Energy quanto options are risk management tools that have a payoff similar to the product of the payoffs of two options, each written on an energy-related underlying. These options, as opposed to standardized contracts that only account for price risk, are designed to manage both volumetric and price risk in energy markets. Since the use of such options enables actors in the energy market also to hedge

Sports have been always a fertile area of application of mathematics with a wide range of potential problems, ranging from simple examples which can be effectively used to teach students fundamental ideas about mathematics, probability and statistics (see, e.g. Kvam & Sokol, 2004), up to complicated models that can be utilized to study space creation in soccer (see, e.g. Bornn et al., 2018). Students

AbstractThis work studies outcome uncertainty and competitive balance from a broad perspective. It considers four sports with varying scoring rates, from soccer with typically three goals per match to netball with one hundred goals per match. Within a general modelling framework for a two-competitor contest, we argue that outcome uncertainty, the extent to which the outcome of a contest is unpredictable

This paper studies the situation in which a manufacturer acts as a dealer and buys a second-hand product from one customer and sells it with a two-dimensional warranty to another customer. The manufacturer plans to inspect the product during the warranty period to identify and remove hidden defects and hence prevent failure as well as their corresponding cost. We describe a two-dimensional delay time

AbstractCompetitive balance is an important issue in professional sport in general and European football in particular. However, competitive balance is difficult to quantify because competitiveness is multi-dimensional and particular sports are distinctive. We aim to identify the most appropriate index for a holistic view of competitive balance in European football. We use data from eight domestic

The clustering problem has many applications in machine learning, operations research and statistics. We propose three algorithms to create starting solutions for improvement algorithms for the minimum sum of squares clustering problem. We test the algorithms on 72 instances that were investigated in the literature. We found five new best known solutions and matched the best known solution for 66 of

We study the problem of executing a large multi-asset portfolio in a short time period where the objective is to find an optimal trading strategy that minimizes both the trading cost and the trading risk measured by quadratic variation. We contribute to the existing literature by considering a multi-dimensional geometric Brownian motion model for asset prices and proposing an efficient Markov chain

One of the main challenges when applying data envelopment analysis (DEA) is the selection of appropriate input and output variables. This paper addresses this important problem using a novel two-stage method. In the first stage, we use entropy theory to generate a comprehensive efficiency score (CES) of each decision-making unit. In the second stage, we select input and output variables using the Bayesian

We investigate the state-of-the-art in score-based soccer match outcome modelling to identify the top-performing methods across diverse classes of existing approaches to the problem. Namely, we bring together various statistical methods based on Poisson and Weibull distributions and several general ranking algorithms (Elo, Steph ratings, Gaussian-OD ratings) as well as domain-specific rating systems

The existing literature on make-to-order firms typically supposes that the unit production cost is a constant. In contrast, in this study, this cost is a variable that depends on the lead time. Under this assumption, we investigate the pricing problem for both a monopoly firm and two competing firms. Specifically, we develop a queueing-game-theoretic model to capture the interaction between customers

AbstractConventional contract designs largely aim to coordinate decisions in dyadic relationships. In the new era of network environments and near-zero variable costs for many goods and services, a different approach to contract design is required for two reasons. First, offering a set of contracts to multiple contractors of different objectives, sizes, and business practices will allow each to choose

Quantitative benchmarking is widely used in the industry to compare relative performance across a sample of organizations. A key analytical challenge lies in obtaining accurate measures of intrinsic organizational performance net of contextual or exogenous influences. In this paper, we propose a model-based adjustment approach for comparative benchmarking that allows the analyst to recover targeted

AbstractTraditional efficiency studies on network data envelopment analysis (DEA) consider decision-making units as black boxes that use a set of crisp inputs to produce a set of crisp outputs and that ignore intermediate measures and reverse flows. In real applications, however, we are faced with network systems with reverse flows in an uncertain environment. In this paper, therefore, a chance-constrained

In the current low interest rate environment even sovereign bonds cannot be considered as risk-free investments. To care for this aspect we introduce a worst-case continuous-time portfolio problem with combined stresses, that is, both stocks and the money market account can experience shocks in the form of unpredictable downward jumps in their values. We characterize the worst-case optimal portfolio

AbstractMany sports leagues are played in a tightly scheduled round-robin format, leaving a limited time window to postpone matches. If the season cannot resume due to an external shock such as the coronavirus pandemic in 2020, the ranking of the teams becomes non-trivial: it is necessary to account for schedule imbalances and possibly for the different number of matches played. First in the literature

Conventional profit and allocative efficiencies suffer from a critical deficiency if input and output prices are different between decision-making units (DMUs) in the market when assuming given uniform input and output prices under a homogeneous technology. Price differences and technology gap considerations are more relevant to firms in reducing profit loss under a non-homogeneous technology with

AbstractIn this paper, we consider the pricing of financial derivatives that involve dynamic hedging strategies and payments within the planning horizon. Equity-indexed annuities (EIAs), guaranteed investment certificates (GICs) and American and barrier options are typical examples of these products. Our exploration involves the use and comparison of alternative models that use risk measures. Although

We consider a hybrid preventive maintenance policy. As in the classic model of age-replacement, a system is replaced either on failure or on reaching a predetermined age T. Additionally, it can be replaced on reaching a predetermined level of deterioration at some intermediate time in [0,T). We use a transformed gamma process with dependent increments to model the deterioration. A failure of an item

Advance selling activities are becoming more popular, especially in online retailing of new products. During the advance selling process, consumers may be loss averse. This influences the pricing strategy of the members of the supply chain. Using prospect theory and game theory, and considering consumers’ loss aversion, this paper studies the pricing strategy of advance selling in a supply chain consisting

In dynamic decision problems, it is challenging to find the right balance between maximizing expected rewards and minimizing risks. In this paper, we consider NP-hard mean-variance (MV) optimization problems in Markov decision processes with a finite time horizon. We present a heuristic approach to solve MV problems, which is based on state-dependent risk aversion and efficient dynamic programming

An American option gives the holder the right, but not the obligation, to buy/sell an underlying asset from/to the writer at an agreed strike price at any time on or before the expiry date. Options are mainly used for speculation and hedging. The pricing of options is a fundamental problem in mathematical finance. One of the attractions of options is that they can be used to construct a wide range

In this paper, the pricing of foreign exchange options is considered under a modified Heston–Cox–Ingersoll–Ross hybrid model. This modified model reserves all the characteristics of the Heston–Cox–Ingersoll–Ross model and also additionally assumes regime switching in the key parameters of the volatility as well as the domestic and foreign interest rates. Even though complicated, we have derived a closed-form

We study the optimal stopping problem arising from an investor determining the best time to withdraw from a hedge fund with a shared loss fee structure and a positive fee for assets under management—a decision that is critically important to the viability of such products in practice. The optimal solution is characterized as the first exit time of the fund value from a bounded region with upper and

We model and solve the production routing problem (PRP) with time windows, product deterioration and split delivery. A bi-objective PRP model for a single perishable product, which is subject to deterioration, is presented. The two objectives represent the economic and social aspects of sustainability, whereas the environmental impact is enforced by incorporating ad-hoc constraints. The economic dimension

AbstractWe present a theoretical model of corruption in organizations. Our specific focus is the role of incentives that aim to encourage whistleblowing behaviour. Corruption is modelled as a social norm of behaviour using evolutionary game theory. In particular, the dynamics of whistleblowing behaviour is captured using the replicator dynamics equation with constant and quadratic monitoring costs

We study and develop Bayesian models for the analysis of volleyball match outcomes as recorded by the set-difference. Due to the peculiarity of the outcome variable (set-difference) which takes discrete values from |$-3$| to |$3$|⁠, we cannot consider standard models based on the usual Poisson or binomial assumptions used for other sports such as football/soccer. Hence, the first and foremost challenge

This paper studies alternative procurement modes for emergency supplies in the presence of a public sector and a private supplier. A key feature of such a supply chain is that the private supplier must consider commercial demand in addition to disaster demand. Three procurement modes are analysed: an option mode (OM), an order-before-disaster mode (OBDM) and a procurement-after-disaster mode (PADM)

In recent years, data-driven approaches have become a popular tool in a variety of sports to gain an advantage by, for example, analysing potential strategies of opponents. Whereas the availability of play-by-play or player tracking data in sports such as basketball and baseball has led to an increase of sports analytics studies, equivalent data sets for the National Football League (NFL) were not

Decision-makers in soccer routinely assess the tactical behaviour of a team and its opponents both during and after the game to optimize performance. Currently, this assessment is typically driven by notational analysis and observation. Therefore, potential high-impact decisions are often made based on limited or even biased information. With the current study, we aimed to quantitatively assess tactical

We investigate the most popular approaches to the problem of sports betting investment based on modern portfolio theory and the Kelly criterion. We define the problem setting, the formal investment strategies and review their common modifications used in practice. The underlying purpose of the reviewed modifications is to mitigate the additional risk stemming from the unrealistic mathematical assumptions

AbstractDynamic pricing in a two-class queueing system with adjustable arrival and service rates is considered. We initially take adjustable rates into account to maximize the long-run average social welfare and further establish matched dynamic prices. For the rate-setting problem, we apply sensitivity-based optimization theory and an iterative algorithm to investigate the optimal arrival and service

Models derived from distributions of order-statistics are useful for modelling ranked data. The well-known Bradley–Terry (BT) and Plackett–Luce (PL) models can be derived from the order statistics of the exponential distribution but cannot handle ties. However, ties often occur in sports, and the ability to accommodate them leads to more useful ranking models. In this paper, we use discrete distributions

AbstractIn most sport leagues, a schedule is announced before the start of the season. However, due to unexpected events (e.g. bad weather conditions), some games cannot be played on the announced date. To handle this, before the start of the season, empty so-called catch-up rounds are positioned in the schedule as a buffer. During the season, games can then be rescheduled to these catch-up rounds

AbstractA shootout is a popular mechanism to identify a winner of a match between two teams. It consists of rounds in which each team gets, sequentially, an opportunity to score a point. It has been shown empirically that shooting first or shooting second in a round has an impact on the scoring probability. This raises a fairness question: is it possible to specify a sequence such that identical teams

The complexity of dependence between different types of components results in many challenges to estimate system reliability and to optimize maintenance plans. In this paper, we develop a reliability model to study the failure dependence of a system with a main component and several protective auxiliary components. Damage to the main component caused by random environmental shocks depends on the number

Although online business has been growing for some time, third-party e-platforms and their impact on e-channels are an under-explored area in the literature on dual-channel supply chains. Considering different combinations of open and self-support e-platform, this paper develops dynamic game models in four dual-channel e-retail structures to study pricing strategies and channel preference for manufacturers

In this work we analyse basketball play-by-play data in order to evaluate the efficiency of different five-man lineups employed by teams. Starting from the adjusted plus-minus framework, we present a model-based strategy for the analysis of the result of partial match outcomes, extending the current literature in two main directions. The first extension replaces the classical response variable (scored

AbstractThis paper studies a healthcare system under two priority charging schemes. The first is a fee-for-priority (FFP) scheme under which the patients can choose to buy the priorities or not at their admission or readmission to the healthcare provider (HCP). The second is a bundled priority (BP) scheme under which the HCP receives a lump sum priority payment from patients for the entire episode

AbstractOrganizations have successfully used dynamic pricing to optimize revenues for many years, where research and practice have mainly focused on applications with independent, discrete commodities; for example, an airline ticket. In this research we consider applications where the commodity is continuous and the value of the commodity available to sell depends on the combination of previously accepted

The modelling of supply chain risk management (SCRM) has attracted increasing attention from researchers and professionals. However, a systematic network analysis of the literature to understand the development of research over time is lacking. Therefore, this study reviews SCRM modelling and its evolution as a scientific field. We collected 566 papers published in the Scopus database and shortlisted

This is the special issue for the Third International Symposium on Stochastic Models in Reliability Engineering, Life Sciences and Operations Management held in Beijing, 28–31 May 2019. The symposium provides a forum for researchers and practitioners in their respective fields of expertise to exchange new ideas and share the latest results on stochastic modelling in reliability engineering, life science

AbstractThis paper considers sports matches in which two teams compete to score more points within a set amount of time (e.g. football, ice hockey). We focus on the order in which the competing teams score during the match (order of scoring). This type of order of scoring problem has not been addressed previously, and doing so here gives new insights into sports matches. For example, our analysis can

In quantitative finance practice, model calibration is a key challenge. This is especially so when a local regime-switching model needs to be calibrated because designing an efficient and reliable algorithm to obtain local volatility values as a function of underlying price and time is important for the model to be successfully used in practice. Therefore, this paper proposes a new algorithm for calibrating

This work proposes a novel framework for planning the capacity of diagnostic tests in cancer pathways that considers the aggregate demand of referrals from multiple cancer specialties (sites). The framework includes an analytic tool that recursively assesses the overall daily demand for each diagnostic test and considers general distributions for both the incoming cancer referrals and the number of

In this paper, we construct quantitative models in which the dependence structure of the firms’ default times is incorporated. Such models serve as the underlying frameworks in our proposed approach to price and hedge basket credit derivatives. Through the Gaussian copula-based method, we model the default correlation risk and develop valuation formulas for credit derivatives. Using single-name derivatives

AbstractWe propose quantum majorization as a way of comparing and ranking correlation matrices, with the aim of assessing portfolio risk in a unified framework. Quantum majorization is a partial order in the space of correlation matrices, which are evaluated through their spectra. We discuss the connections between quantum majorization and an important class of risk functionals, and we define two new

Decision makers in various sectors, such as manufacturing and transportation, strive to minimize downtime costs. Often, brief-planned stoppage times allow for changes in shifts and line configurations and longer periods are scheduled for major repairs. It is quite important to proactively make use of these downtimes to reduce the costs of unexpected downtimes due to failures. Among many aspects, the

We study a model of a two-stage degradation process in a dynamic environment. The two stages, the normal stage and the defective stage, are separated by the first hitting time of the alarm threshold by the degradation level. Wiener processes with piecewise linear drift are used in each stage to describe the degradation level in a dynamic environment. System failure is triggered in two ways: the system

The conventional inverse data envelopment analysis (DEA) model is only applicable to positive data, while negative data are commonly present in most real-world applications. This paper proposes a novel inverse DEA model that can handle negative data. The conventional inverse DEA model is a special case of our model as our model is more general in terms of returns-to-scale properties. The proposed model

It is common for firms to forecast stationary demand using simple exponential smoothing (SES) due to the ease of computation and understanding of the methodology. We consider a retailer who observes autoregressive moving average (ARMA) demand but for the sake of convenience, uses the widely available SES method to forecast its demand. This creates a potential disconnect between the true mechanism generating

In this paper, new neural network (NN) methods are proposed to forecast intermittent demand and we empirically study their performance as compared to parametric and non-parametric forecasting methods proposed in the literature. The empirical investigation uses demand data for 5,135 spare parts for the fleet of aircrafts of an airline company. Three parametric benchmark methods are examined: single

We develop a mathematical model to study optimal preventive maintenance (PM) strategy under a two-dimensional stair-case warranty policy considering both age and usage of a product. During the warranty term, sellers implement preventive maintenance within the stair-case region of the warranty policy and upon failure a product is repaired minimally and immediately. Our objective is to find the optimal

This paper models age replacement and block replacement when there is the possibility of defaulting on the planned maintenance. A default occurs when a planned preventive replacement is not executed, and we discuss how defaults can arise in practice. Our aim is to study the robustness of block replacement and age replacement, bearing in mind that (a) these policies are frequently used in practice,

Forecasting non-stationary time series, especially when the data generating processes contains a random walk component, is a difficult and sometimes impossible task. In this paper we suggest an intuitive, computationally fast and expedient way of forecasting time series of the above type using distance-based nearest neighbours (NN). We exploit to advantage the path and scale dependence present in a

A new model of hybrid preventive maintenance of systems with partially observable degradation is developed. This model combines condition-based maintenance with age replacement maintenance in the proposed, specific way. A system, subject to a shock process, is replaced on failure or at some time |${T}_S$| if the number of shocks experienced by this time is greater than or equal to m or at time |$T>{T}_S$|

The interaction between nurses and their managers is a very important factor in nurses’ error reporting behaviour, which is crucial to improving patient safety in healthcare organizations. However, little theoretical work has been undertaken to analyse this interaction. This paper uses a game-theoretic principal–agent framework with asymmetric information to study this interaction. We suppose that

In this paper, the fair price of an American-style resettable convertible bond (CB) under the Black–Scholes model with a particular reset clause is calculated. This is a challenging problem because an unknown optimal conversion price needs to be determined together with the bond price. There is also an additional complexity that the value of the conversion ratio will change when the underlying price

Inverse (DEA) is an approach to estimate the expected input/output variation levels when the efficiency score reminds unchanged. Essentially, finding most efficient decision-making units (DMUs) or ranking units is an important problem in DEA. A new ranking system for ordering extreme efficient units based on inverse DEA is introduced in this article. In the adopted method, here the amount of required

This paper proposes a regression-based simulation algorithm for multi-period mean-variance portfolio optimization problems with constraints under a high-dimensional setting. For a high-dimensional portfolio, the least squares Monte Carlo algorithm for portfolio optimization can perform less satisfactorily with finite sample paths due to the estimation error from the ordinary least squares (OLS) in