Miloš Kopa (Charles University, Czech Republic)

Portfolio optimization with stochastic dominance constraints

We introduce new problems for portfolio selection based on stochastic dominance criteria. The goal of an investor is to maximaze mean return of a portfolio under condition that the portfolio dominates a benchmark in the sense of a chosen type of stochastic dominance. These problems may serve as alternatives to well-known mean-risk models. The advantage of the these problems is that the optimal portfolio is preferred to the benchmark for all rational investors satisfying given assumsptions, for example risk aversion, decreasing risk aversion, etc. We present the tractable formulations of these problems under assumption of empirical distribution of returns. We apply our problems to several historical US stock market datasets.

Co-author: Thierry Post, Nazarbayev University Astana, Kazakhstan

More about Miloš Kopa

Gerhard-Wilhelm Weber (Poznan University of Technology, Poland)

Stochastic optimal control of impulsive systems with regime switches and paradigm shifts – for finance, economics and science

We contribute to modern Operational Research by hybrid, e.g., mixed  continuous-discrete dynamics of stochastic differential equations with  jumps and to its optimal control. These hybrid systems allow for the representation of (random) regime switches or (in cultural terms) paradigm shifts, and are of growing importance in biology, neuroscience and medicine, in economics,  finance and engineering.

We introduce three new approaches to this area of stochastic optimal control and present results. One is analytical and bases on the finding of optimality conditions and, in certain cases, closed-form solutions. We further discuss the impact of differences in information, given by delay or insider information, name results and applications. Eventually, we introduce emerging “human”, “neural” and “behavioral” aspects into our analytic study and show upcoming research challenges.

The presentation ends with a conclusion and an outlook to future investigations.

Co-author: Dr. Emel Savku, TED University, Ankara, Turkey

More about Gerhard-Wilhelm Weber

Stan Uryasev (University of Florida, USA)

Risk Management with POE, VaR, CVaR, and bPOE: Applications in Finance

This paper compares four closely related probabilistic measures: Probability of Exceedance (POE), Value-at-Risk (VaR) which is a quantile, Conditional Value-at-Risk (CVaR), and Buffered Probability of Exceedance (bPOE).
The Probability of Exceedance (POE) is frequently used to measure uncertainties in outcomes. For instance, POE is used to estimate probability that assets of a company fall below liabilities. POE measures only the frequency of outcomes and ignores magnitude of outcomes. POE counts outcomes exceeds the threshold, and it “does not worry” about the amount by which each outcome exceeds the threshold. POE is lumping together all threshold exceedance events, potentially “hiding” quite large and very troublesome outcomes. Moreover, POE has poor mathematical properties when used to characterize discrete distributions of random values (e.g., when distributions are defined by observed historical data). POE for discrete distributions is a discontinuous function of control variables, making it difficult to analyze and optimize. POE is used for defining financial ratings of companies and financial derivative instruments (such as CDO).

This presentation discusses a new probabilistic characteristic called Buffered Probability of Exceedance (bPOE). With bPOE, it is possible to count outcomes close to a threshold value, rather than only outcomes exceeding the threshold. To be more precise, bPOE counts tail outcomes averaging to some specific threshold value. For instance, 4% of land-falling hurricanes in US have cumulative damage exceeding $50 billion (i.e., POE = 0.04 for threshold=$50 billion). It is estimated, that the average damage from the worst 10% of hurricanes is $50 billion. In terms of bPOE, we say bPOE=0.1 for threshold=$50 billion. bPOE shows that largest damages having magnitude around $50 billion have frequency 10%. bPOE can be considered as an important supplement to POE. We think that bPOE should be routinely calculated together with POE. This example shows that bPOE exceeds POE, which is why it is called Buffered Probability of Exceedance. The positive difference, bPOE-POE, can be interpreted as some “buffer.” bPOE is an inverse function of CVaR and it inherits a majority of the exceptional mathematical properties of CVaR (which is a so called “coherent measure of risk”). Similar to CVaR, minimization of bPOE can be reduced to convex and Linear Programming.
We will discuss two applications of bPOE concept. The first application discusses the possibility of redefining financial ratings using bPOE concept. The second application considers the Cash Matching Problem of a Bond Portfolio.
Co-author:  Giorgi Pertaia

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Measuring Systemic Risk

Georg Pflug (Department of Statistics and Operations Research (ISOR)
University of Vienna)

We propose to measure the dependency of financial intermediaries by copula models, which allow to model cascading effects. In particular, we consider a type of copula model, which has intially been introduced by Fan Yu. We show some properties of this model and use it to estimate its parameters based on CDS data from European banks.

We define a systemic risk measure, which is monotonic w.r.t. known orderings of copulas. Moreover, we study the sensitivity of this measure w.r.t. ambiguity in the copula model.

More about Georg Pflug

BlockChain impact on FinTech

Andrius Adamonis (Bank of Lithuania)

Blockchain’s technology, like a whirlwind, has invaded the world of technology forcing to change thinking of existing processes and moving information storage from decentralized systems to distributed network.
In the presentation, I will review how blockchain and distributed ledger technology (DLT) changes the payment, know-your-customer (KYC), identification and other financial technology models and processes, what are awaiting for the technology in the future and what are the biggest challenges.

More about LB

• Financial modelling
• Statistics and economics
• Decision-making analysis and methods
• Energy market and commodities
• LittleData to BigData in finance and investment
• Game theory and mathematical economics
• Banking
• P2P credits
• Blockchain and crypto currencies
• Insurance
• Pension planning
• Pricing and hedging of derivatives
• Credit and systemic risk
• Application of OR methods in finance
• Personal finance
• etc.

Most of evets will take place in “KTU Santaka Valley”, K. Baršausko g. 59, Kaunas. SANTAKA is Integrated Science, Studies and Business Centre (Valley).

More about Kaunas (the city where H. Minkowski was born) please find at https://en.wikipedia.org/wiki/Kaunas or http://visit.kaunas.lt/en/kaunastic.

Kaunas University of Technology (KTU) is established in 1922 and is biggest technology university in Baltic States.

If you need Schengen visa please consult Lithuania Schengen Visa Application Requirements and organizing committee for invitation.

All participants must arrange accommodation by their personal responsibility. Kaunas hotels are located in city centre.

The conference venue may be reached in approx. 15-20 min by city bus/trolleybus from the hotel.

18-20 May Kaunas city celebrates its birthday and organizes Hanseatic days (a medieval festival). Please consider this and book the hotel as early as possible.

Lunch places

There couple of places where you can have lunch:

• Conference venue cafeteria “Profesorius”
• At the shopping center “Molas”

Download document with map.

Practical information

General Information about public transport in Kaunas can be found here. Detailed schedules of local transportation you can find in app for smart phones from google play or app store.

From most of the hotels you can reach the venue by trolleybuses 5, 7, 13 and 16, or bus 39. Bus stop Breslaujos is your destination (most of buses and trolleybuses has monitors with live stops information). From the bus stop Breslaujos there is 5 min walk. Just cross the street and walk in direction of glass building (conference venue).

Direct flights to Kaunas Airport

There are direct flights to Kaunas Airport from Norway, Spain, United Kingdom, Denmark, Netherlands and etc.

Getting to the city center from Kaunas Airport

City bus No. 29 connects Kaunas Airport and Kaunas city. Extremely cheap alternative for group is to rent a car from CityBee. Also there is a possibility to rent a car in the Kaunas or Vilnius Airport.

Getting to Kaunas from Vilnius Airport

There is information about direct flights to Vilnius Airport.

Information about how to get Vilnius city from Vilnius Airport can be found here.

Kaunas city from Vilnius city can be reached by bus and by train.

16 May welcome afternoon at “KTU Santaka Valley” (including local snacks etc.)

17 May afternoon, visiting nice site-seeing places:

• Old town
• one of local breweries (location to be confirmed)
• Christ’s Resurrection Church (roof is best panoramic view in the city).
• Pažaislis monastery
• Conference dinner

18 May Hanseatic days (a medieval festival) in the old town (optional, not part of the conference).

All presenters of the conference must register before the deadline. During the registration procedure the title and abstract (approx. 400 words) have to be submitted. Only papers based on the conference presentation will be considered for the publication.

High quality papers can be submitted to the special issue of Central European Journal of Operations Research (IF(2016)=0.659) CEJOR. Deadline for submission is 15 October 2018.

All papers (short version) prepared based on a presentation at the conference are welcome to be submitted (free of charge) for the publishing in „Journal of Mathematical Models in Engineering“ (MME), ISSN (Print) 2351-5279, ISSN (Online) 2424-4627 http://www.jvejournals.com/mme.

High quality papers in field of economics can be submitted to journal “Engineering Economics” (IF(2016)=0.726) http://www.inzeko.ktu.lt/index.php/EE with regular reviewing procedure.

• Workshop of Mathematical Solutions in Business and Industry (ESGI 142)

The goal of ESGI 142 is to promote cooperation between business and science in order to solve business problems by using mathematical methods. The Workshop brings together researchers and business representatives for solving real-world problems that modern companies face.

• Big Data analytics school

For professionals, academics and PhD students

• EURO 2018

Main event of EURO

• Mathematics and Natural Sciences: Theory and Application 

Students (bachelor and master) conference on applied mathematics and physics

Registration fee includes VAT

• Regular fee includes all conference scientific and social events and conference package.
• Student fee includes conference scientific events, conference package and welcome afternoon.
• Accompanying person fee includes conference scientific and social events.
• Social events fee includes welcome afternoon, conference dinner and excursion (on the same day).