Non-Linearities, Model Uncertainty, and Macro Stress Testing

Stress Testing—The Link between Macro and Micro

The events since autumn 2007 have highlighted a need to test the assumptions of industry risk measurement and pricing models and anticipate the potential impact of changes in financial market conditions that are significantly outside the bounds of historical norms. Stress testing is a generic term that is frequently used to describe a variety of techniques that are applied to assess the importa...

Costing Non-linearities, Surprises, and Irreversible Events

The primary purpose of this paper is to highlight issues that are crucial when costing climatic impacts, particularly when the possibility is allowed for non-linearities, surprises, and irreversible events. The assumptions made when carrying out such exercises largely explain why different authors obtain different policy conclusions. Uncertainties become more significant when projections of cli...

Projection pursuit regression for moderate non-linearities

We present methods specially designed to be effective with moderately non-linear regression relationships. The model fitted is of the Projection Pursuit Regression (PPR) type with a smooth, non-parametric link function connecting the mean response to a linear combination of the regressors. New algorithms, close to ordinary linear regression, are developed. Considerable numerical evidence is giv...

Dispersion-induced non-linearities in semiconductors

Blind Removal of Image Non-Linearities

This paper presents a technique for blindly removing image non-linearities in the absence of any calibration information or explicit knowledge of the imaging device. The basic approach exploits the fact that a non-linearity introduces specific higher-order correlations in the frequency domain (beyond second-order). These correlations can be detected using tools from polyspectral analysis. The n...