On the robustness of least-squares Monte Carlo (LSM) for pricing American derivatives

This paper analyses the robustness of Least-Squares Monte Carlo, a techniquerecently proposed by Longstaff and Schwartz (2001) for pricing Americanoptions. This method is based on least-squares regressions in which theexplanatory variables are certain polynomial functions. We analyze theimpact of different basis functions on option prices. Numerical resultsfor American put options provide evidence that a) this approach is veryrobust to the choice of different alternative polynomials and b) few basisfunctions are required. However, these conclusions are not reached whenanalyzing more complex derivatives.

On heuristic and linear models of judgment: Mapping the demand for knowledge

Research on judgment and decision making presents a confusing picture of human abilities. For example, much research has emphasized the dysfunctional aspects of judgmental heuristics, and yet, other findings suggest that these can be highly effective. A further line of research has modeled judgment as resulting from as if linear models. This paper illuminates the distinctions in these approaches by providing a common analytical framework based on the central theoretical premise that understanding human performance requires specifying how characteristics of the decision rules people use interact with the demands of the tasks they face. Our work synthesizes the analytical tools of lens model research with novel methodology developed to specify the effectiveness of heuristics in different environments and allows direct comparisons between the different approaches. We illustrate with both theoretical analyses and simulations. We further link our results to the empirical literature by a meta-analysis of lens model studies and estimate both human andheuristic performance in the same tasks. Our results highlight the trade-off betweenlinear models and heuristics. Whereas the former are cognitively demanding, the latterare simple to use. However, they require knowledge and thus maps of when andwhich heuristic to employ.

Biases of the ordinary least squares and instrumental variables estimators of the intergenerational earnings elasticity : revisited in the light of panel data

The OLS estimator of the intergenerational earnings correlation is biased towards zero, while the instrumental variables estimator is biased upwards. The first of these results arises because of measurement error, while the latter rests on the presumption that the education of the parent family is an invalid instrument. We propose a panel data framework for quantifying the asymptotic biases of these estimators, as well as a mis-specification test for the IV estimator. [Author]

Comparing the artificial neural network with parcial least squares for prediction of soil organic carbon and pH at different moisture content levels using visible and near-infrared spectroscopy

Visible and near infrared (vis-NIR) spectroscopy is widely used to detect soil properties. The objective of this study is to evaluate the combined effect of moisture content (MC) and the modeling algorithm on prediction of soil organic carbon (SOC) and pH. Partial least squares (PLS) and the Artificial neural network (ANN) for modeling of SOC and pH at different MC levels were compared in terms of efficiency in prediction of regression. A total of 270 soil samples were used. Before spectral measurement, dry soil samples were weighed to determine the amount of water to be added by weight to achieve the specified gravimetric MC levels of 5, 10, 15, 20, and 25 %. A fiber-optic vis-NIR spectrophotometer (350-2500 nm) was used to measure spectra of soil samples in the diffuse reflectance mode. Spectra preprocessing and PLS regression were carried using Unscrambler® software. Statistica® software was used for ANN modeling. The best prediction result for SOC was obtained using the ANN (RMSEP = 0.82 % and RPD = 4.23) for soil samples with 25 % MC. The best prediction results for pH were obtained with PLS for dry soil samples (RMSEP = 0.65 % and RPD = 1.68) and soil samples with 10 % MC (RMSEP = 0.61 % and RPD = 1.71). Whereas the ANN showed better performance for SOC prediction at all MC levels, PLS showed better predictive accuracy of pH at all MC levels except for 25 % MC. Therefore, based on the data set used in the current study, the ANN is recommended for the analyses of SOC at all MC levels, whereas PLS is recommended for the analysis of pH at MC levels below 20 %.

A comparison of mean phase difference and generalized least squares for analyzing single-case data

The present study focuses on single-case data analysis and specifically on two procedures for quantifying differences between baseline and treatment measurements The first technique tested is based on generalized least squares regression analysis and is compared to a proposed non-regression technique, which allows obtaining similar information. The comparison is carried out in the context of generated data representing a variety of patterns (i.e., independent measurements, different serial dependence underlying processes, constant or phase-specific autocorrelation and data variability, different types of trend, and slope and level change). The results suggest that the two techniques perform adequately for a wide range of conditions and researchers can use both of them with certain guarantees. The regression-based procedure offers more efficient estimates, whereas the proposed non-regression procedure is more sensitive to intervention effects. Considering current and previous findings, some tentative recommendations are offered to applied researchers in order to help choosing among the plurality of single-case data analysis techniques.

Reflections on Partial Least Squares Path Modeling

The purpose of the present article is to take stock of a recent exchange in Organizational Research Methods between critics (Rönkkö & Evermann, 2013) and proponents (Henseler et al., 2014) of partial least squares path modeling (PLS-PM). The two target articles were centered around six principal issues, namely whether PLS-PM: (1) can be truly characterized as a technique for structural equation modeling (SEM); (2) is able to correct for measurement error; (3) can be used to validate measurement models; (4) accommodates small sample sizes; (5) is able to provide null hypothesis tests for path coefficients; and (6) can be employed in an exploratory, model-building fashion. We summarize and elaborate further on the key arguments underlying the exchange, drawing from the broader methodological and statistical literature in order to offer additional thoughts concerning the utility of PLS-PM and ways in which the technique might be improved. We conclude with recommendations as to whether and how PLS-PM serves as a viable contender to SEM approaches for estimating and evaluating theoretical models.

On the Adoption of Partial Least Squares in Psychological Research: Caveat Emptor

The partial least squares technique (PLS) has been touted as a viable alternative to latent variable structural equation modeling (SEM) for evaluating theoretical models in the differential psychology domain. We bring some balance to the discussion by reviewing the broader methodological literature to highlight: (1) the misleading characterization of PLS as an SEM method; (2) limitations of PLS for global model testing; (3) problems in testing the significance of path coefficients; (4) extremely high false positive rates when using empirical confidence intervals in conjunction with a new "sign change correction" for path coefficients; (5) misconceptions surrounding the supposedly superior ability of PLS to handle small sample sizes and non-normality; and (6) conceptual and statistical problems with formative measurement and the application of PLS to such models. Additionally, we also reanalyze the dataset provided by Willaby et al. (2015; doi:10.1016/j.paid.2014.09.008) to highlight the limitations of PLS. Our broader review and analysis of the available evidence makes it clear that PLS is not useful for statistical estimation and testing.

Optimization of wood flour acetylation by factorial design and partial least squares regression

Acetylation was performed to reduce the polarity of wood and increase its compatibility with polymer matrices for the production of composites. These reactions were performed first as a function of acetic acid and anhydride concentration in a mixture catalyzed by sulfuric acid. A concentration of 50%/50% (v/v) of acetic acid and anhydride was found to produced the highest conversion rate between the functional groups. After these reactions, the kinetics were investigated by varying times and temperatures using a 3² factorial design, and showed time was the most relevant parameter in determining the conversion of hydroxyl into carbonyl groups.

Least squares regression with errors in both variables: case studies

Analytical curves are normally obtained from discrete data by least squares regression. The least squares regression of data involving significant error in both x and y values should not be implemented by ordinary least squares (OLS). In this work, the use of orthogonal distance regression (ODR) is discussed as an alternative approach in order to take into account the error in the x variable. Four examples are presented to illustrate deviation between the results from both regression methods. The examples studied show that, in some situations, ODR coefficients must substitute for those of OLS, and, in other situations, the difference is not significant.

Classification of brain tumor extracts by high resolution ¹H MRS using partial least squares discriminant analysis

High resolution proton nuclear magnetic resonance spectroscopy (¹H MRS) can be used to detect biochemical changes in vitro caused by distinct pathologies. It can reveal distinct metabolic profiles of brain tumors although the accurate analysis and classification of different spectra remains a challenge. In this study, the pattern recognition method partial least squares discriminant analysis (PLS-DA) was used to classify 11.7 T ¹H MRS spectra of brain tissue extracts from patients with brain tumors into four classes (high-grade neuroglial, low-grade neuroglial, non-neuroglial, and metastasis) and a group of control brain tissue. PLS-DA revealed 9 metabolites as the most important in group differentiation: γ-aminobutyric acid, acetoacetate, alanine, creatine, glutamate/glutamine, glycine, myo-inositol, N-acetylaspartate, and choline compounds. Leave-one-out cross-validation showed that PLS-DA was efficient in group characterization. The metabolic patterns detected can be explained on the basis of previous multimodal studies of tumor metabolism and are consistent with neoplastic cell abnormalities possibly related to high turnover, resistance to apoptosis, osmotic stress and tumor tendency to use alternative energetic pathways such as glycolysis and ketogenesis.

Non invasive classification system of scoliosis curve types using least-squares support vector machines

Objective To determine scoliosis curve types using non invasive surface acquisition, without prior knowledge from X-ray data. Methods Classification of scoliosis deformities according to curve type is used in the clinical management of scoliotic patients. In this work, we propose a robust system that can determine the scoliosis curve type from non invasive acquisition of the 3D back surface of the patients. The 3D image of the surface of the trunk is divided into patches and local geometric descriptors characterizing the back surface are computed from each patch and constitute the features. We reduce the dimensionality by using principal component analysis and retain 53 components using an overlap criterion combined with the total variance in the observed variables. In this work, a multi-class classifier is built with least-squares support vector machines (LS-SVM). The original LS-SVM formulation was modified by weighting the positive and negative samples differently and a new kernel was designed in order to achieve a robust classifier. The proposed system is validated using data from 165 patients with different scoliosis curve types. The results of our non invasive classification were compared with those obtained by an expert using X-ray images. Results The average rate of successful classification was computed using a leave-one-out cross-validation procedure. The overall accuracy of the system was 95%. As for the correct classification rates per class, we obtained 96%, 84% and 97% for the thoracic, double major and lumbar/thoracolumbar curve types, respectively. Conclusion This study shows that it is possible to find a relationship between the internal deformity and the back surface deformity in scoliosis with machine learning methods. The proposed system uses non invasive surface acquisition, which is safe for the patient as it involves no radiation. Also, the design of a specific kernel improved classification performance.