Deterministic system

In mathematics, computer science and physics, a deterministic system is a system in which no randomness is involved in the development of future states of the system. A deterministic model will thus always produce the same output from a given starting condition or initial state. In physics Physical laws that are described by differential equations represent deterministic systems, even though the state of the system at a given point in time may be difficult to describe explicitly. In quantum mechanics, the Schrödinger equation, which describes the continuous time evolution of a system's wave function, is deterministic. However, the relationship between a system's wave function and the observable properties of the system appears to be non-deterministic. In mathematics The systems studied in chaos theory are deterministic. If the initial state were known exactly, then the future state of such a system could theoretically be predicted. However, in practice, knowled

Robust Portfolio Optimization

Zheng Wei Yap

Since the 2008 Global Financial Crisis, the financial market has become more unpredictable than ever before, and it seems set to remain so in the forseeable future. This means an investor faces unprecedented risks, hence the increasing need for robust portfolio optimization to protect them against uncertainty, which is potentially devastating if unattended yet ignored in the classical Markowitz model, whose another deficiency is the absence of higher moments in its assumption of the distribution of asset returns. We establish an equivalence between the Markowitz model and the portfolio return value-at-risk optimization problem under multivariate normality of asset returns, so that we can add these excluded features into the former implicitly by incorporating them into the latter. We also provide a probabilistic smoothing spline approximation method and a deterministic model within the location-scale framework under elliptical distribution of the asset returns to solve the robust portfolio return value-at-risk optimization problem. In particular for the deterministic model, we introduce a novel eigendecomposition uncertainty set which lives in the positive definite space for the scale matrix without compromising on the computational complexity and conservativeness of the optimization problem, invent a method to determine the size of the involved uncertainty sets, test it out on real data, and explore its diversification properties. Although the value-at-risk has been the standard risk measure adopted by the banking and insurance industry since the early nineties, it has since attracted many criticisms, in particular from McNeil et al. (2005) and the Basel Committee on Banking Supervision in 2012, also known as Basel 3.5. Basel 4 even suggests a move away from the what" value-at-risk to the what-if" conditional value-at-risk' measure. We shall see that the former may be replaced with the latter or even other risk measures in our formulations easily.

EPFL2017

Calculation of geological uncertainties associated with 3-D geological models

Ian Pomian-Srzednicki

3-D geological models are built with data collected in the field such as boreholes, geophysical measurements, pilot shafts or geological mapping. Unfortunately, these data are always limited in number. It implies that geological information is sparse and subsurface models are thus always built of both subjective interpretation and mathematical interpolation/extrapolation techniques. These models are therefore uncertain and this uncertainty is rarely pointed out in a geological prognosis. Our study proposes to bring a new methodology for the evaluation of geological uncertainties related to 3-D subsurface models and to test its potential use. The methodology we propose is based on the 3-D subsurface model, which is here considered as the most probable prediction (notion of best guess). The various geological interfaces that compose the subsurface model are handled individually as Gaussian random fields. At each location of an interface, the random function Z(u) describing the position of this interface is composed of a deterministic part m(u) which represents the expected position, and a random part σ(u)ε(u) which describes fluctuations around the predicted position. Then, a model of spatial variability (a variogram function γ(h)) is proposed in order to condition the random field according to available observations. Several structural constraints, such as the shape of folds and the thickness of layers can also be accounted for in this model. At this point, we are able to estimate the local variance all over the study area by the application of the kriging technique. Finally, the variability is converted into three-dimensional information by calculating probabilities, this describes the occurrence of the various rock masses that are present in the study area. The probabilities are calculated according to intersection rules that govern the stratigraphic sequence of the subsurface model, and they allow us to build a probabilistic model of subsurface structures in the form of a three-dimensional probability field. All of this has been incorporated in a computer program.

EPFL2002

Robust Portfolio Optimization

Zheng Wei Yap

EPFL2017

Calculation of geological uncertainties associated with 3-D geological models

Ian Pomian-Srzednicki

EPFL2002

Robust Portfolio Optimization

Calculation of geological uncertainties associated with 3-D geological models

Probabilistic and deterministic algorithms for space multidimensional irregular porous media equation

Robust Portfolio Optimization

Probabilistic and deterministic algorithms for space multidimensional irregular porous media equation

Calculation of geological uncertainties associated with 3-D geological models