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This paper solves a long-standing open problem in mathematical finance: to find a solution to the problem of maximizing utility from terminal wealth of an agent with a random endowment process, in the general, semimartingale model for incomplete markets, and to characterize it via the associated dual problem. We show that this is indeed possible if the dual problem and its domain are carefully defined. More precisely, we show that the optimal terminal wealth is equal to the inverse of marginal utility evaluated at the solution to the dual problem, which is in the form of the regular part of an element of(L∞)* (the dual space of L∞). (author's abstract) / Series: Working Papers SFB "Adaptive Information Systems and Modelling in Economics and Management Science"

We show that, for a utility function U: R to R having reasonable asymptotic elasticity, the optimal investment process H. S is a super-martingale under each equivalent martingale measure Q, such that E[V(dQ/dP)] < "unendlich", where V is conjugate to U. Similar results for the special case of the exponential utility were recently obtained by Delbaen, Grandits, Rheinländer, Samperi, Schweizer, Stricker as well as Kabanov, Stricker. This result gives rise to a rather delicate analysis of the "good definition" of "allowed" trading strategies H for the financial market S. One offspring of these considerations leads to the subsequent - at first glance paradoxical - example. There is a financial market consisting of a deterministic bond and two risky financial assets (S_t^1, S_t^2)_0<=t<=T such that, for an agent whose preferences are modeled by expected exponential utility at time T, it is optimal to constantly hold one unit of asset S^1. However, if we pass to the market consisting only of the bond and the first risky asset S^1, and leaving the information structure unchanged, this trading strategy is not optimal any more: in this smaller market it is optimal to invest the initial endowment into the bond. (author's abstract) / Series: Working Papers SFB "Adaptive Information Systems and Modelling in Economics and Management Science"

Chronic Kidney Disease (CKD) is a risk factor for cardiovascular disease, early mortality, and kidney failure. There is a substantial burden of CKD in Manitoba’s rural and remote First Nations. Early detection and treatment of CKD in this population may be cost-effective. We constructed a Markov model comparing screening for CKD, by both estimated glomerular filtration rate and albuminuria, to usual care using the perspective of the health care payer. Patients were classified into initial risk groups based on results from the First Nations Community Based Screening to Improve Kidney Health and Prevent Dialysis initiative. Screening in Manitoba’s rural and remote First Nations was associated with a $33,500/QALY incremental cost-effectiveness ratio in comparison to usual care. Restricting to communities accessible primarily by air travel, this ratio fell to $16,180/QALY. In conclusion, at a willingness-to-pay threshold of $50,000/QALY, screening for CKD in Manitoba’s rural and remote First Nations is likely cost-effective.

The costs for stroke management and reduced health related quality of life (QoL) can extend throughout life as mental and physical disabilities are common. The aim of this thesis was to quantify this stroke-related burden with data from Riks-Stroke (RS), the Swedish stroke register. Costs for hospital and primary care, secondary drug prevention, home and residential care services, and production losses were estimated for first-ever stroke patients registered in the RS. The present value lifetime costs were estimated from the expected survival and discounted by 3%. Quality of life was estimated with the EQ-5D instrument on a subset of patients at 3 months after the index event and mapped to patient-reported outcome measures in the RS. Standard descriptive and analytic (multivariate regressions) statistical methods were used. The life-time societal present value cost per patient in 2009 was approximately €69,000 whereof home and residential care due to stroke was 59% and indirect costs for productivity losses accounted for 21% (year 2009 prices). Women had higher costs than men in all age groups. Treatment at stroke units had a low incremental cost per life-year gained compared to patients who were not treated at such facilities. The estimated disutility from stroke was greatest for women and the oldest, and compared to 1997 the cost per patient increased after a revised assumption. Hospitalisation costs were stable while long-term costs for ADL support increased in part due to a changed age structure. Patients with atrial fibrillation (AF; 24%) had €367 higher inpatient costs compared to non-AF stroke patients €8,914 (P&lt;0.01; year 2001 prices). As the index case fatality was higher among AF patients, the cost difference was higher for patients surviving the first 28 days. A multivariate regression showed that AF, diabetes, stroke severity, and death during the 3-year follow-up period were independent cost drivers. Three regression techniques (OLS, Tobit, CLAD) were chosen for mapping EQ-5D utilities to patient-reported outcome measures in the RS. The mean utility was overestimated with all models and had lower variance than the original data. In conclusion, total societal lifetime cost for 22,000 first-ever stroke patients in 2009 amounted to €1.5 billion (whereof production losses were €314 million). About 56,600 QALYs were lost due to premature death and disability. Including a preference-based QoL instrument in the RS would allow cost-utility analyses, but it is important to control for confounders in comparator arms to avoid bias.

Det militära sambandssystemet RA180 börjar bli föråldrat samtidigt som mobiltelefoni utvecklas snabbt. Systemen skiljer sig från varandra ur flera aspekter, men den allmänna färdigheten i att använda mobiltelefoni ger fördelar för militärt samband. Tidigare forskning har visat att det finns en del brister hos mobiltelefoni, men hur dessa brister förhåller sig till ett sambandssystem som redan används av Försvarsmakten finns inte att studera. Den här uppsatsen syftar till att undersöka om det finns någon militär nytta av att använda mobiltelefoni för samband, istället för RA180. För att göra det görs en systemanalys där systemen jämförs och värderas sinsemellan. I uppsatsen framkommer flera av de möjligheter som finns om mobiltelefoni används som sambandssystem och en av de största är att systemet har en högre tillgänglighet tack vare den befintliga infrastrukturen. Mobiltelefoni har en lägre militär nytta än RA180 i ett specifikt scenario, men flera av de anledningar som gjorde den militära nyttan lägre finns det lösningar för. Kryptering är en av dessa och det finns alternativ som skulle höja säkerheten avsevärt hos mobiltelefoni. / The military communication system RA180 is aging while mobile telephony is evolving rapidly. These systems differ from each other in many aspects, but the overall skill in using a mobile phone offers benefits for military communication. Previous research has shown that there are some flaws in mobile telephony, but how these deficiencies relate to a communication system that is already in use by the Armed Forces have not been studied yet. This essay aims to investigate whether there is any military utility of using mobile telephony for the communication instead of RA180. A systems analysis, where the systems are compared and evaluated, will be implemented for this purpose. The essay reveals several opportunities available when mobile telephony is used as communication systems and one of the main potential is that the system has a higher availability due to the existing infrastructure. Mobile telephony has a lower military utility than RA180 in a specific scenario, but for several of the reasons that resulted in a lower military utility there are solutions. Encryption is one of these and there are options that would improve security significantly in mobile telephony.

This thesis presents two modern control methods to address the Internet traffic congestion control issues. They are based on a distributed traffic management framework for the fast-growing Internet traffic in which routers are deployed with intelligent or optimal data rate controllers to tackle the traffic mass. The first one is called the IntelRate (Intelligent Rate) controller using the fuzzy logic theory. Unlike other explicit traffic control protocols that have to estimate network parameters (e.g., link latency, bottleneck bandwidth, packet loss rate, or the number of flows), our fuzzy-logic-based explicit controller can measure the router queue size directly. Hence it avoids various potential performance problems arising from parameter estimations while reducing much computation and memory consumption in the routers. The communication QoS (Quality of Service) is assured by the good performances of our scheme such as max-min fairness, low queueing delay and good robustness to network dynamics. Using the Lyapunov’s Direct Method, this controller is proved to be globally asymptotically stable. The other one is called the OFEX (Optimal and Fully EXplicit) controller using convex optimization. This new scheme is able to provide not only optimal bandwidth allocation but also fully explicit congestion signal to sources. It uses the congestion signal from the most congested link, instead of the cumulative signal from a flow path. In this way, it overcomes the drawback of the relatively explicit controllers that bias the multi-bottlenecked users, and significantly improves their convergence speed and throughput performance. Furthermore, the OFEX controller design considers a dynamic model by proposing a remedial measure against the unpredictable bandwidth changes in contention-based multi-access networks (such as shared Ethernet or IEEE 802.11). When compared with the former works/controllers, such a remedy also effectively reduces the instantaneous queue size in a router, and thus significantly improving the queueing delay and packet loss performance. Finally, the applications of these two controllers on wireless local area networks have been investigated. Their design guidelines/limits are also provided based on our experiences.

A model for optimizing the differential cost between a preventive maintenance program and a traditional run-to-failure program on managing assets under uncertainty is developed to assist electric power utilities in decision-making. The assets studied, though not necessarily critical to power delivery, are so numerous in number that the failures of thousands of them result in millions of dollars in instantaneous replacement cost to the utility. The ages of some of the assets are approaching an excess of one hundred years, the age of commercial electricity in the United States. The developed model includes the economics of inspections and replacements as random variables, where the cost of corrective replacements could significantly exceed the cost of planned or preventive replacements. The model also relies on uncertainties in annual failures and inaccuracy of diagnostics that drive planned replacements. Age-specific fragilities of the assets under environmental stress are assessed, and the likelihood of failures of the assets was found to increase significantly as they approached one hundred years, past some initial age of failures that are comparable to new assets. This finding led to the development of an improved geographical inspection scheme, where only components past that initial age are recommended for diagnostic evaluation. The optimization results suggest that the present net benefit/cost of preventive replacement programs of the electric power utility to the unpopular run-to-failure program can be improved on. This, by using the developed models and adopting the frameworks presented in the research work. Implications for future research are also discussed.

This thesis discusses the financial market model with proportional transaction costs considered in Cvitanic and Karatzas (1996) (hereafter we use CK (1996)). For a modified dual problem introduced by Choulli (2009), I discuss solutions under weaker conditions than those of CK (1996), and furthermore the obtained solutions generalize the examples treated in CK (1996). Then, I consider the exponential utility which does not belong to the family of utility considered by CK (1996) due to the Inada condition. Finally, I elaborate the same results as in CK (1996) for the exponential utility, and I derive other related results using the specificity of the exponential utility function as well. These lead to a different method/approach than CK (1996) for our utility maximization problem, and different notion of admissibility for financial strategies as well. / Mathematical Finance

Escalation of commitment to failing investments is considered to be representative of biased forms of decision-making which may result in unproductive consequences. Decision makers adopt investment courses of action in initial conditions of uncertainty, which subsequently appear to lead to failure. When confronted with the prospect of their decisions producing losses, they commit decision errors thus escalating their commitment to their original courses of action. Several theories with rational and irrational antecedents have been developed in the literature to explain the escalation phenomenon. Fundamental theoretical differences are associated with the origin of the concept. Escalation of commitment was conceived in the decision theory context of the problem of resource allocation under uncertainty conditions. This thesis describes the resource allocation problem in order to identify and explain associated characteristics. Explanations of these characteristics reveal several problems: there are no decision rules available to handle uncertainty; decision makers consistently violate the requirements for rationality and rational economic decision making; individual utility maximization is divorced from the business objective of profit maximisation and also involves taking increased risks when there is an expectation that investment losses will be recovered; there are several criteria for and methods of investment evaluation which are computationally and analytically difficult to apply; and whether a decision error has been made is indeterminate with some investment projects whose success or failure cannot be determined until after project completion. These problems lead to the conclusion that the determination of the success or failure of an investment decision may depend on the valuation methodology selected. In this respect it is argued that investment decisions undertaken in public organisations should be evaluated using methodologies developed to measure social benefits and costs because calculations of private rates of return provide misleading assessments. Research on the escalation phenomenon is dominated by a psychological perspective, which obtains its findings from extensive investigation of individuals in controlled experimental laboratory conditions. The experimental research has identified personal pre-dispositional, social and situational influences, which contribute to escalation and de-escalation of commitment. The major research focus has resulted in two theoretical explanations for escalation of commitment. These derive from descriptive cognitive motivational theories concerned with expectancy, that encourage rational decision making and dissonance, which in turn produce irrational self justification based decisions. An alternative research focus favours explanations from prospect theory. Research, critical of the psychological explanations favours rational explanations derived from the normative theory of expected utility, which encourages individual self-interested behaviour. This thesis is concerned with explaining escalation of commitment in organisations. This necessarily involves adopting an interdisciplinary perspective. This thesis examines two world expositions, Expo 86 and Expo 88. World expositions are unusual government events whose principal purpose is to celebrate human achievements. Expo 86 was held to celebrate Vancouver’s centenary. Expo 88 was held to celebrate Australia’s bicentennial. They were not designed for their potential profitability. To justify the expenditures involved other objectives are attached to the celebratory purpose. These usually are associated with urban renewal and economic development. They are unorthodox investment projects. They involve long lead times of capital expenditure followed by short operating periods of six months or less, after which time most of the capital improvements are either disposed of or demolished. Expo 86 incurred significant financial losses and was considered an escalation prototype. It became a case study used to develop a generalized theoretical model of escalation. The model specifies how initially formulated rational decisions are replaced progressively by decisions based on self-justification, which escalate commitment. Escalation is reinforced by psychological pre-dispositional, social and structural influences. The model is an extension of research findings from individual laboratory experiments. The thesis identifies several plausible alternative theoretical explanations for escalation in organisations. These involve emotional commitment, social influences to conform to group norms, the possibilities for deviating from rational decision making principles in the presence of uncertainly and the agency theory problem which involves individuals pursuing their own rational self interests which are contrary to the objectives of an organisation. Expo 86 was directly linked to urban renewal objectives. The economic project and urban planning studies of Expo 86 concluded that the event successfully achieved the urban development objectives using social cost benefit analysis as the criterion of evaluation. These objectives were rationally conceived and executed. As a result of the examination, the thesis explores the problems associated with investment projects having multiple objectives, looks at how rational explanations can be accommodated in the theoretical model and questions whether calculations of accounting negative rates of return should be the criteria for evaluation and the determinant of whether Expo 86 qualified as a prototypical example of escalation in organisations. The analysis of Expo 88 reinforced these concerns. A longitudinal dimension was adopted in the case study. This enabled the origins of the event to be explored, the objectives to be identified and the project to be evaluated using various private and public investment criteria. Expo 88 qualified as a failed private investment project on all but one of the financial investment criteria employed. The evaluation of Expo 88 as a public investment project produced social benefits and economic impacts in excess of social costs. Expo 88 was conceived by influential individuals who promoted the initiative for an exposition on the basis that its staging would be publicly and personally beneficial. The project was associated with multiple objectives other than its celebratory purpose that included tourism development and urban renewal from which the public was expected to benefit and which promoters believed justified the event. The principal decision makers were not directly influenced by profitability considerations because information had been provided during the planning phase, which indicated that the project would produce financial losses. Because of public pronouncements it became politically necessary to include the profitability of the project as an objective. Various costly and deceptive measures were adopted in order to generate an impression of profitability. At the same time success was promoted publicly and successfully, not in terms of its profitability, but in terms of attendance figures. As a result of the analyses, the theoretical model was modified by incorporating rational motives into the original structure. Decision makers were driven by rational motives over the life of the projects. In the case of Expo 88 these rational motives derived from agency theory relationships and the pursuit of objectives concerned with economic development, celebration and political recognition. The thesis concludes with a discussion of the contributions and limitations of the research. The contributions involve modifications to the theoretical model to reflect the importance of rational motives in the decision making process, generalisation of the causes of escalation in organisations in various contingent circumstances and the impact that multiple project objectives and methodological problems concerned with evaluation criteria have on theory development. The major limitation relates to the selection of public organisations engaged in unorthodox investment projects as inappropriate representatives to examine the escalation phenomenon.