The value of information for price dependent demand

Predicting demand and determining optimal pricing are essential components of operations management. It is often useful to think in terms of the price elasticity of demand when reasoning about the demand curve. Firms wishing to invest in demand prediction and information gathering should reason about the relationship between the expected value of perfect information (EVPI) on demand and demand elasticity. Should firms pay more/less for information on demand if elasticity is high/low? Furthermore, when considering different product prices, correlation may exist between demand at different prices. Should firms pay more/less for information if the correlation between demand at different prices is high or low? This paper derives analytic and numeric results to answer these questions. We start with the assumption that demand is uncertain and follows a uniformly distributed band around a deterministic demand curve where the upper and lower bounds of the demand distribution vary with price. This formulation enables a closed form expression for EVPI that provides a useful benchmark. We find nuanced behavior of EVPI that depends on both the elasticity and the initial price preference. The EVPI approaches zero as elasticity increases (decreases) for a firm that initially prefers the low (high) price. Numerical results using the truncated normal and beta distributions relax assumptions about the uniform distribution and show EVPI is similar when the distribution variances are similar. Finally, we relax the assumption of perfect information and show the expected value of imperfect information (EVOI) follows similar patterns as EVPI with respect to demand elasticity.     

Multistage stochastic convex programs: Duality and its implications

In this paper, we study alternative primal and dual formulations of multistage stochastic convex programs (SP). The alternative dual problems which can be traced to the alternative primal representations, lead to stochastic analogs of standard deterministic constructs such as conjugate functions and Lagrangians. One of the by-products of this approach is that the development does not depend on dynamic programming (DP) type recursive arguments, and is therefore applicable to problems in which the objective function is non-separable (in the DP sense). Moreover, the treatment allows us to handle both continuous and discrete random variables with equal ease. We also investigate properties of the expected value of perfect information (EVPI) within the context of SP, and the connection between EVPI and nonanticipativity of optimal multipliers. Our study reveals that there exist optimal multipliers that are nonanticipative if, and only if, the EVPI is zero. Finally, we provide interpretations of the retroactive nature of the dual multipliers. This work was supported by NSF grant DMII-9414680.     

A note on the analysis of the expected value of perfect information with respect to a class of R&D projects

This note is concerned with the question if and when to carry out marketing operations that are aimed at completely reducing marketing uncertainties surrounding the value of a stationary R&D project at its technical completion. It is shown that the benefits arising from thise operations can be measured via the EVPI (the expected value of perfect information). In addition, it is observed that the timing of these operations should only be considered at the beginning of the project's life. Finally, a sensitivity analysis with respect to the statistical properties of the EVPI is performed.     

A finitization of the bead process

The bead process is the particle system defined on parallel lines, with underlying measure giving constant weight to all configurations in which particles on neighbouring lines interlace, and zero weight otherwise. Motivated by the statistical mechanical model of the tiling of an abc-hexagon by three species of rhombi, a finitized version of the bead process is defined. The corresponding joint distribution can be realized as an eigenvalue probability density function for a sequence of random matrices. The finitized bead process is determinantal, and we give the correlation kernel in terms of Jacobi polynomials. Two scaling limits are considered: a global limit in which the spacing between lines goes to zero, and a certain bulk scaling limit. In the global limit the shape of the support of the particles is determined, while in the bulk scaling limit the bead process kernel of Boutillier is reclaimed, after appropriate identification of the anisotropy parameter therein.     

On the Rate of Quantum Ergodicity for Quantised Maps

We study the distribution of expectation values and transition amplitudes for quantised maps on the torus. If the classical map is ergodic then the variance of the distribution of expectation values will tend to zero in the semiclassical limit by the quantum ergodicity theorem. Similarly the variance of transition amplitude goes to zero if the map is weak mixing. In this paper we derive estimates on the rate by which these variances tend to zero. For a class of hyperbolic maps we derive a rate which is logarithmic in the semiclassical parameter, and then show that this bound is sharp for cat maps. For a parabolic map we get an algebraic rate which again is sharp. Submitted: May 31, 2008., Accepted: September 19, 2008.     

Convergence and optimality of BS-type discrete hedging strategy under stochastic interest rate

We focus on the asymptotic convergence behavior of the hedging errors of European stock option due to discrete hedging under stochastic interest rates. There are two kinds of BS-type discrete hedging differ in hedging instruments: one is the portfolio of underlying stock, zero coupon bond, and the money market account (Strategy BSI); the other is the underlying stock, zero coupon bond (Strategy BSII). Similar to the results of the deterministic interest rate case, we show that convergence speed of the disco...     

Smoothed nonparametric tests and approximations of <Emphasis Type="Italic">p</Emphasis>-values

We propose new smoothed sign and Wilcoxon’s signed rank tests that are based on kernel estimators of the underlying distribution function of the data. We discuss the approximations of the p-values and asymptotic properties of these tests. The new smoothed tests are equivalent to the ordinary sign and Wilcoxon’s tests in the sense of Pitman’s asymptotic relative efficiency, and the differences between the ordinary and new tests converge to zero in probability. Under the null hypothesis, the main terms of the asymptotic expectations and variances of the tests do not depend on the underlying distribution. Although the smoothed tests are not distribution-free, making use of the specific kernel enables us to obtain the Edgeworth expansions, being free of the underlying distribution.     

Sequential Importance Sampling Algorithms for Dynamic Stochastic Programming

This paper gives a comprehensive treatment of EVPI-based sequential importance sampling algorithms for dynamic (multistage) stochastic programming problems. Both theory and computational algorithms are discussed. Under general assumptions it is shown that both an expected value of perfect information (EVPI) process and the corresponding marginal EVPI process (the supremum norm of the conditional expectation of its generalized derivative) are nonanticipative nonnegative supermartingales. These processes are used as importance criteria in the class of sampling algorithms treated in the paper. When their values are negligible at a node of the current sample problem scenario tree, scenarios descending from the node are replaced by a single scenario at the next iteration. On the other hand, high values lead to increasing the number of scenarios descending from the node. Both the small sample and asymptotic properties of the sample problem estimates arising from the algorithms are established, and the former are evaluated numerically in the context of a financial planning problem. Finally, current and future research is described. Bibliography: 49 titles. __________ Published in Zapiski Nauchnykh Seminarov POMI, Vol. 312, 2004, pp. 94–129.     

Distribution of the lower boundary functional of the step process of semi-Markov random walk with delaying screen at zero

On the basis of a given sequence of independent identically distributed pairs of random variables, we construct the step process of semi-Markov random walk that is later delayed by a screen at zero. For this process, we obtain the Laplace transform of the distribution of the time of the first hit of the level zero. __________ Translated from Ukrains’kyi Matematychnyi Zhurnal, Vol. 59, No. 7, pp. 912–919, July, 2007.     

遥感图像小波变换系数的统计分布

本文研究了遥感图像经张量积小波与非张量积多元小波变换后得到的小波系数的统计分布及其特性,得出了遥感图像经双正交9-7整数小波变换后的系数的每个高频子带在能量分布上近似关于原点对称,每个高上频子带都具有“非高斯”性,每层的三个高频子带分布相似,第一层的各子带的值在零点附近更为集中,所以在零点形成更陡更窄的“尖峰”的结论.     

Some results for impulsive problems via Morse theory

We use Morse theory to study impulsive problems. First we consider asymptotically piecewise linear problems with superlinear impulses, and prove a new existence result for this class of problems using the saddle point theorem. Next we compute the critical groups at zero when the impulses are asymptotically linear near zero, in particular, we identify an important resonance set for this problem. As an application, we finally obtain a nontrivial solution for asymptotically piecewise linear problems with impulses that are asymptotically linear at zero and superlinear at infinity. Our results here are based on the simple observation that the underlying Sobolev space naturally splits into a certain finite dimensional subspace where all the impulses take place and its orthogonal complement that is free of impulsive effects.     

Spectrally negative Lévy processes with Parisian reflection below and classical reflection above

We consider a company that receives capital injections so as to avoid ruin. Differently from the classical bail-out settings, where the underlying process is restricted to stay at or above zero, we study the case bail-out can only be made at independent Poisson observation times. Namely, we study a version of the reflected process that is pushed up to zero only on Poisson arrival times at which the process is below zero. We also study the case with additional classical reflection above so as to model a company that pays dividends according to a barrier strategy. Focusing on the spectrally negative Lévy case, we compute, using the scale function, various fluctuation identities, including capital injections and dividends.     

On the zero-modified poisson model: Bayesian analysis and posterior divergence measure

In this paper we consider a Bayesian approach for the zero-modified Poisson distribution, which is recommended for fitting count data which shows any modification related to the frequency of zero. However, some loss may occur when we have the knowledge that the datasets show no modification in the zero frequency and has the necessary conditions for the assumption of a Poisson distribution, and still considers the zero-modified Poisson distribution. In this context, we propose the use of the Kullback–Leibler divergence measure to evaluate this loss. The proposed methodology was illustrated in simulated datasets, whose results were able to evaluate the losses and establish its relationship with the Kullback–Leibler divergence measure. Moreover, we exemplify the use of the methodology by considering two real datasets.     

Markov-Modulated风险模型的极大值、极小值及零点数的联合分布

本文基于保险公司在首次破产后仍能继续运转的情形,讨论并得到了Markov-modulated风险模型中关于末离零点前盈余过程极大值、极小值及零点数的联合分布.     

On stochastic programming ii: dynamic problems under risk ∗

This paper surveys recent work on dynamic stochastic programming problems and their applications. New results are included on the measurability and interpretation-in terms of the expected value of perfect information (EVPI)-of the dual multiplier processes corresponding to these problems. A final section reports preliminary computational experiments with algorithms for 2-stage problems     

Total duration of negative surplus for the dual model

In the dual model, we allow the surplus process to continue if the surplus falls below zero. By introducing the renewal measure of the defective renewal sequence constituted by the zero points of the surplus process, we obtain the probability of hitting the zero point. Further, we derive formulae for the Laplace transform, expectation and variance of total duration of negative surplus and present some examples with an exponential individual jump amount distribution. Copyright © 2008 John Wiley & Sons, Ltd.     

A note on convergence of an approximate hedging portfolio with liquidity risk

When the underlying asset price depends on activities of traders, hedging errors include costs due to the illiquidity of the underlying asset and the size of this cost can be substantial. Cetin et al. (2004), Liquidity risk and arbitrage pricing theory, Finance and Stochastics, 8(3), 311-341, proposed a hedging strategy that approximates the classical Black–Scholes hedging strategy and produces zero liquidity costs. Here, we compute the rate of convergence of the final value of this hedging portfolio to the option payoff in case of a European call option; i.e. we see how fast its hedging error converges to zero. The hedging strategy studied here is meaningful due to its simple liquidity cost structure and its smoothness relative to the classical Black–Scholes delta.     

Bias of the structural quasi-score estimator of a measurement error model under misspecification of the regressor distribution

In a structural measurement error model the structural quasi-score (SQS) estimator is based on the distribution of the latent regressor variable. If this distribution is misspecified, the SQS estimator is (asymptotically) biased. Two types of misspecification are considered. Both assume that the statistician erroneously adopts a normal distribution as his model for the regressor distribution. In the first type of misspecification, the true model consists of a mixture of normal distributions which cluster around a single normal distribution, in the second type, the true distribution is a normal distribution admixed with a second normal distribution of low weight. In both cases of misspecification, the bias, of course, tends to zero when the size of misspecification tends to zero. However, in the first case the bias goes to zero in a flat way so that small deviations from the true model lead to a negligible bias, whereas in the second case the bias is noticeable even for small deviations from the true model.     

Positive derivations on archimedean lattice-ordered rings

It is known that the only positive derivation on a reduced archimedean f-ring is the zero derivation. We investigate derivations on general archimedean lattice-ordered rings. First, we consider semigroup rings over cyclic semigroups and show that, in the finite case, the only derivation that is zero on the underlying ring is the zero derivation and that, in the infinite case, such derivations are always based on the derivative. Turning our attention to lattice-ordered rings, we show that, on many algebraic extensions of totally ordered rings, the only positive derivation is the zero derivation and that, for transcendental extensions, derivations that are lattice homomorphisms are always translations of the usual derivative and derivations that are orthomorphisms are always dilations of the usual derivative. We also show that the only positive derivation on a lattice-ordered matrix ring over a subfield of the real numbers is the zero derivation, and we prove a similar result for certain lattice-ordered rings with positive squares. The second author thanks Hamilton College for its support of his visits to the first author in Houston. He also thanks John Miller for his friendship and hospitality over the last thirty years.     

Uniform analyticity and exponential decay of the semigroup associated with a thermoelastic plate equation with perturbed boundary conditions

In a bounded domain, we consider an Euler–Bernoulli-type thermoelastic plate equation with perturbed boundary conditions. The boundary conditions are such that when the perturbation parameter goes to infinity, we recover the hinged boundary conditions, while one recovers the clamped boundary conditions when the perturbation parameter goes to zero. Relying on resolvent estimates, we show that the underlying semigroup is uniformly, with respect to the perturbation parameter, analytic and exponentially stable. The main features of our proof are appropriate decompositions of the components of the system and the use of Lions? interpolation inequalities.