Calibration of stochastic volatility models via second order approximation: the Heston model case

Using a suitable Hull and White type formula we develop a methodology to obtain asecond order approximation to the implied volatility for very short maturities. Using thisapproximation we accurately calibrate the full set of parameters of the Heston model. Oneof the reasons that makes our calibration for short maturities so accurate is that we alsotake into account the term-structure for large maturities. We may say that calibration isnot "memoryless", in the sense that the option's behavior far away from maturity doesinfluence calibration when the option gets close to expiration. Our results provide a wayto perform a quick calibration of a closed-form approximation to vanilla options that canthen be used to price exotic derivatives. The methodology is simple, accurate, fast, andit requires a minimal computational cost.

American option valuation: implied calibration of GARCH pricing models

This study analyzes the issue of American option valuation when the underlying exhibits a GARCH-type volatility process. We propose the usage of Rubinstein's Edgeworth binomial tree (EBT) in contrast to simulation-based methods being considered in previous studies. The EBT-based valuation approach makes an implied calibration of the pricing model feasible. By empirically analyzing the pricing performance of American index and equity options, we illustrate the superiority of the proposed approach.

Robust parameter settings of evolutionary algorithms for the optimisation of agricultural systems models

Numerical optimisation methods are being more commonly applied to agricultural systems models, to identify the most profitable management strategies. The available optimisation algorithms are reviewed and compared, with literature and our studies identifying evolutionary algorithms (including genetic algorithms) as superior in this regard to simulated annealing, tabu search, hill-climbing, and direct-search methods. Results of a complex beef property optimisation, using a real-value genetic algorithm, are presented. The relative contributions of the range of operational options and parameters of this method are discussed, and general recommendations listed to assist practitioners applying evolutionary algorithms to the solution of agricultural systems. (C) 2001 Elsevier Science Ltd. All rights reserved.

Iowa Calibration of MEPDG Performance Prediction Models, 2013

This study aims to improve the accuracy of AASHTO Mechanistic-Empirical Pavement Design Guide (MEPDG) pavement performance predictions for Iowa pavement systems through local calibration of MEPDG prediction models. A total of 130 representative pavement sites across Iowa were selected. The selected pavement sites represent flexible, rigid, and composite pavement systems throughout Iowa. The required MEPDG inputs and the historical performance data for the selected sites were extracted from a variety of sources. The accuracy of the nationally-calibrated MEPDG prediction models for Iowa conditions was evaluated. The local calibration factors of MEPDG performance prediction models were identified to improve the accuracy of model predictions. The identified local calibration coefficients are presented with other significant findings and recommendations for use in MEPDG/DARWin-ME for Iowa pavement systems.

Iowa Calibration of MEPDG Performance Prediction Models: Tech Transfer Summary

This study aims to improve the accuracy of AASHTO Mechanistic-Empirical Pavement Design Guide (MEPDG) pavement performance predictions for Iowa pavement systems through local calibration of MEPDG prediction models. A total of 130 representative pavement sites across Iowa were selected. The selected pavement sites represent flexible, rigid, and composite pavement systems throughout Iowa. The required MEPDG inputs and the historical performance data for the selected sites were extracted from a variety of sources. The accuracy of the nationally-calibrated MEPDG prediction models for Iowa conditions was evaluated. The local calibration factors of MEPDG performance prediction models were identified to improve the accuracy of model predictions. The identified local calibration coefficients are presented with other significant findings and recommendations for use in MEPDG/DARWin-ME for Iowa pavement systems.

The use of Meteosat satellite data for spatial rainfall estimations and hydrological simulations

Satellite information, in combination with conventional point source measurements, can be a valuable source of information. This thesis is devoted to the spatial estimation of areal rainfall over a region using both the measurements from a dense and sparse network of rain-gauges and images from the meteorological satellites. A primary concern is to study the effects of such satellite assisted rainfall estimates on the performance of rainfall-runoff models. Low-cost image processing systems and peripherals are used to process and manipulate the data. Both secondary as well as primary satellite images were used for analysis. The secondary data was obtained from the in-house satellite receiver and the primary data was obtained from an outside source. Ground truth data was obtained from the local Water Authority. A number of algorithms are presented that combine the satellite and conventional data sources to produce areal rainfall estimates and the results are compared with some of the more traditional methodologies. The results indicate that the satellite cloud information is valuable in the assessment of the spatial distribution of areal rainfall, for both half-hourly as well as daily estimates of rainfall. It is also demonstrated how the performance of the simple multiple regression rainfall-runoff model is improved when satellite cloud information is used as a separate input in addition to rainfall estimates from conventional means. The use of low-cost equipment, from image processing systems to satellite imagery, makes it possible for developing countries to introduce such systems in areas where the benefits are greatest.

Stima dei parametri di modelli idrologici mediante ottimizzazione dell’utilità

Tradizionalmente, l'obiettivo della calibrazione di un modello afflussi-deflussi è sempre stato quello di ottenere un set di parametri (o una distribuzione di probabilità dei parametri) che massimizzasse l'adattamento dei dati simulati alla realtà osservata, trattando parzialmente le finalità applicative del modello. Nel lavoro di tesi viene proposta una metodologia di calibrazione che trae spunto dell'evidenza che non sempre la corrispondenza tra dati osservati e simulati rappresenti il criterio più appropriato per calibrare un modello idrologico. Ai fini applicativi infatti, può risultare maggiormente utile una miglior rappresentazione di un determinato aspetto dell'idrogramma piuttosto che un altro. Il metodo di calibrazione che viene proposto mira a valutare le prestazioni del modello stimandone l'utilità nell'applicazione prevista. Tramite l'utilizzo di opportune funzioni, ad ogni passo temporale viene valutata l'utilità della simulazione ottenuta. La calibrazione viene quindi eseguita attraverso la massimizzazione di una funzione obiettivo costituita dalla somma delle utilità stimate nei singoli passi temporali. Le analisi mostrano come attraverso l'impiego di tali funzioni obiettivo sia possibile migliorare le prestazioni del modello laddove ritenute di maggior interesse per per le finalità applicative previste.

(Figure 2) Mean discharge per day (total and baseflow part) of the San Francisco River and daily precipitation at station ECPL (Planta), in 2007

We investigated controls on the water chemistry of a South Ecuadorian cloud forest catchment which is partly pristine, and partly converted to extensive pasture. From April 2007 to May 2008 water samples were taken weekly to biweekly at nine different subcatchments, and were screened for differences in electric conductivity, pH, anion, as well as element composition. A principal component analysis was conducted to reduce dimensionality of the data set and define major factors explaining variation in the data. Three main factors were isolated by a subset of 10 elements (Ca2+, Ce, Gd, K+, Mg2+, Na+, Nd, Rb, Sr, Y), explaining around 90% of the data variation. Land-use was the major factor controlling and changing water chemistry of the subcatchments. A second factor was associated with the concentration of rare earth elements in water, presumably highlighting other anthropogenic influences such as gravel excavation or road construction. Around 12% of the variation was explained by the third component, which was defined by the occurrence of Rb and K and represents the influence of vegetation dynamics on element accumulation and wash-out. Comparison of base- and fast flow concentrations led to the assumption that a significant portion of soil water from around 30 cm depth contributes to storm flow, as revealed by increased rare earth element concentrations in fast flow samples. Our findings demonstrate the utility of multi-tracer principal component analysis to study tropical headwater streams, and emphasize the need for effective land management in cloud forest catchments.

PERSiST: a flexible rainfall-runoff modelling toolkit for use with the INCA family of models

Runoff generation processes and pathways vary widely between catchments. Credible simulations of solute and pollutant transport in surface waters are dependent on models which facilitate appropriate, catchment-specific representations of perceptual models of the runoff generation process. Here, we present a flexible, semi-distributed landscape-scale rainfall-runoff modelling toolkit suitable for simulating a broad range of user-specified perceptual models of runoff generation and stream flow occurring in different climatic regions and landscape types. PERSiST (the Precipitation, Evapotranspiration and Runoff Simulator for Solute Transport) is designed for simulating present-day hydrology; projecting possible future effects of climate or land use change on runoff and catchment water storage; and generating hydrologic inputs for the Integrated Catchments (INCA) family of models. PERSiST has limited data requirements and is calibrated using observed time series of precipitation, air temperature and runoff at one or more points in a river network. Here, we apply PERSiST to the river Thames in the UK and describe a Monte Carlo tool for model calibration, sensitivity and uncertainty analysis

Methodologies for calibration and predictive analysis of a watershed model

The use of a fitted parameter watershed model to address water quantity and quality management issues requires that it be calibrated under a wide range of hydrologic conditions. However, rarely does model calibration result in a unique parameter set. Parameter nonuniqueness can lead to predictive nonuniqueness. The extent of model predictive uncertainty should be investigated if management decisions are to be based on model projections. Using models built for four neighboring watersheds in the Neuse River Basin of North Carolina, the application of the automated parameter optimization software PEST in conjunction with the Hydrologic Simulation Program Fortran (HSPF) is demonstrated. Parameter nonuniqueness is illustrated, and a method is presented for calculating many different sets of parameters, all of which acceptably calibrate a watershed model. A regularization methodology is discussed in which models for similar watersheds can be calibrated simultaneously. Using this method, parameter differences between watershed models can be minimized while maintaining fit between model outputs and field observations. In recognition of the fact that parameter nonuniqueness and predictive uncertainty are inherent to the modeling process, PEST's nonlinear predictive analysis functionality is then used to explore the extent of model predictive uncertainty.

Calibration of the century, apsim and ndicea models of decomposition and n mineralization of plant residues in the humid tropics

The aim of this study was to calibrate the CENTURY, APSIM and NDICEA simulation models for estimating decomposition and N mineralization rates of plant organic materials (Arachis pintoi, Calopogonium mucunoides, Stizolobium aterrimum, Stylosanthes guyanensis) for 360 days in the Atlantic rainforest bioma of Brazil. The models´ default settings overestimated the decomposition and N-mineralization of plant residues, underlining the fact that the models must be calibrated for use under tropical conditions. For example, the APSIM model simulated the decomposition of the Stizolobium aterrimum and Calopogonium mucunoides residues with an error rate of 37.62 and 48.23 %, respectively, by comparison with the observed data, and was the least accurate model in the absence of calibration. At the default settings, the NDICEA model produced an error rate of 10.46 and 14.46 % and the CENTURY model, 21.42 and 31.84 %, respectively, for Stizolobium aterrimum and Calopogonium mucunoides residue decomposition. After calibration, the models showed a high level of accuracy in estimating decomposition and N- mineralization, with an error rate of less than 20 %. The calibrated NDICEA model showed the highest level of accuracy, followed by the APSIM and CENTURY. All models performed poorly in the first few months of decomposition and N-mineralization, indicating the need of an additional parameter for initial microorganism growth on the residues that would take the effect of leaching due to rainfall into account.

Validation of and comparison between a semidistributed rainfall-runoff hydrological model (PREVAH) and a spatially distributed snow-evolution model (SnowModel) for snow cover prediction in mountain ecosystems

Snow cover is an important control in mountain environments and a shift of the snow-free period triggered by climate warming can strongly impact ecosystem dynamics. Changing snow patterns can have severe effects on alpine plant distribution and diversity. It thus becomes urgent to provide spatially explicit assessments of snow cover changes that can be incorporated into correlative or empirical species distribution models (SDMs). Here, we provide for the first time a with a lower overestimation comparison of two physically based snow distribution models (PREVAH and SnowModel) to produce snow cover maps (SCMs) at a fine spatial resolution in a mountain landscape in Austria. SCMs have been evaluated with SPOT-HRVIR images and predictions of snow water equivalent from the two models with ground measurements. Finally, SCMs of the two models have been compared under a climate warming scenario for the end of the century. The predictive performances of PREVAH and SnowModel were similar when validated with the SPOT images. However, the tendency to overestimate snow cover was slightly lower with SnowModel during the accumulation period, whereas it was lower with PREVAH during the melting period. The rate of true positives during the melting period was two times higher on average with SnowModel with a lower overestimation of snow water equivalent. Our results allow for recommending the use of SnowModel in SDMs because it better captures persisting snow patches at the end of the snow season, which is important when modelling the response of species to long-lasting snow cover and evaluating whether they might survive under climate change.

Stochastic modelling of rainfall from satellite data

Satellite-based rainfall monitoring is widely used for climatological studies because of its full global coverage but it is also of great importance for operational purposes especially in areas such as Africa where there is a lack of ground-based rainfall data. Satellite rainfall estimates have enormous potential benefits as input to hydrological and agricultural models because of their real time availability, low cost and full spatial coverage. One issue that needs to be addressed is the uncertainty on these estimates. This is particularly important in assessing the likely errors on the output from non-linear models (rainfall-runoff or crop yield) which make use of the rainfall estimates, aggregated over an area, as input. Correct assessment of the uncertainty on the rainfall is non-trivial as it must take account of • the difference in spatial support of the satellite information and independent data used for calibration • uncertainties on the independent calibration data • the non-Gaussian distribution of rainfall amount • the spatial intermittency of rainfall • the spatial correlation of the rainfall field This paper describes a method for estimating the uncertainty on satellite-based rainfall values taking account of these factors. The method involves firstly a stochastic calibration which completely describes the probability of rainfall occurrence and the pdf of rainfall amount for a given satellite value, and secondly the generation of ensemble of rainfall fields based on the stochastic calibration but with the correct spatial correlation structure within each ensemble member. This is achieved by the use of geostatistical sequential simulation. The ensemble generated in this way may be used to estimate uncertainty at larger spatial scales. A case study of daily rainfall monitoring in the Gambia, west Africa for the purpose of crop yield forecasting is presented to illustrate the method.

Uncertainty Characterization Of A Conceptual Rainfall-Runoff Model By Using Grey Numbers

A procedure for characterizing global uncertainty of a rainfall-runoff simulation model based on using grey numbers is presented. By using the grey numbers technique the uncertainty is characterized by an interval; once the parameters of the rainfall-runoff model have been properly defined as grey numbers, by using the grey mathematics and functions it is possible to obtain simulated discharges in the form of grey numbers whose envelope defines a band which represents the vagueness/uncertainty associated with the simulated variable. The grey numbers representing the model parameters are estimated in such a way that the band obtained from the envelope of simulated grey discharges includes an assigned percentage of observed discharge values and is at the same time as narrow as possible. The approach is applied to a real case study highlighting that a rigorous application of the procedure for direct simulation through the rainfall-runoff model with grey parameters involves long computational times. However, these times can be significantly reduced using a simplified computing procedure with minimal approximations in the quantification of the grey numbers representing the simulated discharges. Relying on this simplified procedure, the conceptual rainfall-runoff grey model is thus calibrated and the uncertainty bands obtained both downstream of the calibration process and downstream of the validation process are compared with those obtained by using a well-established approach, like the GLUE approach, for characterizing uncertainty. The results of the comparison show that the proposed approach may represent a valid tool for characterizing the global uncertainty associable with the output of a rainfall-runoff simulation model.