University of Calgary PRISM: University of Calgary's Digital Repository Graduate Studies The Vault: Electronic Theses and Dissertations 2013-09-23 Design and Analysis of an Intelligent Decision Support System for Trading and its Application to Electricity Trading Maurice, Sebastian Augustine Maurice, S. A. (2013). Design and Analysis of an Intelligent Decision Support System for Trading and its Application to Electricity Trading (Unpublished doctoral thesis). University of Calgary, Calgary, AB. doi:10.11575/PRISM/25562 http://hdl.handle.net/11023/1011 doctoral thesis University of Calgary graduate students retain copyright ownership and moral rights for their thesis. You may use this material in any way that is permitted by the Copyright Act or through licensing that has been assigned to the document. For uses that are not allowable under copyright legislation or licensing, you are required to seek permission. Downloaded from PRISM: https://prism.ucalgary.ca UNIVERSITY OF CALGARY Design and Analysis of an Intelligent Decision Support System for Trading and its Application to Electricity Trading by Sebastian Augustine Maurice A THESIS SUBMITTED TO THE FACULTY OF GRADUATE STUDIES IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY DEPARTMENT OF ELECTRICAL AND COMPUTER ENGINEERING CALGARY, ALBERTA SEPTEMBER, 2013 © Sebastian Augustine Maurice 2013 Abstract The financial trading market is a highly complex and dynamic system, which is the limiting factor preventing any model from accurately predicting its movements. Because of this limiting factor, trading in a market can be risky for individuals and institutions that could experience financial losses and this can impact the overall economy. It remains an on-going research challenge to find approaches to minimize the risk in trading. The focus of this PhD research is on a multi-agent based simulation approach to provide decision support to traders to help minimize the risk from trading. We address four problems in the existing research on decision support systems for trading: 1) lack of a modeling framework, 2) lack of direction on modeling personas, 3) lack of direction on how to provide decision support to traders, and 4) lack of analysis on quality of forecasts. The main contributions of the research is the design, analysis, development and validation of a new decision support paradigm for trading called T-Evolve*. We have also developed a new intelligent decision support technology called TRAMAS. The paradigm together with TRAMAS supports traders by allowing them to simulate different market models composed of agents with different personas and forecast beliefs. Exploring and analysing the simulation results provides guidance to traders on potential market outcomes; this is then used to develop a trading plan for tomorrow’s market. The core element of TRAMAS is the incorporation of actors with different personas and forecasts beliefs, instantiated by agents. The advantage of our approach is twofold. First, different personas of participants exist in every market, thus incorporating personas is a natural representation of the real market. Second, forecast beliefs are a natural belief of participants because forecasts about the future market play a critical role in how a market may develop tomorrow. Two industrial-oriented case studies with empirical evidence support our approach. The validation of our approach by nine industry experts confirms, within the context of this research, that our approach has merit and can be useful in a real-world setting. TRAMAS also predicts with 77% accuracy the direction of future markets for six different days. ii Acknowledgements This PhD has been difficult and a hard road for my family and me mainly because I am a part-time PhD student trying to balance the demands of work, family and research. A few times the intensities and difficulties of maintaining a balance was almost too difficult to bear but with the support from family, friends, my work, and my supervisors, who believed in the ideas, I endured. I cannot say I would recommend my road to others to follow – it was difficult and required total dedication and commitment that may sometimes be overwhelming. One has to be prepared to sacrifice the things they cherish, not for months, but years. However, while the road is hard and demanding, there is nothing sweeter, other than the birth of our daughter, which can compare to having completed the arduous journey to a PhD; completing it is my Mount Everest. It is the ultimate accomplishment in academics and a valuable prize to attain. I am greatly indebted to both Dr. Ruhe and Dr. Denzinger. When I first met Günther in 2003 I was contemplating a MSc. in Electrical and Computer Engineering and realized Günther was starting to build a lab in Decision Support. This area intrigued me and hence I completed my MSc. in Software Engineering in 2006. From that experience, I got to know him well. He has always been supportive of my research and always prepared to offer help and suggestions. I appreciate his rigor and always striving to instill in his students to be the best in the world in their research areas. After my MSc, I left for a year and during this time got the urge to pursue a PhD and approached Günther again in 2007. From then to now with a LOT in the middle I am here completing my PhD. During the process of my PhD, I met Jörg. I cannot say enough good things about him. We had many conversations, some intense, in the areas of my research. His quick insights into the darkest corners of my research were enough of a light to continue in the area. His feedback and insights were invaluable to this research. I will also never forget his quick wit and laughter but mostly I will not forget his acute reasoning skills and his abilities to see issues or value before others. My wife was a pillar of support in this long journey. The sentences I write here will not do justice to the tremendous love and support she continuously provides and for urging me to the finish line. My mother and father must also be thanked for their continued support and encouragements and giving me life and dedication to higher learning. Lastly, I would like to thank God for making me who I am and giving me certain talents that have allowed me to never quit what I start and remaining calm and focused even in the most difficult and trying moments in life. I will also miss the experiences and interactions with Graduate Students in the lab but I will never be far. Thank you to all! Sebastian Maurice Calgary, Canada, 2013 iii Dedication Mom and Dad This thesis is dedicated to my mother Mary and father Francis, for instilling in me a commitment to hard work and dedication to academics and learning. Ellen Especially, I dedicate this thesis to my wife Ellen, for her continued support over the years, and for her patience in putting up with my pursuit of this degree. Matea Lastly, I dedicate this thesis to my daughter Matea; hope she will also value hard work and pursue great academic achievements. iv Table of Contents Abstract ........................................................................................................................................... ii Acknowledgements ........................................................................................................................ iii Dedication ...................................................................................................................................... iv List of Tables .................................................................................................................................. x List of Figures ............................................................................................................................... xii List of Symbols ............................................................................................................................ xiii Glossary of Terms ........................................................................................................................ xvi Acronyms ...................................................................................................................................... xx CHAPTER 1: INTRODUCTION ............................................................................................. 1 1.1 Motivation ........................................................................................................... 1 1.2 Trading and Software Engineering ...................................................................... 2 1.3 Trading and Software Engineering Decision Support ......................................... 3 1.4 State-of-the-Art in Agent-Based Modeling ......................................................... 4 1.5 Research Problems .............................................................................................. 5 1.5.1 Problem 1: Lack of a Modeling Framework ............................................................. 5 1.5.2 Problem 2: Lack of Direction on Modeling Personas ............................................... 6 1.5.3 Problem 3: Lack of Direction on Providing Decision Support to Traders ............... 7 1.5.4 Problem 4: Lack of Analysis on Quality of Forecasts .............................................. 7 1.5.5 Further Problems and Challenges ............................................................................. 7 1.6 Formal Problem Definitions ...............................................................................