The role of no-arbitrage on forecasting: lessons from a parametric term structure model

Parametric term structure models have been successfully applied to innumerous problems in fixed income markets, including pricing, hedging, managing risk, as well as studying monetary policy implications. On their turn, dynamic term structure models, equipped with stronger economic structure, have been mainly adopted to price derivatives and explain empirical stylized facts. In this paper, we combine flavors of those two classes of models to test if no-arbitrage affects forecasting. We construct cross section (allowing arbitrages) and arbitrage-free versions of a parametric polynomial model to analyze how well they predict out-of-sample interest rates. Based on U.S. Treasury yield data, we find that no-arbitrage restrictions significantly improve forecasts. Arbitrage-free versions achieve overall smaller biases and Root Mean Square Errors for most maturities and forecasting horizons. Furthermore, a decomposition of forecasts into forward-rates and holding return premia indicates that the superior performance of no-arbitrage versions is due to a better identification of bond risk premium.

Random regression models using different functions to model test-day milk yield of Brazilian Holstein cows

Fundação de Amparo à Pesquisa do Estado de São Paulo (FAPESP)

Software reliability growth models based on local polynomial modeling with kernel smoothing

Software reliability growth models (SRGMs) are extensively employed in software engineering to assess the reliability of software before their release for operational use. These models are usually parametric functions obtained by statistically fitting parametric curves, using Maximum Likelihood estimation or Least–squared method, to the plots of the cumulative number of failures observed N(t) against a period of systematic testing time t. Since the 1970s, a very large number of SRGMs have been proposed in the reliability and software engineering literature and these are often very complex, reflecting the involved testing regime that often took place during the software development process. In this paper we extend some of our previous work by adopting a nonparametric approach to SRGM modeling based on local polynomial modeling with kernel smoothing. These models require very few assumptions, thereby facilitating the estimation process and also rendering them more relevant under a wide variety of situations. Finally, we provide numerical examples where these models will be evaluated and compared.

Function-based approach to mixed haptic effects rendering

Commonly, surface and solid haptic effects are defined in such a way that they hardly can be rendered together. We propose a method for defining mixed haptic effects including surface, solid, and force fields. These haptic effects can be applied to virtual scenes containing various objects, including polygon meshes, point clouds, impostors, and layered textures, voxel models as well as function-based shapes. Accordingly, we propose a way how to identify location of the haptic tool in such virtual scenes as well as consistently and seamlessly determine haptic effects when the haptic tool moves in the scenes with objects having different sizes, locations, and mutual penetrations. To provide for an efficient and flexible rendering of haptic effects, we propose to concurrently use explicit, implicit and parametric functions, and algorithmic procedures.

Estimativas de parâmetros genéticos para produção de leite e persistência da lactação em vacas Gir, aplicando modelos de regressão aleatória

Com o objetivo de estimar parâmetros genéticos para a produção de leite no dia do controle (PLDC), foram usadas as 2.440 primeiras lactações de vacas da raça Gir leiteira, com partos registrados entre 1990 e 2005. As PLDC foram consideradas em dez classes mensais e analisadas por meio de modelo de regressão aleatória (MRA) utilizando-se como efeitos aleatórios o genético-aditivo, o de ambiente permanente e o residual e, como efeitos fixos, o grupo de contemporâneos (GC), a co-variável idade da vaca ao parto (efeito linear e quadrático) e a curva média de lactação da população. Os efeitos genético-aditivos e de ambiente permanente foram modelados utilizando-se as funções de Wilmink (WIL) e Ali e Schaeffer (AS). As variâncias residuais foram modeladas utilizando-se 1, 4, 6 ou 10 classes. Os grupos de contemporâneos foram definidos como rebanho-ano-estação do controle contendo no mínimo três animais. Os testes indicaram que o modelo com quatro classes de variâncias usando a função paramétrica AS foi o que melhor se ajustou aos dados. As estimativas de herdabilidade variaram de 0,21 a 0,33 para a função AS e de 0,17 a 0,30 para WIL e foram maiores na primeira metade da lactação. As correlações genéticas entre as PLDC foram positivas e elevadas entre os controles adjacentes e diminuiram quando a distância entre os controles aumentou. Para o melhor modelo, foram estimados os valores genéticos para a produção de leite acumulada até os 305 dias e, para períodos parciais da lactação, foram obtidas como médias dos valores genéticos preditos naquele período. Os valores genéticos foram comparados, por meio da correlação de posto, ao valor genético predito para a produção acumulada até os 305 dias, pelo método tradicional. As correlações entre os valores genéticos indicaram que podem ocorrer divergências na classificação dos animais pelos critérios estudados.

Comparison of random regression models to estimate genetic parameters for milk production in Guzerat (Bos indicus) cows

Random regression models have been widely used to estimate genetic parameters that influence milk production in Bos taurus breeds, and more recently in B. indicus breeds. With the aim of finding appropriate random regression model to analyze milk yield, different parametric functions were compared, applied to 20,524 test-day milk yield records of 2816 first-lactation Guzerat (B. indicus) cows in Brazilian herds. The records were analyzed by random regression models whose random effects were additive genetic, permanent environmental and residual, and whose fixed effects were contemporary group, the covariable cow age at calving (linear and quadratic effects), and the herd lactation curve. The additive genetic and permanent environmental effects were modeled by the Wilmink function, a modified Wilmink function (with the second term divided by 100), a function that combined third-order Legendre polynomials with the last term of the Wilmink function, and the Ali and Schaeffer function. The residual variances were modeled by means of 1, 4, 6, or 10 heterogeneous classes, with the exception of the last term of the Wilmink function, for which there were 1, from 0.20 to 0.33. Genetic correlations between adjacent records were high values (0.83-0.99), but they declined when the interval between the test-day records increased, and were negative between the first and last records. The model employing the Ali and Schaeffer function with six residual variance classes was the most suitable for fitting the data. © FUNPEC-RP.

Analysis of Spanish regions results in PISA 2006 using parametric distance functions. 'Análisis de los resultados de las regiones españolas en PISA 2006 utilizando funciones paramétricas de distancia'.

Resumen basado en el de la publicación

Parametric correlation functions to model the structure of permanent environmental (co)variances in milk yield random regression models

Fundação de Amparo à Pesquisa do Estado de São Paulo (FAPESP)

Estimates of covariance functions for growth of Nelore cattle applying a parametric correlation structure to model within-animal correlations

A total of 20,065 weights recorded on 3016 Nelore animals were used to estimate covariance functions for growth from birth to 630 days of age, assuming a parametric correlation structure to model within-animal correlations. The model of analysis included fixed effects of contemporary groups and age of dam as quadratic covariable. Mean trends were taken into account by a cubic regression on orthogonal polynomials of animal age. Genetic effects of the animal and its dam and maternal permanent environmental effects were modelled by random regressions on Legendre polynomials of age at recording. Changes in direct permanent environmental effect variances were modelled by a polynomial variance function, together with a parametric correlation function to account for correlations between ages. Stationary and nonstationary models were used to model within-animal correlations between different ages. Residual variances were considered homogeneous or heterogeneous, with changes modelled by a step or polynomial function of age at recording. Based on Bayesian information criterion, a model with a cubic variance function combined with a nonstationary correlation function for permanent environmental effects, with 49 parameters to be estimated, fitted best. Modelling within-animal correlations through a parametric correlation structure can describe the variation pattern adequately. Moreover, the number of parameters to be estimated can be decreased substantially compared to a model fitting random regression on Legendre polynomial of age. © 2004 Elsevier B.V. All rights reserved.

Longitudinal familial analysis of blood pressure involving parametric (co)variance functions

Abstract Background For analyzing longitudinal familial data we adopted a log-linear form to incorporate heterogeneity in genetic variance components over the time, and additionally a serial correlation term in the genetic effects at different levels of ages. Due to the availability of multiple measures on the same individual, we permitted environmental correlations that may change across time. Results Systolic blood pressure from family members from the first and second cohort was used in the current analysis. Measures of subjects receiving hypertension treatment were set as censored values and they were corrected. An initial check of the variance and covariance functions proposed for analyzing longitudinal familial data, using empirical semi-variogram plots, indicated that the observed trait dispersion pattern follows the assumptions adopted. Conclusion The corrections for censored phenotypes based on ordinary linear models may be an appropriate simple model to correct the data, ensuring that the original variability in the data was retained. In addition, empirical semi-variogram plots are useful for diagnosis of the (co)variance model adopted.

Inequalities and Asymptotic Formulae for the Three Parametric Mittag-Leffler Functions

MSC 2010: 33E12, 30A10, 30D15, 30E15

Parametric CAD model based shape optimization using adjoint functions

Adjoint methods have proven to be an efficient way of calculating the gradient of an objective function with respect to a shape parameter for optimisation, with a computational cost nearly independent of the number of the design variables [1]. The approach in this paper links the adjoint surface sensitivities (gradient of objective function with respect to the surface movement) with the parametric design velocities (movement of the surface due to a CAD parameter perturbation) in order to compute the gradient of the objective function with respect to CAD variables.
For a successful implementation of shape optimization strategies in practical industrial cases, the choice of design variables or parameterisation scheme used for the model to be optimized plays a vital role. Where the goal is to base the optimization on a CAD model the choices are to use a NURBS geometry generated from CAD modelling software, where the position of the NURBS control points are the optimisation variables [2] or to use the feature based CAD model with all of the construction history to preserve the design intent [3]. The main advantage of using the feature based model is that the optimized model produced can be directly used for the downstream applications including manufacturing and process planning.
This paper presents an approach for optimization based on the feature based CAD model, which uses CAD parameters defining the features in the model geometry as the design variables. In order to capture the CAD surface movement with respect to the change in design variable, the “Parametric Design Velocity” is calculated, which is defined as the movement of the CAD model boundary in the normal direction due to a change in the parameter value.
The approach presented here for calculating the design velocities represents an advancement in terms of capability and robustness of that described by Robinson et al. [3]. The process can be easily integrated to most industrial optimisation workflows and is immune to the topology and labelling issues highlighted by other CAD based optimisation processes. It considers every continuous (“real value”) parameter type as an optimisation variable, and it can be adapted to work with any CAD modelling software, as long as it has an API which provides access to the values of the parameters which control the model shape and allows the model geometry to be exported. To calculate the movement of the boundary the methodology employs finite differences on the shape of the 3D CAD models before and after the parameter perturbation. The implementation procedure includes calculating the geometrical movement along a normal direction between two discrete representations of the original and perturbed geometry respectively. Parametric design velocities can then be directly linked with adjoint surface sensitivities to extract the gradients to use in a gradient-based optimization algorithm.
The optimisation of a flow optimisation problem is presented, in which the power dissipation of the flow in an automotive air duct is to be reduced by changing the parameters of the CAD geometry created in CATIA V5. The flow sensitivities are computed with the continuous adjoint method for a laminar and turbulent flow [4] and are combined with the parametric design velocities to compute the cost function gradients. A line-search algorithm is then used to update the design variables and proceed further with optimisation process.