Essays on the Modeling and Prediction of Volatility and Higher Moments of Stock Returns (summary section only)

One of the most fundamental and widely accepted ideas in finance is that investors are compensated through higher returns for taking on non-diversifiable risk. Hence the quantification, modeling and prediction of risk have been, and still are one of the most prolific research areas in financial economics. It was recognized early on that there are predictable patterns in the variance of speculative prices. Later research has shown that there may also be systematic variation in the skewness and kurtosis of financial returns. Lacking in the literature so far, is an out-of-sample forecast evaluation of the potential benefits of these new more complicated models with time-varying higher moments. Such an evaluation is the topic of this dissertation. Essay 1 investigates the forecast performance of the GARCH (1,1) model when estimated with 9 different error distributions on Standard and Poor’s 500 Index Future returns. By utilizing the theory of realized variance to construct an appropriate ex post measure of variance from intra-day data it is shown that allowing for a leptokurtic error distribution leads to significant improvements in variance forecasts compared to using the normal distribution. This result holds for daily, weekly as well as monthly forecast horizons. It is also found that allowing for skewness and time variation in the higher moments of the distribution does not further improve forecasts. In Essay 2, by using 20 years of daily Standard and Poor 500 index returns, it is found that density forecasts are much improved by allowing for constant excess kurtosis but not improved by allowing for skewness. By allowing the kurtosis and skewness to be time varying the density forecasts are not further improved but on the contrary made slightly worse. In Essay 3 a new model incorporating conditional variance, skewness and kurtosis based on the Normal Inverse Gaussian (NIG) distribution is proposed. The new model and two previously used NIG models are evaluated by their Value at Risk (VaR) forecasts on a long series of daily Standard and Poor’s 500 returns. The results show that only the new model produces satisfactory VaR forecasts for both 1% and 5% VaR Taken together the results of the thesis show that kurtosis appears not to exhibit predictable time variation, whereas there is found some predictability in the skewness. However, the dynamic properties of the skewness are not completely captured by any of the models.

Modified linear prediction method for directions of arrival estimation of narrow-band plane waves

A modified linear prediction (MLP) method is proposed in which the reference sensor is optimally located on the extended line of the array. The criterion of optimality is the minimization of the prediction error power, where the prediction error is defined as the difference between the reference sensor and the weighted array outputs. It is shown that the L2-norm of the least-squares array weights attains a minimum value for the optimum spacing of the reference sensor, subject to some soft constraint on signal-to-noise ratio (SNR). How this minimum norm property can be used for finding the optimum spacing of the reference sensor is described. The performance of the MLP method is studied and compared with that of the linear prediction (LP) method using resolution, detection bias, and variance as the performance measures. The study reveals that the MLP method performs much better than the LP technique.

Prediction of Specimen Strain from Extensometer Deflection Measurements in a Direct Stress Fatigue Test Specimen under Static Tensile Loading

The displacement between the ridges situated outside the filleted test section of an axially loaded unnotched specimen is computed from the axial load and shape of the specimen and compared with extensometer deflection data obtained from experiments. The effect of prestrain on the extensometer deflection versus specimen strain curve has been studied experimentally and analytically. An analytical study shows that an increase in the slope of the stress-strain curve in the inelastic region increases the slope of the corresponding computed extensometer deflection versus specimen strain curve. A mathematical model has been developed which uses a modified length ¯ℓef in place of the actual length of the uniform diameter test section of the specimen. This model predicts the extensometer deflection within 5% of the corresponding experimental value. This method has been successfully used by the authors to evolve an iterative procedure for predicting the cyclic specimen strain in axial fatigue tests on unnotched specimens.

Prediction of load-deflection behaviour using fracture energy GF: A comparative study of two fracture models for concrete

Load-deflection curves for a notched beam under three-point load are determined using the Fictitious Crack Model (FCM) and Blunt Crack Model (BCM). Two values of fracture energy GF are used in this analysis: (i) GF obtained from the size effect law and (ii) GF obtained independently of the size effect. The predicted load-deflection diagrams are compared with the experimental ones obtained for the beams tested by Jenq and Shah. In addition, the values of maximum load (Pmax) obtained by the analyses are compared with the experimental ones for beams tested by Jenq and Shah and by Bažant and Pfeiffer. The results indicate that the descending portion of the load-deflection curve is very sensitive to the GF value used.

Fly ash as a pre-filter material for the retention of lead ions

Clay liners have been widely used to contain toxic and hazardous waste materials. Clays absorb contaminant cations due to their exchange capacity. To improve the performance of the clay liner, fly ash, a waste material arising from the combustion of coal has been studied as a pre-filter material. In particular, the retention of lead by two different fly ashes was studied. The influence of pH on retention as well as leaching characteristics are also examined. The results obtained from the retention experiments by the permeameter method indicate that fly ash retains the lead ions through precipitation in the pores as well as onto the surface when the ambient pH value is more than 5.5, and through adsorption when the pH value is less than 5.5. It has been observed that fly ash did not release the retained lead ions when the pH value is between 3.5 and 10.0. Hence, the retention of lead ions by fly ash is likely to be permanent since the pH of most of the municipal landfill leachates are within 3.7 to 8.8. However, for highly acidic or alkaline leachates, the retained ions can get released.

Influence of pH on the retention of heavy metal ions by fly ash

Clay liners have been widely used to contain toxic and hazardous wastes. Clays adsorb the contaminant cations due to their exchange capacity. To improve the performance of the clay liner, fly ash, a waste material arising out of combustion of coal has been studied as a pre-filter material. The results indicate that fly ash has the potential to retain heavy metal ions. This study concerns the retention of zinc by fly ash. The influence of pH on retention as well as leaching characteristics are examined. The results obtained from the retention experiments by permeameter method indicate that fly ash retains the zinc ions through precipitation in the pores as well as onto the surface when the ambient pH value is more than 6.9, and only through adsorption when the pH value is less than 6.9. It has been observed that fly ash did not release the retained zinc ions when the pH value is between 3.5 and 10.0. Hence, the retention of zinc ions by fly ash is likely to be permanent since the pH of most of the landfill leachates are between 3.7 to 8.8.

A detailed numerical study of NOx kinetics in low calorific value H-2/CO syngas flames

The present study provides an extensive and detailed numerical analysis of NO chemical kinetics in low calorific value H-2/CO syngas flames utilizing predictions by five chemical kinetic mechanisms available out of which four deal with H-2/CO while the fifth mechanism (GRI 3.0) additionally accounts for hydrocarbon chemistry. Comparison of predicted axial NO profiles in premixed flat flames with measurements at 1 bar, 3.05 bar and 9.15 bar shows considerably large quantitative differences among the various mechanisms. However, at each pressure, the quantitative reaction path diagrams show similar NO formation pathways for most of the mechanisms. Interestingly, in counterflow diffusion flames, the quantitative reaction path diagrams and sensitivity analyses using the various mechanisms reveal major differences in the NO formation pathways and reaction rates of important reactions. The NNH and N2O intermediate pathways are found to be the major contributors for NO formation in all the reaction mechanisms except GRI 3.0 in syngas diffusion flames. The GRI 3.0 mechanism is observed to predict prompt NO pathway as the major contributing pathway to NO formation. This is attributed to prediction of a large concentration of CH radical by the GRI 3.0 as opposed to a relatively negligible value predicted by all other mechanisms. Also, the back-conversion of NNH into N2O at lower pressures (2-4 bar) was uniquely observed for one of the five mechanisms. The net reaction rates and peak flame temperatures are used to correlate and explain the differences observed in the peak NO] at different pressures. This study identifies key reactions needing assessment and also highlights the need for experimental data in syngas diffusion flames in order to assess and optimize H-2/CO and nitrogen chemistry. Copyright (C) 2014, Hydrogen Energy Publications, LLC. Published by Elsevier Ltd. All rights reserved.

Holistic Measures for Evaluating Prediction Models in Smart Grids

The performance of prediction models is often based on ``abstract metrics'' that estimate the model's ability to limit residual errors between the observed and predicted values. However, meaningful evaluation and selection of prediction models for end-user domains requires holistic and application-sensitive performance measures. Inspired by energy consumption prediction models used in the emerging ``big data'' domain of Smart Power Grids, we propose a suite of performance measures to rationally compare models along the dimensions of scale independence, reliability, volatility and cost. We include both application independent and dependent measures, the latter parameterized to allow customization by domain experts to fit their scenario. While our measures are generalizable to other domains, we offer an empirical analysis using real energy use data for three Smart Grid applications: planning, customer education and demand response, which are relevant for energy sustainability. Our results underscore the value of the proposed measures to offer a deeper insight into models' behavior and their impact on real applications, which benefit both data mining researchers and practitioners.

Prediction of Indian rainfall during the summer monsoon season on the basis of links with equatorial Pacific and Indian Ocean climate indices

Interannual variation of Indian summer monsoon rainfall (ISMR) is linked to El Nino-Southern oscillation (ENSO) as well as the Equatorial Indian Ocean oscillation (EQUINOO) with the link with the seasonal value of the ENSO index being stronger than that with the EQUINOO index. We show that the variation of a composite index determined through bivariate analysis, explains 54% of ISMR variance, suggesting a strong dependence of the skill of monsoon prediction on the skill of prediction of ENSO and EQUINOO. We explored the possibility of prediction of the Indian rainfall during the summer monsoon season on the basis of prior values of the indices. We find that such predictions are possible for July-September rainfall on the basis of June indices and for August-September rainfall based on the July indices. This will be a useful input for second and later stage forecasts made after the commencement of the monsoon season.

Load-Unload Response Ratio and Accelerating Moment/Energy Release Critical Region Scaling and Earthquake Prediction

The main idea of the Load-Unload Response Ratio (LURR) is that when a system is stable, its response to loading corresponds to its response to unloading, whereas when the system is approaching an unstable state, the response to loading and unloading becomes quite different. High LURR values and observations of Accelerating Moment/Energy Release (AMR/AER) prior to large earthquakes have led different research groups to suggest intermediate-term earthquake prediction is possible and imply that the LURR and AMR/AER observations may have a similar physical origin. To study this possibility, we conducted a retrospective examination of several Australian and Chinese earthquakes with magnitudes ranging from 5.0 to 7.9, including Australia's deadly Newcastle earthquake and the devastating Tangshan earthquake. Both LURR values and best-fit power-law time-to-failure functions were computed using data within a range of distances from the epicenter. Like the best-fit power-law fits in AMR/AER, the LURR value was optimal using data within a certain epicentral distance implying a critical region for LURR. Furthermore, LURR critical region size scales with mainshock magnitude and is similar to the AMR/AER critical region size. These results suggest a common physical origin for both the AMR/AER and LURR observations. Further research may provide clues that yield an understanding of this mechanism and help lead to a solid foundation for intermediate-term earthquake prediction.

Prediction of structural dynamic plastic shear failure by Johnson's damage number

It is proved that Johnson's damage number is the sole similarity parameter for dynamic plastic shear failure of structures loaded impulsively, therefore, dynamic plastic shear failure can be understood when damage number reaches a critical value. It is suggested that the damage number be generally used to predict the dynamic plastic shear failure of structures under various kinds of dynamic loads (impulsive loading, rectangular pressure pulse, exponential pressure pulse, etc.,). One of the advantages for using the damage number to predict such kind of failure is that it is conveniently used for dissimilar material modeling.

Effect of towing speed on retention of zooplankton in bongo nets

Long-term time series of zooplankton data provide invaluable information about the fluctuations of species abundance and the stability of marine community structure. These data have demonstrated that environmental variability have a profound effect on zooplankton communities across the Atlantic basin (Beaugrand et al., 2002; Frank et al., 2005; Pershing et al., 2005). The value of these time series increases as they lengthen, but so does the likelihood of changes in sampling or processing methods. Sam-pling zooplankton with nylon nets is highly selective and biased because of mesh selectivity, net avoidance, and damage to fragile organisms. One sampling parameter that must be standardized and closely monitored is the speed of the net through the water column. Tow speed should be as fast as possible to minimize net avoid-ance by the organisms, but not so fast as to damage soft bodied zooplankters or extrude them through the mesh (Tranter et al., 1968; Anderson and Warren, 1991).

A comparison of the value of viscosity for several water models using Poiseuille flow in a nano-channel.

The viscosity-temperature relation is determined for the water models SPC/E, TIP4P, TIP4P/Ew, and TIP4P/2005 by considering Poiseuille flow inside a nano-channel using molecular dynamics. The viscosity is determined by fitting the resulting velocity profile (away from the walls) to the continuum solution for a Newtonian fluid and then compared to experimental values. The results show that the TIP4P/2005 model gives the best prediction of the viscosity for the complete range of temperatures for liquid water, and thus it is the preferred water model of these considered here for simulations where the magnitude of viscosity is crucial. On the other hand, with the TIP4P model, the viscosity is severely underpredicted, and overall the model performed worst, whereas the SPC/E and TIP4P/Ew models perform moderately.

The misbehavior of value and the discipline of the will.

Most reinforcement learning models of animal conditioning operate under the convenient, though fictive, assumption that Pavlovian conditioning concerns prediction learning whereas instrumental conditioning concerns action learning. However, it is only through Pavlovian responses that Pavlovian prediction learning is evident, and these responses can act against the instrumental interests of the subjects. This can be seen in both experimental and natural circumstances. In this paper we study the consequences of importing this competition into a reinforcement learning context, and demonstrate the resulting effects in an omission schedule and a maze navigation task. The misbehavior created by Pavlovian values can be quite debilitating; we discuss how it may be disciplined.

Dopamine-dependent prediction errors underpin reward-seeking behaviour in humans.

Theories of instrumental learning are centred on understanding how success and failure are used to improve future decisions. These theories highlight a central role for reward prediction errors in updating the values associated with available actions. In animals, substantial evidence indicates that the neurotransmitter dopamine might have a key function in this type of learning, through its ability to modulate cortico-striatal synaptic efficacy. However, no direct evidence links dopamine, striatal activity and behavioural choice in humans. Here we show that, during instrumental learning, the magnitude of reward prediction error expressed in the striatum is modulated by the administration of drugs enhancing (3,4-dihydroxy-L-phenylalanine; L-DOPA) or reducing (haloperidol) dopaminergic function. Accordingly, subjects treated with L-DOPA have a greater propensity to choose the most rewarding action relative to subjects treated with haloperidol. Furthermore, incorporating the magnitude of the prediction errors into a standard action-value learning algorithm accurately reproduced subjects' behavioural choices under the different drug conditions. We conclude that dopamine-dependent modulation of striatal activity can account for how the human brain uses reward prediction errors to improve future decisions.