Solving, Estimating and Selecting Nonlinear Dynamic Economic Models without the Curse of Dimensionality

A welfare analysis of a risky policy is impossible within a linear or linearized model and its certainty equivalence property. The presented algorithms are designed as a toolbox for a general model class. The computational challenges are considerable and I concentrate on the numerics and statistics for a simple model of dynamic consumption and labor choice. I calculate the optimal policy and estimate the posterior density of structural parameters and the marginal likelihood within a nonlinear state space model. My approach is even in an interpreted language twenty time faster than the only alternative compiled approach. The model is estimated on simulated data in order to test the routines against known true parameters. The policy function is approximated by Smolyak Chebyshev polynomials and the rational expectation integral by Smolyak Gaussian quadrature. The Smolyak operator is used to extend univariate approximation and integration operators to many dimensions. It reduces the curse of dimensionality from exponential to polynomial growth. The likelihood integrals are evaluated by a Gaussian quadrature and Gaussian quadrature particle filter. The bootstrap or sequential importance resampling particle filter is used as an accuracy benchmark. The posterior is estimated by the Gaussian filter and a Metropolis- Hastings algorithm. I propose a genetic extension of the standard Metropolis-Hastings algorithm by parallel random walk sequences. This improves the robustness of start values and the global maximization properties. Moreover it simplifies a cluster implementation and the random walk variances decision is reduced to only two parameters so that almost no trial sequences are needed. Finally the marginal likelihood is calculated as a criterion for nonnested and quasi-true models in order to select between the nonlinear estimates and a first order perturbation solution combined with the Kalman filter.stochastic dynamic general equilibrium model, Chebyshev polynomials, Smolyak operator, nonlinear state space filter, Curse of Dimensionality, posterior of structural parameters, marginal likelihood

Calibrating Option Pricing Models with Heuristics

Calibrating option pricing models to market prices often leads to optimisation problems to which standard methods (like such based on gradients) cannot be applied. We investigate two models: Heston’s stochastic volatility model, and Bates’s model which also includes jumps. We discuss how to price options under these models, and how to calibrate the parameters of the models with heuristic techniques.

Uncertainty Quantification via Polynomial Chaos Expansion – Methods and Applications for Optimization of Power Systems

Fossil fuels paved the way to prosperity for modern societies, yet alarmingly, we can exploit our planet’s soil only so much. Renewable energy sources inherit the burden to quench our thirst for energy, and to reduce the impact on our environment simultaneously. However, renewables are inherently volatile; they introduce uncertainties. What is the effect of uncertainties on the operation and planning of power systems? What is a rigorous mathematical formulation of the problems at hand? What is a coherent methodology to approaching power system problems under uncertainty? These are among the questions that motivate the present thesis that provides a collection of methods for uncertainty quantification for (optimization of) power systems. We cover power flow (PF) and optimal power flow (OPF) under uncertainty (as well as specific derivative problems). Under uncertainty---we view "uncertainty" as continuous random variables of finite variance---the state of the power system is no longer certain, but a random variable. We formulate PF and OPF problems in terms of random variables, thusly exposing the infinite-dimensional nature in terms of L2-functions. For each problem formulation we discuss a solution methodology that renders the problem tractable: we view the problem as a mapping under uncertainty; uncertainties are propagated through a known mapping. The method we employ to propagate uncertainties is called polynomial chaos expansion (PCE), a Hilbert space technique that allows to represent random variables of finite variance in terms of real-valued coefficients. The main contribution of this thesis is to provide a rigorous formulation of several PF and OPF problems under uncertainty in terms of infinite-dimensional problems of random variables, and to provide a coherent methodology to tackle these problems via PCE. As numerical methods are moot without numerical software another contribution of this thesis is to provide PolyChaos.jl: an open source software package for orthogonal polynomials, quadrature rules, and PCE written in the Julia programming language

Stability analysis and robust control of power networks in stochastic environment

The modern power grid is moving towards a cleaner form of energy, renewable energy to meet the ever-increasing demand and new technologies are being installed in the power network to monitor and maintain a stable operation. Further, the interactions in the network are not anymore localized but take place over a system, and the control centers are located remotely, thus involving control of network components over communication channels. Further, given the rapid integration of wind energy, it is essential to study the impact of wind variability on the system stability and frequency regulation. Hence, we model the unreliable and intermittent nature of wind energy with stochastic uncertainty. Moreover, the phasor measurement unit (PMU) data from the power network is transmitted to the control center over communication channels, and it is susceptible to inherent communication channel uncertainties, cyber attacks, and hence, the data at the receiving end cannot be accurate. In this work, we model these communication channels with stochastic uncertainties to study the impact of stochastic uncertainty on the stability and wide area control of power network. The challenging aspect of the stability analysis of stochastic power network is that the stochastic uncertainty appears multiplicative as well as additive in the system dynamics. The notion of mean square exponential stability is considered to study the properties of stochastic power network expressed as a networked control system (NCS) with stochastic uncertainty. We develop, necessary and sufficient conditions for mean square exponential stability which are shown in terms of the input-output property of deterministic or nominal system dynamics captured by the mean square system norm and variance of the channel uncertainty. For a particular case of single input channel uncertainty, we also prove a fundamental limitation result that arises in the mean square exponential stabilization of the continuous-time linear system. Overall, the theoretical contributions in this work generalize the existing results on stability analysis from discrete-time linear systems to continuous-time linear systems with multiplicative uncertainty. The stability results can also be interpreted as a small gain theorem for continuous-time stochastic systems. Linear Matrix Inequalities (LMI)-based optimization formulation is provided for the computation of mean square system norm for stability analysis and controller synthesis. An IEEE 68 bus system is considered, and the fragility of the decentralized load-side primary frequency controller with uncertain wind is shown. The critical variance value is shown to decrease with the increase in the cost of the controllable loads and with the rise in penetration of wind farms. Next, we model the power network with detailed higher order differential equations for synchronous generator (SG), wind turbine generator (WTG). The network power flow equations are expressed as algebraic equations. The resultant system is described by a detailed higher order nonlinear differential-algebraic model. It is shown that the uncertainty in the wind speed appears multiplicative in the system dynamics. Stochastic stability of such systems is characterized based on the developed results on mean square exponential stability. In particular, we study the stochastic small signal stability of the resultant system and characterize the critical variance in wind speeds, beyond which the grid dynamics becomes mean square unstable. The power fluctuations in the demand side and intermittent generation (from renewables) cause frequency excursions from the nominal value. In this context, we consider the controllable loads which can vary their power to achieve frequency regulation based on the frequency feedback from the network. Two different load-side frequency controller strategies, decentralized and distributed frequency controllers are studied in the presence of stochastic wind. Finally, the time-domain simulations on an IEEE 39 bus system (by replacing some of the traditional SGs with WTG) are shown using the wind speeds modeled as stochastic as well as actual wind speeds obtained from the wind farm located near Ames, Iowa. It can be seen that, with an increase in the penetration of wind generation in the network, the network turns mean square unstable. Furthermore, we capture the mean square unstable behavior of the power network with increased penetration of renewables using the statistics of actual wind analytically and complement them through linear and nonlinear time domain simulations. Finally, we analyze the vulnerability of communication channel to stochastic uncertainty on an IEEE 39 bus system and design a wide area controller that is robust to various sources of uncertainties that arise in the communication channels. Further, the PMU measurements and wide area control inputs are rank ordered based on their criticality

ADVANCES IN SYSTEM RELIABILITY-BASED DESIGN AND PROGNOSTICS AND HEALTH MANAGEMENT (PHM) FOR SYSTEM RESILIENCE ANALYSIS AND DESIGN

Failures of engineered systems can lead to significant economic and societal losses. Despite tremendous efforts (e.g., $200 billion annually) denoted to reliability and maintenance, unexpected catastrophic failures still occurs. To minimize the losses, reliability of engineered systems must be ensured throughout their life-cycle amidst uncertain operational condition and manufacturing variability. In most engineered systems, the required system reliability level under adverse events is achieved by adding system redundancies and/or conducting system reliability-based design optimization (RBDO). However, a high level of system redundancy increases a system's life-cycle cost (LCC) and system RBDO cannot ensure the system reliability when unexpected loading/environmental conditions are applied and unexpected system failures are developed. In contrast, a new design paradigm, referred to as resilience-driven system design, can ensure highly reliable system designs under any loading/environmental conditions and system failures while considerably reducing systems' LCC. In order to facilitate the development of formal methodologies for this design paradigm, this research aims at advancing two essential and co-related research areas: Research Thrust 1 - system RBDO and Research Thrust 2 - system prognostics and health management (PHM). In Research Thrust 1, reliability analyses under uncertainty will be carried out in both component and system levels against critical failure mechanisms. In Research Thrust 2, highly accurate and robust PHM systems will be designed for engineered systems with a single or multiple time-scale(s). To demonstrate the effectiveness of the proposed system RBDO and PHM techniques, multiple engineering case studies will be presented and discussed. Following the development of Research Thrusts 1 and 2, Research Thrust 3 - resilience-driven system design will establish a theoretical basis and design framework of engineering resilience in a mathematical and statistical context, where engineering resilience will be formulated in terms of system reliability and restoration and the proposed design framework will be demonstrated with a simplified aircraft control actuator design problem

Learning feedback control strategies for quantum metrology

We consider the problem of frequency estimation for a single bosonic field evolving under a squeezing Hamiltonian and continuously monitored via homodyne detection. In particular, we exploit reinforcement learning techniques to devise feedback control strategies achieving increased estimation precision. We show that the feedback control determined by the neural network greatly surpasses in the long time limit the performances of both the "no-control" and the "standard open-loop control" strategies, that we considered as benchmarks. We indeed observe how the devised strategy is able to optimize the nontrivial estimation problem by preparing a large fraction of trajectories corresponding to more sensitive quantum conditional states.Comment: 11 pages, 8 figure