selection algorithm which uses the area under the receiver operating characteristic (ROC) curve to measure the expected discriminative power of different sets of predictor variables. We describe this algorithm and use it to select variables to predict risk of a specific adverse pregnancy outcome: failure to progress in labour. Neural network, logistic regression and hierarchical Bayesian risk prediction models are constructed, all of which achieve close to the limit of performance attainable on this prediction task. We show that better prediction performance requires more discriminative clinical information rather than improved modelling techniques. It is also shown that better diagnostic criteria in clinical records would greatly assist the development of systems to predict risk in pregnancy.

Genome-wide association meta-analysis identifies new endometriosis risk loci

We conducted a genome-wide association meta-analysis of 4,604 endometriosis cases and 9,393 controls of Japanese and European ancestry. We show that rs12700667 on chromosome 7p15.2, previously found to associate with disease in Europeans, replicates in Japanese (P = 3.6 x 10(-3)), and we confirm association of rs7521902 at 1p36.12 near WNT4. In addition, we establish an association of rs13394619 in GREB1 at 2p25.1 with endometriosis and identify a newly associated locus at 12q22 near VEZT (rs10859871). Excluding cases of European ancestry of minimal or unknown severity, we identified additional previously unknown loci at 2p14 (rs4141819), 6p22.3 (rs7739264) and 9p21.3 (rs1537377). All seven SNP effects were replicated in an independent cohort and associated at P <5 x 10(-8) in a combined analysis. Finally, we found a significant overlap in polygenic risk for endometriosis between the genome-wide association cohorts of European and Japanese descent (P = 8.8 x 10(-11)), indicating that many weakly associated SNPs represent true endometriosis risk loci and that risk prediction and future targeted disease therapy may be transferred across these populations.

Using genomic data to make indirect (and unauthorized) estimates of disease risk

The number of genetic factors associated with common human traits and disease is increasing rapidly, and the general public is utilizing affordable, direct-to-consumer genetic tests. The results of these tests are often in the public domain. A combination of factors has increased the potential for the indirect estimation of an individual's risk for a particular trait. Here we explain the basic principals underlying risk estimation which allowed us to test the ability to make an indirect risk estimation from genetic data by imputing Dr. James Watson's redacted apolipoprotein E gene (APOE) information. The principles underlying risk prediction from genetic data have been well known and applied for many decades, however, the recent increase in genomic knowledge, and advances in mathematical and statistical techniques and computational power, make it relatively easy to make an accurate but indirect estimation of risk. There is a current hazard for indirect risk estimation that is relevant not only to the subject but also to individuals related to the subject; this risk will likely increase as more detailed genomic data and better computational tools become available.

Possible genetic predisposition to lymphedema after breast cancer

Background: Known risk factors for secondary lymphedema only partially explain who develops lymphedema following cancer, suggesting that inherited genetic susceptibility may influence risk. Moreover, identification of molecular signatures could facilitate lymphedema risk prediction prior to surgery or lead to effective drug therapies for prevention or treatment. Recent advances in the molecular biology underlying development of the lymphatic system and related congenital disorders implicate a number of potential candidate genes to explore in relation to secondary lymphedema. Methods and Results: We undertook a nested case-control study, with participants who had developed lymphedema after surgical intervention within the first 18 months of their breast cancer diagnosis serving as cases (n=22) and those without lymphedema serving as controls (n=98), identified from a prospective, population-based, cohort study in Queensland, Australia. TagSNPs that covered all known genetic variation in the genes SOX18, VEGFC, VEGFD, VEGFR2, VEGFR3, RORC, FOXC2, LYVE1, ADM and PROX1 were selected for genotyping. Multiple SNPs within three receptor genes, VEGFR2, VEGFR3 and RORC, were associated with lymphedema defined by statistical significance (p<0.05) or extreme risk estimates (OR<0.5 or >2.0). Conclusions: These provocative, albeit preliminary, findings regarding possible genetic predisposition to secondary lymphedema following breast cancer treatment warrant further attention for potential replication using larger datasets.

What patient information allows us to make accurate predictions of outcome?

Only some of the information contained in a medical record will be useful to the prediction of patient outcome. We describe a novel method for selecting those outcome predictors which allow us to reliably discriminate between adverse and benign end results. Using the area under the receiver operating characteristic as a nonparametric measure of discrimination, we show how to calculate the maximum discrimination attainable with a given set of discrete valued features. This upper limit forms the basis of our feature selection algorithm. We use the algorithm to select features (from maternity records) relevant to the prediction of failure to progress in labour. The results of this analysis motivate investigation of those predictors of failure to progress relevant to parous and nulliparous sub-populations.

Using upper bounds on attainable discrimination to select discrete valued features

Selection of features that will permit accurate pattern classification is a difficult task. However, if a particular data set is represented by discrete valued features, it becomes possible to determine empirically the contribution that each feature makes to the discrimination between classes. This paper extends the discrimination bound method so that both the maximum and average discrimination expected on unseen test data can be estimated. These estimation techniques are the basis of a backwards elimination algorithm that can be use to rank features in order of their discriminative power. Two problems are used to demonstrate this feature selection process: classification of the Mushroom Database, and a real-world, pregnancy related medical risk prediction task - assessment of risk of perinatal death.

Feature selection using expected attainable discrimination

We propose expected attainable discrimination (EAD) as a measure to select discrete valued features for reliable discrimination between two classes of data. EAD is an average of the area under the ROC curves obtained when a simple histogram probability density model is trained and tested on many random partitions of a data set. EAD can be incorporated into various stepwise search methods to determine promising subsets of features, particularly when misclassification costs are difficult or impossible to specify. Experimental application to the problem of risk prediction in pregnancy is described.

A recommendation system for predicting risks across multiple business process instances

This paper proposes a recommendation system that supports process participants in taking risk-informed decisions, with the goal of reducing risks that may arise during process execution. Risk reduction involves decreasing the likelihood and severity of a process fault from occurring. Given a business process exposed to risks, e.g. a financial process exposed to a risk of reputation loss, we enact this process and whenever a process participant needs to provide input to the process, e.g. by selecting the next task to execute or by filling out a form, we suggest to the participant the action to perform which minimizes the predicted process risk. Risks are predicted by traversing decision trees generated from the logs of past process executions, which consider process data, involved resources, task durations and other information elements like task frequencies. When applied in the context of multiple process instances running concurrently, a second technique is employed that uses integer linear programming to compute the optimal assignment of resources to tasks to be performed, in order to deal with the interplay between risks relative to different instances. The recommendation system has been implemented as a set of components on top of the YAWL BPM system and its effectiveness has been evaluated using a real-life scenario, in collaboration with risk analysts of a large insurance company. The results, based on a simulation of the real-life scenario and its comparison with the event data provided by the company, show that the process instances executed concurrently complete with significantly fewer faults and with lower fault severities, when the recommendations provided by our recommendation system are taken into account.

Redefining dermatologists’ role in skin cancer early detection and follow-up care

Early diagnosis of melanoma leads to the best prognosis for patients and may be more likely achieved when those who are at high risk for melanoma undergo regular and systematic monitoring. However, many people rarely or never see a dermatologist. Risk prediction models (recently reviewed by Usher-Smith et al ) could assist to triage people into preventive care appropriate for their risk profile. Most risk prediction models contain measures of phenotype including skin, eye and hair colour as well as genetic mutations. Almost all also contain the number and size of naevi, as well as the presence of naevi with atypical features which are independently associated with melanoma risk. In the absence of formal population-based screening programs for melanoma in most countries worldwide, people with high risk phenotypes may need to consider regular monitoring or self-monitoring of their naevi , especially since the vast majority of melanomas are found by people themselves or their friend and relatives. Another group of patients that will require regular monitoring are patients who have been successfully treated for their first melanoma, whose risk to develop a second melanoma is greatly increased . In a US study of 89,515 melanoma survivors those with a previous diagnosis of melanoma had a 9-fold increased risk of developing subsequent melanoma compared with the general population, equating to a rate of 3.76 per 1000 person-years, while in an Australian study, risk of subsequent melanoma was 6 per 1000 person-years. Regular follow-up is therefore essential for melanoma survivors, especially during the first few years after initial melanoma diagnosis.