Nature inspired computational intelligence for financial contagion modelling

This thesis was submitted for the degree of Doctor of Philosophy and awarded by Brunel University.Financial contagion refers to a scenario in which small shocks, which initially affect only a few financial institutions or a particular region of the economy, spread to the rest of the financial sector and other countries whose economies were previously healthy. This resembles the “transmission” of a medical disease. Financial contagion happens both at domestic level and international level. At domestic level, usually the failure of a domestic bank or financial intermediary triggers transmission by defaulting on inter-bank liabilities, selling assets in a fire sale, and undermining confidence in similar banks. An example of this phenomenon is the failure of Lehman Brothers and the subsequent turmoil in the US financial markets. International financial contagion happens in both advanced economies and developing economies, and is the transmission of financial crises across financial markets. Within the current globalise financial system, with large volumes of cash flow and cross-regional operations of large banks and hedge funds, financial contagion usually happens simultaneously among both domestic institutions and across countries. There is no conclusive definition of financial contagion, most research papers study contagion by analyzing the change in the variance-covariance matrix during the period of market turmoil. King and Wadhwani (1990) first test the correlations between the US, UK and Japan, during the US stock market crash of 1987. Boyer (1997) finds significant increases in correlation during financial crises, and reinforces a definition of financial contagion as a correlation changing during the crash period. Forbes and Rigobon (2002) give a definition of financial contagion. In their work, the term interdependence is used as the alternative to contagion. They claim that for the period they study, there is no contagion but only interdependence. Interdependence leads to common price movements during periods both of stability and turmoil. In the past two decades, many studies (e.g. Kaminsky et at., 1998; Kaminsky 1999) have developed early warning systems focused on the origins of financial crises rather than on financial contagion. Further authors (e.g. Forbes and Rigobon, 2002; Caporale et al, 2005), on the other hand, have focused on studying contagion or interdependence. In this thesis, an overall mechanism is proposed that simulates characteristics of propagating crisis through contagion. Within that scope, a new co-evolutionary market model is developed, where some of the technical traders change their behaviour during crisis to transform into herd traders making their decisions based on market sentiment rather than underlying strategies or factors. The thesis focuses on the transformation of market interdependence into contagion and on the contagion effects. The author first build a multi-national platform to allow different type of players to trade implementing their own rules and considering information from the domestic and a foreign market. Traders’ strategies and the performance of the simulated domestic market are trained using historical prices on both markets, and optimizing artificial market’s parameters through immune - particle swarm optimization techniques (I-PSO). The author also introduces a mechanism contributing to the transformation of technical into herd traders. A generalized auto-regressive conditional heteroscedasticity - copula (GARCH-copula) is further applied to calculate the tail dependence between the affected market and the origin of the crisis, and that parameter is used in the fitness function for selecting the best solutions within the evolving population of possible model parameters, and therefore in the optimization criteria for contagion simulation. The overall model is also applied in predictive mode, where the author optimize in the pre-crisis period using data from the domestic market and the crisis-origin foreign market, and predict in the crisis period using data from the foreign market and predicting the affected domestic market

Visualization in spatial modeling

This chapter deals with issues arising from a central theme in contemporary computer modeling - visualization. We first tie visualization to varieties of modeling along the continuum from iconic to symbolic and then focus on the notion that our models are so intrinsically complex that there are many different types of visualization that might be developed in their understanding and implementation. This focuses the debate on the very way of 'doing science' in that patterns and processes of any complexity can be better understood through visualizing the data, the simulations, and the outcomes that such models generate. As we have grown more sensitive to the problem of complexity in all systems, we are more aware that the twin goals of parsimony and verifiability which have dominated scientific theory since the 'Enlightenment' are up for grabs: good theories and models must 'look right' despite what our statistics and causal logics tell us. Visualization is the cutting edge of this new way of thinking about science but its styles vary enormously with context. Here we define three varieties: visualization of complicated systems to make things simple or at least explicable, which is the role of pedagogy; visualization to explore unanticipated outcomes and to refine processes that interact in unanticipated ways; and visualization to enable end users with no prior understanding of the science but a deep understanding of the problem to engage in using models for prediction, prescription, and control. We illustrate these themes with a model of an agricultural market which is the basis of modern urban economics - the von Thünen model of land rent and density; a model of urban development based on interacting spatial and temporal processes of land development - the DUEM model; and a pedestrian model of human movement at the fine scale where control of such movements to meet standards of public safety is intrinsically part of the model about which the controllers know intimately. © Springer-Verlag Berlin Heidelberg 2006

Claiming Spaces: Proceedings of the 2007 National Maori and Pacific Psychologies Symposium 23rd-24th November 2007

This is the full conference proceedings of Claiming Spaces: Proceedings of the 2007 National Maori and Pacific Psychologies Symposium 23rd-24th November 2007

The Use Of Cultural Algorithms To Learn The Impact Of Climate On Local Fishing Behavior In Cerro Azul, Peru

Recently it has been found that the earth’s oceans are warming at a pace that is 40% faster than predicted by a United Nations panel a few years ago. As a result, 2019 has become the warmest year on record for the earth’s oceans. That is because the oceans have acted as a buffer by absorbing 93% of the heat produced by the greenhouse gases [40]. The impact of the oceanic warming has already been felt in terms of the periodic warming of the Pacific Ocean as an effect of the ENSO process. The ENSO process is a cycle of warming and subsequent cooling of the Pacific Ocean that can last over a period of years. This cycle was first documented by Peruvian fishermen in the early 1600’s. So it has been part of the environmental challenges that have been presented to economic agents throughout the world since then. It has even been suggested that the cycle has increased in frequency over the years, perhaps in response to the overall issues related to global warming. Although the onset of the ENSO cycle might be viewed as disruption of the fishing economy in a given area, there is some possibility that over time agents have been able to develop strategic responses to these changes to as to reduce the economic risk associated with them. During that time the Cerro Azul, Peru was in the process of emerging from one of the largest ENSOs on record. This was perceived to be a great opportunity to see how the collective bodies of fishermen were able to alter their fishing strategies to deal with these more uncertain times. Our results suggest that indeed the collective economic response of the fishermen demonstrates an ability to respond to the unpredictabilities of climate change, but at a cost. It is clear that the fishermen have gained the collective knowledge over the years to produce a coordinated response that can be observed at a higher level. Of course, this knowledge can be used to coordinate activities only if it is communicated socially within the society. Although our data does not provide any explicit information about such communication there is some indirect evidence that the adjustments in strategy are brought about by the increased exchange of experiences among the fishermen

Interactive ant colony optimization (iACO) for early lifecycle software design

Finding good designs in the early stages of the software development lifecycle is a demanding multi-objective problem that is crucial to success. Previously, both interactive and non-interactive techniques based on evolutionary algorithms (EAs) have been successfully applied to assist the designer. However, recently ant colony optimization was shown to outperform EAs at optimising quantitative measures of software designs with a limited computational budget. In this paper, we propose a novel interactive ACO (iACO) approach, in which the search is steered jointly by an adaptive model that combines subjective and objective measures. Results show that iACO is speedy, responsive and effective in enabling interactive, dynamic multi-objective search. Indeed, study participants rate the iACO search experience as compelling. Moreover, inspection of the learned model facilitates understanding of factors affecting users' judgements, such as the interplay between a design's elegance and the interdependencies between its components. © 2014 Springer Science+Business Media New York

Swarm Intelligence

Swarm Intelligence has emerged as one of the most studied artificial intelligence branches during the last decade, constituting the fastest growing stream in the bio-inspired computation community. A clear trend can be deduced analyzing some of the most renowned scientific databases available, showing that the interest aroused by this branch has increased at a notable pace in the last years. This book describes the prominent theories and recent developments of Swarm Intelligence methods, and their application in all fields covered by engineering. This book unleashes a great opportunity for researchers, lecturers, and practitioners interested in Swarm Intelligence, optimization problems, and artificial intelligence

The possibilities and consequences of investment decisions by stepwise optimization

The paper deals with the application of stochastic optimization principles for investment decision making. The authors present the investment management system based on an adequate portfolio model. For optimal portfolio construction and stock selection, the method of stochastically informative expertise and ranging is used. Investment portfolios in equity and currency markets are formed considering investor risk tolerance and risk preference level, as well as an individual utility function. Investment portfolios are constructed according to three criteria: return, risk, and reliability. The markets of Germany, the USA, and China, as well as foreign exchange markets, are analysed. The results reveal the efficient investment possibilities in the mentioned markets, allowing to reach investment return substantially exceeding market index return. Along with that, an innovative stochastic clustering methodology for investment assets is proposed. The obtained results are of great value for individual as well as institutional investors and are a suitable means to form efficient investment strategies in financial markets

Load dispatch optimization of open cycle industrial gas turbine plant incorporating operational, maintenance and environmental parameters

Power generation fuel cost, unit availability and environmental rules and regulations are important parameters in power generation load dispatch optimization. Previous optimization work has not considered the later two in their formulations. The objective of this work is to develop a multi-objective optimization model and optimization algorithm for load dispatching optimization of open cycle gas turbine plant that not only consider operational parameters, but also incorporates maintenance and environmental parameters. Gas turbine performance parameters with reference to ASME PTC 22-1985 were developed and validated against an installed performance monitoring system (PMS9000) and plant performance test report. A gas turbine input-output model and emission were defined mathematically into the optimization multi-objectives function. Maintenance parameters of Equivalent Operating Hours (EOH) constraints and environmental parameters of allowable emission (NOx, CO and SO2) limits constraints were also included. The Extended Priority List and Particle Swarm Optimization (EPL-PSO) method was successfully implemented to solve the model. Four simulation tests were conducted to study and test the develop optimization software. Simulation results successfully demonstrated that multi-objectives total production cost (TPC) objective functions, the proposed EOH constraint, emissions model and constraints algorithm could be incorporated into the EPL-PSO method which provided optimum results, without violating any of the constraints as defined. A cost saving of 0.685% and 0.1157% could be obtained based on simulations conducted on actual plant condition and against benchmark problem respectively. The results of this work can be used for actual plant application and future development work for new gas turbine model or to include additional operational constraint