Black-scholes type equations

In this work we are concerned with the analysis and numerical solution of Black-Scholes type equations arising in the modeling of incomplete financial markets and an inverse problem of determining the local volatility function in a generalized Black-Scholes model from observed option prices. In the first chapter a fully nonlinear Black-Scholes equation which models transaction costs arising in option pricing is discretized by a new high order compact scheme. The compact scheme is proved to be unconditionally stable and non-oscillatory and is very efficient compared to classical schemes. Moreover, it is shown that the finite difference solution converges locally uniformly to the unique viscosity solution of the continuous equation. In the next chapter we turn to the calibration problem of computing local volatility functions from market data in a generalized Black-Scholes setting. We follow an optimal control approach in a Lagrangian framework. We show the existence of a global solution and study first- and second-order optimality conditions. Furthermore, we propose an algorithm that is based on a globalized sequential quadratic programming method and a primal-dual active set strategy, and present numerical results. In the last chapter we consider a quasilinear parabolic equation with quadratic gradient terms, which arises in the modeling of an optimal portfolio in incomplete markets. The existence of weak solutions is shown by considering a sequence of approximate solutions. The main difficulty of the proof is to infer the strong convergence of the sequence. Furthermore, we prove the uniqueness of weak solutions under a smallness condition on the derivatives of the covariance matrices with respect to the solution, but without additional regularity assumptions on the solution. The results are illustrated by a numerical example.

Parameterschätzung in zeitdiskreten ergodischen Markov-Prozessen am Beispiel des Cox-Ingersoll-Ross-Modells

In dieser Arbeit geht es um die Schätzung von Parametern in zeitdiskreten ergodischen Markov-Prozessen im allgemeinen und im CIR-Modell im besonderen. Beim CIR-Modell handelt es sich um eine stochastische Differentialgleichung, die von Cox, Ingersoll und Ross (1985) zur Beschreibung der Dynamik von Zinsraten vorgeschlagen wurde. Problemstellung ist die Schätzung der Parameter des Drift- und des Diffusionskoeffizienten aufgrund von äquidistanten diskreten Beobachtungen des CIR-Prozesses. Nach einer kurzen Einführung in das CIR-Modell verwenden wir die insbesondere von Bibby und Sørensen untersuchte Methode der Martingal-Schätzfunktionen und -Schätzgleichungen, um das Problem der Parameterschätzung in ergodischen Markov-Prozessen zunächst ganz allgemein zu untersuchen. Im Anschluss an Untersuchungen von Sørensen (1999) werden hinreichende Bedingungen (im Sinne von Regularitätsvoraussetzungen an die Schätzfunktion) für die Existenz, starke Konsistenz und asymptotische Normalität von Lösungen einer Martingal-Schätzgleichung angegeben. Angewandt auf den Spezialfall der Likelihood-Schätzung stellen diese Bedingungen zugleich lokal-asymptotische Normalität des Modells sicher. Ferner wird ein einfaches Kriterium für Godambe-Heyde-Optimalität von Schätzfunktionen angegeben und skizziert, wie dies in wichtigen Spezialfällen zur expliziten Konstruktion optimaler Schätzfunktionen verwendet werden kann. Die allgemeinen Resultate werden anschließend auf das diskretisierte CIR-Modell angewendet. Wir analysieren einige von Overbeck und Rydén (1997) vorgeschlagene Schätzer für den Drift- und den Diffusionskoeffizienten, welche als Lösungen quadratischer Martingal-Schätzfunktionen definiert sind, und berechnen das optimale Element in dieser Klasse. Abschließend verallgemeinern wir Ergebnisse von Overbeck und Rydén (1997), indem wir die Existenz einer stark konsistenten und asymptotisch normalen Lösung der Likelihood-Gleichung zeigen und lokal-asymptotische Normalität für das CIR-Modell ohne Einschränkungen an den Parameterraum beweisen.

Analysis of optimal control problems for the incompressible MHD equations and implementation in a finite element multiphysics code

This thesis deals with the study of optimal control problems for the incompressible Magnetohydrodynamics (MHD) equations. Particular attention to these problems arises from several applications in science and engineering, such as fission nuclear reactors with liquid metal coolant and aluminum casting in metallurgy. In such applications it is of great interest to achieve the control on the fluid state variables through the action of the magnetic Lorentz force. In this thesis we investigate a class of boundary optimal control problems, in which the flow is controlled through the boundary conditions of the magnetic field. Due to their complexity, these problems present various challenges in the definition of an adequate solution approach, both from a theoretical and from a computational point of view. In this thesis we propose a new boundary control approach, based on lifting functions of the boundary conditions, which yields both theoretical and numerical advantages. With the introduction of lifting functions, boundary control problems can be formulated as extended distributed problems. We consider a systematic mathematical formulation of these problems in terms of the minimization of a cost functional constrained by the MHD equations. The existence of a solution to the flow equations and to the optimal control problem are shown. The Lagrange multiplier technique is used to derive an optimality system from which candidate solutions for the control problem can be obtained. In order to achieve the numerical solution of this system, a finite element approximation is considered for the discretization together with an appropriate gradient-type algorithm. A finite element object-oriented library has been developed to obtain a parallel and multigrid computational implementation of the optimality system based on a multiphysics approach. Numerical results of two- and three-dimensional computations show that a possible minimum for the control problem can be computed in a robust and accurate manner.

Decomposition Methods and Network Design Problems

Decomposition based approaches are recalled from primal and dual point of view. The possibility of building partially disaggregated reduced master problems is investigated. This extends the idea of aggregated-versus-disaggregated formulation to a gradual choice of alternative level of aggregation. Partial aggregation is applied to the linear multicommodity minimum cost flow problem. The possibility of having only partially aggregated bundles opens a wide range of alternatives with different trade-offs between the number of iterations and the required computation for solving it. This trade-off is explored for several sets of instances and the results are compared with the ones obtained by directly solving the natural node-arc formulation. An iterative solution process to the route assignment problem is proposed, based on the well-known Frank Wolfe algorithm. In order to provide a first feasible solution to the Frank Wolfe algorithm, a linear multicommodity min-cost flow problem is solved to optimality by using the decomposition techniques mentioned above. Solutions of this problem are useful for network orientation and design, especially in relation with public transportation systems as the Personal Rapid Transit. A single-commodity robust network design problem is addressed. In this, an undirected graph with edge costs is given together with a discrete set of balance matrices, representing different supply/demand scenarios. The goal is to determine the minimum cost installation of capacities on the edges such that the flow exchange is feasible for every scenario. A set of new instances that are computationally hard for the natural flow formulation are solved by means of a new heuristic algorithm. Finally, an efficient decomposition-based heuristic approach for a large scale stochastic unit commitment problem is presented. The addressed real-world stochastic problem employs at its core a deterministic unit commitment planning model developed by the California Independent System Operator (ISO).

NLGA based Active Control in Aerospace: fault tolerability, disturbance rejection, and parameter estimation

A new control scheme has been presented in this thesis. Based on the NonLinear Geometric Approach, the proposed Active Control System represents a new way to see the reconfigurable controllers for aerospace applications. The presence of the Diagnosis module (providing the estimation of generic signals which, based on the case, can be faults, disturbances or system parameters), mean feature of the depicted Active Control System, is a characteristic shared by three well known control systems: the Active Fault Tolerant Controls, the Indirect Adaptive Controls and the Active Disturbance Rejection Controls. The standard NonLinear Geometric Approach (NLGA) has been accurately investigated and than improved to extend its applicability to more complex models. The standard NLGA procedure has been modified to take account of feasible and estimable sets of unknown signals. Furthermore the application of the Singular Perturbations approximation has led to the solution of Detection and Isolation problems in scenarios too complex to be solved by the standard NLGA. Also the estimation process has been improved, where multiple redundant measuremtent are available, by the introduction of a new algorithm, here called "Least Squares - Sliding Mode". It guarantees optimality, in the sense of the least squares, and finite estimation time, in the sense of the sliding mode. The Active Control System concept has been formalized in two controller: a nonlinear backstepping controller and a nonlinear composite controller. Particularly interesting is the integration, in the controller design, of the estimations coming from the Diagnosis module. Stability proofs are provided for both the control schemes. Finally, different applications in aerospace have been provided to show the applicability and the effectiveness of the proposed NLGA-based Active Control System.

Optimized scheduling in real-time environments with column generation

Im Bereich sicherheitsrelevanter eingebetteter Systeme stellt sich der Designprozess von Anwendungen als sehr komplex dar. Entsprechend einer gegebenen Hardwarearchitektur lassen sich Steuergeräte aufrüsten, um alle bestehenden Prozesse und Signale pünktlich auszuführen. Die zeitlichen Anforderungen sind strikt und müssen in jeder periodischen Wiederkehr der Prozesse erfüllt sein, da die Sicherstellung der parallelen Ausführung von größter Bedeutung ist. Existierende Ansätze können schnell Designalternativen berechnen, aber sie gewährleisten nicht, dass die Kosten für die nötigen Hardwareänderungen minimal sind. Wir stellen einen Ansatz vor, der kostenminimale Lösungen für das Problem berechnet, die alle zeitlichen Bedingungen erfüllen. Unser Algorithmus verwendet Lineare Programmierung mit Spaltengenerierung, eingebettet in eine Baumstruktur, um untere und obere Schranken während des Optimierungsprozesses bereitzustellen. Die komplexen Randbedingungen zur Gewährleistung der periodischen Ausführung verlagern sich durch eine Zerlegung des Hauptproblems in unabhängige Unterprobleme, die als ganzzahlige lineare Programme formuliert sind. Sowohl die Analysen zur Prozessausführung als auch die Methoden zur Signalübertragung werden untersucht und linearisierte Darstellungen angegeben. Des Weiteren präsentieren wir eine neue Formulierung für die Ausführung mit fixierten Prioritäten, die zusätzlich Prozessantwortzeiten im schlimmsten anzunehmenden Fall berechnet, welche für Szenarien nötig sind, in denen zeitliche Bedingungen an Teilmengen von Prozessen und Signalen gegeben sind. Wir weisen die Anwendbarkeit unserer Methoden durch die Analyse von Instanzen nach, welche Prozessstrukturen aus realen Anwendungen enthalten. Unsere Ergebnisse zeigen, dass untere Schranken schnell berechnet werden können, um die Optimalität von heuristischen Lösungen zu beweisen. Wenn wir optimale Lösungen mit Antwortzeiten liefern, stellt sich unsere neue Formulierung in der Laufzeitanalyse vorteilhaft gegenüber anderen Ansätzen dar. Die besten Resultate werden mit einem hybriden Ansatz erzielt, der heuristische Startlösungen, eine Vorverarbeitung und eine heuristische mit einer kurzen nachfolgenden exakten Berechnungsphase verbindet.

Hierarchical Approach for Survivable Network Design

A central design challenge facing network planners is how to select a cost-effective network configuration that can provide uninterrupted service despite edge failures. In this paper, we study the Survivable Network Design (SND) problem, a core model underlying the design of such resilient networks that incorporates complex cost and connectivity trade-offs. Given an undirected graph with specified edge costs and (integer) connectivity requirements between pairs of nodes, the SND problem seeks the minimum cost set of edges that interconnects each node pair with at least as many edge-disjoint paths as the connectivity requirement of the nodes. We develop a hierarchical approach for solving the problem that integrates ideas from decomposition, tabu search, randomization, and optimization. The approach decomposes the SND problem into two subproblems, Backbone design and Access design, and uses an iterative multi-stage method for solving the SND problem in a hierarchical fashion. Since both subproblems are NP-hard, we develop effective optimization-based tabu search strategies that balance intensification and diversification to identify near-optimal solutions. To initiate this method, we develop two heuristic procedures that can yield good starting points. We test the combined approach on large-scale SND instances, and empirically assess the quality of the solutions vis-à-vis optimal values or lower bounds. On average, our hierarchical solution approach generates solutions within 2.7% of optimality even for very large problems (that cannot be solved using exact methods), and our results demonstrate that the performance of the method is robust for a variety of problems with different size and connectivity characteristics.

Enumerating constrained elementary flux vectors of metabolic networks

The concept of elementary vector is generalised to the case where the steady-state space of the metabolic network is not a flux cone but is a general polyhedron due to further inhomogeneous constraints on the flows through some of the reactions. On one hand, this allows to selectively enumerate elementary modes which satisfy certain optimality criteria and this can yield a large computational gain compared with full enumeration. On the other hand, in contrast to the single optimum found by executing a linear program, this enables a comprehensive description of the set of alternate optima often encountered in flux balance analysis. The concepts are illustrated on a metabolic network model of human cardiac mitochondria.

OPTIMAL SHAPE IN ELECTROMAGNETIC SCATTERING BY SMALL ASPHERICAL PARTICLES

We consider the question of optimal shapes, e.g., those causing minimal extinction among all shapes of equal volume. Guided by the isoperimetric property of a sphere, relevant in the geometrical optics limit of scattering by large particles, we examine an analogous question in the low frequency (electrostatics) approximation, seeking to disentangle electric and geometric contributions. To that end, we survey the literature on shape functionals and focus on ellipsoids, giving a simple proof of spherical optimality for the coated ellipsoidal particle. Monotonic increase with asphericity in the low frequency regime for orientation-averaged induced dipole moments and scattering cross-sections is also shown. Additional physical insight is obtained from the Rayleigh-Gans (transparent) limit and eccentricity expansions. We propose connecting low and high frequency regime in a single minimum principle valid for all size parameters, provided that reasonable size distributions of randomly oriented aspherical particles wash out the resonances for intermediate size parameters. This proposal is further supported by the sum rule for integrated extinction.

Simulating the evolution of a clonal trait in plants with sexual and vegetative reproduction

Aims Phenotypic optimality models neglect genetics. However, especially when heterozygous genotypes ire fittest, evolving allele, genotype and phenotype frequencies may not correspond to predicted optima. This was not previously addressed for organisms with complex life histories. Methods Therefore, we modelled the evolution of a fitness-relevant trait of clonal plants, stolon internode length. We explored the likely case of air asymmetric unimodal fitness profile with three model types. In constant selection models (CSMs), which are gametic, but not spatially explicit, evolving allele frequencies in the one-locus and five-loci cases did not correspond to optimum stolon internode length predicted by the spatially explicit, but not gametic, phenotypic model. This deviation was due to the asymmetry of the fitness profile. Gametic, spatially explicit individual-based (SEIB) modeling allowed us relaxing the CSM assumptions of constant selection with exclusively sexual reproduction. Important findings For entirely vegetative or sexual reproduction, predictions. of the gametic SEIB model were close to the ones of spatially explicit CSMs gametic phenotypic models, hut for mixed modes of reproduction they appoximated those of gametic, not spatially explicit CSMs. Thus, in contrast to gametic SEIB models, phenotypic models and, especially for few loci, also CSMs can be very misleading. We conclude that the evolution of trails governed by few quantitative trait loci appears hardly predictable by simple models, that genetic algorithms aiming at technical optimization may actually, miss the optimum and that selection may lead to loci with smaller effects, in derived compared with ancestral lines.

Resource-allocation capabilities of commercial project management software. An experimental analysis

When project managers determine schedules for resource-constrained projects, they commonly use commercial project management software packages. Which resource-allocation methods are implemented in these packages is proprietary information. The resource-allocation problem is in general computationally difficult to solve to optimality. Hence, the question arises if and how various project management software packages differ in quality with respect to their resource-allocation capabilities. None of the few existing papers on this subject uses a sizeable data set and recent versions of common software packages. We experimentally analyze the resource-allocation capabilities of Acos Plus.1, AdeptTracker Professional, CS Project Professional, Microsoft Office Project 2007, Primavera P6, Sciforma PS8, and Turbo Project Professional. Our analysis is based on 1560 instances of the precedence- and resource-constrained project scheduling problem RCPSP. The experiment shows that using the resource-allocation feature of these packages may lead to a project duration increase of almost 115% above the best known feasible schedule. The increase gets larger with increasing resource scarcity and with increasing number of activities. We investigate the impact of different complexity scenarios and priority rules on the project duration obtained by the software packages. We provide a decision table to support managers in selecting a software package and a priority rule.

Exact Solutions to the Symmetric and Asymmetric Vehicle Routing Problem with Simultaneous Delivery and Pick-Up

In reverse logistics networks, products (e.g., bottles or containers) have to be transported from a depot to customer locations and, after use, from customer locations back to the depot. In order to operate economically beneficial, companies prefer a simultaneous delivery and pick-up service. The resulting Vehicle Routing Problem with Simultaneous Delivery and Pick-up (VRPSDP) is an operational problem, which has to be solved daily by many companies. We present two mixed-integer linear model formulations for the VRPSDP, namely a vehicle-flow and a commodity-flow model. In order to strengthen the models, domain-reducing preprocessing techniques, and effective cutting planes are outlined. Symmetric benchmark instances known from the literature as well as new asymmetric instances derived from real-world problems are solved to optimality using CPLEX 12.1.

A continuous-time MILP model for short-term scheduling of make-and-pack production processes

In process industries, make-and-pack production is used to produce food and beverages, chemicals, and metal products, among others. This type of production process allows the fabrication of a wide range of products in relatively small amounts using the same equipment. In this article, we consider a real-world production process (cf. Honkomp et al. 2000. The curse of reality – why process scheduling optimization problems are diffcult in practice. Computers & Chemical Engineering, 24, 323–328.) comprising sequence-dependent changeover times, multipurpose storage units with limited capacities, quarantine times, batch splitting, partial equipment connectivity, and transfer times. The planning problem consists of computing a production schedule such that a given demand of packed products is fulfilled, all technological constraints are satisfied, and the production makespan is minimised. None of the models in the literature covers all of the technological constraints that occur in such make-and-pack production processes. To close this gap, we develop an efficient mixed-integer linear programming model that is based on a continuous time domain and general-precedence variables. We propose novel types of symmetry-breaking constraints and a preprocessing procedure to improve the model performance. In an experimental analysis, we show that small- and moderate-sized instances can be solved to optimality within short CPU times.

Egalitarianism under Earmark Constraints

Agents with single-peaked preferences share a resource coming from different suppliers; each agent is connected to only a subset of suppliers. Examples include workload balancing, sharing earmarked funds, and rationing utilities after a storm. Unlike in the one supplier model, in a Pareto optimal allocation agents who get more than their peak from underdemanded suppliers, coexist with agents who get less from overdemanded suppliers. Our Egalitarian solution is the Lorenz dominant Pareto optimal allocation. It treats agents with equal demands as equally as the connectivity constraints allow. Together, Strategyproofness, Pareto Optimality, and Equal Treatment of Equals, characterize our solution.

Guaranteed greedy routing in overlay networks

Greedy routing can be used in mobile ad-hoc networks as geographic routing protocol. This paper proposes to use greedy routing also in overlay networks by positioning overlay nodes into a multi-dimensional Euclidean space. Greedy routing can only be applied when a routing decision makes progress towards the final destination. Our proposed overlay network is built such that there will be always progress at each forwarding node. This is achieved by constructing at each node a so-called nearest neighbor convex set (NNCS). NNCSs can be used for various applications such as multicast routing, service discovery and Quality-of-Service routing. NNCS has been compared with Pastry, another topology-aware overlay network. NNCS has superior relative path stretches indicating the optimality of a path.