# Matt DavisonThe University of Western Ontario | UWO · Department of Statistical and Actuarial Sciences

Matt Davison

PhD in Applied Mathematics

## About

114

Publications

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1,932

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Citations since 2016

## Publications

Publications (114)

Governments have implemented different interventions and response models to combat the spread of COVID-19. The necessary intensity and frequency of control measures require us to project the number of infected cases. Three short-term forecasting models were proposed to predict the total number of infected cases in Canada for a number of days ahead....

Changing weather patterns may impose increased risk to the creditworthiness of financial institutions in the agriculture sector. To reduce the credit risk caused by climate change, financial institutions need to update their agricultural lending portfolios to consider climate change scenarios. In this paper we introduce a framework to compute the o...

The global electricity sector is responsible for a large share of greenhouse gas. Renewable energy (RE) is a feasible alternative to maintain sustainable growth and economic development, as it appears to be a means to reduce emissions and decarbonize economies. Renewable energy projects present some uncertainties and flexibilities that are ignored...

Profit maximization in the retail and manufacturing industry is currently focused on offshore production to utilize the resulting low production costs. However, in the face of uncertain customer demand, it is difficult to determine an optimal order quantity which maximizes profit. We consider a risk-averse firm that utilizes dual-sourcing for peris...

In North America, many utility‐scale turbines are approaching, or are beyond the half‐way point of their originally anticipated lifespan. Accurate estimation of the times to failure of major turbine components can provide wind farm owners insight into how to optimise the life and value of their farm assets. In this study, data records from a wind f...

A multivariate hidden Markov model (HMM)-based approach is developed to capture simultaneously the regime-switching dynamics of four financial market indicators: Treasury-Euro Dollar rate spread, US dollar index, volatility index and S&P 500 bid-ask spread. These indicators exhibit stochasticity, mean reversion, spikes and state memory, and they ar...

This paper studies an application of machine learning in extracting features from the historical market implied corporate bond yields. We consider an example of a hypothetical illiquid fixed income market. After choosing a surrogate liquid market, we apply the Denoising Autoencoder (DAE) algorithm to learn the features of the missing yield paramete...

This paper studies an application of machine learning in extracting
features from the historical market implied corporate bond yields. We consider an example of a hypothetical illiquid fixed income market. After choosing a surrogate liquid market, we apply the Denoising Autoencoder (DAE) algorithm to learn the features of the missing yield paramete...

A new barycentric spectral domain decomposition methods algorithm for solving partial integro-differential models is described. The method is applied to European and butterfly call option pricing problems under a class of infinite activity Lévy models. It is based on the barycentric spectral domain decomposition methods which allows the implementat...

Real options (RO) valuation has been promoted as a way to evaluate investment opportunities and make investment decisions that takes into account the value of managerial flexibility in the face of uncertainty. Although RO enjoys a substantial body of literature considering its application and suitability in different situations, the impact of natio...

In this work, we investigate both the analytical and numerical studies of the dynamical model comprising of three species systems. We analyze the linear stability of stationary solutions in the one-dimensional multisystem modeling the interactions of two predators and one prey species. The stability analysis has a lot of implications for understand...

Download link: https://ssrn.com/abstract=3057091
In commodity markets, a trader selling her inventory over a finite time horizon has access not only to the spot market but also to forward contracts. The trader has the choice to sell at the spot price, or to short a forward contract for later delivery, or a combination of both. While the commodity...

The goal is to explain and improve the off-shore oil storage trade observed in a contango market using a forward dynamic optimization strategy. The strategy formulation is developed in terms of trades in forward contracts and contrasted with the literature. By simulating forward prices based on realistic May 2009 market conditions, the NPV of the s...

The use of an Ornstein-Uhlenbeck (OU) process is ubiquitous in business, economics and finance to capture various price processes and evolution of economic indicators exhibiting mean-reverting properties. When structural changes happen, economic dynamics drastically change and the times at which these occur are of particular interest to policy make...

The spread between two related energy prices is a very important quantity throughout energy finance. Of particular interest are spreads between different energy types, different delivery points (location spreads) and different delivery times (calendar spreads). Each underlying price process may be modeled directly. At times, however, it is a useful...

In order to find stable, accurate, and computationally efficient methods for performing the inverse Laplace transform, a new double transformation approach is proposed. To validate and improve the inversion solution obtained using the Gaver-Stehfest algorithm, direct Laplace transforms are taken of the numerically inverted transforms to compare wit...

This paper investigates the modeling of risk due to market and funding liquidity by capturing the joint dynamics of three time series: the treasury-Eurodollar spread, the VIX, and a metric derived from the S&P 500 spread. We propose a two-regime mean-reverting model for explaining the behaviour of three time series, which mirror liquidity levels fo...

Smart meter data analysis provides key insights about energy demand and usage patterns for efficient operation of power generation and distribution companies. The increase in modern communication bandwidth enables smart meters to transmit the data to a corresponding utility company at hourly update rates or faster. Analysing such large amount of da...

We develop a zero-delay hidden Markov model (HMM) to capture the evolution of multivariate foreign exchange (FX) rate data under a frequent trading environment. Recursive filters for the Markov chain and pertinent quantities are derived, and subsequently employed to obtain estimates for model parameters. The rationale for zero-delay HMM hinges on t...

Credit scoring is an automated, objective and consistent tool which helps lenders to provide quick loan decisions. It can replace some of the more mechanical work done by experienced loan officers whose decisions are intuitive but potentially subject to bias. Prospective borrowers may have a strong motivation to fraudulently falsify one or more of...

The share of the services offered via the Internet by nowadays banking companies is quickly growing, making of the understanding of online customers one of the major concerns. Data mining tools have proven their efficiency in addressing this challenge by providing unsupervised quantitative techniques to identify those segments of customers with sim...

It is well known that the generation resource uncertainty induced by significant wind capacity raises concerns about grid security, price stability, and revenue adequacy. One of the most promising solutions is the use of utility-scale energy storage, although the question of general implementation of this strategy remains unanswered. This paper use...

Energy Finance as a field is particularly bedeviled by regulatory uncertainty. This is notably the case for the real option analysis of long-lived energy infrastructure. How can one decide optimal build times on a 50 year project horizon when regulations regarding pricing and costs change on a much shorter time scale? In this paper we present a qua...

How should gasoline retailers respond to other competing retailers and to changes in commodity gasoline prices to set their own prices over time? This question opens the door to an important discussion on price-setting strategies in the retail gasoline market. Retail gasoline price data, both panel and time series, is of great interest in the econo...

This paper presents an analysis of asset allocation strategies when the asset returns are governed by a discrete-time higher-order hidden Markov model (HOHMM), also called the weak hidden Markov model. We assume the drifts and volatilities of the asset returns switch over time according to the state of the HOHMM, in which the probability of the cur...

Purpose:
To explore the potential of a novel dose-volume based metric to assist in the selection of optimal fractionation schedules for lung cancer patients.
Methods:
Selecting the dose per fraction that maximizes the therapeutic ratio via a linear-quadratic effect on normal tissue complication probability and tumor cell survival is an optimizat...

This paper is interested in solving a multidimensional backward stochastic differential equation (BSDE) whose generator satisfies the Osgood condition in y and the Lipschitz condition in z. We establish an existence and uniqueness result of solutions for this kind of BSDEs, which generalizes some known results.

Background
Environmental concerns have promoted the rise of low emissions “green” power technologies such as solar power. In part to make these technologies of economic interest to investors, many green energy policies have been proposed, and a wide variety of green energy developments have been launched which take advantage of these policies. This...

Ethanol crush spreads are used to model the value of a facility which produces ethanol from corn. A real options analysis is used to investigate the effects of model parameters on the related managerial decisions of (i) how to operate the facility throughoptimal switching from idled to operational status and (ii) the decision to enter into the proj...

To bridge the gap between the output of theoretical option pricing models and observed option prices on exchanges, it is necessary to price the volatility risk inherent in financial markets. Non zero market risk premia have been found in previous financial literature through an exploration of market data, quantifying the relationship between implie...

This paper investigates optimal control strategies for the operations of a hydroelectric facility comprising two dams linked in series with a common reservoir receiving the outflow from the first dam and supplying the inflow to the second dam. We obtain some interesting insights about the behavior of these plants and compare the similarities and di...

Much work on pricing and hedging options has been done using deterministic and stochastic volatility stock price models. Observation of real market data suggests that volatility, while stochastic, is well modelled by moves between just two states. We propose that the transitional probabilities of volatility are given by a two-state Markov model, an...

The European Union Emission Trading Scheme is the largest market mechanism yet implemented to spur emissions reduction. In the scheme emissions certificates are traded within annual periods to compensate for the total emissions of given companies. The rules for how certificates can be passed from one annual period to another is phase dependent. Dur...

Background
Energy extraction, production, and transmission systems are highly sensitive to states of the natural environment such as temperature, wind speed, and even ice cover. Forecasts of such state variables are termed environmental predictions. How much value can such environmental predictions provide to the operator of a given energy system?...

Purpose: Lung cancer radiotherapy treatments employ a wide variety of fractionation protocols. The choice among protocols mostly depends on the size of the target volume (GTV or ITV) and the volume of normal tissue receiving a critical dose. Rigorous mathematical criteria for normal tissue (NT) dose distributions were derived to determine the type...

Developers usually presell new condominiums, requiring purchasers to make down payments on a contract that allows them to
purchase, at a fixed price, the finished condominiums on a later date. This presale contract is akin to a financial call option
sold by the builder to the purchaser of the condo. In this paper, we value the presale contract from...

As renewable resources are increasingly used to provide power to the world’s demand centres, dealing with the intermittent nature of these resources and their affect on the power grid is becoming a significant issue. Compressed air energy storage (CAES) is one technology that is proposed to increase flexibility when integrating renewable energy sou...

Developers usually presell new condominiums, requiring purchasers to make down payments on a contract that allows them to purchase, at a fixed price, the finished condominiums on a later date. This presale contract is akin to a financial call option sold by the builder to the purchaser of the condo. In this paper, we value the presale contract from...

We present a new method for reducing the bias present in Monte-Carlo estimators of the price of American-style contingent claims. At each exer- cise opportunity (in a time discretization), we assume there is an unbiased estimator of the claim value at the next exercise opportunity. We approx- imate the distribution of this statistic using the centr...

When conducting remote mine-hunting operations with a sidescan-sonar-equipped vehicle, a lawn-mowing search pattern is standard if no prior information on potential target locations is available. Upon completion of this initial search, a list of contacts is obtained. The overall classification performance can be significantly improved by revisiting...

In radiotherapy,
radiation is directed to damage a tumor while avoiding surrounding healthy tissue. Tradeoffs ensue because dose cannot be exactly shaped to the tumor. It is particularly important to ensure that sensitive biological structures near the tumor are not damaged more than a certain amount. Biological tissue is known to have a nonlinear...

Software defects rediscovered by a large number of customers affect various
stakeholders and may: 1) hint at gaps in a software manufacturer's Quality
Assurance (QA) processes, 2) lead to an over-load of a software manufacturer's
support and maintenance teams, and 3) consume customers' resources, leading to
a loss of reputation and a decrease in sa...

Cap-and-trade markets provide a policy instrument to encourage the decrease of harmful emissions such as global greenhouse gases over both short and long time periods. The European Union Emission Trading Scheme (EU ETS) is the largest carbon emission market yet implemented. Its design, which allows banking and borrowing, makes it different from all...

We develop and analyse investment strategies relying on hidden Markov model approaches. In particular, we use filtering techniques to aid an investor in his decision to allocate all of his investment fund to either growth or value stocks at a given time. As this allows the investor to switch between growth and value stocks, we call this first strat...

New regulatory frameworks designed to comply with the Kyoto protocol have been developed with the aim of decreasing global
greenhouse gas emissions over both short and long time periods. Incentives must be established to encourage the transition
to a clean energy economy. Emissions taxes represent a “price” incentive for this transition, but econom...

Corn ethanol plants have been criticized for a number of reasons in recent years. This paper provides another ground for criticizing these plants. Historical corn and gasoline prices are uncorrelated, but widespread adoption of corn ethanol production might reasonably lead to future correlation between these prices. We present a real options -- lik...

The analysis of execution paths (also known as software traces) collected
from a given software product can help in a number of areas including software
testing, software maintenance and program comprehension. The lack of a scalable
matching algorithm operating on detailed execution paths motivates the search
for an alternative solution.
This paper...

A computer implemented method, apparatus, and computer usable program code for
performing software testing. A first set of traces is compressed to form a first set of
compressed traces. The first set of compressed traces is compared to a plurality of additional
traces to identify a set of partially matching traces within the plurality of additional...

Hamadène (2003) [2] obtained an existence result of solutions for multidimensional backward stochastic differential equations (BSDEs) with uniformly continuous generators, provided that the ith component gi(t,y,z) of the generator g depends only on the ith row of the matrix z. The uniqueness of solutions for this kind of BSDEs is proved in this Not...

This paper proves an existence result for a kind of backward stochastic differential equation whose generators satisfy generalized uniformly continuous conditions in variables y and z. It is worth noting that the conditions mentioned above may not be uniform with respect to time parameter t.

Markets where asset prices follow processes with jumps are incomplete and any portfolio hedging against large movements in the price of the underlying asset must include other instruments. The standard approach in literature is to minimize the price variance of the hedging portfolio under a certain choice for the jump size distribution. This paper...

This paper provides the analytic solution to the partial differential equation for the value of a convertible bond. The equation assumes a Vasicek model for the interest rate and a geometric Brownian motion model for the stock price. The solution is obtained using integral transforms.

In this article we present both a theoretical framework and a solved example for pricing an European gas storage facility and computing the optimal strategy for its operation. As a representative price index we choose the Dutch TTF day-ahead gas price. We present statistical evidence that the volatility of this index is time-varying, so we introduc...

In his first work on probability, written in 1711, Abraham De Moivre looked at the problem of finding the number of trials required in a binomial experiment to achieve a probability of 1/2 of finding at least some given number of successes. He looked at two cases: when the probability of success p = 1/2 and when p is small but n, the number of tria...

This paper investigates the early exercise region for Bermudan options on two underlying assets. We present a set of analytical validation results for the early exercise region which can be used as a means of validating pricing techniques. When all strike prices are identical we show the existence of an intersection point such that for any asset pr...

This paper analyzes popular time-nonseparable utility functions that describe "habit formation" consumer preferences comparing current consumption with the time averaged past consumption of the same individual and "catching up with the Joneses" (CuJ) models comparing individual consumption with a cross-sectional average consumption level. Few of th...

This paper estimates the value of a perfectly accurate short-term hydrological forecast to the operator of a hydro electricity generating facility which can sell its power at time varying but predictable prices. The expected value of a less accurate forecast will be smaller.We assume a simple random model for water inflows and that the costs of ope...

In this article, we present an algorithm for the valuation and optimal operation of natural gas storage facilities. Real options theory is used to derive nonlinear partial-integro-differential equations (PIDEs), the solution of which give both valuation and optimal operating strategies for these facilities. The equations are designed to incorporate...

We consider a simple model of a pump-assisted hydroelectric facility operating in a market with time-varying but deterministic power prices and constant water inflows. The engineering details of the facility are described by a model containing several parameters. We present an algorithm for optimizing first the energy and then the profit produced b...

IntroductionExisting Methods to Analyse Braided River CharacteristicsNew Methods to Analyse Braided River CharacteristicsUsing Characteristic Scales and Scale-Invariant Properties to Evaluate the MP Model for Braided RiversDiscussion and Conclusion
AcknowledgementsReferences

The current level of deregulation in electricity markets is continuing to expand. Although each of these markets has individual operational and financial structures, one common characteristic is volatility. This volatility is significant and time-varying, and the persistence of this volatility makes the management of financial risk a priority among...

Existing Monte Carlo estimators of American option values are consistent but biased. This article presents a general bias
reduction technique which corrects the bias due to making suboptimal exercise decisions. The derived asymptotic expression
for the bias is independent of dimensionality, holds for very general underlying processes and option pay...

The "standard" Merton formulation of optimal investment and consumption involves optimizing the integrated lifetime utility of consumption, suitably discounted, together with the discounted future bequest. In this formulation the utility of consumption at any given time depends only on the amount consumed at that time. However, it is both theoretic...

With the current trend in deregulation, all electricity markets have been subject to volatile electricity prices, typically in peak season. As markets mature, new financial and operational risk management instruments are becoming available. In order to price such instruments, a model for the underlying price process is required. In this paper a hyb...

Comparing program execution traces can be useful for numerous purposes, such as software testing, system security analysis, program comprehension, software evolution and other areas of software development. Unfortunately, trace comparison techniques that operate on execution traces containing full execution details are too slow for use in large-sca...

In this paper, we overview a new approach to comparing execution traces. Such comparison can be useful for purposes such as improving test coverage and profiling system's users. In our approach, traces are compressed into different levels of compaction and are then compared iteratively from highest to lowest levels, rejecting dissimilar traces in t...

Continuous models for anomalous diffusion have previously been tested in the subdiffusive case by making comparisons to diffusion on a Sierpinski gasket. This paper extends this discussion to the superdiffusive case by comparing performance to diffusion on a tree model. Although there is reasonable agreement within limited regimes for all four mode...

A compact finite difference method is designed to obtain quick and accurate solutions to partial differential equation problems. The problem of pricing an American option can be cast as a partial differential equation. Using the compact finite difference method this problem can be recast as an ordinary differential equation initial value problem. T...

In this paper, we explore an additivity of a class of maximum (minimum) expectations which come from the pricing of contingent claim in incomplete markets. We give exam- ples to show this property can be used to calculate maximum (minimum) expectations and Choquet integral. Furthermore, we also explore its applications in partial differential equat...

We introduce the standard fourth order compact finite difference formulae. We show how these formulae apply in the special
case of the heat equation. It is well known that the American option pricing problem may be formulated in terms of the Black
Scholes partial differential equation (PDE) together with a free boundary condition. Standard methods...

In this paper, we overview a new approach to comparing execution traces. Such comparison can be useful for purposes such as improving test coverage and profiling system's users. In our approach, traces are compressed into different levels of compaction and are then compared iteratively from highest to lowest levels, rejecting dissimilar traces in t...

We investigate nonlinear dynamical systems from the mode competition point of view, and propose the necessary conditions for a system to be chaotic. We conjecture that a chaotic system has at least two competitive modes (CM’s). For a general nonlinear dynamical system, we give a simple, dynamically motivated definition of mode suitable for this con...

A sars-like coronavirus found in 13 of 46 horseshoe bats (genus Rhinolophus ) (“Bats are natural reservoirs of SARS-like coronaviruses,” W. Li et al. , 28 Oct. 2005, p. [676][1]) led A. P. Dobson to conclude that these bats “have now been officially recorded as the natural reservoir host of

Deregulation of electricity markets is occurring all over the world. This trend introduces new risks and uncertainties into the electricity industry, the most significant being price risk. The spot price of electricity is highly volatile, and the ability to price risk management contracts on this commodity is contingent on a robust and realistic mo...