Applied Stochastic Models in Business and Industry

Gil‐Alana, L. A.; Nazarski, M.

2007 Applied Stochastic Models in Business and Industry

doi: 10.1002/asmb.640

We examine the nominal exchange rates of six currencies (Canadian, Australian and U.S. dollars, euro, Japanese yen and U.K. pound) against the Polish zloty by means of statistical techniques based on unit roots and other long memory processes. We use both parametric and semiparametric methods for estimating and testing integer and fractional orders of integration at the long run or zero frequency. The results show that unit roots are likely to occur in relation with the U.S. and the Canadian dollars, the Japanese yen and the U.K. pound. However, for the Australian dollar and the euro, this hypothesis is rejected in favour of smaller degrees of integration, implying mean reversion in their behaviour. Thus, for the former currencies, in the event of an exogenous shock affecting the exchange rates, strong policy actions must be required to bring the variables back to their original levels. On the other hand, for the Australian dollar and the euro, there exists less need of action since the series will return to their levels sometime in the future. Copyright © 2006 John Wiley & Sons, Ltd.

Mønness, E.; Linsley, M. J.; Garzon, I. E.

2007 Applied Stochastic Models in Business and Industry

doi: 10.1002/asmb.641

Full factorial designs of a significant size are very rarely performed in industry due to the number of trials involved and unavailable time and resources. The data in this paper were obtained from a six‐factor full factorial (26) designed experiment that was conducted to determine the optimum operating conditions for a steel milling operation. Fractional‐factorial designs 2 III6–3 (one‐eighth) and 2 IV6–2 (one‐fourth, using a fold‐over from the one‐eighth) are compared with the full 26 design. Four of the 2 III6–3 are de‐aliased by adding four more runs. In addition, two 12‐run Plackett–Burman experiments and their combination into a fold‐over 24‐run experiment are considered. Many of the one‐eighth fractional‐factorial designs reveal some significant effects, but the size of the estimates varies much due to aliasing. Adding four more runs improves the estimation considerably. The one‐quarter fraction designs yield satisfactory results, compared to the full factorial, if the ‘correct’ parameterization is assumed. The Plackett–Burman experiments, estimating all main effects, always perform worse than the equivalent regular designs (which have fewer runs). When considering a reduced model many of the different designs are more or less identical. The paper provides empirical evidence for managers and engineers that the choice of an experimental design is very important and highlights how designs of a minimal size may not always result in productive findings. Copyright © 2006 John Wiley & Sons, Ltd.

Berg, Daniel

2007 Applied Stochastic Models in Business and Industry

doi: 10.1002/asmb.658

We compare several accounting‐based models for bankruptcy prediction. The models are developed and tested on large data sets containing annual financial statements for Norwegian limited liability firms. Out‐of‐sample and out‐of‐time validation shows that generalized additive models significantly outperform popular models like linear discriminant analysis, generalized linear models and neural networks at all levels of risk. Further, important issues like default horizon and performance depreciation are examined. We clearly see a performance depreciation as the default horizon is increased and as time goes by. Finally a multi‐year model, developed on all available data from three consecutive years, is compared with a one‐year model, developed on data from the most recent year only. The multi‐year model exhibits a desirable robustness to yearly fluctuations that is not present in the one‐year model. Copyright © 2006 John Wiley & Sons, Ltd.

Triantafyllopoulos, K.

2007 Applied Stochastic Models in Business and Industry

doi: 10.1002/asmb.659

In this paper we develop a Bayesian procedure for feedback adjustment and control of a single process. We replace the usual exponentially weighted moving average (EWMA) predictor by a predictor of a local level model. The novelty of this approach is that the noise variance ratio (NVR) of the local level model is assumed to change stochastically over time. A multiplicative time series model is used to model the evolution of the NVR and a Bayesian algorithm is developed giving the posterior and predictive distributions for both the process and the NVR. The posterior distribution of the NVR allows the modeller to judge better and evaluate the performance of the model. The proposed algorithm is semi‐conjugate in the sense that it involves conjugate gamma/beta distributions as well as one step of simulation. The algorithm is fast and is found to outperform the EWMA and other methods. An example considering real data from the microelectronic industry illustrates the proposed methodology. Copyright © 2006 John Wiley & Sons, Ltd.

Cabras, S.; Morales, J.

2007 Applied Stochastic Models in Business and Industry

doi: 10.1002/asmb.660

Threshold selection is a key aspect in extreme values analysis, especially when the sample size is small. The main idea underpinning this work is that extreme observations are assumed to be outliers of a specified parametric model. We propose a threshold selection method based on outlier detection using a suitable measure of surprise. Copyright © 2006 John Wiley & Sons, Ltd.

Wang Chiu, Singa

2007 Applied Stochastic Models in Business and Industry

doi: 10.1002/asmb.664

This paper derives the optimal replenishment policy for imperfect quality economic manufacturing quantity (EMQ) model with rework and backlogging. The classic EMQ model assumes that all items produced are of perfect quality. However, in real‐life manufacturing settings, generation of imperfect quality items is almost inevitable. In this study, a random defective rate is assumed. All items produced are inspected and the defective items are classified as scrap and repairable. A rework process is involved in each production run when regular manufacturing process ends, and a rate of failure in repair is also assumed. Unit disposal cost and unit repairing and holding costs are included in our mathematical modelling and analysis. The renewal reward theorem is employed in this study to cope with the variable cycle length. The optimal replenishment policy in terms of lot‐size and backlogging level that minimizes expected overall costs for the proposed imperfect quality EMQ model is derived. Special cases of the model are identified and discussed. Numerical example is provided to demonstrate its practical usage. Copyright © 2006 John Wiley & Sons, Ltd.

Reikard, Gordon E.

2007 Applied Stochastic Models in Business and Industry

doi: 10.1002/asmb.668