Evaluating multivariate volatility forecasts : how effective are statistical and economic loss functions?

Multivariate volatility forecasts are an important input in many financial applications, in particular portfolio optimisation problems. Given the number of models available and the range of loss functions to discriminate between them, it is obvious that selecting the optimal forecasting model is challenging. The aim of this thesis is to thoroughly investigate how effective many commonly used statistical (MSE and QLIKE) and economic (portfolio variance and portfolio utility) loss functions are at discriminating between competing multivariate volatility forecasts. An analytical investigation of the loss functions is performed to determine whether they identify the correct forecast as the best forecast. This is followed by an extensive simulation study examines the ability of the loss functions to consistently rank forecasts, and their statistical power within tests of predictive ability. For the tests of predictive ability, the model confidence set (MCS) approach of Hansen, Lunde and Nason (2003, 2011) is employed. As well, an empirical study investigates whether simulation findings hold in a realistic setting. In light of these earlier studies, a major empirical study seeks to identify the set of superior multivariate volatility forecasting models from 43 models that use either daily squared returns or realised volatility to generate forecasts. This study also assesses how the choice of volatility proxy affects the ability of the statistical loss functions to discriminate between forecasts. Analysis of the loss functions shows that QLIKE, MSE and portfolio variance can discriminate between multivariate volatility forecasts, while portfolio utility cannot. An examination of the effective loss functions shows that they all can identify the correct forecast at a point in time, however, their ability to discriminate between competing forecasts does vary. That is, QLIKE is identified as the most effective loss function, followed by portfolio variance which is then followed by MSE. The major empirical analysis reports that the optimal set of multivariate volatility forecasting models includes forecasts generated from daily squared returns and realised volatility. Furthermore, it finds that the volatility proxy affects the statistical loss functions’ ability to discriminate between forecasts in tests of predictive ability. These findings deepen our understanding of how to choose between competing multivariate volatility forecasts.

Text mining and probabilistic language modeling for online review spam detecting

In the era of Web 2.0, huge volumes of consumer reviews are posted to the Internet every day. Manual approaches to detecting and analyzing fake reviews (i.e., spam) are not practical due to the problem of information overload. However, the design and development of automated methods of detecting fake reviews is a challenging research problem. The main reason is that fake reviews are specifically composed to mislead readers, so they may appear the same as legitimate reviews (i.e., ham). As a result, discriminatory features that would enable individual reviews to be classified as spam or ham may not be available. Guided by the design science research methodology, the main contribution of this study is the design and instantiation of novel computational models for detecting fake reviews. In particular, a novel text mining model is developed and integrated into a semantic language model for the detection of untruthful reviews. The models are then evaluated based on a real-world dataset collected from amazon.com. The results of our experiments confirm that the proposed models outperform other well-known baseline models in detecting fake reviews. To the best of our knowledge, the work discussed in this article represents the first successful attempt to apply text mining methods and semantic language models to the detection of fake consumer reviews. A managerial implication of our research is that firms can apply our design artifacts to monitor online consumer reviews to develop effective marketing or product design strategies based on genuine consumer feedback posted to the Internet.

Impact of the Corporate Law Economic Reform Program Act 1999 on initial public offering prospectus earnings forecasts

Commencing 13 March 2000, the Corporate Law Economic Reform Program Act 1999 (Cth) introduced changes to the regulation of corporate fundraising in Australia. In particular, it effected a reduction in the litigation risk associated with initial public offering prospectus disclosure.We find that the change is associated with a reduction in forecast frequency and an increase in forecast value relevance, but not with forecast error or bias. These results confirm previous findings that changes in litigation risk affect the level but not the quality of disclosure. They also suggest that the reforms’ objectives of reducing fundraising costs while improving investor protection, have been achieved.

Probabilistic matching of image sets for video-based face recognition

We address the problem of face recognition on video by employing the recently proposed probabilistic linear discrimi-nant analysis (PLDA). The PLDA has been shown to be robust against pose and expression in image-based face recognition. In this research, the method is extended and applied to video where image set to image set matching is performed. We investigate two approaches of computing similarities between image sets using the PLDA: the closest pair approach and the holistic sets approach. To better model face appearances in video, we also propose the heteroscedastic version of the PLDA which learns the within-class covariance of each individual separately. Our experi-ments on the VidTIMIT and Honda datasets show that the combination of the heteroscedastic PLDA and the closest pair approach achieves the best performance.

On the application of the probabilistic linear discriminant analysis to face recognition across expression

Facial expression is one of the main issues of face recognition in uncontrolled environments. In this paper, we apply the probabilistic linear discriminant analysis (PLDA) method to recognize faces across expressions. Several PLDA approaches are tested and cross-evaluated on the Cohn-Kanade and JAFFE databases. With less samples per gallery subject, high recognition rates comparable to previous works have been achieved indicating the robustness of the approaches. Among the approaches, the mixture of PLDAs has demonstrated better performances. The experimental results also indicate that facial regions around the cheeks, eyes, and eyebrows are more discriminative than regions around the mouth, jaw, chin, and nose.

CAT-SLAM : probabilistic localisation and mapping using a continuous appearance-based trajectory

This paper describes a new system, dubbed Continuous Appearance-based Trajectory Simultaneous Localisation and Mapping (CAT-SLAM), which augments sequential appearance-based place recognition with local metric pose filtering to improve the frequency and reliability of appearance-based loop closure. As in other approaches to appearance-based mapping, loop closure is performed without calculating global feature geometry or performing 3D map construction. Loop-closure filtering uses a probabilistic distribution of possible loop closures along the robot’s previous trajectory, which is represented by a linked list of previously visited locations linked by odometric information. Sequential appearance-based place recognition and local metric pose filtering are evaluated simultaneously using a Rao–Blackwellised particle filter, which weights particles based on appearance matching over sequential frames and the similarity of robot motion along the trajectory. The particle filter explicitly models both the likelihood of revisiting previous locations and exploring new locations. A modified resampling scheme counters particle deprivation and allows loop-closure updates to be performed in constant time for a given environment. We compare the performance of CAT-SLAM with FAB-MAP (a state-of-the-art appearance-only SLAM algorithm) using multiple real-world datasets, demonstrating an increase in the number of correct loop closures detected by CAT-SLAM.

On the efficacy of techniques for evaluating multivariate volatility forecasts

The performance of techniques for evaluating multivariate volatility forecasts are not yet as well understood as their univariate counterparts. This paper aims to evaluate the efficacy of a range of traditional statistical-based methods for multivariate forecast evaluation together with methods based on underlying considerations of economic theory. It is found that a statistical-based method based on likelihood theory and an economic loss function based on portfolio variance are the most effective means of identifying optimal forecasts of conditional covariance matrices.

Timed and Probabilistic Automata for Automatic Animal Call Recognition

Automatic Call Recognition is vital for environmental monitoring. Patten recognition has been applied in automatic species recognition for years. However, few studies have applied formal syntactic methods to species call structure analysis. This paper introduces a novel method to adopt timed and probabilistic automata in automatic species recognition based upon acoustic components as the primitives. We demonstrate this through one kind of birds in Australia: Eastern Yellow Robin.

Probabilistic cable rating based on cable thermal environment studying

This paper describes a new approach to establish the probabilistic cable rating based on cable thermal environment studies. Knowledge of cable parameters has been well established. However the environment in which the cables are buried is not so well understood. Research in Queensland University of Technology has been aimed at obtaining and analysing actual daily field values of thermal resistivity and diffusivity of the soil around power cables. On-line monitoring systems have been developed and installed with a data logger system and buried spheres that use an improved technique to measure thermal resistivity and diffusivity over a short period. Based on the long-term continuous field data for more than 4 years, a probabilistic approach is developed to establish the correlation between the measured field thermal resistivity values and rainfall data from weather bureau records. Hence, a probabilistic cable rating can be established based on monthly probabilistic distribution of thermal resistivity

Improved foreground detection via block-based classifier cascade with probabilistic decision integration

Background subtraction is a fundamental low-level processing task in numerous computer vision applications. The vast majority of algorithms process images on a pixel-by-pixel basis, where an independent decision is made for each pixel. A general limitation of such processing is that rich contextual information is not taken into account. We propose a block-based method capable of dealing with noise, illumination variations, and dynamic backgrounds, while still obtaining smooth contours of foreground objects. Specifically, image sequences are analyzed on an overlapping block-by-block basis. A low-dimensional texture descriptor obtained from each block is passed through an adaptive classifier cascade, where each stage handles a distinct problem. A probabilistic foreground mask generation approach then exploits block overlaps to integrate interim block-level decisions into final pixel-level foreground segmentation. Unlike many pixel-based methods, ad-hoc postprocessing of foreground masks is not required. Experiments on the difficult Wallflower and I2R datasets show that the proposed approach obtains on average better results (both qualitatively and quantitatively) than several prominent methods. We furthermore propose the use of tracking performance as an unbiased approach for assessing the practical usefulness of foreground segmentation methods, and show that the proposed approach leads to considerable improvements in tracking accuracy on the CAVIAR dataset.

Heteroscedastic probabilistic linear discriminant analysis for manifold learning in video-based face recognition

To recognize faces in video, face appearances have been widely modeled as piece-wise local linear models which linearly approximate the smooth yet non-linear low dimensional face appearance manifolds. The choice of representations of the local models is crucial. Most of the existing methods learn each local model individually meaning that they only anticipate variations within each class. In this work, we propose to represent local models as Gaussian distributions which are learned simultaneously using the heteroscedastic probabilistic linear discriminant analysis (PLDA). Each gallery video is therefore represented as a collection of such distributions. With the PLDA, not only the within-class variations are estimated during the training, the separability between classes is also maximized leading to an improved discrimination. The heteroscedastic PLDA itself is adapted from the standard PLDA to approximate face appearance manifolds more accurately. Instead of assuming a single global within-class covariance, the heteroscedastic PLDA learns different within-class covariances specific to each local model. In the recognition phase, a probe video is matched against gallery samples through the fusion of point-to-model distances. Experiments on the Honda and MoBo datasets have shown the merit of the proposed method which achieves better performance than the state-of-the-art technique.

The effect of project information on the accuracy of building price forecasts

A fundamental proposition is that the accuracy of the designer's tender price forecasts is positively correlated with the amount of information available for that project. The paper describes an empirical study of the effects of the quantity of information available on practicing Quantity Surveyors' forecasting accuracy. The methodology involved the surveyors repeatedly revising tender price forecasts on receipt of chunks of project information. Each of twelve surveyors undertook two projects and selected information chunks from a total of sixteen information types. The analysis indicated marked differences in accuracy between different project types and experts/non-experts. The expert surveyors' forecasts were not found to be significantly improved by information other than that of basic building type and size, even after eliminating project type effects. The expert surveyors' forecasts based on the knowledge of building type and size alone were, however, found to be of similar accuracy to that of average practitioners pricing full bills of quantities.