PAIRS TRADING UNDER DRIFT UNCERTAINTY AND RISK PENALIZATION

Inflation Targeting and Nominal Income Growth Targeting: When and Why are They Suboptimal?

Time-consistent reinsurance and investment strategies for mean–variance insurer under partial information

The ability to decode new words of varying degrees of orthographic-phonological mapping is an important word recognition skill across languages. Chinese characters represent three types of phonetic regularity: regular, semi-regular, and irregular depending on the degree of reliability of the pronunciation information provided by the phonetic component. This study investigated whether adult non-native Chinese learners can use partial phonological information encoded in semi-regular characters to learn the pronunciations of new characters. A total of 55 college students, enrolled in an intensive Chinese program with varying proficiency levels, were taught the pronunciations of 18 novel compound characters of three phonetic regularity types over three trials. Non-native Chinese learners of advanced and intermediate levels learned the pronunciations of regular characters (initial-same and final-same), which contain full information about pronunciation, and semi-regular characters (initial-different, final-same), which contain partial information about pronunciation, significantly better than irregular characters (initial-different and final-different), which contain misleading pronunciation information. The performance difference between semi-regular and irregular characters decreased over trials. Novice students demonstrated limited ability in using partial information to learn to pronounce characters compared to intermediate and advanced students. These results provide implications for effective character instruction for adult learners of Chinese with varying Chinese proficiency levels.

Optimal investment for asset–liability management with delay and partial information under Ornstein–Uhlenbeck process

The equilibrium joining probabilities for a single primary user (PU) and secondary users (SUs) in the case of no queue length information, and the equilibrium Nash balance thresholds for PU and SUs to join the system in the cases of partial queue length information and full queue length information observed by PU and SUs are investigated in a cognitive radio system. PU stochastically sends PU requests and each SU is assumed to only carry one SU request. Whenever a PU (or an SU) request is completed, a reward is issued to the PU (or the SU). However, a holding cost is charged also for each SU and PU during their average sojourn time in the system respectively. Both of PU requests and SU requests are selfish in this research and their objectives are to maximize their own benefit. Our major conclusion includes a threshold probability value for PU (or SU) to join the system identified for the case of no queue length information, a Nash balance PU (SU) threshold value is determined for the case of partial queue length information; and the multi-dimensional Nash balance threshold is established for the case of full queue length information. These Nash balance threshold integer values depend on not only the Nash Balance PU-threshold value but also the specific number of SU requests in the system at that arriving time. In addition, we discuss the sensibility of input parameters to the obtained equilibrium joining probabilities and Nash balance thresholds. We mathematically verify that SUs' equilibrium joining probability does not necessarily increase with the transmission rate of PU in no queue length information case and observe numerically that the Nash balance thresholds adopted by an arriving SU are fickle with the change of PU's transmission rate in both of partial and full queue length information cases. Our results and observations provide a guideline and important managerial insights in making decisions with strategic users in the design of CRNs.

A model in which a foraging animal can reproduce if its energy reserves reach a critical level is presented. The animal's reserves are modelled as a finite-state Markov chain. The animal has the choice between foraging options which may have the same mean net gain but differ in their variances. In addition to starvation, animals are subject to death because of predation, bad weather, and so on. We focus on the case where the rate of mortality due to these sources is the same under all options. We investigate policies that maximise the expected lifetime reproductive success. It is found that the optimal value function is concave at low reserves (low-variance action region) and convex at high reserves (high-variance action region). The value function under the low-variance action has also the same shape and the same inflexion point. This result allows us to compute optimal policies just by looking at the low-variance value function. The result is also used to show that increasing the mortality rate increases the high-variance region under the optimal policy. The pattern of risk-sensitive behaviour predicted by this model is in contrast to that predicted by a similar model in which no reproduction occurs and the optimality criterion is to minimise the probability of death (McNamara (1990)).

Since observing customers outnumber focal customers in most service interactions, service managers aim to engage them despite triggers, such as service incivility. This research contributes to the understanding of the role of stress in observing customers' engagement (CE). It answers two RQs: (1) What is the relationship between their stress and engagement?; (2) What are the triggers of stress? Since ethnically different people pay different levels of attention to contextual and social factors, two sequential scenario‐based experiments are adopted to study two triggers of stress (i.e., availability of information about an incivility incident, and ethnic similarity between the observing customer and the mistreated employee), which impacts CE in an intercultural service encounter. Study 1 compares being exposed to full versus partial information and demonstrates that full information about the incivility incident increases observers' psychological stress, which reduces their behavioral and emotional engagement. Study 2 compares how white and black observers react to ethnic similarity between the observing customer and the mistreated employee. Results show that incivility triggers outward psychological stress in white and black observers. In turn, black observers' outward stress reduces their behavioral engagement, while white observers' behavioral engagement is reduced by both their inward and outward stress.

Coordination and Free-Riding Problems in Blood Donations

This paper considers a proportional reinsurance-investment problem and an excess-of-loss reinsurance-investment problem for an insurer, where price processes of the risky assets and wealth process of the insurer are both described by Markovian regime switching. The target of the insurer is assumed to maximize the expected exponential utility from her terminal wealth with a state-dependent utility function. By employing the dynamic programming approach, the optimal value functions and the optimal reinsurance-investment strategies are derived. In addition, the impact of some parameters on the optimal strategies and the optimal value functions is analyzed, and lots of interesting results are discovered, such as the conclusion that excess-of-loss reinsurance is better than proportional reinsurance is not held in the regime-switching jump-diffusion model.

We consider the valuation of credit default swaps (CDSs) under an extended version of Merton’s structural model for a firm’s corporate liabilities. In particular, the interest rate process of a money market account, the appreciation rate, and the volatility of the firm’s value have switching dynamics governed by a finite-state Markov chain in continuous time. The states of the Markov chain are deemed to represent the states of an economy. The shift from one economic state to another may be attributed to certain factors that affect the profits or earnings of a firm; examples of such factors include changes in business conditions, corporate decisions, company operations, management strategies, macroeconomic conditions, and business cycles. In this article, the Esscher transform, which is a well-known tool in actuarial science, is employed to determine an equivalent martingale measure for the valuation problem in the incomplete market setting. Systems of coupled partial differential equations (PDEs) satisfied by the real-world and risk-neutral default probabilities are derived. The consequences for the swap rate of a CDS brought about by the regimeswitching effect of the firm’s value are investigated via a numerical example for the case of a two-state Markov chain. We perform sensitivity analyses for the real-world default probability and the swap rate when different model parameters vary. We also investigate the accuracy and efficiency of the PDE approach by comparing the numerical results from the PDE approach to those from the Monte Carlo simulation.

Dynamic volatility spillovers and investment strategies between crude oil, new energy, and resource related sectors

<p style='text-indent:20px;'>In this study, under the criterion of maximizing the expected exponential utility of terminal wealth, the optimal proportional reinsurance and investment strategy for an insurer is examined with the compound Poisson claim process. To make the model more realistic, the price process of the risky asset is modelled by the Brownian motion risk model with dividends and transaction costs, where the instantaneous of investment return follows as a mean-reverting Ornstein-Uhlenbeck process. At the same time, the net profit condition and variance reinsurance premium principle are also considered. Using stochastic control theory, explicit expressions for the optimal policy and value function are derived, and various numerical examples are given to further demonstrate the effectiveness of the model.</p>

Dynamic optimization and its relation to classical and quantum constrained systems

In cooperative communications, relay usually forwards a full information of source data as received. Unlike this approach, this paper proposes a new relaying scheme based on multi-layered superposition coding with multiple antennas which forwards only partial information of superposed layer(s) on top of basic layer(s) of the source data. Fast forwarding of the partial information results in an increase in overall capacity. Simulation results are presented to show the superiority of the proposed scheme over full information relaying and direct transmission.

We consider the problem of assessing and mitigating fire sales risk for banks under partial information. Using data from the European Banking Authority's stress tests, we consider the matrix of asset holdings of different banks. We first analyse fire sales risk under both full and partial information using different matrix reconstruction methods. We then investigate how well some policy interventions aimed at mitigating fire sales risk perform if they are applied based on only partial information. We find that even under partial information, using suitable network reconstruction methods to decide on policy interventions can significantly mitigate risk from fire sales. Furthermore, we show that some interventions based on reconstructed networks significantly outperform ad hoc methods that decide on interventions only based on the size of an institution and do not account for overlapping portfolios.