• Title/Summary/Keyword: Binomial tree model

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OPTIMAL PORTFOLIO CHOICE IN A BINOMIAL-TREE AND ITS CONVERGENCE

  • Jeong, Seungwon;Ahn, Sang Jin;Koo, Hyeng Keun;Ahn, Seryoong
    • East Asian mathematical journal
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    • v.38 no.3
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    • pp.277-292
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    • 2022
  • This study investigates the convergence of the optimal consumption and investment policies in a binomial-tree model to those in the continuous-time model of Merton (1969). We provide the convergence in explicit form and show that the convergence rate is of order ∆t, which is the length of time between consecutive time points. We also show by numerical solutions with realistic parameter values that the optimal policies in the binomial-tree model do not differ significantly from those in the continuous-time model for long-term portfolio management with a horizon over 30 years if rebalancing is done every 6 months.

Road O&M Cost Prediction Model with the Integration of the Impacts of Climate Change using Binomial Tree Model (기후변화 영향을 고려한 도로시설 유지관리 비용변동성 예측 이항분석모델)

  • Kim, Du Yon;Kim, Byungil
    • KSCE Journal of Civil and Environmental Engineering Research
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    • v.35 no.5
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    • pp.1165-1171
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    • 2015
  • Due to the increasing trend of operation and maintenance cost (O&M cost) of infrastructure, the accurate estimation of O&M cost is crucial part to the government. Recent literatures pointed out that gradual climate changes such as average temperature changes, average precipitation changes, and etc. have significant impact on infrastructure O&M cost. This research is intended to develop a long-term O&M cost prediction model of road facilities by considering the impacts of average temperature changes. For this end, the climate change scenarios of Intergovernmental Panel on Climate Change (IPCC)'s $5^{th}$ report are adopted to structure the impact of average temperature changes by using binomial lattice model. The proposed framework is expected to regional government in supporting decisions for road O&M cost.

RELIABILITY ESTIMATION FOR A DIGITAL INSTRUMENT AND CONTROL SYSTEM

  • Yaguang, Yang;Russell, Sydnor
    • Nuclear Engineering and Technology
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    • v.44 no.4
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    • pp.405-414
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    • 2012
  • In this paper, we propose a reliability estimation method for DI&C systems. At the system level, a fault tree model is suggested and Boolean algebra is used to obtain the minimal cut sets. At the component level, an exponential distribution is used to model hardware failures, and Bayesian estimation is suggested to estimate the failure rate. Additionally, a binomial distribution is used to model software failures, and a recently developed software reliability estimation method is suggested to estimate the software failure rate. The overall system reliability is then estimated based on minimal cut sets, hardware failure rates and software failure rates.

FPGA-Based Design of Black Scholes Financial Model for High Performance Trading

  • Choo, Chang;Malhotra, Lokesh;Munjal, Abhishek
    • Journal of information and communication convergence engineering
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    • v.11 no.3
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    • pp.190-198
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    • 2013
  • Recently, one of the most vital advancement in the field of finance is high-performance trading using field-programmable gate array (FPGA). The objective of this paper is to design high-performance Black Scholes option trading system on an FPGA. We implemented an efficient Black Scholes Call Option System IP on an FPGA. The IP may perform 180 million transactions per second after initial latency of 208 clock cycles. The implementation requires the 64-bit IEEE double-precision floatingpoint adder, multiplier, exponent, logarithm, division, and square root IPs. Our experimental results show that the design is highly efficient in terms of frequency and resource utilization, with the maximum frequency of 179 MHz on Altera Stratix V.

Option pricing and profitability: A comprehensive examination of machine learning, Black-Scholes, and Monte Carlo method

  • Sojin Kim;Jimin Kim;Jongwoo Song
    • Communications for Statistical Applications and Methods
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    • v.31 no.5
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    • pp.585-599
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    • 2024
  • Options pricing remains a critical aspect of finance, dominated by traditional models such as Black-Scholes and binomial tree. However, as market dynamics become more complex, numerical methods such as Monte Carlo simulation are accommodating uncertainty and offering promising alternatives. In this paper, we examine how effective different options pricing methods, from traditional models to machine learning algorithms, are at predicting KOSPI200 option prices and maximizing investment returns. Using a dataset of 2023, we compare the performance of models over different time frames and highlight the strengths and limitations of each model. In particular, we find that machine learning models are not as good at predicting prices as traditional models but are adept at identifying undervalued options and producing significant returns. Our findings challenge existing assumptions about the relationship between forecast accuracy and investment profitability and highlight the potential of advanced methods in exploring dynamic financial environments.

Global Big Data Analysis Exploring the Determinants of Application Ratings: Evidence from the Google Play Store

  • Seo, Min-Kyo;Yang, Oh-Suk;Yang, Yoon-Ho
    • Journal of Korea Trade
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    • v.24 no.7
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    • pp.1-28
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    • 2020
  • Purpose - This paper empirically investigates the predictors and main determinants of consumers' ratings of mobile applications in the Google Play Store. Using a linear and nonlinear model comparison to identify the function of users' review, in determining application rating across countries, this study estimates the direct effects of users' reviews on the application rating. In addition, extending our modelling into a sentimental analysis, this paper also aims to explore the effects of review polarity and subjectivity on the application rating, followed by an examination of the moderating effect of user reviews on the polarity-rating and subjectivity-rating relationships. Design/methodology - Our empirical model considers nonlinear association as well as linear causality between features and targets. This study employs competing theoretical frameworks - multiple regression, decision-tree and neural network models - to identify the predictors and main determinants of app ratings, using data from the Google Play Store. Using a cross-validation method, our analysis investigates the direct and moderating effects of predictors and main determinants of application ratings in a global app market. Findings - The main findings of this study can be summarized as follows: the number of user's review is positively associated with the ratings of a given app and it positively moderates the polarity-rating relationship. Applying the review polarity measured by a sentimental analysis to the modelling, it was found that the polarity is not significantly associated with the rating. This result best applies to the function of both positive and negative reviews in playing a word-of-mouth role, as well as serving as a channel for communication, leading to product innovation. Originality/value - Applying a proxy measured by binomial figures, previous studies have predominantly focused on positive and negative sentiment in examining the determinants of app ratings, assuming that they are significantly associated. Given the constraints to measurement of sentiment in current research, this paper employs sentimental analysis to measure the real integer for users' polarity and subjectivity. This paper also seeks to compare the suitability of three distinct models - linear regression, decision-tree and neural network models. Although a comparison between methodologies has long been considered important to the empirical approach, it has hitherto been underexplored in studies on the app market.

Forecasting of the COVID-19 pandemic situation of Korea

  • Goo, Taewan;Apio, Catherine;Heo, Gyujin;Lee, Doeun;Lee, Jong Hyeok;Lim, Jisun;Han, Kyulhee;Park, Taesung
    • Genomics & Informatics
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    • v.19 no.1
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    • pp.11.1-11.8
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    • 2021
  • For the novel coronavirus disease 2019 (COVID-19), predictive modeling, in the literature, uses broadly susceptible exposed infected recoverd (SEIR)/SIR, agent-based, curve-fitting models. Governments and legislative bodies rely on insights from prediction models to suggest new policies and to assess the effectiveness of enforced policies. Therefore, access to accurate outbreak prediction models is essential to obtain insights into the likely spread and consequences of infectious diseases. The objective of this study is to predict the future COVID-19 situation of Korea. Here, we employed 5 models for this analysis; SEIR, local linear regression (LLR), negative binomial (NB) regression, segment Poisson, deep-learning based long short-term memory models (LSTM) and tree based gradient boosting machine (GBM). After prediction, model performance comparison was evelauated using relative mean squared errors (RMSE) for two sets of train (January 20, 2020-December 31, 2020 and January 20, 2020-January 31, 2021) and testing data (January 1, 2021-February 28, 2021 and February 1, 2021-February 28, 2021) . Except for segmented Poisson model, the other models predicted a decline in the daily confirmed cases in the country for the coming future. RMSE values' comparison showed that LLR, GBM, SEIR, NB, and LSTM respectively, performed well in the forecasting of the pandemic situation of the country. A good understanding of the epidemic dynamics would greatly enhance the control and prevention of COVID-19 and other infectious diseases. Therefore, with increasing daily confirmed cases since this year, these results could help in the pandemic response by informing decisions about planning, resource allocation, and decision concerning social distancing policies.

A study on the prediction of korean NPL market return (한국 NPL시장 수익률 예측에 관한 연구)

  • Lee, Hyeon Su;Jeong, Seung Hwan;Oh, Kyong Joo
    • Journal of Intelligence and Information Systems
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    • v.25 no.2
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    • pp.123-139
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    • 2019
  • The Korean NPL market was formed by the government and foreign capital shortly after the 1997 IMF crisis. However, this market is short-lived, as the bad debt has started to increase after the global financial crisis in 2009 due to the real economic recession. NPL has become a major investment in the market in recent years when the domestic capital market's investment capital began to enter the NPL market in earnest. Although the domestic NPL market has received considerable attention due to the overheating of the NPL market in recent years, research on the NPL market has been abrupt since the history of capital market investment in the domestic NPL market is short. In addition, decision-making through more scientific and systematic analysis is required due to the decline in profitability and the price fluctuation due to the fluctuation of the real estate business. In this study, we propose a prediction model that can determine the achievement of the benchmark yield by using the NPL market related data in accordance with the market demand. In order to build the model, we used Korean NPL data from December 2013 to December 2017 for about 4 years. The total number of things data was 2291. As independent variables, only the variables related to the dependent variable were selected for the 11 variables that indicate the characteristics of the real estate. In order to select the variables, one to one t-test and logistic regression stepwise and decision tree were performed. Seven independent variables (purchase year, SPC (Special Purpose Company), municipality, appraisal value, purchase cost, OPB (Outstanding Principle Balance), HP (Holding Period)). The dependent variable is a bivariate variable that indicates whether the benchmark rate is reached. This is because the accuracy of the model predicting the binomial variables is higher than the model predicting the continuous variables, and the accuracy of these models is directly related to the effectiveness of the model. In addition, in the case of a special purpose company, whether or not to purchase the property is the main concern. Therefore, whether or not to achieve a certain level of return is enough to make a decision. For the dependent variable, we constructed and compared the predictive model by calculating the dependent variable by adjusting the numerical value to ascertain whether 12%, which is the standard rate of return used in the industry, is a meaningful reference value. As a result, it was found that the hit ratio average of the predictive model constructed using the dependent variable calculated by the 12% standard rate of return was the best at 64.60%. In order to propose an optimal prediction model based on the determined dependent variables and 7 independent variables, we construct a prediction model by applying the five methodologies of discriminant analysis, logistic regression analysis, decision tree, artificial neural network, and genetic algorithm linear model we tried to compare them. To do this, 10 sets of training data and testing data were extracted using 10 fold validation method. After building the model using this data, the hit ratio of each set was averaged and the performance was compared. As a result, the hit ratio average of prediction models constructed by using discriminant analysis, logistic regression model, decision tree, artificial neural network, and genetic algorithm linear model were 64.40%, 65.12%, 63.54%, 67.40%, and 60.51%, respectively. It was confirmed that the model using the artificial neural network is the best. Through this study, it is proved that it is effective to utilize 7 independent variables and artificial neural network prediction model in the future NPL market. The proposed model predicts that the 12% return of new things will be achieved beforehand, which will help the special purpose companies make investment decisions. Furthermore, we anticipate that the NPL market will be liquidated as the transaction proceeds at an appropriate price.