Contour integral method for European options with jumps

We develop an efficient method for pricing European options with jump on a single asset. Our approach is based on the combination of two powerful numerical methods, the spectral domain decomposition method and the Laplace transform method. The domain decomposition method divides the original domain into sub-domains where the solution is approximated by using piecewise high order rational interpolants on a Chebyshev grid points. This set of points are suitable for the approximation of the convolution integral using Gauss–Legendre quadrature method. The resulting discrete problem is solved by the numerical inverse Laplace transform using the Bromwich contour integral approach. Through rigorous error analysis, we determine the optimal contour on which the integral is evaluated. The numerical results obtained are compared with those obtained from conventional methods such as Crank–Nicholson and finite difference. The new approach exhibits spectrally accurate results for the evaluation of options and associated Greeks. The proposed method is very efficient in the sense that we can achieve higher order accuracy on a coarse grid, whereas traditional methods would required significantly more time-steps and large number of grid points.     

Substructured two-grid and multi-grid domain decomposition methods

Two-level Schwarz domain decomposition methods are very powerful techniques for the efficient numerical solution of partial differential equations (PDEs). A two-level domain decomposition method requires two main components: a one-level preconditioner (or its corresponding smoothing iterative method), which is based on domain decomposition techniques, and a coarse correction step, which relies on a coarse space. The coarse space must properly represent the error components that the chosen one-level method is not capable to deal with. In the literature, most of the works introduced efficient coarse spaces obtained as the span of functions defined on the entire space domain of the considered PDE. Therefore, the corresponding two-level preconditioners and iterative methods are defined in volume. In this paper, we use the excellent smoothing properties of Schwarz domain decomposition methods to define, for general elliptic problems, a new class of substructured two-level methods, for which both Schwarz smoothers and coarse correction steps are defined on the interfaces (except for the application of the smoother that requires volumetric subdomain solves). This approach has several advantages. On the one hand, the required computational effort is cheaper than the one required by classical volumetric two-level methods. On the other hand, our approach does not require, like classical multi-grid methods, the explicit construction of coarse spaces, and it permits a multilevel extension, which is desirable when the high dimension of the problem or the scarce quality of the coarse space prevents the efficient numerical solution. Numerical experiments demonstrate the effectiveness of the proposed new numerical framework.

     

Hybrid large neighborhood search for the bus rapid transit route design problem

Due to an increasing demand for public transportation and intra-urban mobility, an efficient organization of public transportation has gained significant importance in the last decades. In this paper we present a model formulation for the bus rapid transit route design problem, given a fixed number of routes to be offered. The problem can be tackled using a decomposition strategy, where route design and the determination of frequencies and passenger flows will be dealt with separately. We propose a hybrid metaheuristic based on a combination of Large Neighborhood Search (LNS) and Linear Programming (LP). The algorithm as such is iterative. Decision upon the design of routes will be handled using LNS. The resulting passenger flows and frequencies will be determined by solving a LP. The solution obtained may then be used to guide the exploration of new route designs in the following iterations within LNS. Several problem specific operators are suggested and have been tested. The proposed algorithm compares extremely favorable and is able to obtain high quality solutions within short computational times.     

A comparison of feasible direction methods for the stochastic transportation problem

The feasible direction method of Frank and Wolfe has been claimed to be efficient for solving the stochastic transportation problem. While this is true for very moderate accuracy requirements, substantially more efficient algorithms are otherwise diagonalized Newton and conjugate Frank–Wolfe algorithms, which we describe and evaluate. Like the Frank–Wolfe algorithm, these two algorithms take advantage of the structure of the stochastic transportation problem. We also introduce a Frank–Wolfe type algorithm with multi-dimensional search; this search procedure exploits the Cartesian product structure of the problem. Numerical results for two classic test problem sets are given. The three new methods that are considered are shown to be superior to the Frank–Wolfe method, and also to an earlier suggested heuristic acceleration of the Frank–Wolfe method.     

Finding exact solutions of nonlinear PDEs using the natural decomposition method

In this work, we implement the natural decomposition method (NDM) to solve nonlinear partial differential equations. We apply the NDM to obtain exact solutions for three applications of nonlinear partial differential equations. The new method is a combination of the natural transform method and the Adomian decomposition method. We prove some of the properties that are related to the natural transform method. The results are compared with existing solutions obtained by other methods, and one can conclude that the NDM is easy to use and efficient. Copyright © 2016 John Wiley & Sons, Ltd.     

Method of Best Successive Approximations for Nonlinear Operators

We present a new approach to the approximation of nonlinear operators in probability spaces. The approach is based on a combination of the specific iterative procedure and the best approximation problem solution with a quadratic approximant. We show that the combination of these new techniques allow us to build a computationally efficient and flexible method. The algorithm of the method and its application to the optimal filtering of stochastic signals are given.     

On efficiently combining limited-memory and trust-region techniques

Limited-memory quasi-Newton methods and trust-region methods represent two efficient approaches used for solving unconstrained optimization problems. A straightforward combination of them deteriorates the efficiency of the former approach, especially in the case of large-scale problems. For this reason, the limited-memory methods are usually combined with a line search. We show how to efficiently combine limited-memory and trust-region techniques. One of our approaches is based on the eigenvalue decomposition of the limited-memory quasi-Newton approximation of the Hessian matrix. The decomposition allows for finding a nearly-exact solution to the trust-region subproblem defined by the Euclidean norm with an insignificant computational overhead as compared with the cost of computing the quasi-Newton direction in line-search limited-memory methods. The other approach is based on two new eigenvalue-based norms. The advantage of the new norms is that the trust-region subproblem is separable and each of the smaller subproblems is easy to solve. We show that our eigenvalue-based limited-memory trust-region methods are globally convergent. Moreover, we propose improved versions of the existing limited-memory trust-region algorithms. The presented results of numerical experiments demonstrate the efficiency of our approach which is competitive with line-search versions of the L-BFGS method.     

Combining linear programming and automated planning to solve intermodal transportation problems

When dealing with transportation problems Operational Research (OR), and related areas as Artificial Intelligence (AI), have focused mostly on uni-modal transport problems. Due to the current existence of bigger international logistics companies, transportation problems are becoming increasingly more complex. One of the complexities arises from the use of intermodal transportation. Intermodal transportation reflects the combination of at least two modes of transport in a single transport chain, without a change of container for the goods. In this paper, a new hybrid approach is described which addresses complex intermodal transport problems. It combines OR techniques with AI search methods in order to obtain good quality solutions, by exploiting the benefits of both kinds of techniques. The solution has been applied to a real world problem from one of the largest spanish companies using intermodal transportation, Acciona Transmediterránea Cargo.     

Sampling and multilevel coarsening algorithms for fast matrix approximations

This paper addresses matrix approximation problems for matrices that are large, sparse, and/or representations of large graphs. To tackle these problems, we consider algorithms that are based primarily on coarsening techniques, possibly combined with random sampling. A multilevel coarsening technique is proposed, which utilizes a hypergraph associated with the data matrix and a graph coarsening strategy based on column matching. We consider a number of standard applications of this technique as well as a few new ones. Among standard applications, we first consider the problem of computing partial singular value decomposition, for which a combination of sampling and coarsening yields significantly improved singular value decomposition results relative to sampling alone. We also consider the column subset selection problem, a popular low‐rank approximation method used in data‐related applications, and show how multilevel coarsening can be adapted for this problem. Similarly, we consider the problem of graph sparsification and show how coarsening techniques can be employed to solve it. We also establish theoretical results that characterize the approximation error obtained and the quality of the dimension reduction achieved by a coarsening step, when a proper column matching strategy is employed. Numerical experiments illustrate the performances of the methods in a few applications.     

On a new analytical method for flow between two inclined walls

Efficient analytical methods for solving highly nonlinear boundary value problems are rare in nonlinear mechanics. The purpose of this study is to introduce a new algorithm that leads to exact analytical solutions of nonlinear boundary value problems and performs more efficiently compared to other semi-analytical techniques currently in use. The classical two-dimensional flow problem into or out of a wedge-shaped channel is used as a numerical example for testing the new method. Numerical comparisons with other analytical methods of solution such as the Adomian decomposition method (ADM) and the improved homotopy analysis method (IHAM) are carried out to verify and validate the accuracy of the method. We show further that with a slight modification, the algorithm can, under certain conditions, give better performance with enhanced accuracy and faster convergence.     

Experiments with primal - dual decomposition and subgradient methods for the uncapacitatied facility location problem

For optimization problems that are structured both with respect to the constraints and with respect to the variables, it is possible to use primal–dual solution approaches, based on decomposition principles. One can construct a primal subproblem, by fixing some variables, and a dual subproblem, by relaxing some constraints and king their Lagrange multipliers, so that both these problems are much easier to solve than the original problem. We study methods based on these subproblems, that do not include the difficult Benders or Dantzig-Wolfe master problems, namely primal–dual subgradient optimization methods, mean value cross decomposition, and several comtbinations of the different techniques. In this paper, these solution approaches are applied to the well-known uncapacitated facility location problem. Computational tests show that some combination methods yield near-optimal solutions quicker than the classical dual ascent method of Erlenkotter     

Decomposition methods for the lot-sizing and cutting-stock problems in paper industries

We investigate the one-dimensional cutting-stock problem integrated with the lot-sizing problem in the context of paper industries. The production process in paper mill industries consists of producing raw materials characterized by rolls of paper and cutting them into smaller rolls according to customer requirements. Typically, both problems are dealt with in sequence, but if the decisions concerning the cutting patterns and the production of rolls are made together, it can result in better resource management. We investigate Dantzig–Wolfe decompositions and develop column generation techniques to obtain upper and lower bounds for the integrated problem. First, we analyze the classical column generation method for the cutting-stock problem embedded in the integrated problem. Second, we propose the machine decomposition that is compared with the classical period decomposition for the lot-sizing problem. The machine decomposition model and the period decomposition model provide the same lower bound, which is recognized as being better than the linear relaxation of the classical lot-sizing model. To obtain feasible solutions, a rounding heuristic is applied after the column generation method. In addition, we propose a method that combines an adaptive large neighborhood search and column generation method, which is performed on the machine decomposition model. We carried out computational experiments on instances from the literature and on instances adapted from real-world data. The rounding heuristic applied to the first column generation method and the adaptive large neighborhood search combined with the column generation method are efficient and competitive.     

Variable and large neighborhood search to solve the multiobjective set covering problem

In this paper, we study the multiobjective version of the set covering problem. To our knowledge, this problem has only been addressed in two papers before, and with two objectives and heuristic methods. We propose a new heuristic, based on the two-phase Pareto local search, with the aim of generating a good approximation of the Pareto efficient solutions. In the first phase of this method, the supported efficient solutions or a good approximation of these solutions is generated. Then, a neighborhood embedded in the Pareto local search is applied to generate non-supported efficient solutions. In order to get high quality results, two elaborate local search techniques are considered: a large neighborhood search and a variable neighborhood search. We intensively study the parameters of these two techniques. We compare our results with state-of-the-art results and we show that with our method, better results are obtained for different indicators.     

Path-following gradient-based decomposition algorithms for separable convex optimization

A new decomposition optimization algorithm, called path-following gradient-based decomposition, is proposed to solve separable convex optimization problems. Unlike path-following Newton methods considered in the literature, this algorithm does not require any smoothness assumption on the objective function. This allows us to handle more general classes of problems arising in many real applications than in the path-following Newton methods. The new algorithm is a combination of three techniques, namely smoothing, Lagrangian decomposition and path-following gradient framework. The algorithm decomposes the original problem into smaller subproblems by using dual decomposition and smoothing via self-concordant barriers, updates the dual variables using a path-following gradient method and allows one to solve the subproblems in parallel. Moreover, compared to augmented Lagrangian approaches, our algorithmic parameters are updated automatically without any tuning strategy. We prove the global convergence of the new algorithm and analyze its convergence rate. Then, we modify the proposed algorithm by applying Nesterov’s accelerating scheme to get a new variant which has a better convergence rate than the first algorithm. Finally, we present preliminary numerical tests that confirm the theoretical development.     

A tabu search heuristic for the split delivery vehicle routing problem with production and demand calendars

The purpose of this article is to propose a tabu search heuristic for the split delivery Vehicle Routing Problem with Production and Demand Calendars (VRPPDC). This new problem consists of determining which customers will be served by a common carrier, as well as the delivery routes for those served by the private fleet, in order to minimize the overall transportation and inventory costs. We first model this problem and then propose a simple decomposition procedure that can be used to provide a starting solution. Next, we introduce a new tabu search heuristic and we describe two new neighbor reduction strategies. Finally, we present the results of our extensive computational tests. According to these tests, our reduction strategies are efficient not only at reducing computing time but also at improving the overall solution quality.     

A branch-and-cut decomposition algorithm for solving chance-constrained mathematical programs with finite support

We present a new approach for exactly solving chance-constrained mathematical programs having discrete distributions with finite support and random polyhedral constraints. Such problems have been notoriously difficult to solve due to nonconvexity of the feasible region, and most available methods are only able to find provably good solutions in certain very special cases. Our approach uses both decomposition, to enable processing subproblems corresponding to one possible outcome at a time, and integer programming techniques, to combine the results of these subproblems to yield strong valid inequalities. Computational results on a chance-constrained formulation of a resource planning problem inspired by a call center staffing application indicate the approach works significantly better than both an existing mixed-integer programming formulation and a simple decomposition approach that does not use strong valid inequalities. We also demonstrate how the approach can be used to efficiently solve for a sequence of risk levels, as would be done when solving for the efficient frontier of risk and cost.     

An arc-exchange decomposition method for multistage dynamic networks with random arc capacities

Multistage dynamic networks with random arc capacities (MDNRAC) have been successfully used for modeling various resource allocation problems in the transportation area. However, solving these problems is generally computationally intensive, and there is still a need to develop more efficient solution approaches. In this paper, we propose a new heuristic approach that solves the MDNRAC problem by decomposing the network at each stage into a series of subproblems with tree structures. Each subproblem can be solved efficiently. The main advantage is that this approach provides an efficient computational device to handle the large-scale problem instances with fairly good solution quality. We show that the objective value obtained from this decomposition approach is an upper bound for that of the MDNRAC problem. Numerical results demonstrate that our proposed approach works very well.     

A Decomposition Methodology Applied to the Multi-Area Optimal Power Flow Problem

This paper describes a decomposition methodology applied to the multi-area optimal power flow problem in the context of an electric energy system. The proposed procedure is simple and efficient, and presents some advantages with respect to other common decomposition techniques such as Lagrangian relaxation and augmented Lagrangian decomposition. The application to the multi-area optimal power flow problem allows the computation of an optimal coordinated but decentralized solution. The proposed method is appropriate for an Independent System Operator in charge of the electric energy system technical operation. Convergence properties of the proposed decomposition algorithm are described and related to the physical coupling between the areas. Theoretical and numerical results show that the proposed decentralized methodology has a lower computational cost than other decomposition techniques, and in large large-scale cases even lower than a centralized approach.     

Using ACCPM in a simplicial decomposition algorithm for the traffic assignment problem

The purpose of the traffic assignment problem is to obtain a traffic flow pattern given a set of origin-destination travel demands and flow dependent link performance functions of a road network. In the general case, the traffic assignment problem can be formulated as a variational inequality, and several algorithms have been devised for its efficient solution. In this work we propose a new approach that combines two existing procedures: the master problem of a simplicial decomposition algorithm is solved through the analytic center cutting plane method. Four variants are considered for solving the master problem. The third and fourth ones, which heuristically compute an appropriate initial point, provided the best results. The computational experience reported in the solution of real large-scale diagonal and difficult asymmetric problems—including a subset of the transportation networks of Madrid and Barcelona—show the effectiveness of the approach.     

An integrated model for logistics network design

In this paper we introduce a new formulation of the logistics network design problem encountered in deterministic, single-country, single-period contexts. Our formulation is flexible and integrates location and capacity choices for plants and warehouses with supplier and transportation mode selection, product range assignment and product flows. We next describe two approaches for solving the problem---a simplex-based branch-and-bound and a Benders decomposition approach. We then propose valid inequalities to strengthen the LP relaxation of the model and improve both algorithms. The computational experiments we conducted on realistic randomly generated data sets show that Benders decomposition is somewhat more advantageous on the more difficult problems. They also highlight the considerable performance improvement that the valid inequalities produce in both solution methods. Furthermore, when these constraints are incorporated in the Benders decomposition algorithm, this offers outstanding reoptimization capabilities.