1,752 research outputs found
Calibrating risk-neutral default correlation.
The implementation of credit risk models has largely relied on the use of historical default dependence, as proxied by the correlation of equity returns. However, as is well known, credit derivative pricing requires risk-neutral dependence. Using the copula methodology, we infer risk neutral dependence from CDS data. We also provide a market application and explore its impact on the fees of some credit derivatives.
Expert Elicitation for Reliable System Design
This paper reviews the role of expert judgement to support reliability
assessments within the systems engineering design process. Generic design
processes are described to give the context and a discussion is given about the
nature of the reliability assessments required in the different systems
engineering phases. It is argued that, as far as meeting reliability
requirements is concerned, the whole design process is more akin to a
statistical control process than to a straightforward statistical problem of
assessing an unknown distribution. This leads to features of the expert
judgement problem in the design context which are substantially different from
those seen, for example, in risk assessment. In particular, the role of experts
in problem structuring and in developing failure mitigation options is much
more prominent, and there is a need to take into account the reliability
potential for future mitigation measures downstream in the system life cycle.
An overview is given of the stakeholders typically involved in large scale
systems engineering design projects, and this is used to argue the need for
methods that expose potential judgemental biases in order to generate analyses
that can be said to provide rational consensus about uncertainties. Finally, a
number of key points are developed with the aim of moving toward a framework
that provides a holistic method for tracking reliability assessment through the
design process.Comment: This paper commented in: [arXiv:0708.0285], [arXiv:0708.0287],
[arXiv:0708.0288]. Rejoinder in [arXiv:0708.0293]. Published at
http://dx.doi.org/10.1214/088342306000000510 in the Statistical Science
(http://www.imstat.org/sts/) by the Institute of Mathematical Statistics
(http://www.imstat.org
Climate-informed stochastic hydrological modeling: Incorporating decadal-scale variability using paleo data
A hierarchical framework for incorporating modes of climate variability into stochastic simulations of hydrological data is developed, termed the climate-informed multi-time scale stochastic (CIMSS) framework. A case study on two catchments in eastern Australia illustrates this framework. To develop an identifiable model characterizing long-term variability for the first level of the hierarchy, paleoclimate proxies, and instrumental indices describing the Interdecadal Pacific Oscillation (IPO) and the Pacific Decadal Oscillation (PDO) are analyzed. A new paleo IPO-PDO time series dating back 440 yr is produced, combining seven IPO-PDO paleo sources using an objective smoothing procedure to fit low-pass filters to individual records. The paleo data analysis indicates that wet/dry IPO-PDO states have a broad range of run lengths, with 90% between 3 and 33 yr and a mean of 15 yr. The Markov chain model, previously used to simulate oscillating wet/dry climate states, is found to underestimate the probability of wet/dry periods >5 yr, and is rejected in favor of a gamma distribution for simulating the run lengths of the wet/dry IPO-PDO states. For the second level of the hierarchy, a seasonal rainfall model is conditioned on the simulated IPO-PDO state. The model is able to replicate observed statistics such as seasonal and multiyear accumulated rainfall distributions and interannual autocorrelations. Mean seasonal rainfall in the IPO-PDO dry states is found to be 15%-28% lower than the wet state at the case study sites. In comparison, an annual lag-one autoregressive model is unable to adequately capture the observed rainfall distribution within separate IPO-PDO states. Copyright © 2011 by the American Geophysical Union.Benjamin J. Henley, Mark A. Thyer, George Kuczera and Stewart W. Frank
A hierarchical Bayesian approach to record linkage and population size problems
We propose and illustrate a hierarchical Bayesian approach for matching
statistical records observed on different occasions. We show how this model can
be profitably adopted both in record linkage problems and in capture--recapture
setups, where the size of a finite population is the real object of interest.
There are at least two important differences between the proposed model-based
approach and the current practice in record linkage. First, the statistical
model is built up on the actually observed categorical variables and no
reduction (to 0--1 comparisons) of the available information takes place.
Second, the hierarchical structure of the model allows a two-way propagation of
the uncertainty between the parameter estimation step and the matching
procedure so that no plug-in estimates are used and the correct uncertainty is
accounted for both in estimating the population size and in performing the
record linkage. We illustrate and motivate our proposal through a real data
example and simulations.Comment: Published in at http://dx.doi.org/10.1214/10-AOAS447 the Annals of
Applied Statistics (http://www.imstat.org/aoas/) by the Institute of
Mathematical Statistics (http://www.imstat.org
Climate-informed stochastic hydrological modeling: Incorporating decadal-scale variability using paleo data
A hierarchical framework for incorporating modes of climate variability into stochastic simulations of hydrological data is developed, termed the climate-informed multi-time scale stochastic (CIMSS) framework. A case study on two catchments in eastern Australia illustrates this framework. To develop an identifiable model characterizing long-term variability for the first level of the hierarchy, paleoclimate proxies, and instrumental indices describing the Interdecadal Pacific Oscillation (IPO) and the Pacific Decadal Oscillation (PDO) are analyzed. A new paleo IPO-PDO time series dating back 440 yr is produced, combining seven IPO-PDO paleo sources using an objective smoothing procedure to fit low-pass filters to individual records. The paleo data analysis indicates that wet/dry IPO-PDO states have a broad range of run lengths, with 90% between 3 and 33 yr and a mean of 15 yr. The Markov chain model, previously used to simulate oscillating wet/dry climate states, is found to underestimate the probability of wet/dry periods >5 yr, and is rejected in favor of a gamma distribution for simulating the run lengths of the wet/dry IPO-PDO states. For the second level of the hierarchy, a seasonal rainfall model is conditioned on the simulated IPO-PDO state. The model is able to replicate observed statistics such as seasonal and multiyear accumulated rainfall distributions and interannual autocorrelations. Mean seasonal rainfall in the IPO-PDO dry states is found to be 15%-28% lower than the wet state at the case study sites. In comparison, an annual lag-one autoregressive model is unable to adequately capture the observed rainfall distribution within separate IPO-PDO states. Copyright © 2011 by the American Geophysical Union.Benjamin J. Henley, Mark A. Thyer, George Kuczera and Stewart W. Frank
- …