Forecasting financial derivative prices

In this paper we consider the problem of forecasting the prices of financial market derivatives. A model of changing the underlying asset prices in the form of general Ito stochastic process is developed. The derivative prices can be obtained from the solution of the reverse Cauchy problem for appropriate parabolic equations on the basis of the reverse Kolmogorov equation. We present here the numerical scheme for solving the reverse Cauchy problem for call option and put option prices based on the implicit finite element difference method.     

Non‐parametric modelling of time‐varying customer service times at a bank call centre

Call centres are becoming increasingly important in our modern commerce. We are interested in modelling the time‐varying pattern of average customer service times at a bank call centre. Understanding such a pattern is essential for efficient operation of a call centre. The call service times are shown to be lognormally distributed. Motivated by this observation and the important application, we propose a new method for inference about non‐parametric regression curves when the errors are lognormally distributed. Estimates and pointwise confidence bands are developed. The method builds upon the special relationship between the lognormal distribution and the normal distribution, and improves upon a naive estimation procedure that ignores this distributional structure. Our approach includes local non‐parametric estimation for both the mean function and the heteroscedastic variance function of the logged data, and uses local polynomial regression as a fitting tool. A simulation study is performed to illustrate the method. We then apply the method to model the time‐varying patterns of mean service times for different types of customer calls. Several operationally interesting findings are obtained and discussed. Copyright © 2006 John Wiley & Sons, Ltd.     

A new model for call centre queue management

A new model for call centre queue management is described. It incorporates important features of call centre queues and is shown to produce results that are very different from those produced by the more usual models. The analytic approach is easy to apply, and is used to offer some interesting insights for call center queue management.     

Analysis of call centre arrival data using singular value decomposition

We consider the general problem of analysing and modelling call centre arrival data. A method is described for analysing such data using singular value decomposition (SVD). We illustrate that the outcome from the SVD can be used for data visualization, detection of anomalies (outliers), and extraction of significant features from noisy data. The SVD can also be employed as a data reduction tool. Its application usually results in a parsimonious representation of the original data without losing much information. We describe how one can use the reduced data for some further, more formal statistical analysis. For example, a short‐term forecasting model for call volumes is developed, which is multiplicative with a time series component that depends on day of the week. We report empirical results from applying the proposed method to some real data collected at a call centre of a large‐scale U.S. financial organization. Some issues about forecasting call volumes are also discussed. Copyright © 2005 John Wiley & Sons, Ltd.     

Joint logistics and financial services by a 3PL firm

Integrated logistics and financial services have been practiced by third party logistics (3PL) firms for years; however, the literature has been silent on the value of 3PL firms as credit providers in budget-constrained supply chains. This paper investigates an extended supply chain model with a supplier, a budget-constrained retailer, a bank, and a 3PL firm, in which the retailer has insufficient initial budget and may borrow or obtain trade credit from either a bank (traditional role) or a 3PL firm (control role). Our analysis indicates that the control role model yields higher profits not only for the 3PL firm but also for the supplier, the retailer, and the entire supply chain. In comparison with a supplier credit model where the supplier provides the trade credit, the control role model yields a better performance for the supply chain as long as the 3PL firm’s marginal profit is greater than that of the supplier. We further demonstrate that, for all players, both the control role and supplier credit models can outperform the classic newsvendor model without budget constraint.     

The efficiency effects of a single market for financial services in Europe

This paper examines the potential efficiency effects of a single market for financial services in Europe. The topics covered include universal banking, the merger and acquisition process itself, cross-border ownership and management of financial institutions, and the effects of consolidation of financial institutions on the supply of relationship lending services to informationally opaque small businesses. The research reviewed here suggests that the creation of a single market for the European financial services industry is not likely to bring about strong efficiency gains and that cross-border efficiency barriers may prevent the single market from becoming a reality.     

Forecasting financial time series with Boltzmann entropy through neural networks

Neural networks have recently been established as state-of-the-art in forecasting financial time series. However, many studies show how one architecture, the Long-Short Term Memory, is the most widespread in financial sectors due to its high performance over time series. Considering some stocks traded in financial markets and a crypto ticker, this paper tries to study the effectiveness of the Boltzmann entropy as a financial indicator to improve forecasting, comparing it with financial analysts’ most commonly used indicators. The results show how Boltzmann’s entropy, born from an Agent-Based Model, is an efficient indicator that can also be applied to stocks and cryptocurrencies alone and in combination with some classic indicators. This critical fact allows obtaining good results in prediction ability using Network architecture that is not excessively complex.

     

Analysis of back-office outsourcing contracts for financial services operations

Managing back-office operations for financial services is a challenging task because of highly volatile and dynamic demand requirements. Lack of service inventories, the inability to backlog demand and significant shortage and overage costs complicate the problem. In such situations, outsourcing all or part of the demand to third-party vendors provides a viable and cost effective option for the firm. Motivated by the remittance processing operations of a Fortune 100 company we examine the usefulness of complementing in-house staffing with different outsourcing arrangements. We study capacity-based and volume-based contracts between a financial services firm and an outsourcing vendor. We examine the impact of demand characteristics on the parameters of contract choice. Through extensive numerical analysis, we ascertain that neither contract is universally preferred, but cost and revenue structures along with demand characteristics determine contract choice.     

Assessing and managing credit risk in retail financial services

The paper reviews recent developments and future needs in modellingcredit risk in the retail portfolio and their recent regulatoryimplications, against the implications of the new frameworkproposed by the Basel Committee on Banking Supervision. It introducesfour related papers arising from a conference held at the Bankof England in November 2000, before outlining the history ofthe requirements and the determination of the minimum capitalrequired by banks to cover credit risk on their assets. Therationale for the mathematics behind the proposed new international‘internal-ratings based approach,’ relying on banks'own models, is then briefly discussed, with relevant bibliographyfor further reading.     

Forecasting financial failure using a Kohonen map: A comparative study to improve model stability over time

This study attempts to show how a Kohonen map can be used to improve the temporal stability of the accuracy of a financial failure model. Most models lose a significant part of their ability to generalize when data used for estimation and prediction purposes are collected over different time periods. As their lifespan is fairly short, it becomes a real problem if a model is still in use when re-estimation appears to be necessary. To overcome this drawback, we introduce a new way of using a Kohonen map as a prediction model. The results of our experiments show that the generalization error achieved with a map remains more stable over time than that achieved with conventional methods used to design failure models (discriminant analysis, logistic regression, Cox’s method, and neural networks). They also show that type-I error, the economically costliest error, is the greatest beneficiary of this gain in stability.     

Forecasting cancellation rates for services booking revenue management using data mining

Revenue management (RM) enhances the revenues of a company by means of demand-management decisions. An RM system must take into account the possibility that a booking may be canceled, or that a booked customer may fail to show up at the time of service (no-show). We review the Passenger Name Record data mining based cancellation rate forecasting models proposed in the literature, which mainly address the no-show case. Using a real-world dataset, we illustrate how the set of relevant variables to describe cancellation behavior is very different in different stages of the booking horizon, which not only confirms the dynamic aspect of this problem, but will also help revenue managers better understand the drivers of cancellation. Finally, we examine the performance of the state-of-the-art data mining methods when applied to Passenger Name Record based cancellation rate forecasting.     

Slow rotation of a sphere with source at its centre in a viscous fluid

In this note, the problem of a sphere carrying a fluid source at its centre and rotating with slow uniform angular velocity about a diameter is studied. The analysis reveals that only the azimuthal component of velocity exists and is seen that the effect of the source is to decrease it. Also, the couple on the sphere is found to decrease on account of the source.     

Full-wave analysis of dielectric waveguides at a given frequency

New variational formulation to compute propagation constants is proposed. Based on it, vector finite element method is proved to exclude spurious modes provided finite elements possess discrete compactness property. Convergence analysis is conducted in the framework of collectively compact operators. Reported theoretical results apply to a wide class of vector finite elements including two families of Nedelec and their generalization, the -edge elements. Numerical experiments fully support theoretical estimates for convergence rates.

     

Investigating purchasing-sequence patterns for financial services using Markov, MTD and MTDg models

In the past, several authors have found evidence for the existence of a priority pattern of acquisition for durable goods, as well as for financial services. Its usefulness lies in the fact that if the position of a particular customer in this acquisition sequence is known, one can predict what service will be acquired next by that customer. In this paper, we analyse purchase sequences of financial services to identify cross-buying patterns, which might be used to discover cross-selling opportunities as part of customer relationship management (CRM). Hereby, special attention is paid to transitions, which might encourage bank-only or insurance-only customers to become financial-services customers. We introduce the mixture transition distribution (MTD) model as a parsimonious alternative to the Markov model for use in the analysis of marketing problems. An interesting extension on the MTD model is the MTDg model, which is able to represent situations where the relationship between each lag and the current state differs. We illustrate the MTD and MTDg model on acquisition sequences of customers of a major financial-services company and compare the fit of these models with that of the corresponding Markov model. Our results are in favor of the MTD and MTDg models. Therefore, the MTD as well as the MTDg transition matrices are investigated to reveal cross-buying patterns. The results are valuable to product managers as they clarify the customer flows among product groups. In some cases, the lag-specific transition matrices of the MTDg model give better insight into the acquisition patterns than the general transition matrix of the MTD model.     

Perceptions of the software skills of graduates by employers in the financial services industry

Software, particularly spreadsheet software, is ubiquitous in the financial services workplace. Yet little is known about the extent to which universities should, and do, prepare graduates for this aspect of the modern workplace. We have investigated this issue through a survey of financial services employers of graduates, the results of which are reported in this paper, as well as surveys of university graduates and academics, reported previously. Financial services employers rate software skills as important, would like their employees to be more highly skilled in the use of such software, and tend to prefer ‘on-the-job’ training rather than university training for statistical, database and specialized actuarial/financial software. There is a perception among graduates that employers do not provide adequate formal workplace training in the use of technical software.     

The absolute centre of a graph

The problem of finding the absolute centre of a graph, which arises in e.g. the selection of a site for an emergency-service centre, involves the global minimisation of certain piecewise-linear non-convex continuous functions. By an algebraic characterisation of the local minima of these functions, we can convert the continuous problem into a combinatorial problem, soluble by a procedure related in complexity to a sort-routine.