Empirical Assessment of an Intertemporal Option Pricing Model with Latent variables

This paper assesses the empirical performance of an intertemporal option pricing model with latent variables which generalizes the Hull-White stochastic volatility formula. Using this generalized formula in an ad-hoc fashion to extract two implicit parameters and forecast next day S&P 500 option prices, we obtain similar pricing errors than with implied volatility alone as in the Hull-White case. When we specialize this model to an equilibrium recursive utility model, we show through simulations that option prices are more informative than stock prices about the structural parameters of the model. We also show that a simple method of moments with a panel of option prices provides good estimates of the parameters of the model. This lays the ground for an empirical assessment of this equilibrium model with S&P 500 option prices in terms of pricing errors.

The simulation of the opposing fluxes of latent heat and CO2 over various land-use types: coupling a gas exchange model to a mesoscale atmospheric model

A mesoscale meteorological model (FOOT3DK) is coupled with a gas exchange model to simulate surface fluxes of CO2 and H2O under field conditions. The gas exchange model consists of a C3 single leaf photosynthesis sub-model and an extended big leaf (sun/shade) sub-model that divides the canopy into sunlit and shaded fractions. Simulated CO2 fluxes of the stand-alone version of the gas exchange model correspond well to eddy-covariance measurements at a test site in a rural area in the west of Germany. The coupled FOOT3DK/gas exchange model is validated for the diurnal cycle at singular grid points, and delivers realistic fluxes with respect to their order of magnitude and to the general daily course. Compared to the Jarvis-based big leaf scheme, simulations of latent heat fluxes with a photosynthesis-based scheme for stomatal conductance are more realistic. As expected, flux averages are strongly influenced by the underlying land cover. While the simulated net ecosystem exchange is highly correlated with leaf area index, this correlation is much weaker for the latent heat flux. Photosynthetic CO2 uptake is associated with transpirational water loss via the stomata, and the resulting opposing surface fluxes of CO2 and H2O are reproduced with the model approach. Over vegetated surfaces it is shown that the coupling of a photosynthesis-based gas exchange model with the land-surface scheme of a mesoscale model results in more realistic simulated latent heat fluxes.

Communicating probabilistic information from climate model ensembles—lessons from numerical weather prediction

Climate model ensembles are widely heralded for their potential to quantify uncertainties and generate probabilistic climate projections. However, such technical improvements to modeling science will do little to deliver on their ultimate promise of improving climate policymaking and adaptation unless the insights they generate can be effectively communicated to decision makers. While some of these communicative challenges are unique to climate ensembles, others are common to hydrometeorological modeling more generally, and to the tensions arising between the imperatives for saliency, robustness, and richness in risk communication. The paper reviews emerging approaches to visualizing and communicating climate ensembles and compares them to the more established and thoroughly evaluated communication methods used in the numerical weather prediction domains of day-to-day weather forecasting (in particular probabilities of precipitation), hurricane and flood warning, and seasonal forecasting. This comparative analysis informs recommendations on best practice for climate modelers, as well as prompting some further thoughts on key research challenges to improve the future communication of climate change uncertainties.

Probabilistic parameterisation of the surface mass balance--elevation feedback in regional climate model simulations of the Greenland ice sheet

We present a new parameterisation that relates surface mass balance (SMB: the sum of surface accumulation and surface ablation) to changes in surface elevation of the Greenland ice sheet (GrIS) for the MAR (Modèle Atmosphérique Régional: Fettweis, 2007) regional climate model. The motivation is to dynamically adjust SMB as the GrIS evolves, allowing us to force ice sheet models with SMB simulated by MAR while incorporating the SMB–elevation feedback, without the substantial technical challenges of coupling ice sheet and climate models. This also allows us to assess the effect of elevation feedback uncertainty on the GrIS contribution to sea level, using multiple global climate and ice sheet models, without the need for additional, expensive MAR simulations. We estimate this relationship separately below and above the equilibrium line altitude (ELA, separating negative and positive SMB) and for regions north and south of 77� N, from a set of MAR simulations in which we alter the ice sheet surface elevation. These give four “SMB lapse rates”, gradients that relate SMB changes to elevation changes. We assess uncertainties within a Bayesian framework, estimating probability distributions for each gradient from which we present best estimates and credibility intervals (CI) that bound 95% of the probability. Below the ELA our gradient estimates are mostly positive, because SMB usually increases with elevation: 0.56 (95% CI: −0.22 to 1.33) kgm−3 a−1 for the north, and 1.91 (1.03 to 2.61) kgm−3 a−1 for the south. Above the ELA, the gradients are much smaller in magnitude: 0.09 (−0.03 to 0.23) kgm−3 a−1 in the north, and 0.07 (−0.07 to 0.59) kgm−3 a−1 in the south, because SMB can either increase or decrease in response to increased elevation. Our statistically founded approach allows us to make probabilistic assessments for the effect of elevation feedback uncertainty on sea level projections (Edwards et al., 2014).

Evaluation Of Reservoir Model Integration With Deterministic And Probabilistic Streamflow Forecasts

Due to the increase in water demand and hydropower energy, it is getting more important to operate hydraulic structures in an efficient manner while sustaining multiple demands. Especially, companies, governmental agencies, consultant offices require effective, practical integrated tools and decision support frameworks to operate reservoirs, cascades of run-of-river plants and related elements such as canals by merging hydrological and reservoir simulation/optimization models with various numerical weather predictions, radar and satellite data. The model performance is highly related with the streamflow forecast, related uncertainty and its consideration in the decision making. While deterministic weather predictions and its corresponding streamflow forecasts directly restrict the manager to single deterministic trajectories, probabilistic forecasts can be a key solution by including uncertainty in flow forecast scenarios for dam operation. The objective of this study is to compare deterministic and probabilistic streamflow forecasts on an earlier developed basin/reservoir model for short term reservoir management. The study is applied to the Yuvacık Reservoir and its upstream basin which is the main water supply of Kocaeli City located in the northwestern part of Turkey. The reservoir represents a typical example by its limited capacity, downstream channel restrictions and high snowmelt potential. Mesoscale Model 5 and Ensemble Prediction System data are used as a main input and the flow forecasts are done for 2012 year using HEC-HMS. Hydrometeorological rule-based reservoir simulation model is accomplished with HEC-ResSim and integrated with forecasts. Since EPS based hydrological model produce a large number of equal probable scenarios, it will indicate how uncertainty spreads in the future. Thus, it will provide risk ranges in terms of spillway discharges and reservoir level for operator when it is compared with deterministic approach. The framework is fully data driven, applicable, useful to the profession and the knowledge can be transferred to other similar reservoir systems.

Latent heat loss of Holstein cows in a tropical environment: a prediction model

Nove vacas Holandesas lactantes com 526 ± 5 kg de peso corporal (cinco predominantemente pretas e quatro predominantemente brancas), criadas em região tropical e manejadas em pastagens, foram observadas com os objetivos de determinar simultaneamente as taxas de evaporação cutânea e respiratória em ambiente tropical e desenvolver modelos de predição. Para a medição da perda de calor latente pela superfície corporal, utilizou-se uma cápsula ventilada e, para a perda por respiração, utilizou-se uma máscara facial. Os resultados mostraram que as vacas que tinham maior peso corporal (classe 2 e 3) apresentaram maiores taxas evaporativas. Quando a temperatura do ar aumentou de 10 para 36ºC e a umidade relativa do ar caiu de 90 para 30%, a eliminação de calor por evaporação respiratória aumentou de aproximadamente 5 para 57 W m-2 e a evaporação na superfície corporal passou de 30 para 350 W m-2. Esses resultados confirmam que a eliminação de calor latente é o principal mecanismo de perda de energia térmica sob altas temperaturas (>30ºC); a evaporação cutânea é a maior via e corresponde a aproximadamente 85% da perda total de calor, enquanto o restante é eliminado pelo sistema respiratório. O modelo para predizer o fluxo de perda de calor latente baseado em variáveis fisiológicas e ambientais pode ser utilizado para estimar a contribuição da evaporação na termorregulação, enquanto o modelo baseado somente na temperatura do ar deve ser usado apenas para a simples caracterização do processo evaporativo.

The Poisson-exponential regression model under different latent activation schemes

Conselho Nacional de Desenvolvimento Científico e Tecnológico (CNPq)

A probabilistic model for elastic-plastic fracture analysis of plane and axisymmetric structures

This work presents a methodology for elastic-plastic fracture reliability analysis of plane and axisymmetric structures. The structural reliability analysis is accomplished by means of the FORM analytical method. The virtual crack extension technique based on a direct minimization of potencial energy is utililized for the calculation of the energy release rate. Results are presented to illustrate the performance of the adopted methodology.

The calcium wave model of the perception-action cycle: Evidence from semantic relevance in memory experiments

We present a general model of brain function (the calcium wave model), distinguishing three processing modes in the perception-action cycle. The model provides an interpretation of the data from experiments on semantic memory conducted by the authors. © 2013 Pereira Jr, Santos and Barros.

The Poisson-exponential regression model under different latent activation schemes

In this paper, a new family of survival distributions is presented. It is derived by considering that the latent number of failure causes follows a Poisson distribution and the time for these causes to be activated follows an exponential distribution. Three different activation schemes are also considered. Moreover, we propose the inclusion of covariates in the model formulation in order to study their effect on the expected value of the number of causes and on the failure rate function. Inferential procedure based on the maximum likelihood method is discussed and evaluated via simulation. The developed methodology is illustrated on a real data set on ovarian cancer.

Parameter recovery for a skew-normal IRT model under a Bayesian approach: hierarchical framework, prior and kernel sensitivity and sample size

Item response theory (IRT) comprises a set of statistical models which are useful in many fields, especially when there is an interest in studying latent variables (or latent traits). Usually such latent traits are assumed to be random variables and a convenient distribution is assigned to them. A very common choice for such a distribution has been the standard normal. Recently, Azevedo et al. [Bayesian inference for a skew-normal IRT model under the centred parameterization, Comput. Stat. Data Anal. 55 (2011), pp. 353-365] proposed a skew-normal distribution under the centred parameterization (SNCP) as had been studied in [R. B. Arellano-Valle and A. Azzalini, The centred parametrization for the multivariate skew-normal distribution, J. Multivariate Anal. 99(7) (2008), pp. 1362-1382], to model the latent trait distribution. This approach allows one to represent any asymmetric behaviour concerning the latent trait distribution. Also, they developed a Metropolis-Hastings within the Gibbs sampling (MHWGS) algorithm based on the density of the SNCP. They showed that the algorithm recovers all parameters properly. Their results indicated that, in the presence of asymmetry, the proposed model and the estimation algorithm perform better than the usual model and estimation methods. Our main goal in this paper is to propose another type of MHWGS algorithm based on a stochastic representation (hierarchical structure) of the SNCP studied in [N. Henze, A probabilistic representation of the skew-normal distribution, Scand. J. Statist. 13 (1986), pp. 271-275]. Our algorithm has only one Metropolis-Hastings step, in opposition to the algorithm developed by Azevedo et al., which has two such steps. This not only makes the implementation easier but also reduces the number of proposal densities to be used, which can be a problem in the implementation of MHWGS algorithms, as can be seen in [R.J. Patz and B.W. Junker, A straightforward approach to Markov Chain Monte Carlo methods for item response models, J. Educ. Behav. Stat. 24(2) (1999), pp. 146-178; R. J. Patz and B. W. Junker, The applications and extensions of MCMC in IRT: Multiple item types, missing data, and rated responses, J. Educ. Behav. Stat. 24(4) (1999), pp. 342-366; A. Gelman, G.O. Roberts, and W.R. Gilks, Efficient Metropolis jumping rules, Bayesian Stat. 5 (1996), pp. 599-607]. Moreover, we consider a modified beta prior (which generalizes the one considered in [3]) and a Jeffreys prior for the asymmetry parameter. Furthermore, we study the sensitivity of such priors as well as the use of different kernel densities for this parameter. Finally, we assess the impact of the number of examinees, number of items and the asymmetry level on the parameter recovery. Results of the simulation study indicated that our approach performed equally as well as that in [3], in terms of parameter recovery, mainly using the Jeffreys prior. Also, they indicated that the asymmetry level has the highest impact on parameter recovery, even though it is relatively small. A real data analysis is considered jointly with the development of model fitting assessment tools. The results are compared with the ones obtained by Azevedo et al. The results indicate that using the hierarchical approach allows us to implement MCMC algorithms more easily, it facilitates diagnosis of the convergence and also it can be very useful to fit more complex skew IRT models.