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.

Generación de Casos de Prueba en Programación Orientada a Objetos = Test Case Generation in Object-Oriented Programming

Las pruebas de software (Testing) son en la actualidad la técnica más utilizada para la validación y la evaluación de la calidad de un programa. El testing está integrado en todas las metodologías prácticas de desarrollo de software y juega un papel crucial en el éxito de cualquier proyecto de software. Desde las unidades de código más pequeñas a los componentes más complejos, su integración en un sistema de software y su despliegue a producción, todas las piezas de un producto de software deben ser probadas a fondo antes de que el producto de software pueda ser liberado a un entorno de producción. La mayor limitación del testing de software es que continúa siendo un conjunto de tareas manuales, representando una buena parte del coste total de desarrollo. En este escenario, la automatización resulta fundamental para aliviar estos altos costes. La generación automática de casos de pruebas (TCG, del inglés test case generation) es el proceso de generar automáticamente casos de prueba que logren un alto recubrimiento del programa. Entre la gran variedad de enfoques hacia la TCG, esta tesis se centra en un enfoque estructural de caja blanca, y más concretamente en una de las técnicas más utilizadas actualmente, la ejecución simbólica. En ejecución simbólica, el programa bajo pruebas es ejecutado con expresiones simbólicas como argumentos de entrada en lugar de valores concretos. Esta tesis se basa en un marco general para la generación automática de casos de prueba dirigido a programas imperativos orientados a objetos (Java, por ejemplo) y basado en programación lógica con restricciones (CLP, del inglés constraint logic programming). En este marco general, el programa imperativo bajo pruebas es primeramente traducido a un programa CLP equivalente, y luego dicho programa CLP es ejecutado simbólicamente utilizando los mecanismos de evaluación estándar de CLP, extendidos con operaciones especiales para el tratamiento de estructuras de datos dinámicas. Mejorar la escalabilidad y la eficiencia de la ejecución simbólica constituye un reto muy importante. Es bien sabido que la ejecución simbólica resulta impracticable debido al gran número de caminos de ejecución que deben ser explorados y a tamaño de las restricciones que se deben manipular. Además, la generación de casos de prueba mediante ejecución simbólica tiende a producir un número innecesariamente grande de casos de prueba cuando es aplicada a programas de tamaño medio o grande. Las contribuciones de esta tesis pueden ser resumidas como sigue. (1) Se desarrolla un enfoque composicional basado en CLP para la generación de casos de prueba, el cual busca aliviar el problema de la explosión de caminos interprocedimiento analizando de forma separada cada componente (p.ej. método) del programa bajo pruebas, almacenando los resultados y reutilizándolos incrementalmente hasta obtener resultados para el programa completo. También se ha desarrollado un enfoque composicional basado en especialización de programas (evaluación parcial) para la herramienta de ejecución simbólica Symbolic PathFinder (SPF). (2) Se propone una metodología para usar información del consumo de recursos del programa bajo pruebas para guiar la ejecución simbólica hacia aquellas partes del programa que satisfacen una determinada política de recursos, evitando la exploración de aquellas partes del programa que violan dicha política. (3) Se propone una metodología genérica para guiar la ejecución simbólica hacia las partes más interesantes del programa, la cual utiliza abstracciones como generadores de trazas para guiar la ejecución de acuerdo a criterios de selección estructurales. (4) Se propone un nuevo resolutor de restricciones, el cual maneja eficientemente restricciones sobre el uso de la memoria dinámica global (heap) durante ejecución simbólica, el cual mejora considerablemente el rendimiento de la técnica estándar utilizada para este propósito, la \lazy initialization". (5) Todas las técnicas propuestas han sido implementadas en el sistema PET (el enfoque composicional ha sido también implementado en la herramienta SPF). Mediante evaluación experimental se ha confirmado que todas ellas mejoran considerablemente la escalabilidad y eficiencia de la ejecución simbólica y la generación de casos de prueba. ABSTRACT Testing is nowadays the most used technique to validate software and assess its quality. It is integrated into all practical software development methodologies and plays a crucial role towards the success of any software project. From the smallest units of code to the most complex components and their integration into a software system and later deployment; all pieces of a software product must be tested thoroughly before a software product can be released. The main limitation of software testing is that it remains a mostly manual task, representing a large fraction of the total development cost. In this scenario, test automation is paramount to alleviate such high costs. Test case generation (TCG) is the process of automatically generating test inputs that achieve high coverage of the system under test. Among a wide variety of approaches to TCG, this thesis focuses on structural (white-box) TCG, where one of the most successful enabling techniques is symbolic execution. In symbolic execution, the program under test is executed with its input arguments being symbolic expressions rather than concrete values. This thesis relies on a previously developed constraint-based TCG framework for imperative object-oriented programs (e.g., Java), in which the imperative program under test is first translated into an equivalent constraint logic program, and then such translated program is symbolically executed by relying on standard evaluation mechanisms of Constraint Logic Programming (CLP), extended with special treatment for dynamically allocated data structures. Improving the scalability and efficiency of symbolic execution constitutes a major challenge. It is well known that symbolic execution quickly becomes impractical due to the large number of paths that must be explored and the size of the constraints that must be handled. Moreover, symbolic execution-based TCG tends to produce an unnecessarily large number of test cases when applied to medium or large programs. The contributions of this dissertation can be summarized as follows. (1) A compositional approach to CLP-based TCG is developed which overcomes the inter-procedural path explosion by separately analyzing each component (method) in a program under test, stowing the results as method summaries and incrementally reusing them to obtain whole-program results. A similar compositional strategy that relies on program specialization is also developed for the state-of-the-art symbolic execution tool Symbolic PathFinder (SPF). (2) Resource-driven TCG is proposed as a methodology to use resource consumption information to drive symbolic execution towards those parts of the program under test that comply with a user-provided resource policy, avoiding the exploration of those parts of the program that violate such policy. (3) A generic methodology to guide symbolic execution towards the most interesting parts of a program is proposed, which uses abstractions as oracles to steer symbolic execution through those parts of the program under test that interest the programmer/tester most. (4) A new heap-constraint solver is proposed, which efficiently handles heap-related constraints and aliasing of references during symbolic execution and greatly outperforms the state-of-the-art standard technique known as lazy initialization. (5) All techniques above have been implemented in the PET system (and some of them in the SPF tool). Experimental evaluation has confirmed that they considerably help towards a more scalable and efficient symbolic execution and TCG.

A CAD development strategy for the next years

This paper suggests a new strategy to develop CAD applications taking into account some of the most interesting proposals which have recently appeared in the technology development arena. Programming languages, operating systems, user devices, software architecture, user interfaces and user experience are among the elements which are considered for a new development framework. This strategy considers the organizational and architectural aspects of the CAD application together with the development framework. The architectural and organizational aspects are based on the programmed design concept, which can be implemented by means of a three-level software architecture. These levels are the conceptual level based on a declarative language, the mathematical level based on the geometric formulation of the product model and the visual level based on the polyhedral representation of the model as required by the graphic card. The development framework which has been considered is Windows 8. This operating system offers three development environments, one for web pplications (HTML5 + CSS3 + JavaScript), and other for native applications C/C++) and of course yet another for .NET applications (C#, VB, F#, etc.). The use rinterface and user experience for non-web application is described ith XAML (a well known declarative XML language) and the 3D API for games and design applications is DirectX. Additionally, Windows 8 facilitates the use of hybrid solutions, in which native and managed code can interoperate easily. Some of the most remarkable advantages of this strategy are the possibility of targeting both desktop and touch screen devices with the same development framework, the usage of several programming paradigms to apply the most appropriate language to each domain and the multilevel segmentation of developers and designers to facilitate the implementation of an open network of collaborators.

Red Eléctrica de España uses integer programming for annual salary revisions

In this paper, we present a mixed-integer linear programming model for determining salary-revision matrices for an organization based on that organization?s general strategies. The solution obtained from this model consists of salary increases for each employee; these increases consider the employee?s professional performance, salary level relative to peers within the organization, and professional group. In addition to budget constraints, we modeled other elements typical of compensation systems, such as equity and justice. Red Eléctrica de España (REE), the transmission agent and operator of the Spanish electricity system, used the model to revise its 2010 and 2011 salary policies, and achieved results that were aligned with the company strategy. REE incorporated the model into the salary management module within its information system, and plans to continue to use the model in revisions of the module.

Comparative study of RPSALG algorithm for convex semi-infinite programming

The Remez penalty and smoothing algorithm (RPSALG) is a unified framework for penalty and smoothing methods for solving min-max convex semi-infinite programing problems, whose convergence was analyzed in a previous paper of three of the authors. In this paper we consider a partial implementation of RPSALG for solving ordinary convex semi-infinite programming problems. Each iteration of RPSALG involves two types of auxiliary optimization problems: the first one consists of obtaining an approximate solution of some discretized convex problem, while the second one requires to solve a non-convex optimization problem involving the parametric constraints as objective function with the parameter as variable. In this paper we tackle the latter problem with a variant of the cutting angle method called ECAM, a global optimization procedure for solving Lipschitz programming problems. We implement different variants of RPSALG which are compared with the unique publicly available SIP solver, NSIPS, on a battery of test problems.

The development of a solid waste management strategy

This research is concerned with the application of operational research techniques in the development of a long- term waste management policy by an English waste disposal authority. The main aspects which have been considered are the estimation of future waste production and the assessment of the effects of proposed systems. Only household and commercial wastes have been dealt with in detail, though suggestions are made for the extension of the effect assessment to cover industrial and other wastes. Similarly, the only effects considered in detail have been costs, but possible extensions are discussed. An important feature of the study is that it was conducted in close collaboration with a waste disposal authority, and so pays more attention to the actual needs of the authority than is usual in such research. A critical examination of previous waste forecasting work leads to the use of simple trend extrapolation methods, with some consideration of seasonal effects. The possibility of relating waste production to other social and economic indicators is discussed. It is concluded that, at present, large uncertainties in predictions are inevitable; waste management systems must therefore be designed to cope with this uncertainty. Linear programming is used to assess the overall costs of proposals. Two alternative linear programming formulations of this problem are used and discussed. The first is a straightforward approach, which has been .implemented as an interactive computer program. The second is more sophisticated and represents the behaviour of incineration plants more realistically. Careful attention is paid to the choice of appropriate data and the interpretation of the results. Recommendations are made on methods for immediate use, on the choice of data to be collected for future plans, and on the most useful lines for further research and development.

Evaluation of public housing strategies in Mexico City : an exploratory goal programming approach

This thesis describes the development and use of a goal programming methodology for the evaluation of public housjng strategies in Mexico City, The methodology responds to the need to incorporate the location, size and densities of housing projects on the one hand, and "external" constraints such as the ability of low income families to pay for housing, and the amounts of capital and land available, on the other. The provision of low cost housing by public housing agencies in Mexico City is becoming increasingly difficult because there are so many constraints to be met and overcome, the most important of which is the ability of families to pay for housing. Other important limiting factors are the availability of capital and of land plots of the right size in desired locations. The location of public housing projects is significant because it determines the cost and pattern of work trips, which in a metropolitan area such as Mexico City are of considerable importance to both planners and potential. house owners. In addition, since the price of land is closely related to its location, the last factor is also significant in determining the price of the total housing package. Consequently there is a major trade-off between a housing strategy based on the provision of housing at locations close to employment, and the opposite one based on the provjsion of housjng at locations where employment accessibility is poorer but housing can be provided at a lower price. The goal programming evaluation methodology presented in this thesis was developed to aid housing planners to evaluate housing strategies which incorporate the issues raised above,

Data Flow Analysis and the Linear Programming Model

* The research is supported partly by INTAS: 04-77-7173 project, http://www.intas.be

Optimal design of the renewable energy map of Greece using weighted goal-programming and data envelopment analysis

Renewable energy forms have been widely used in the past decades highlighting a "green" shift in energy production. An actual reason behind this turn to renewable energy production is EU directives which set the Union's targets for energy production from renewable sources, greenhouse gas emissions and increase in energy efficiency. All member countries are obligated to apply harmonized legislation and practices and restructure their energy production networks in order to meet EU targets. Towards the fulfillment of 20-20-20 EU targets, in Greece a specific strategy which promotes the construction of large scale Renewable Energy Source plants is promoted. In this paper, we present an optimal design of the Greek renewable energy production network applying a 0-1 Weighted Goal Programming model, considering social, environmental and economic criteria. In the absence of a panel of experts Data Envelopment Analysis (DEA) approach is used in order to filter the best out of the possible network structures, seeking for the maximum technical efficiency. Super-Efficiency DEA model is also used in order to reduce the solutions and find the best out of all the possible. The results showed that in order to achieve maximum efficiency, the social and environmental criteria must be weighted more than the economic ones.

A Computer-Based Strategy for Practical Skills Teaching

An adaptive learning technology embedded in e-learning environments ensures choice of the structure, content, and activities for each individual learner according to the teaching team’s domain and didactic knowledge and skills. In this paper a computer-based scenario for application of an adaptive navigation technology is proposed and demonstrated on an example course topic.

N–Dimensional Orthogonal Tile Sizing Problem

AMS subject classification: 68Q22, 90C90

Optimization of pavement maintenance and rehabilitation programming using shuffled complex evolution algorithm

The major barrier to practical optimization of pavement preservation programming has always been that for formulations where the identity of individual projects is preserved, the solution space grows exponentially with the problem size to an extent where it can become unmanageable by the traditional analytical optimization techniques within reasonable limit. This has been attributed to the problem of combinatorial explosion that is, exponential growth of the number of combinations. The relatively large number of constraints often presents in a real-life pavement preservation programming problems and the trade-off considerations required between preventive maintenance, rehabilitation and reconstruction, present yet another factor that contributes to the solution complexity. In this research study, a new integrated multi-year optimization procedure was developed to solve network level pavement preservation programming problems, through cost-effectiveness based evolutionary programming analysis, using the Shuffled Complex Evolution (SCE) algorithm.^ A case study problem was analyzed to illustrate the robustness and consistency of the SCE technique in solving network level pavement preservation problems. The output from this program is a list of maintenance and rehabilitation treatment (M&R) strategies for each identified segment of the network in each programming year, and the impact on the overall performance of the network, in terms of the performance levels of the recommended optimal M&R strategy. ^ The results show that the SCE is very efficient and consistent in the simultaneous consideration of the trade-off between various pavement preservation strategies, while preserving the identity of the individual network segments. The flexibility of the technique is also demonstrated, in the sense that, by suitably coding the problem parameters, it can be used to solve several forms of pavement management programming problems. It is recommended that for large networks, some sort of decomposition technique should be applied to aggregate sections, which exhibit similar performance characteristics into links, such that whatever M&R alternative is recommended for a link can be applied to all the sections connected to it. In this way the problem size, and hence the solution time, can be greatly reduced to a more manageable solution space. ^ The study concludes that the robust search characteristics of SCE are well suited for solving the combinatorial problems in long-term network level pavement M&R programming and provides a rich area for future research. ^

Novel Formulation and Efficient Solution Strategy for Strategic Optimization of an Industrial Chemical Supply Chain Under Demand Uncertainty

This paper is concerned with strategic optimization of a typical industrial chemical supply chain, which involves a material purchase and transportation network, several manufacturing plants with on-site material and product inventories, a product transportation network and several regional markets. In order to address large uncertainties in customer demands at the different regional markets, a novel robust scenario formulation, which has been developed by the authors recently, is tailored and applied for the strategic optimization. Case study results show that the robust scenario formulation works well for this real industrial supply chain system, and it outperforms the deterministic formulation and the classical scenario-based stochastic programming formulation by generating better expected economic performance and solutions that are guaranteed to be feasible for all uncertainty realizations. The robust scenario problem exhibits a decomposable structure that can be taken advantage of by Benders decomposition for efficient solution, so the application of Benders decomposition to the solution of the strategic optimization is also discussed. The case study results show that Benders decomposition can reduce the solution time by almost an order of magnitude when the number of scenarios in the problem is large.

Transactions and schema evolution in a persistent object-oriented programming system

Applications are subject of a continuous evolution process with a profound impact on their underlining data model, hence requiring frequent updates in the applications' class structure and database structure as well. This twofold problem, schema evolution and instance adaptation, usually known as database evolution, is addressed in this thesis. Additionally, we address concurrency and error recovery problems with a novel meta-model and its aspect-oriented implementation. Modern object-oriented databases provide features that help programmers deal with object persistence, as well as all related problems such as database evolution, concurrency and error handling. In most systems there are transparent mechanisms to address these problems, nonetheless the database evolution problem still requires some human intervention, which consumes much of programmers' and database administrators' work effort. Earlier research works have demonstrated that aspect-oriented programming (AOP) techniques enable the development of flexible and pluggable systems. In these earlier works, the schema evolution and the instance adaptation problems were addressed as database management concerns. However, none of this research was focused on orthogonal persistent systems. We argue that AOP techniques are well suited to address these problems in orthogonal persistent systems. Regarding the concurrency and error recovery, earlier research showed that only syntactic obliviousness between the base program and aspects is possible. Our meta-model and framework follow an aspect-oriented approach focused on the object-oriented orthogonal persistent context. The proposed meta-model is characterized by its simplicity in order to achieve efficient and transparent database evolution mechanisms. Our meta-model supports multiple versions of a class structure by applying a class versioning strategy. Thus, enabling bidirectional application compatibility among versions of each class structure. That is to say, the database structure can be updated because earlier applications continue to work, as well as later applications that have only known the updated class structure. The specific characteristics of orthogonal persistent systems, as well as a metadata enrichment strategy within the application's source code, complete the inception of the meta-model and have motivated our research work. To test the feasibility of the approach, a prototype was developed. Our prototype is a framework that mediates the interaction between applications and the database, providing them with orthogonal persistence mechanisms. These mechanisms are introduced into applications as an {\it aspect} in the aspect-oriented sense. Objects do not require the extension of any super class, the implementation of an interface nor contain a particular annotation. Parametric type classes are also correctly handled by our framework. However, classes that belong to the programming environment must not be handled as versionable due to restrictions imposed by the Java Virtual Machine. Regarding concurrency support, the framework provides the applications with a multithreaded environment which supports database transactions and error recovery. The framework keeps applications oblivious to the database evolution problem, as well as persistence. Programmers can update the applications' class structure because the framework will produce a new version for it at the database metadata layer. Using our XML based pointcut/advice constructs, the framework's instance adaptation mechanism is extended, hence keeping the framework also oblivious to this problem. The potential developing gains provided by the prototype were benchmarked. In our case study, the results confirm that mechanisms' transparency has positive repercussions on the programmer's productivity, simplifying the entire evolution process at application and database levels. The meta-model itself also was benchmarked in terms of complexity and agility. Compared with other meta-models, it requires less meta-object modifications in each schema evolution step. Other types of tests were carried out in order to validate prototype and meta-model robustness. In order to perform these tests, we used an OO7 small size database due to its data model complexity. Since the developed prototype offers some features that were not observed in other known systems, performance benchmarks were not possible. However, the developed benchmark is now available to perform future performance comparisons with equivalent systems. In order to test our approach in a real world scenario, we developed a proof-of-concept application. This application was developed without any persistence mechanisms. Using our framework and minor changes applied to the application's source code, we added these mechanisms. Furthermore, we tested the application in a schema evolution scenario. This real world experience using our framework showed that applications remains oblivious to persistence and database evolution. In this case study, our framework proved to be a useful tool for programmers and database administrators. Performance issues and the single Java Virtual Machine concurrent model are the major limitations found in the framework.

Development of new scenario decomposition techniques for linear and nonlinear stochastic programming

Une approche classique pour traiter les problèmes d’optimisation avec incertitude à deux- et multi-étapes est d’utiliser l’analyse par scénario. Pour ce faire, l’incertitude de certaines données du problème est modélisée par vecteurs aléatoires avec des supports finis spécifiques aux étapes. Chacune de ces réalisations représente un scénario. En utilisant des scénarios, il est possible d’étudier des versions plus simples (sous-problèmes) du problème original. Comme technique de décomposition par scénario, l’algorithme de recouvrement progressif est une des méthodes les plus populaires pour résoudre les problèmes de programmation stochastique multi-étapes. Malgré la décomposition complète par scénario, l’efficacité de la méthode du recouvrement progressif est très sensible à certains aspects pratiques, tels que le choix du paramètre de pénalisation et la manipulation du terme quadratique dans la fonction objectif du lagrangien augmenté. Pour le choix du paramètre de pénalisation, nous examinons quelques-unes des méthodes populaires, et nous proposons une nouvelle stratégie adaptive qui vise à mieux suivre le processus de l’algorithme. Des expériences numériques sur des exemples de problèmes stochastiques linéaires multi-étapes suggèrent que la plupart des techniques existantes peuvent présenter une convergence prématurée à une solution sous-optimale ou converger vers la solution optimale, mais avec un taux très lent. En revanche, la nouvelle stratégie paraît robuste et efficace. Elle a convergé vers l’optimalité dans toutes nos expériences et a été la plus rapide dans la plupart des cas. Pour la question de la manipulation du terme quadratique, nous faisons une revue des techniques existantes et nous proposons l’idée de remplacer le terme quadratique par un terme linéaire. Bien que qu’il nous reste encore à tester notre méthode, nous avons l’intuition qu’elle réduira certaines difficultés numériques et théoriques de la méthode de recouvrement progressif.