Predicting the Term Structure of Interest Rates: Incorporating Parameter Uncertainty, Model Uncertainty and Macroeconomic Information

Abstract Various types of uncertainties, such as parameter uncertainty, model uncertainty, metamodeling uncertainty may lead to low robustness. Parameter uncertainty can be either epistemic or aleatory in physical systems, which have been widely represented by intervals and probability distributions respectively. Model uncertainty is formally defined as the difference between the true value of the real-world process and the code output of the simulation model at the same value of inputs. Additionally, metamodeling uncertainty is introduced due to the usage of metamodels. To reduce the effects of uncertainties, robust optimization (RO) algorithms have been developed to obtain solutions being not only optimal but also less sensitive to uncertainties. Based on how parameter uncertainty is modeled, there are two categories of RO approaches: interval-based and probability-based. In real-world engineering problems, both interval and probabilistic parameter uncertainties are likely to exist simultaneously in a single problem. However, few works have considered mixed interval and probabilistic parameter uncertainties together with other types of uncertainties. In this work, a general RO framework is proposed to deal with mixed interval and probabilistic parameter uncertainties, model uncertainty, and metamodeling uncertainty simultaneously in design optimization problems using the intervals-of-statistics approaches. The consideration of multiple types of uncertainties will improve the robustness of optimal designs and reduce the risk of inappropriate decision-making, low robustness and low reliability in engineering design. Two test examples are utilized to demonstrate the applicability and effectiveness of the proposed RO approach.

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Robust Optimization With Parameter and Model Uncertainties Using Gaussian Processes With Limited Samples

Volume 2B: 43rd Design Automation Conference ◽

10.1115/detc2017-67291 ◽

2017 ◽

Author(s):

Yanjun Zhang ◽

Mian Li

Keyword(s):

Robust Optimization ◽

Engineering Design ◽

Gaussian Processes ◽

Parameter Uncertainty ◽

Model Uncertainty ◽

Computational Cost ◽

Random Errors ◽

Model Uncertainties ◽

Uncertainty Model ◽

Gp Model

Uncertainty is inevitable in engineering design. The existence of uncertainty may change the optimality and/or the feasibility of the obtained optimal solutions. In simulation-based engineering design, uncertainty could have various types of sources, such as parameter uncertainty, model uncertainty, and other random errors. To deal with uncertainty, robust optimization (RO) algorithms are developed to find solutions which are not only optimal but also robust with respect to uncertainty. Parameter uncertainty has been taken care of by various RO approaches. While model uncertainty has been ignored in majority of existing RO algorithms with the hypothesis that the simulation model used could represent the real physical system perfectly. In the authors’ earlier work, a RO framework was proposed to consider both parameter and model uncertainties using the Bayesian approach with Gaussian processes (GP), where metamodeling uncertainty introduced by GP modeling is ignored by assuming the constructed GP model is accurate enough with sufficient training samples. However, infinite samples are impossible for real applications due to prohibitive time and/or computational cost. In this work, a new RO framework is proposed to deal with both parameter and model uncertainties using GP models but only with limited samples. The compound effect of parameter, model, and metamodeling uncertainties is derived with the form of the compound mean and variance to formulate the proposed RO approach. The proposed RO approach will reduce the risk for the obtained robust optimal designs considering parameter and model uncertainties becoming non-optimal and/or infeasible due to insufficiency of samples for GP modeling. Two test examples with different degrees of complexity are utilized to demonstrate the applicability and effectiveness of the proposed approach.

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