A New Approach to Pricing Double-Barrier Options with Arbitrary Payoffs and Exponential Boundaries

Abstract

We consider in this article the arbitrage free pricing of double knock-out barrier options with payoffs that are arbitrary functions of the underlying asset, where we allow exponentially time-varying barrier levels in an otherwise standard Black–Scholes model. Our approach, reminiscent of the method of images of electromagnetics, considerably simplifies the derivation of analytical formulae for this class of exotics by reducing the pricing of any double-barrier problem to that of pricing a related European option. We illustrate the method by reproducing the well-known formulae of Kunitomo and Ikeda (1992 Kunitomo, N. and Ikeda, M. 1992. Pricing options with curved boundaries. Mathematical Finance, 2: 276–298.  [Google Scholar]) for the standard knock-out double-barrier call and put options. We give an explanation for the rapid rate of convergence of the doubly infinite sums for affine payoffs in the stock price, as encountered in the pricing of double-barrier call and put options first observed by Kunitomo and Ikeda (1992 Kunitomo, N. and Ikeda, M. 1992. Pricing options with curved boundaries. Mathematical Finance, 2: 276–298.  [Google Scholar]).     

Game Options Analysis of the Information Role of Call Policies in Convertible Bonds

Abstract

In debt financing, existence of information asymmetry on the firm quality between the firm management and bond investors may lead to significant adverse selection costs. We develop the two-stage sequential dynamic two-person game option models to analyse the market signalling role of the callable feature in convertible bonds. We show that firms with positive private information on earning potential may signal their type to investors via the callable feature in a convertible bond. We present the variational inequalities formulation with respect to various equilibrium strategies in the two-person game option models via characterization of the optimal stopping rules adopted by the bond issuer and bondholders. The bondholders’ belief system on the firm quality may be revealed with the passage of time when the issuer follows his optimal strategy of declaring call or bankruptcy. Under separating equilibrium, the quality status of the firm is revealed so the information asymmetry game becomes a new game under complete information. To analyse pooling equilibrium, the corresponding incentive compatibility constraint is derived. We manage to deduce the sufficient conditions for the existence of signalling equilibrium of our game option model under information asymmetry. We analyse how the callable feature may lower the adverse selection costs in convertible bond financing. We show how a low-quality firm may benefit from information asymmetry and vice versa, underpricing of the value of debt issued by a high-quality firm.     

Geometric quantities of lower doubly excited bound states of helium

Expectation values of single electron and interelectronic geometric quantities such as $\langle r\rangle$, $\langle r_{12}\rangle$, $\langle r_<\rangle$, $\langle r_>\rangle$, $\langle \cos\theta_{12}\rangle$ and $\langle \theta_{12}\rangle$ are calculated for doubly excited $2{\rm p}n{\rm p}\,{}^1P^{\,\rm e}\,(3\leq n\leq5),\, 2{\rm p}n{\rm p}\,{}^3\!P^{\,\rm e}\,(2\leq n\leq5)$ and $2{\rm p}n{\rm d}\,{}^{1,3}D^{\,\rm o}\,(3\leq n\leq5)$ states of helium using Hylleraas-$B$-spline basis set. The energy levels converge to at least 10 significant digits in our calculations. The extrapolated values of geometric quantities except for $\langle \theta_{12}\rangle$ reach 10 significant digits as well; $\langle \theta_{12}\rangle$ reaches at least 7 significant digits using a multipole expansion approach. Our results provide a precise reference for future research.     

Design of Hamming Code Checker Using Titanium-Diffused Lithium Niobate-Based Waveguide

ABSTRACT

This work presents an electro-optic effect-based design for the widely used Hamming code for checking single bit errors in the received data. The structure is based on Mach-Zehnder Interferometer, designed using Titanium-diffused Lithium Niobate-based waveguides. The proposed device has been successfully tested using the beam propagation method. For a received 7-bit code, the three simultaneously generated check bits are combined to check the error position. Critical performance parameters like extinction ratio (24.39dB), contrast ratio (25.711dB), insertion loss (0.041dB), and amplitude modulation (0.079dB) calculated for the overall device are within acceptable limits for the feasibility of the device.     

No Spin-Localization Phase Transition in the Spin-Boson Model without Local Field

We explore the spin-boson model in a special case, i.e., with zero local field. In contrast to previous studies, we find no possibility for quantum phase transition （QPT） happening between the localized and delocalized phases, and the behavior of the model can be fully characterized by the even or odd parity as well as the parity breaking, instead of the QPT, owned by the ground state of the system. The parity breaking mentioned in our case is completely different from the spontaneously broken symmetry relevant to the conventionally defined QPT in previous studies. Our analytical treatment about the eigensolution of the ground state of the model presents for the first time a rigorous proof of no- degeneracy for the ground state of the model, which is independent of the bath type, the degrees of freedom of the bath and the calculation precision. We argue that the QPT mentioned previously appears due to incorrect employment of the ground state of the model and/or unreasonable treatment of the infrared divergence existing in the spectral functions for Ohmic and sub-Ohmic dissipations.     

Spin Parity Effect on Magnetic Relaxation by Quantum Tunneling in Nanomagnets

Spin parity effect on magnetic relaxation by quantum tunneling in the biaxial spin model is studied by taking into account the transverse local stray field. It is shown that the square root time dependence in the even resonance occurs in the presence of a distribution of transverse anisotropic parameters, while the odd resonance always shows exponential relaxation. Magnetic relaxation under a sweeping field is also studied. The variation of the relaxation curve with the increasing distribution width of the local stray field for even resonance is qualitatively different from that of the odd resonance. The theoretical result on even resonance is in agreement with experimental results on Fe8 system, while the prediction for odd resonance awaits the experimental verification.     

基于分形B-S定价模型的认购权证价格行为实证分析

针对证券收益率呈现"尖峰厚尾"的分布特征,在分析传统B-S权证定价模型的不足基础上,本文提出了基于分形理论的B-S权证定价模型,并利用分形B-S权证定价模型和传统B-S模型分析认购权证价格变化的行为。实证结果发现,两种模型的理论价格均低估了市场价格,且低估的程度具有显著统计性,其中以分形B-S模型评价结果最接近市场价格,评价绩效好。探讨影响分形B-S权证模型理论价格与市场价格差异的主要因素,结果发现距到期日时间的长短、价内外程度以及流动性在解释价差程度上具有统计的显著性。     

Integral invariants for non-barotropic flows in a four dimensional space time manifold

Properties of non-barotropic flows are described using Lie derivatives of differential forms in a Euclidean four dimensional space-time manifold. Vanishing of the Lie derivative implies that the corresponding physical quantity remains invariant along the integral curves of the flow. Integral invariants of non-barotropic perfect and viscous flows are studied using the concepts of relative and absolute invariance of forms. The four dimensional expressions for the rate of change of the generalized circulation, generalized vorticity flux, generalized helicity and generalized parity in the case of ideal and viscous non-barotropic flows are thereby obtained.     

Parity Symmetry and Parity Breaking in the Quantum Rabi Model with Addition of Ising Interaction

We explore the possibility to generate new parity symmetry in the quantum Rabi model after a bias is introduced. In contrast to a mathematical treatment in a previous publication [J. Phys. A 46(2013) 265302], we consider a physically realistic method by involving an additional spin into the quantum Rabi model to couple with the original spin by an Ising interaction, and then the parity symmetry is broken as well as the scaling behavior of the ground state by introducing a bias. The rule can be found that the parity symmetry is broken by introducing a bias and then restored by adding new degrees of freedom. Experimental feasibility of realizing the models under discussion is investigated.