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Department of Statistical and Actuarial Sciences
Center of Actuarial Excellence (CAE)

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  • PhD Thesis Proposal Defence - Public Lecture (Friday, April 28, 2017)
    Time: 10:00am-11:00am and Room: WSC 248
    Speaker: Heng (Peter) Xiong
    Title: Some applications of higher-order hidden Markov models in environmental finance
    The focus of this research is to address several issues, using the framework of hidden Markov models (HMMs) or higher-order HMMs (HOHMMs), in environmental finance. Our applications' context is to employ principles from financial-contract theory that will benefit and support investments in climate-change adaptation, renewable energy, and environmental protection.

    Climate-related issues as they affect the global economy, can no longer be ignored. Economic losses caused by climatic events drive the creation of financial innovations that could mitigate various pertinent risks. Such innovations in the financial markets are derivative contracts whose values depend on underlying variables related to temperature dynamics, prices of energy, and other weather indices. The underlying factors and indicators typically evolve as stochastic processes with extreme fluctuations reflecting huge market uncertainty. Undoubtedly, the evolution of such processes cannot be captured accurately by one-state models. This inspires the adoption of regime-switching methods that offer much flexibility and can model the random shift of economic regimes. We construct various HOHMM-driven financial models that modulate the behaviour of ...

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