A hybrid commodity price-forecasting model applied to the sugar-alcohol sector

Accurate price forecasting for agricultural commodities can have significant decision-making implications for suppliers, especially those of biofuels, where the agriculture and energy sectors intersect. Environmental pressures and high oil prices affect demand for biofuels and have reignited the discussion about effects on food prices. Suppliers in the sugar-alcohol sector need to decide the ideal proportion of ethanol and sugar to optimise their financial strategy. Prices can be affected by exogenous factors, such as exchange rates and interest rates, as well as non-observable variables like the convenience yield, which is related to supply shortages. The literature generally uses two approaches: artificial neural networks (ANNs), which are recognised as being in the forefront of exogenous-variable analysis, and stochastic models such as the Kalman filter, which is able to account for non-observable variables. This article proposes a hybrid model for forecasting the prices of agricultural commodities that is built upon both approaches and is applied to forecast the price of sugar. The Kalman filter considers the structure of the stochastic process that describes the evolution of prices. Neural networks allow variables that can impact asset prices in an indirect, nonlinear way, what cannot be incorporated easily into traditional econometric models.

SELF-SIMILARITY AND LAMPERTI CONVERGENCE FOR FAMILIES OF STOCHASTIC PROCESSES

We define a new type of self-similarity for one-parameter families of stochastic processes, which applies to certain important families of processes that are not self-similar in the conventional sense. This includes Hougaard Levy processes such as the Poisson processes, Brownian motions with drift and the inverse Gaussian processes, and some new fractional Hougaard motions defined as moving averages of Hougaard Levy process. Such families have many properties in common with ordinary self-similar processes, including the form of their covariance functions, and the fact that they appear as limits in a Lamperti-type limit theorem for families of stochastic processes.

Price dispersion and price indexes

The traditional theory of price index numbers is based on the law of one price. But in the real world, we frequently observe the existence of an equilibrium price dispersion instead of one price of equilibrium. This article discusses the effects of price dispersion on two price indexes: the cost of living index and the consumer price index. With price dispersion and consumer searching for the lowest price, these indexes cannot be interpreted as deterministic indicators, but as stochastic indicators, and they can be biased if price dispersion is not taken into account. A measure for the bias of the consumer price index is proposed and the article ends with an estimation of the bias based on data obtained from the consumer price index calculated for the city of Sao Paulo, Brazil, from January 1988 through December 2004. The period analysed is very interesting, because it exhibits different inflationary environments: high levels and high volatility of the rates of inflation with great price dispersion until July 1994 and low and relatively stable rates of inflation with prices less dispersed after August 1994.

Stochastic simulations of the Madden-Julian oscillation activity

The Madden-Julian oscillation (MJO) is the most prominent form of tropical intraseasonal variability. This study investigated the following questions. Do inter-annual-to-decadal variations in tropical sea surface temperature (SST) lead to substantial changes in MJO activity? Was there a change in the MJO in the 1970s? Can this change be associated to SST anomalies? What was the level of MJO activity in the pre-reanalysis era? These questions were investigated with a stochastic model of the MJO. Reanalysis data (1948-2008) were used to develop a nine-state first order Markov model capable to simulate the non-stationarity of the MJO. The model is driven by observed SST anomalies and a large ensemble of simulations was performed to infer the activity of the MJO in the instrumental period (1880-2008). The model is capable to reproduce the activity of the MJO during the reanalysis period. The simulations indicate that the MJO exhibited a regime of near normal activity in 1948-1972 (3.4 events year(-1)) and two regimes of high activity in 1973-1989 (3.9 events) and 1990-2008 (4.6 events). Stochastic simulations indicate decadal shifts with near normal levels in 1880-1895 (3.4 events), low activity in 1896 1917 (2.6 events) and a return to near normal levels during 1918-1947 (3.3 events). The results also point out to significant decadal changes in probabilities of very active years (5 or more MJO events): 0.214 (1880-1895), 0.076 (1896-1917), 0.197 (1918-1947) and 0.193 (1948-1972). After a change in behavior in the 1970s, this probability has increased to 0.329 (1973-1989) and 0.510 (1990-2008). The observational and stochastic simulations presented here call attention to the need to further understand the variability of the MJO on a wide range of time scales.

On the cutting stock problem under stochastic demand

This paper addresses the one-dimensional cutting stock problem when demand is a random variable. The problem is formulated as a two-stage stochastic nonlinear program with recourse. The first stage decision variables are the number of objects to be cut according to a cutting pattern. The second stage decision variables are the number of holding or backordering items due to the decisions made in the first stage. The problem`s objective is to minimize the total expected cost incurred in both stages, due to waste and holding or backordering penalties. A Simplex-based method with column generation is proposed for solving a linear relaxation of the resulting optimization problem. The proposed method is evaluated by using two well-known measures of uncertainty effects in stochastic programming: the value of stochastic solution-VSS-and the expected value of perfect information-EVPI. The optimal two-stage solution is shown to be more effective than the alternative wait-and-see and expected value approaches, even under small variations in the parameters of the problem.

A new scale-invariant ratio and finite-size scaling for the stochastic susceptible-infected-recovered model

The critical behavior of the stochastic susceptible-infected-recovered model on a square lattice is obtained by numerical simulations and finite-size scaling. The order parameter as well as the distribution in the number of recovered individuals is determined as a function of the infection rate for several values of the system size. The analysis around criticality is obtained by exploring the close relationship between the present model and standard percolation theory. The quantity UP, equal to the ratio U between the second moment and the squared first moment of the size distribution multiplied by the order parameter P, is shown to have, for a square system, a universal value 1.0167(1) that is the same for site and bond percolation, confirming further that the SIR model is also in the percolation class.

Stochastic lattice gas model describing the dynamics of the SIRS epidemic process

We study a stochastic process describing the onset of spreading dynamics of an epidemic in a population composed of individuals of three classes: susceptible (S), infected (I), and recovered (R). The stochastic process is defined by local rules and involves the following cyclic process: S -> I -> R -> S (SIRS). The open process S -> I -> R (SIR) is studied as a particular case of the SIRS process. The epidemic process is analyzed at different levels of description: by a stochastic lattice gas model and by a birth and death process. By means of Monte Carlo simulations and dynamical mean-field approximations we show that the SIRS stochastic lattice gas model exhibit a line of critical points separating the two phases: an absorbing phase where the lattice is completely full of S individuals and an active phase where S, I and R individuals coexist, which may or may not present population cycles. The critical line, that corresponds to the onset of epidemic spreading, is shown to belong in the directed percolation universality class. By considering the birth and death process we analyze the role of noise in stabilizing the oscillations. (C) 2009 Elsevier B.V. All rights reserved.

CRITICAL BEHAVIOR AND THRESHOLD OF COEXISTENCE OF A PREDATOR-PREY STOCHASTIC MODEL IN A 2D LATTICE

We investigate the critical behavior of a stochastic lattice model describing a predator-prey system. By means of Monte Carlo procedure we simulate the model defined on a regular square lattice and determine the threshold of species coexistence, that is, the critical phase boundaries related to the transition between an active state, where both species coexist and an absorbing state where one of the species is extinct. A finite size scaling analysis is employed to determine the order parameter, order parameter fluctuations, correlation length and the critical exponents. Our numerical results for the critical exponents agree with those of the directed percolation universality class. We also check the validity of the hyperscaling relation and present the data collapse curves.

Glassy states in the stochastic Potts model

We have studied by numerical simulations the relaxation of the stochastic seven-state Potts model after a quench from a high temperature down to a temperature below the first-order transition. For quench temperatures just below the transition temperature the phase ordering occurs by simple coarsening under the action of surface tension. For sufficient low temperatures however the straightening of the interface between domains drives the system toward a metastable disordered state, identified as a glassy state. Escaping from this state occurs, if the quench temperature is nonzero, by a thermal activated dynamics that eventually drives the system toward the equilibrium state. (C) 2009 Elsevier B.V. All rights reserved.

The stochastic nature of predator-prey cycles

We study by numerical simulations the time correlation function of a stochastic lattice model describing the dynamics of coexistence of two interacting biological species that present time cycles in the number of species individuals. Its asymptotic behavior is shown to decrease in time as a sinusoidal exponential function from which we extract the dominant eigenvalue of the evolution operator related to the stochastic dynamics showing that it is complex with the imaginary part being the frequency of the population cycles. The transition from the oscillatory to the nonoscillatory behavior occurs when the asymptotic behavior of the time correlation function becomes a pure exponential, that is, when the real part of the complex eigenvalue equals a real eigenvalue. We also show that the amplitude of the undamped oscillations increases with the square root of the area of the habitat as ordinary random fluctuations. (C) 2009 Elsevier B.V. All rights reserved.

Mean Motion in Stochastic Plasmas With a Space-Dependent Diffusion Coefficient

Radial transport in the tokamap, which has been proposed as a simple model for the motion in a stochastic plasma, is investigated. A theory for previous numerical findings is presented. The new results are stimulated by the fact that the radial diffusion coefficients is space-dependent. The space-dependence of the transport coefficient has several interesting effects which have not been elucidated so far. Among the new findings are the analytical predictions for the scaling of the mean radial displacement with time and the relation between the Fokker-Planck diffusion coefficient and the diffusion coefficient from the mean square displacement. The applicability to other systems is also discussed. (c) 2009 WILEY-VCH GmbH & Co. KGaA, Weinheim

STABILITY ANALYSIS WITH APPLICATIONS OF A TWO-DIMENSIONAL DYNAMICAL SYSTEM ARISING FROM A STOCHASTIC MODEL FOR AN ASSET MARKET

We analyze the stability properties of equilibrium solutions and periodicity of orbits in a two-dimensional dynamical system whose orbits mimic the evolution of the price of an asset and the excess demand for that asset. The construction of the system is grounded upon a heterogeneous interacting agent model for a single risky asset market. An advantage of this construction procedure is that the resulting dynamical system becomes a macroscopic market model which mirrors the market quantities and qualities that would typically be taken into account solely at the microscopic level of modeling. The system`s parameters correspond to: (a) the proportion of speculators in a market; (b) the traders` speculative trend; (c) the degree of heterogeneity of idiosyncratic evaluations of the market agents with respect to the asset`s fundamental value; and (d) the strength of the feedback of the population excess demand on the asset price update increment. This correspondence allows us to employ our results in order to infer plausible causes for the emergence of price and demand fluctuations in a real asset market. The employment of dynamical systems for studying evolution of stochastic models of socio-economic phenomena is quite usual in the area of heterogeneous interacting agent models. However, in the vast majority of the cases present in the literature, these dynamical systems are one-dimensional. Our work is among the few in the area that construct and study analytically a two-dimensional dynamical system and apply it for explanation of socio-economic phenomena.

Symmetry in biology: from genetic code to stochastic gene regulation

Mathematical models, as instruments for understanding the workings of nature, are a traditional tool of physics, but they also play an ever increasing role in biology - in the description of fundamental processes as well as that of complex systems. In this review, the authors discuss two examples of the application of group theoretical methods, which constitute the mathematical discipline for a quantitative description of the idea of symmetry, to genetics. The first one appears, in the form of a pseudo-orthogonal (Lorentz like) symmetry, in the stochastic modelling of what may be regarded as the simplest possible example of a genetic network and, hopefully, a building block for more complicated ones: a single self-interacting or externally regulated gene with only two possible states: ` on` and ` off`. The second is the algebraic approach to the evolution of the genetic code, according to which the current code results from a dynamical symmetry breaking process, starting out from an initial state of complete symmetry and ending in the presently observed final state of low symmetry. In both cases, symmetry plays a decisive role: in the first, it is a characteristic feature of the dynamics of the gene switch and its decay to equilibrium, whereas in the second, it provides the guidelines for the evolution of the coding rules.