Risk Minimizing Option Pricing for a Class of Exotic Options in a Markov-Modulated Market

We address risk minimizing option pricing in a regime switching market where the floating interest rate depends on a finite state Markov process. The growth rate and the volatility of the stock also depend on the Markov process. Using the minimal martingale measure, we show that the locally risk minimizing prices for certain exotic options satisfy a system of Black-Scholes partial differential equations with appropriate boundary conditions. We find the corresponding hedging strategies and the residual risk. We develop suitable numerical methods to compute option prices.

Risk-sensitive optimal control for Markov decision processes with monotone cost

The existence of an optimal feedback law is established for the risk-sensitive optimal control problem with denumerable state space. The main assumptions imposed are irreducibility and a near monotonicity condition on the one-step cost function. A solution can be found constructively using either value iteration or policy iteration under suitable conditions on initial feedback law.

Climate change induced risk in water quality control problems

A modeling framework is presented in this paper, integrating hydrologic scenarios projected from a General Circulation Model (GCM) with a water quality simulation model to quantify the future expected risk. Statistical downscaling with a Canonical Correlation Analysis (CCA) is carried out to develop the future scenarios of hydro-climate variables starting with simulations provided by a GCM. A Multiple Logistic Regression (MLR) is used to quantify the risk of Low Water Quality (LWQ) corresponding to a threshold quality level, by considering the streamflow and water temperature as explanatory variables. An Imprecise Fuzzy Waste Load Allocation Model (IFWLAM) presented in an earlier study is then used to develop adaptive policies to address the projected water quality risks. Application of the proposed methodology is demonstrated with the case study of Tunga-Bhadra river in India. The results showed that the projected changes in the hydro-climate variables tend to diminish DO levels, thus increasing the future risk levels of LWQ. (C) 2012 Elsevier B.V. All rights reserved.

Zero-Sum Risk-Sensitive Stochastic Differential Games

We study zero-sum risk-sensitive stochastic differential games on the infinite horizon with discounted and ergodic payoff criteria. Under certain assumptions, we establish the existence of values and saddle-point equilibria. We obtain our results by studying the corresponding Hamilton-Jacobi-Isaacs equations. Finally, we show that the value of the ergodic payoff criterion is a constant multiple of the maximal eigenvalue of the generators of the associated nonlinear semigroups.

A risk-estimation-based formulation for speech enhancement and its relation to Wiener filtering

The goal of speech enhancement algorithms is to provide an estimate of clean speech starting from noisy observations. The often-employed cost function is the mean square error (MSE). However, the MSE can never be computed in practice. Therefore, it becomes necessary to find practical alternatives to the MSE. In image denoising problems, the cost function (also referred to as risk) is often replaced by an unbiased estimator. Motivated by this approach, we reformulate the problem of speech enhancement from the perspective of risk minimization. Some recent contributions in risk estimation have employed Stein's unbiased risk estimator (SURE) together with a parametric denoising function, which is a linear expansion of threshold/bases (LET). We show that the first-order case of SURE-LET results in a Wiener-filter type solution if the denoising function is made frequency-dependent. We also provide enhancement results obtained with both techniques and characterize the improvement by means of local as well as global SNR calculations.

Optimal parameter selection for bilateral filters using Poisson unbiased risk estimate

Bilateral filters perform edge-preserving smoothing and are widely used for image denoising. The denoising performance is sensitive to the choice of the bilateral filter parameters. We propose an optimal parameter selection for bilateral filtering of images corrupted with Poisson noise. We employ the Poisson's Unbiased Risk Estimate (PURE), which is an unbiased estimate of the Mean Squared Error (MSE). It does not require a priori knowledge of the ground truth and is useful in practical scenarios where there is no access to the original image. Experimental results show that quality of denoising obtained with PURE-optimal bilateral filters is almost indistinguishable with that of the Oracle-MSE-optimal bilateral filters.

Noise tolerance under risk minimization

In this paper, we explore noise-tolerant learning of classifiers. We formulate the problem as follows. We assume that there is an unobservable training set that is noise free. The actual training set given to the learning algorithm is obtained from this ideal data set by corrupting the class label of each example. The probability that the class label of an example is corrupted is a function of the feature vector of the example. This would account for most kinds of noisy data one encounters in practice. We say that a learning method is noise tolerant if the classifiers learnt with noise-free data and with noisy data, both have the same classification accuracy on the noise-free data. In this paper, we analyze the noise-tolerance properties of risk minimization (under different loss functions). We show that risk minimization under 0-1 loss function has impressive noise-tolerance properties and that under squared error loss is tolerant only to uniform noise; risk minimization under other loss functions is not noise tolerant. We conclude this paper with some discussion on the implications of these theoretical results.

Fourteen gene GBM prognostic signature identifies association of immune response pathway and mesenchymal subtype with high risk group

Background: Recent research on glioblastoma (GBM) has focused on deducing gene signatures predicting prognosis. The present study evaluated the mRNA expression of selected genes and correlated with outcome to arrive at a prognostic gene signature. Methods: Patients with GBM (n = 123) were prospectively recruited, treated with a uniform protocol and followed up. Expression of 175 genes in GBM tissue was determined using qRT-PCR. A supervised principal component analysis followed by derivation of gene signature was performed. Independent validation of the signature was done using TCGA data. Gene Ontology and KEGG pathway analysis was carried out among patients from TCGA cohort. Results: A 14 gene signature was identified that predicted outcome in GBM. A weighted gene (WG) score was found to be an independent predictor of survival in multivariate analysis in the present cohort (HR = 2.507; B = 0.919; p < 0.001) and in TCGA cohort. Risk stratification by standardized WG score classified patients into low and high risk predicting survival both in our cohort (p = <0.001) and TCGA cohort (p = 0.001). Pathway analysis using the most differentially regulated genes (n = 76) between the low and high risk groups revealed association of activated inflammatory/immune response pathways and mesenchymal subtype in the high risk group. Conclusion: We have identified a 14 gene expression signature that can predict survival in GBM patients. A network analysis revealed activation of inflammatory response pathway specifically in high risk group. These findings may have implications in understanding of gliomagenesis, development of targeted therapies and selection of high risk cancer patients for alternate adjuvant therapies.

Supplier selection based on supply chain ecosystem, performance and risk criteria

A supply chain ecosystem consists of the elements of the supply chain and the entities that influence the goods, information and financial flows through the supply chain. These influences come through government regulations, human, financial and natural resources, logistics infrastructure and management, etc., and thus affect the supply chain performance. Similarly, all the ecosystem elements also contribute to the risk. The aim of this paper is to identify both performances-based and risk-based decision criteria, which are important and critical to the supply chain. A two step approach using fuzzy AHP and fuzzy technique for order of preference by similarity to ideal solution has been proposed for multi-criteria decision-making and illustrated using a numerical example. The first step does the selection without considering risks and then in the next step suppliers are ranked according to their risk profiles. Later, the two ranks are consolidated into one. In subsequent section, the method is also extended for multi-tier supplier selection. In short, we are presenting a method for the design of a resilient supply chain, in this paper.

Zero-sum risk-sensitive stochastic games on a countable state space

Infinite horizon discounted-cost and ergodic-cost risk-sensitive zero-sum stochastic games for controlled Markov chains with countably many states are analyzed. Upper and lower values for these games are established. The existence of value and saddle-point equilibria in the class of Markov strategies is proved for the discounted-cost game. The existence of value and saddle-point equilibria in the class of stationary strategies is proved under the uniform ergodicity condition for the ergodic-cost game. The value of the ergodic-cost game happens to be the product of the inverse of the risk-sensitivity factor and the logarithm of the common Perron-Frobenius eigenvalue of the associated controlled nonlinear kernels. (C) 2013 Elsevier B.V. All rights reserved.

Spatially Adaptive Kernel Regression Using Risk Estimation

An important question in kernel regression is one of estimating the order and bandwidth parameters from available noisy data. We propose to solve the problem within a risk estimation framework. Considering an independent and identically distributed (i.i.d.) Gaussian observations model, we use Stein's unbiased risk estimator (SURE) to estimate a weighted mean-square error (MSE) risk, and optimize it with respect to the order and bandwidth parameters. The two parameters are thus spatially adapted in such a manner that noise smoothing and fine structure preservation are simultaneously achieved. On the application side, we consider the problem of image restoration from uniform/non-uniform data, and show that the SURE approach to spatially adaptive kernel regression results in better quality estimation compared with its spatially non-adaptive counterparts. The denoising results obtained are comparable to those obtained using other state-of-the-art techniques, and in some scenarios, superior.

Risk-sensitive control of continuous time Markov chains

We study risk-sensitive control of continuous time Markov chains taking values in discrete state space. We study both finite and infinite horizon problems. In the finite horizon problem we characterize the value function via Hamilton Jacobi Bellman equation and obtain an optimal Markov control. We do the same for infinite horizon discounted cost case. In the infinite horizon average cost case we establish the existence of an optimal stationary control under certain Lyapunov condition. We also develop a policy iteration algorithm for finding an optimal control.

Cancer gene signatures in risk stratification: use in personalized medicine

Cancer is a complex disease which arises due to a series of genetic changes related to cell division and growth control. Cancer remains the second leading cause of death in humans next to heart diseases. As a testimony to our progress in understanding the biology of cancer and developments in cancer diagnosis and treatment methods, the overall median survival time of all cancers has increased six fold one year to six years during the last four decades. However, while the median survival time has increased dramatically for some cancers like breast and colon, there has been only little change for other cancers like pancreas and brain. Further, not all patients having a single type of tumour respond to the standard treatment. The differential response is due to genetic heterogeneity which exists not only between tumours, which is called intertumour heterogeneity, but also within individual tumours, which is called intratumoural heterogeneity. Thus it becomes essential to personalize the cancer treatment based on a specific genetic change in a given tumour. It is also possible to stratify cancer patients into low- and high-risk groups based on expression changes or alterations in a group of genes gene signatures and choose a more suitable mode of therapy. It is now possible that each tumour can be analysed using various high-throughput methods like gene expression profiling and next-generation sequencing to identify its unique fingerprint based on which a personalized or tailor-made therapy can be developed. Here, we review the important progress made in the recent years towards personalizing cancer treatment with the use of gene signatures.

Silent katydid females are at higher risk of bat predation than acoustically signalling katydid males

Males that produce conspicuous mate attraction signals are often at high risk of predation from eavesdropping predators. Females of such species typically search for signalling males and their higher motility may also place them at risk. The relative predation risk faced by males and females in the context of mate-finding using long-distance signals has rarely been investigated. In this study, we show, using a combination of diet analysis and behavioural experiments, that katydid females, who do not produce acoustic signals, are at higher risk of predation from a major bat predator, Megaderma spasma, than calling males. Female katydids were represented in much higher numbers than males in the culled remains beneath roosts of M. spasma. Playback experiments using katydid calls revealed that male calls were approached in only about one-third of the trials overall, whereas tethered, flying katydids were always approached and attacked. Our results question the idea that necessary costs of mate-finding, including risk of predation, are higher in signalling males than in searching females.

Making risk minimization tolerant to label noise

In many applications, the training data, from which one needs to learn a classifier, is corrupted with label noise. Many standard algorithms such as SVM perform poorly in the presence of label noise. In this paper we investigate the robustness of risk minimization to label noise. We prove a sufficient condition on a loss function for the risk minimization under that loss to be tolerant to uniform label noise. We show that the 0-1 loss, sigmoid loss, ramp loss and probit loss satisfy this condition though none of the standard convex loss functions satisfy it. We also prove that, by choosing a sufficiently large value of a parameter in the loss function, the sigmoid loss, ramp loss and probit loss can be made tolerant to nonuniform label noise also if we can assume the classes to be separable under noise-free data distribution. Through extensive empirical studies, we show that risk minimization under the 0-1 loss, the sigmoid loss and the ramp loss has much better robustness to label noise when compared to the SVM algorithm. (C) 2015 Elsevier B.V. All rights reserved.