Rank properties of exposed positive maps

Let \cK and \cH be finite dimensional Hilbert spaces and let \fP denote the cone of all positive linear maps acting from \fB(\cK) into \fB(\cH). We show that each map of the form $\phi(X)=AXA^*$ or $\phi(X)=AX^TA^*$ is an exposed point of \fP. We also show that if a map $\phi$ is an exposed point of \fP then either $\phi$ is rank 1 non-increasing or \rank\phi(P)>1 for any one-dimensional projection P\in\fB(\cK).Comment: 6 pages, last section removed - it will be a part of another pape

On the dual representation of coherent risk measures

A classical result in risk measure theory states that every coherent risk measure has a dual representation as the supremum of certain expected value over a risk envelope. We study this topic in more detail. The related issues include: (1) Set operations of risk envelopes and how they change the risk measures, (2) The structure of risk envelopes of popular risk measures, (3) Aversity of risk measures and its impact to risk envelopes, and (4) A connection between risk measures in stochastic optimization and uncertainty sets in robust optimization

Solving monotone stochastic variational inequalities and complementarity problems by progressive hedging

The concept of a stochastic variational inequality has recently been articulated in a new way that is able to cover, in particular, the optimality conditions for a multistage stochastic programming problem. One of the long-standing methods for solving such an optimization problem under convexity is the progressive hedging algorithm. That approach is demonstrated here to be applicable also to solving multistage stochastic variational inequality problems under monotonicity, thus increasing the range of applications for progressive hedging. Stochastic complementarity problems as a special case are explored numerically in a linear two-stage formulation

Linear LL-positive sets and their polar subspaces

In this paper, we define a Banach SNL space to be a Banach space with a certain kind of linear map from it into its dual, and we develop the theory of linear $L$-positive subsets of Banach SNL spaces with Banach SNL dual spaces. We use this theory to give simplified proofs of some recent results of Bauschke, Borwein, Wang and Yao, and also of the classical Brezis-Browder theorem.Comment: 11 pages. Notational changes since version

Local Volatility Calibration by Optimal Transport

The calibration of volatility models from observable option prices is a fundamental problem in quantitative finance. The most common approach among industry practitioners is based on the celebrated Dupire's formula [6], which requires the knowledge of vanilla option prices for a continuum of strikes and maturities that can only be obtained via some form of price interpolation. In this paper, we propose a new local volatility calibration technique using the theory of optimal transport. We formulate a time continuous martingale optimal transport problem, which seeks a martingale diffusion process that matches the known densities of an asset price at two different dates, while minimizing a chosen cost function. Inspired by the seminal work of Benamou and Brenier [1], we formulate the problem as a convex optimization problem, derive its dual formulation, and solve it numerically via an augmented Lagrangian method and the alternative direction method of multipliers (ADMM) algorithm. The solution effectively reconstructs the dynamic of the asset price between the two dates by recovering the optimal local volatility function, without requiring any time interpolation of the option prices

Risk scoring models for trade credit in small and medium enterprises

Trade credit refers to providing goods and services on a deferred payment basis. Commercial credit management is a matter of great importance for most small and medium enterprises (SMEs), since it represents a significant portion of their assets. Commercial lending involves assuming some credit risk due to exposure to default. Thus, the management of trade credit and payment delays is strongly related to the liquidation and bankruptcy of enterprises. In this paper we study the relationship between trade credit management and the level of risk in SMEs. Despite its relevance for most SMEs, this problem has not been sufficiently analyzed in the existing literature. After a brief review of existing literature, we use a large database of enterprises to analyze data and propose a multivariate decision-tree model which aims at explaining the level of risk as a function of several variables, both of financial and non-financial nature. Decision trees replace the equation in parametric regression models with a set of rules. This feature is an important aid for the decision process of risk experts, as it allows them to reduce time and then the economic cost of their decisions

Activity Identification and Local Linear Convergence of Douglas--Rachford/ADMM under Partial Smoothness

Convex optimization has become ubiquitous in most quantitative disciplines of science, including variational image processing. Proximal splitting algorithms are becoming popular to solve such structured convex optimization problems. Within this class of algorithms, Douglas--Rachford (DR) and alternating direction method of multipliers (ADMM) are designed to minimize the sum of two proper lower semi-continuous convex functions whose proximity operators are easy to compute. The goal of this work is to understand the local convergence behaviour of DR (resp. ADMM) when the involved functions (resp. their Legendre-Fenchel conjugates) are moreover partly smooth. More precisely, when both of the two functions (resp. their conjugates) are partly smooth relative to their respective manifolds, we show that DR (resp. ADMM) identifies these manifolds in finite time. Moreover, when these manifolds are affine or linear, we prove that DR/ADMM is locally linearly convergent. When $J$ and $G$ are locally polyhedral, we show that the optimal convergence radius is given in terms of the cosine of the Friedrichs angle between the tangent spaces of the identified manifolds. This is illustrated by several concrete examples and supported by numerical experiments.Comment: 17 pages, 1 figure, published in the proceedings of the Fifth International Conference on Scale Space and Variational Methods in Computer Visio