In this paper, we present a new and straightforward approximation methodology for pricing a call option in a Black and Scholes market, characterized by stochastic interest rates. The method relies on a Gaussian moment matching technique applied to a conditional Black and Scholes formula, used to disentangle the distributional complexity of the underlying price process. The problem then reduces to exploiting

Modelling stock prices has been a research topic for many decades and it is still an open question. Different approaches have been used in the literature, the majority of which can be classified within the so‐called econometric framework and sometimes also referred to as the macro‐to‐micro approach. Another strand of literature relies on the modelling of directly observable quantities, the so‐called

We present the method of complementary ensemble empirical mode decomposition and Hilbert–Huang transform (HHT) for analyzing nonstationary financial time series. This noise‐assisted approach decomposes any time series into a number of intrinsic mode functions, along with the corresponding instantaneous amplitudes and instantaneous frequencies. Different combinations of modes allow us to reconstruct

The industrial Internet of Things (IIoT) and supply chain systems have become one of the most important technologies to positively impact our daily life activities. Blockchain technology has recently gained popularity and it is increasingly being employed in a large number of applications and industries. The use cases for blockchain are growing rapidly in different fields and domains. Combining blockchain

This article considers an optimal maintenance policy for the multistate systems with the finite number of states. Each state is described by its level of performance ranging from the perfect one to the zero level for the state of failure. Moreover, we assume that the cost of preventive maintenance (PM; i.e., repair/rejuvenation in our case) also depends on the state of a system. Based on the proposed

Semisupervised clustering extends standard clustering methods to the semisupervised setting, in some cases considering situations when clusters are associated with a given outcome variable that acts as a “noisy surrogate,” that is a good proxy of the unknown clustering structure. In this article, a novel approach to semisupervised clustering associated with an outcome variable named network‐based semisupervised

The credit scoring is a statistical analysis performed by financial institutions to represent the creditworthiness of an individual or small and medium‐sized enterprise. A credit score is a numerical quantity that can be qualified by a rating label showing the potential risk. In order to determine which customers are likely to bring in the most revenue at the exact interest rate and credit limits,

Even if large historical dataset could be available for monitoring key quality features of a process via multivariate control charts, previous knowledge may not be enough to reliably identify or adopt a unique model for all the variables. When no specific parametric model turns out to be appropriate, some alternative solutions should be adopted and exploiting non‐parametric methods to build a control

Most industrial processes are composed of multiple subsequent steps. In this article, we provide a statistical approach to design experiments and to define the manufacturing design space of multi‐step processes by taking into account the complex system of interactions among steps. We consider each intermediate outcome as an additional input factor in the next step and we plan experiments following

In secure networks, the authentication process, which verifies a user's identity, is a sensitive operation. Balancing the authentication process's security and usability while keeping operating costs low is a major challenge. We investigate this process in a secure system that has multiple authentication methods available. The goal is to find a fast and easy‐to‐implement approach to assign incoming

Variable selection plays a fundamental role in the analysis of data containing several variables which are redundant or irrelevant to the problem of interest. The ability to identify and discard these variables would make it possible to improve predictive performances and data interpretation, thus reducing costs and computational time. Although many methods have been proposed for feature selection

In this industry 4.0 revolution, most of the manufacturing processes are equipped with the digital devices which are continuously recording the data. To monitor the quality of a manufacturing system, variable about number of conforming or nonconforming items is usually used and statistical analysis based on it is further utilized for developing the policies. In this era of sophisticated and modern

Investigating the problem of setting control limits for an exponentially weighted moving average (EWMA) chart in the case of parameter uncertainty is more accessible when monitoring the variance because only one parameter has to be estimated. Simply ignoring the induced uncertainty frequently leads to control charts with poor false alarm performances. Adjusting the unconditional in‐control (IC) average

In this article, we investigate the occurrence of defects in integrated circuit fabrication and show how spatial analysis can be effective in grasping and representing spatial regularities in defect patterns on the silicon supports, called wafers, used to produce microchips. Defects occurring on the wafer surface are the main cause of yield loss in the semiconductor industry; hence, to promptly detect

A leading global personal care manufacturer was spending millions of dollars towards giving promotional offers on various goods throughout the year. The C‐suite (i.e., CEO, CFO, COO, and CIO) of the global personal care firm was aware of the increasing promotion spends year on year and this led to questions on promotion effectiveness. The main question faced by the firm was whether the returns they

In this rejoinder, we first comment on valuable discussions of contributors. Based on these meaningful inputs, we proceed with description of the notion of “virtual age” from different perspectives. We also add a more detailed description for the new concept of a random virtual age that is applied to degrading items. The latter is used for age recalculation when one operational regime is switched to

In the field of civil engineering, nondestructive evaluation (NDE) can be understood as the process of a material or structural element assessment based on techniques that do not introduces damage to the assessed sample. NDE can be used to inspect the quality of materials or to find some damages, as cracks and voids. This way, ultrasonic data monitoring has become one of the most important tools for

Mixed exponential distributions are frequently used in actuarial risk modeling. Distributions obtained through mixtures allow greater flexibility in the modeling of nonlife insurance loss amounts. Several research works have studied mixed exponential distributions in univariate and multivariate settings. The present article highlights the usefulness of such distributions and lays the story of the mixing

This article focuses on the inference on the errors in manufactured parts controlled by using measurements devices. The characterization of the part surface topographies is core in several applications. A broad set of properties (tribological, optical, biological, mechanical, etc.) depends on the micro‐ and macrogeometry of the parts. Moreover, parts usually show typical deterministic geometric deviation

The insurance regulatory regime introduced in the European Union by the “Solvency II” Directive 2009/138, that has become applicable on 1 January 2016, is aimed to safeguard policyholders and beneficiaries by requiring insurance undertakings to hold own funds able to cover losses, in excess to the expected ones, at the 99.5% confidence level, over a 1‐year period. In order to assess risks and evaluate

Burn‐in tests have been discussed extensively in the reliability literature, wherein we operate items until high degradation values are observed, which could separate the weak units from the normal ones before they get to the market. This concept is often referred to as a screening procedure, and it involves misclassification errors. Commonly, the underlying degradation process is assumed to be a Wiener

Energy companies need efficient procedures to perform market calibration of stochastic models for commodities. If the Black framework is chosen for option pricing, the bottleneck of the market calibration is the computation of the variance of the asset. Energy commodities are commonly represented by multifactor linear models, whose variance obeys a matrix Lyapunov differential equation. In this article

We study the implied volatilities of three foreign exchange (FX) option markets: EUD/USD, GBP/USD, and AUD/USD. We find that they are distinct from each other. The implied volatilities of the EUD/USD market tend to be more U‐shaped than those of other markets. Local volatility models such as the constant elasticity of variance (CEV) model and stochastic volatility models, such as the Heston model,

The generalized linear mixed model (GLMM) becomes very popular in profile monitoring, especially when the production processes follow nonnormal distribution. In most of the real‐life applications in industry, medicine, biology…and so on researchers assume that the response variable follows a Bernoulli or Binomial distribution. The majority of previous studies in profile monitoring focused on parametric

The United States Department of Agriculture's National Agricultural Statistics Service (NASS) uses probability surveys of hog owners to estimate quarterly hog inventories in the United States at the national and state levels. NASS also receives data from external sources. A panel of commodity experts forms the Agricultural Statistics Board (ASB). The ASB establishes the NASS official estimates for

Graphical diagnostics are described for general heavy tailed data. This tool allows for a model free assessment of the tails of a univariate dataset a transform on the tails of the data. In addition, one can add to the basic plots comparisons of a dataset to multiple models. Multivariate extensions are described using an ordering based on distance from a center.

We address the problems of extracting information generated by one dimensional periodic point processes. These problems arise in numerous situations, from astronomy and biomedical applications to reliability and quality control and signal processing. We divide our analysis into two cases, namely single and then multiple source(s). We wish to extract the fundamental period of the generator(s), and,

This article proposes two types of degradation models that are suitable for describing multivariate degrading systems subject to time‐variant covariates and imperfect maintenance activities. A multivariate Wiener process is constructed as a baseline model, on top of which two types of models are developed to meaningfully characterize the time‐variant covariates and imperfect maintenance effects. The

Quality improvement has been receiving great attention in industries. In recent years, the finite horizon process is commonly encountered in industries due to flexible manufacturing production. Past research works on finite horizon process monitoring are still limited. Because of this, three run rules Hotelling's T2 charts are proposed to monitor a finite horizon process. The performance measures of

In statistical quality control, decision‐theoretic approach draws a significant amount of attention due to its economic considerations. In reliability life testing, decision‐theoretic approach has been used quite extensively under different censoring schemes. All these implementations are based on single sample of products coming from a particular source. In this work we study decision‐theoretic approach

Past international trade practices have been associated with opaque information flows that have hindered traceability and created hurdles in hassle‐free trade. Blockchain and allied technologies have been investigated as a panacea for the problems faced by supply chain and logistics industry. Network analysis also uncovered twenty types of legal and antisocial entities operating on bitcoin and provided

Previous studies measure the pricing efficiency of initial public offerings (IPOs) using stochastic frontier analysis, but it is conventionally assumed that all IPOs have the same stochastic frontier function. We study how to measure IPO pricing efficiency under successional issuance policy reforms such as China's Growth Enterprise Market (GEM), where IPOs issued in different time periods might have

We study a two‐newsvendor competition problem in which both newsvendors are loss‐averse and have adaptive quantity‐oriented reference points. Each newsvendor faces stochastic demand determined by some demand reallocation rule and aims to choose an optimal inventory level to maximize her expected utility. Since the demand reallocation rule indicates that one newsvendor's demand affects the inventory

Several journal articles, websites, and conferences have recently focused on the emerging discipline of statistical engineering. This discipline focuses on developing the theory and practice of how to address large, complex, unstructured problems, particularly those that require data and analysis. While good statisticians and engineers have always applied statistical engineering, they did not generally

In this paper, particular shock models are studied for the case when the times between successive shocks and the magnitudes of shocks have discrete phase‐type distributions. The well‐known shock models such as delta shock model, extreme shock model, and the mixed shock model which is obtained by combining delta and extreme shock models are considered. The probability generating function and recursive

We draw attention to a problem that is often overlooked or ignored by companies practicing hypothesis testing (A/B testing) in online environments. We show that conducting experiments on limited inventory that is shared between variants in the experiment can lead to high false‐positive rates since the core assumption of independence between the groups is violated. We provide a detailed analysis of

We connect copula properties with stochastic comparisons between order statistics (k‐out‐of‐n systems) and coherent systems with dependent components. The copula dependence properties lead to marginal distribution‐free ordering properties between systems. Conversely, ordering properties of systems lead to properties (or new proofs of properties) for the baseline copulas. These relationships can be

In this note, some point of views on virtual ages are presented in terms of the discussion paper written by Finkelstein and Cha, which include generalized stochastic order‐based virtual ages, system‐level virtual ages, virtual ages in Weibull distribution and repair degrees with virtual ages. Finally, some possible future researches on virtual ages are described.

The trend of digitalization uses modern relationship models across global supply chain (SC) management. The main objective of this article is to identify SC current problems with the help of the knowledge sharing aspect using blockchain technology. This article addresses selected problems for managing modern SCs with a view to shared knowledge based on information management, effects of product and

A multivariate monitoring procedure is presented to detect changes in the parameter vector of the dynamic conditional correlation model. The procedure can be used to detect changes in both the conditional and unconditional variances as well as in the correlation structure of the model. The detector is based on the contributions of individual observations to the gradient of the quasi‐log‐likelihood

Crowdfunding has emerged as a major way to raise financial supports through collaborative contributions of the general public. In recent studies, promotional activities are found to be highly influential to the final outcome of crowdfunding projects. In order to conduct effective and efficient promotional campaigns, it is essential to contiguously monitor their progress status and investigate the determinants

This article focuses on the estimation of dispersion effects in off‐line quality control techniques. In this context, the Taguchi design for the optimal choice of process parameters is one of the most commonly used statistical methods. Starting from Taguchi methodology, we consider that an additive or a multiplicative model defines the relationship between the deterministic component and the variability

In practice, it is often important to know how a system is performing as compared with initial, prior assessment of its reliability characteristics (black‐box scenario). For degrading systems, this comparison can be executed by observing degradation dynamically and then comparing the corresponding remaining lifetime of an operating system at each instant of time with that of the black‐box scenario

In this article, aimed at the future “let go” electricity market, smart contracts for grid enterprises doing electricity transactions and charge settlements based on blockchain technology, as well as the trading model using the smart contracts, are proposed. Then the key technological difficulties are analyzed, and the solutions are given. The main goal of our research is to help developing the infrastructure

Several settings, where the notion of virtual age is employed, are discussed. We argue that the age reduction imperfect repair modeling is often not sufficiently justified in practice, as it is not possible to execute repair in most of real situations that conforms with this model. On the other hand, a shock‐based virtual age model is suggested and justified via the probabilities of failures on shocks

In many applications, survey data are collected from different survey centers in different regions. It happens that in some circumstances, response variables are completely observed while the covariates have missing values. In this article, we propose a joint spatial regression model for the response variable and missing covariates via a sequence of one‐dimensional conditional spatial regression models

Shannon entropy is a useful criterion for measuring the uncertainty (predictability) of lifetimes of engineering systems. In this work, we provide an explicit expression for the entropy of the residual lifetime of a working used system with exactly i failed components at time t, using dynamic signature. We also present additional results on bounds and ordering properties for the proposed entropy. We

The preservation of stochastic orders by distortion functions has become a topic of increasing interest in the reliability analysis of coherent systems. The reason of this interest is that the reliability function of a coherent system with identically distributed components can be represented as a distortion function of the common reliability function of the components. In this framework, we study

The generalized aggregation ∑ i = 1 n W i ϕ ( X i , a i ) arises in many research fields including applied probability, actuarial science, and reliability theory, where ϕ is a bivariate kernel function and a is a parameter vector. One of its remarkable features is that both X and W are dependent in many practical situations. Therefore, studying the stochastic properties of generalized aggregations

Planning a cost‐efficient monitoring policy of stochastic processes arises from many industrial problems. We formulate a simple discrete‐time monitoring problem of continuous‐time stochastic processes with its applications to several industrial problems. A key in our model is a doubling trick of the variables, with which we can construct an algorithm to solve the problem. The cost‐efficient monitoring

In the present paper we study a new exotic option offering participation in a dynamic asset allocation strategy, which is an extension of the well‐known Constant Proportion Portfolio Insurance (CPPI) strategy. Our novel approach consists in assuming that the percentage of wealth invested in stocks cannot go under a fixed level, called guaranteed minimum equity exposure (GMEE). In particular, our proposal

The ubiquitous internet is a multipurpose platform for finding information, an avenue for social interaction, and a primary customer touch‐point as a marketplace to conduct e‐commerce. The digital footprints of browsers are a rich source of data to drive sales. We use clickstreams (clicks) to track the evolution of session‐level customer browsing for modeling. We apply Markov chains (MC) to calculate

Statistical surveillance is a noteworthy endeavor in many health‐care areas such as epidemiology, hospital quality, infection control, and patient safety. For monitoring hospital adverse events, the Shewhart u‐control chart is the most used methodology. One possible issue of the u‐chart is that in health‐care applications the lower control limit (LCL) is often conventionally set to zero as the adverse

Consider a finite population of N items, where item i has a probability pi to be defective. The goal is to identify all items by means of group testing. This is the generalized group testing problem (hereafter GGTP). In the case of p1 = … = pN = p, Yao and Hwang (1990) proved that the pairwise testing algorithm is the optimal nested algorithm, with respect to the expected number of tests, for all N

Consider a risk model in which X1,…, Xn are n potential losses from different risky assets at the terminal time, and θ 1 , … , θ n are n discount factors over the period. In this paper, we establish some asymptotic formulas for the value at risk and conditional tail expectation of the total discounted loss S n = ∑ i = 1 n θ i X i of an investment portfolio. We also demonstrate our obtained results

Analysis of network data has emerged as an active research area in statistics. Much of the focus of ongoing research has been on static networks that represent a single snapshot or aggregated historical data unchanging over time. However, most networks result from temporally evolving systems that exhibit intrinsic dynamic behavior. Monitoring such temporally varying networks to detect anomalous changes

The Birnbaum‐Saunders (BS) distribution is a model that frequently appears in the statistical literature and has proved to be very versatile and efficient across a wide range of applications. However, despite the growing interest in the study of the BS distribution, quantile regression modeling has not been considered for this distribution. To fill this gap, we introduce a class of quantile regression

A data fusion method for the estimation of residential radon level distribution in any Pennsylvania county is proposed. The method is based on a multisample density ratio model with variable tilts and is applied to combined radon data from a reference county of interest and its neighboring counties. Beaver county and its four immediate neighbors are taken as a case in point. The distribution of radon

In this article, a comparison between the most promising nonparametric tests in a two‐sample stratified design for practical uses is performed. We compared methods that exhibit good small‐sample properties in order to be used with the most common stratum sizes. From the literature we identified as promising the following solutions: the aligned rank test, a small‐sample approximation for the ANOVA‐type

Nonparametric control charts have received increasing attention in process monitoring. In this article, a new nonparametric sign (SN) control chart with variable sample size (VSS) for a finite horizon process is developed. The novelty of this research lies in the incorporation of the VSS technique into the nonparametric SN chart for a finite horizon process, hence, resulting in the development of a