Modelling financial time series with switching state space models

The deficiencies of stationary models applied to financial time series are well documented. A special form of non-stationarity, where the underlying generator switches between (approximately) stationary regimes, seems particularly appropriate for financial markets. We use a dynamic switching (modelled by a hidden Markov model) combined with a linear dynamical system in a hybrid switching state space model (SSSM) and discuss the practical details of training such models with a variational EM algorithm due to [Ghahramani and Hilton,1998]. The performance of the SSSM is evaluated on several financial data sets and it is shown to improve on a number of existing benchmark methods.

Modelling of induction motors for system faults and transient stability studies

The research carried out in this thesis was mainly concerned with the effects of large induction motors and their transient performance in power systems. Computer packages using the three phase co-ordinate frame of reference were developed to simulate the induction motor transient performance. A technique using matrix algebra was developed to allow extension of the three phase co-ordinate method to analyse asymmetrical and symmetrical faults on both sides of the three phase delta-star transformer which is usually required when connecting large induction motors to the supply system. System simulation, applying these two techniques, was used to study the transient stability of a power system. The response of a typical system, loaded with a group of large induction motors, two three-phase delta-star transformers, a synchronous generator and an infinite system was analysed. The computer software developed to study this system has the advantage that different types of fault at different locations can be studied by simple changes in input data. The research also involved investigating the possibility of using different integrating routines such as Runge-Kutta-Gill, RungeKutta-Fehlberg and the Predictor-Corrector methods. The investigation enables the reduction of computation time, which is necessary when solving the induction motor equations expressed in terms of the three phase variables. The outcome of this investigation was utilised in analysing an introductory model (containing only minimal control action) of an isolated system having a significant induction motor load compared to the size of the generator energising the system.

Transient response in high-resolution Brillouin-based distributed sensing using probe pulses shorter than the acoustic relaxation time

We perform numerical simulations on a model describing a Brillouin-based temperature and strain sensor, testing its response when it is probed with relatively short pulses. Experimental results were recently published [e.g., Opt. Lett. 24, 510 (1999)] that showed a broadening of the Brillouin loss curve when the probe pulse duration is reduced, followed by a sudden and rather surprising reduction of the linewidth when the pulse duration gets shorter than the acoustic relaxation time. Our study reveals the processes responsible for this behavior. We give a clear physical insight into the problem, allowing us to define the best experimental conditions required for one to take the advantage of this effect.

Modelling nonlinear stochastic dynamics in financial time series

For analysing financial time series two main opposing viewpoints exist, either capital markets are completely stochastic and therefore prices follow a random walk, or they are deterministic and consequently predictable. For each of these views a great variety of tools exist with which it can be tried to confirm the hypotheses. Unfortunately, these methods are not well suited for dealing with data characterised in part by both paradigms. This thesis investigates these two approaches in order to model the behaviour of financial time series. In the deterministic framework methods are used to characterise the dimensionality of embedded financial data. The stochastic approach includes here an estimation of the unconditioned and conditional return distributions using parametric, non- and semi-parametric density estimation techniques. Finally, it will be shown how elements from these two approaches could be combined to achieve a more realistic model for financial time series.

Modelling data and voice traffic over IP networks using continuous-time Markov models

Common approaches to IP-traffic modelling have featured the use of stochastic models, based on the Markov property, which can be classified into black box and white box models based on the approach used for modelling traffic. White box models, are simple to understand, transparent and have a physical meaning attributed to each of the associated parameters. To exploit this key advantage, this thesis explores the use of simple classic continuous-time Markov models based on a white box approach, to model, not only the network traffic statistics but also the source behaviour with respect to the network and application. The thesis is divided into two parts: The first part focuses on the use of simple Markov and Semi-Markov traffic models, starting from the simplest two-state model moving upwards to n-state models with Poisson and non-Poisson statistics. The thesis then introduces the convenient to use, mathematically derived, Gaussian Markov models which are used to model the measured network IP traffic statistics. As one of the most significant contributions, the thesis establishes the significance of the second-order density statistics as it reveals that, in contrast to first-order density, they carry much more unique information on traffic sources and behaviour. The thesis then exploits the use of Gaussian Markov models to model these unique features and finally shows how the use of simple classic Markov models coupled with use of second-order density statistics provides an excellent tool for capturing maximum traffic detail, which in itself is the essence of good traffic modelling. The second part of the thesis, studies the ON-OFF characteristics of VoIP traffic with reference to accurate measurements of the ON and OFF periods, made from a large multi-lingual database of over 100 hours worth of VoIP call recordings. The impact of the language, prosodic structure and speech rate of the speaker on the statistics of the ON-OFF periods is analysed and relevant conclusions are presented. Finally, an ON-OFF VoIP source model with log-normal transitions is contributed as an ideal candidate to model VoIP traffic and the results of this model are compared with those of previously published work.

Enhancing the humidity response time of polymer optical fiber Bragg grating by using laser micromachining

The humidity sensors constructed from polymer optical fiber Bragg gratings (POFBG) respond to the water content change in the fiber induced by varying environmental condition. The water content change is a diffusion process. Therefore the response time of the POFBG sensor strongly depends on the geometry and size of the fiber. In this work we investigate the use of laser micromachining of D-shaped and slotted structures to improve the response time of polymer fiber grating based humidity sensors. A significant improvement in the response time has been achieved in laser micromachined D-shaped POFBG humidity sensors. The slotted geometry allows water rapid access to the core region but this does not of itself improve response time due to the slow expansion of the bulk of the cladding. We show that by straining the slotted sensor, the expansion component can be removed resulting in the response time being determined only by the more rapid, water induced change in core refractive index. In this way the response time is reduced by a factor of 2.5.

Space and time modelling of clouds

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Modelling of wastewater treatment plants:how far shall we go with sophisticated modelling tools?

Several levels of complexity are available for modelling of wastewater treatment plants. Modelling local effects rely on computational fluid dynamics (CFD) approaches whereas activated sludge models (ASM) represent the global methodology. By applying both modelling approaches to pilot plant and full scale systems, this paper evaluates the value of each method and especially their potential combination. Model structure identification for ASM is discussed based on a full-scale closed loop oxidation ditch modelling. It is illustrated how and for what circumstances information obtained via CFD (computational fluid dynamics) analysis, residence time distribution (RTD) and other experimental means can be used. Furthermore, CFD analysis of the multiphase flow mechanisms is employed to obtain a correct description of the oxygenation capacity of the system studied, including an easy implementation of this information in the classical ASM modelling (e.g. oxygen transfer). The combination of CFD and activated sludge modelling of wastewater treatment processes is applied to three reactor configurations, a perfectly mixed reactor, a pilot scale activated sludge basin (ASB) and a real scale ASB. The application of the biological models to the CFD model is validated against experimentation for the pilot scale ASB and against a classical global ASM model response. A first step in the evaluation of the potential of the combined CFD-ASM model is performed using a full scale oxidation ditch system as testing scenario.

Accurate modelling of pulse transformation by adjustable-in-time medium parameters

A possibility of a strong change of an electromagnetic signal by a short sequence of time cycles of pulses that modulate the medium parameters is shown. The backward wave is demonstrated to be an inevitable result of the medium time change. Dependence of the relation between backward and forward waves on the parameters of the medium modulation is investigated. The finite statistical complexity of the electromagnetic signal transformed by a finite sequence of modulating cycles is calculated. Increase of the complexity with the number of cycles is shown.

Near-constant time delay response of fibre grating Sagnac loop filters

A theoretical and experimental investigation of the time delay characteristics of fiber Bragg grating-based Sagnac loops (FBGSLs) is presented. Analytic expressions for the phase and time delay of the FBGSL have been derived and excellent agreement is found between their predictions and experimental results for configurations incorporating uniform-period and chirped-period gratings. For symmetrical grating structures, it is found that the FBGSL time delay response is similar to that of the incorporated grating; with asymmetrical gratings, the FBGSL response is quite different. It is shown that wavelength-division-multiplexing filters exhibiting near-zero dispersion characteristics can be implemented using FBGSLs.

Multivariate FIAPARCH modelling of financial markets with dynamic correlations in times of crisis

This paper applies the vector AR-DCC-FIAPARCH model to eight national stock market indices' daily returns from 1988 to 2010, taking into account the structural breaks of each time series linked to the Asian and the recent Global financial crisis. We find significant cross effects, as well as long range volatility dependence, asymmetric volatility response to positive and negative shocks, and the power of returns that best fits the volatility pattern. One of the main findings of the model analysis is the higher dynamic correlations of the stock markets after a crisis event, which means increased contagion effects between the markets. The fact that during the crisis the conditional correlations remain on a high level indicates a continuous herding behaviour during these periods of increased market volatility. Finally, during the recent Global financial crisis the correlations remain on a much higher level than during the Asian financial crisis.

Transient response in high-resolution Brillouin-based distributed sensing using probe pulses shorter than the acoustic relaxation time

We perform numerical simulations on a model describing a Brillouin-based temperature and strain sensor, testing its response when it is probed with relatively short pulses. Experimental results were recently published [e.g., Opt. Lett. 24, 510 (1999)] that showed a broadening of the Brillouin loss curve when the probe pulse duration is reduced, followed by a sudden and rather surprising reduction of the linewidth when the pulse duration gets shorter than the acoustic relaxation time. Our study reveals the processes responsible for this behavior. We give a clear physical insight into the problem, allowing us to define the best experimental conditions required for one to take the advantage of this effect.

Modelling stock volatilities during financial crises:a time varying coefficient approach

We examine how the most prevalent stochastic properties of key financial time series have been affected during the recent financial crises. In particular we focus on changes associated with the remarkable economic events of the last two decades in the volatility dynamics, including the underlying volatility persistence and volatility spillover structure. Using daily data from several key stock market indices, the results of our bivariate GARCH models show the existence of time varying correlations as well as time varying shock and volatility spillovers between the returns of FTSE and DAX, and those of NIKKEI and Hang Seng, which became more prominent during the recent financial crisis. Our theoretical considerations on the time varying model which provides the platform upon which we integrate our multifaceted empirical approaches are also of independent interest. In particular, we provide the general solution for time varying asymmetric GARCH specifications, which is a long standing research topic. This enables us to characterize these models by deriving, first, their multistep ahead predictors, second, the first two time varying unconditional moments, and third, their covariance structure.