Scaling and long-range dependence in option pricing II: Pricing European option with transaction costs under the mixed Brownian–fractional Brownian model

This paper deals with the problem of discrete-time option pricing by the mixed Brownian–fractional Brownian model with transaction costs. By a mean-self-financing delta hedging argument in a discrete-time setting, a European call option pricing formula is obtained. In particular, the minimal pricing c_min(t,s_t) of an option under transaction costs is obtained, which shows that timestep δt and Hurst exponent H play an important role in option pricing with transaction costs. In addition, we also show that there exists fundamental difference between the continuous-time trade and discrete-time trade and that continuous-time trade assumption will result in underestimating the value of a European call option.     

Continuous time Black-Scholes equation with transaction costs in subdiffusive fractional Brownian motion regime

In this paper, we study the problem of continuous time option pricing with transaction costs by using the homogeneous subdiffusive fractional Brownian motion (HFBM) Z(t)=X(S_α(t)), 0<α<1, here dX(τ)=μX(τ)(dτ)^2H+σX(τ)dB_H(τ), as a model of asset prices, which captures the subdiffusive characteristic of financial markets. We find the corresponding subdiffusive Black-Scholes equation and the Black-Scholes formula for the fair prices of European option, the turnover and transaction costs of replicating strategies. We also give the total transaction costs.     

Scaling and long-range dependence in option pricing I: Pricing European option with transaction costs under the fractional Black–Scholes model

This paper deals with the problem of discrete time option pricing by the fractional Black–Scholes model with transaction costs. By a mean self-financing delta-hedging argument in a discrete time setting, a European call option pricing formula is obtained. The minimal price of an option under transaction costs is obtained as timestep , which can be used as the actual price of an option. In fact, is an adjustment to the volatility in the Black–Scholes formula by using the modified volatility to replace the volatility σ, where is the Hurst exponent, and k is a proportional transaction cost parameter. In addition, we also show that timestep and long-range dependence have a significant impact on option pricing.     

Expectation Values of Observables in Time-Dependent Quantum Mechanics

Let U(t) be the evolution operator of the Schrödinger equation generated by a Hamiltonian of the form H ₀(t) + W(t), where H ₀(t) commutes for all twith a complete set of time-independent projectors . Consider the observable A=_j P _jjwhere _j j , >0, for jlarge. Assuming that the matrix elements of W(t) behave as for p>0 large enough, we prove estimates on the expectation value for large times of the type where >0 depends on pand . Typical applications concern the energy expectation H₀(t) in case H ₀(t) H ₀or the expectation of the position operator x²(t) on the lattice where W(t) is the discrete Laplacian or a variant of it and H ₀(t) is a time-dependent multiplicative potential.     

Experimental limits onM t andM H — present and future

Existing data from precision tests of the electroweak standard model at LEP, the -colliders andvN-scattering experiments constrain the mass of the top quark toM _t =144 _–26–21 ⁺²³⁺¹⁹ GeV, where the central value and first error refer to a Higgs mass value of 300 GeV. The second error shows the variation ofM _t for Higgs mass values spanning the range 50M _H(GeV)<1000. the=" present=" apparent=" sensitivity=" of=" the=" data=" to=" the=" value=" of=" the=" higgs=" mass=" is=" investigated.=" future=" data=" from=" lep=" will=" significantly=" tighten=" the=" bounds=">M _t . Limits onM _H however will remain of order M _H/M _H2 without an independent measurement ofM _t .     

On integrability of generalized Veronese curves of distributions

Given a 1-parameter family of 1-forms γ(t) = γ₀+tγ₁+ ···+tⁿψ_n, consider the condition dγ(t)γ(t) = 0 (of integrability for the annihilated by γ(t) distribution w(t)). We prove that in order that this condition is satisfied for any t it is sufficient that it is satisfied for N = n + 3 different values of t (the corresponding implication for N = 2n + 1 is obvious). In fact we give a stronger result dealing with distributions of higher codimension. This result is related to the so-called Veronese webs and can be applied in the theory of bihamiltonian structures.     

Effect of disorder on relaxation in the one-dimensional Glauber model

We study the long-time relaxation of magnetization in a disordered linear chain of Ising spins from an initially aligned state. The coupling constants are ferromagnetic and nearest-neighbor only, taking valuesJ ₀ andJ ₁ with probabilitiesp and 1–p, respectively. The time evolution of the system is governed by the Glauber master equation. It is shown that for large timest, the magnetizationM(t) varies as [exp(–₀ t](t), where ₀ is a function of the stronger bond strengthJ ₀ only, and (t) decreases slower than an exponential. For very long times, we find that ln (t) varies as –t ^1/3. For low enough temperatures, there is an intermediate time regime when ln (t) varies as –t ^1/2. The results can be extended to more general probability distributions of ferromagnetic coupling constants, assuming thatM(t) can only increase if any bond in the chain is strengthened. If the coupling constants have a continuous distribution in which the probability density varies as a power law near some maximum valueJ ₀, we find that ln (t) varies as –t ^1/3(lnt)^2/3 for large times.     

Local decay of scattering solutions to Schrödinger's equation

The main theorem asserts that ifH=+gV is a Schrödinger Hamiltonian with short rangeV, L _compact ² (IR³), andR>0, then exp(iHt) _{S L} ² _(|x|<R)=O(t ^–1/2), ast where _S is projection onto the orthogonal complement of the real eigenvectors ofH. For all but a discrete set ofg,O(t ^–1/2) may be replaced byO(t ^–3/2).Research supported by the National Science Foundation under grants NSF GP 34260 and MCS 72-05055 A04     

Local existence of symmetric spinor potentials for symmetric (3,1)-spinors in Einstein space–times

We investigate the possibility of existence of a symmetric potential H_ABA′B′=H_{(AB)(A′B′)} for a symmetric (3,1)-spinor L_ABCA′, e.g., a Lanczos potential of the Weyl spinor, as defined by the equation L_ABCA′=_(A^B′H_BC)A′B′. We prove that in all Einstein space–times such a symmetric potential H_ABA′B′ exists. Potentials of this type have been found earlier in investigations of some very special spinors in restricted classes of space–times. A tensor version of this result is also given. We apply similar ideas and results by Illge to Maxwell’s equations in a curved space–time.     

Comment on “Time-changed geometric fractional Brownian motion and option pricing with transaction costs” by Hui Gu et al.

The purpose of this comment is to point out the inappropriate assumption of “3αH>1$3\alpha H>1$” and two problems in the proof of “Theorem 3.1” in section 3 of the paper “Time-changed geometric fractional Brownian motion and option pricing with transaction costs” by Hui Gu et al. [H. Gu, J.R. Liang, Y. X. Zhang, Time-changed geometric fractional Brownian motion and option pricing with transaction costs, Physica A 391 (2012) 3971–3977]. Then we show the two problems will be solved under our new assumption.     

UV excimer laser photochemistry of hybrid organometallic compounds of gallium

The gas phase ultraviolet (UV) excimer laser induced photolysis of the gallium-alkyls Ga(t-C₄H₉) _n ^– (CH₃)_3–n (n=0, 1, 2, 3) was studied, using photolysis wavelengths of 308, 248, and 193 nm. The photofragments Ga, GaH, and GaCH₃ were detected by laser ionization time-of-flight mass spectroscopy, while the hydrocarbon products CH₄, C₂H₆, HC(CH₃)₃ and H₂C=C(CH₃)₂ were identified using Fourier transform infrared (FTIR) spectroscopy. The formation of the GaH photofragment, and a high olefin-to-alkane product ratio, for Ga(t-C₄H₉)₂(CH₃) and Ga(t-C₄H₉)₃ are interpreted to indicate a -hydrogen elimination process. However, -hydrogen elimination only occurs after fission of the weakest Ga-C bond, thus no -hydride elimination is observed for Ga(t-C₄H₉)(CH₃)₂. Detection of C₂H₆ for Ga(CH₃)₃ and Ga(t-C₄H₉)(CH₃)₂, but not for Ga(t-C₄H₉)₂(CH₃), shows that under our experimental conditions the formation of ethane is as a result of the reductive elimination of the methyl groups, and is not due to the recombination of two free methyl radicals.     

Solution of the Semi-Infinite Toda Lattice for Unbounded Sequences

The semi-infinite Toda lattice is the system of differential equations d _n (t)/dt = _n (t)(b _n+1(t) – b _n (t)), db _n (t)/dt = 2( _n ²(t) – _n–1 ²(t)), n = 1, 2, ..., t > 0. The solution of this system (if it exists) is a pair of real sequences _n (t), b _n (t) which satisfy the conditions _n (0) = _n ,, b _n (0) = b _n , where _n > 0 and b _n are given sequences of real numbers. It is well known that the system has a unique solution provided that both sequences _n and b _n are bounded. When at least one of the known sequences _n and b _n is unbounded, many difficulties arise and, to the best of our knowledge, there are few results concerning the solution of the system. In this letter we find a class of unbounded sequences _n and b _n such that the system has a unique solution. The results are illustrated with a typical example where the sequences _i (t), b _i (t), i = 1, 2, ... can be exactly determined. The connection of the Toda lattice with the semi-infinite differential-difference equation d²/dt ² log h _n = h _n+1 + h _n–1 – 2h _n , n = 1, 2, ... is also discussed and the above results are translated to analogous results for the last equation.     

On the environmental decoherence and spin interference in mesoscopic loop structures

Mechanisms of ‘environmental decoherence’ such as surface scattering, Elliot–Yafet process and precession mechanisms, as well as their influence on the spin phase relaxation are considered and compared. It is shown that the ‘spin ballistic’ regime is possible, when the phase relaxation length for the spin part of the wave function (L^(s)) is much greater than the phase relaxation length for the ‘orbital part’ (L^(e)). In the presence of an additional magnetic field, the spin part of the electron's wave function (WF) acquires a phase shift due to additional spin precession about that field. If the structure length L is chosen to be L^(s)>L>L^(e), it is possible to ‘wash out’ the quantum interference related to the phase coherence of the ‘orbital part’ of the WF, retaining at the same time that related to the phase coherence of the spin part and, hence, to reveal corresponding conductance oscillations.     

Quasi-periodic solutions of nonlinear wave equations with quasi-periodic forcing

This work focuses on one-dimensional (1D) quasi-periodically forced nonlinear wave equations. This means studying with Dirichlet boundary conditions, where ε is a small positive parameter, (t) is a real analytic quasi-periodic function in t with frequency vector ω=(ω₁,ω₂…,ω_m) and the nonlinearity h is a real analytic odd function of the form It is shown that, under a suitable hypothesis on (t) and h, there are many quasi-periodic solutions for the above equation via KAM theory.     

A diffusion model of metal surface modification during plasma nitriding

A diffusion model of metal surface modification by plasma nitriding has been developed. This model takes into account the erosion effects at the plasma/solid interface occurring due to the ion bombardment of the surface. For constant sputtering rate, which is the usual situation during plasma nitriding, the growth of the sub-layers is well described by the analytical expressiong(t) =g ₀,f ^–1 (t/t ₀), whereg(t) is the sub-layer thickness at timet,g ₀ andt ₀ are parameters which depend on the treated material and plasma characteristics,f ^–1 is the inverse of the function — In(1 - x) + x), 0 x 1. Under negligible erosion effects, the expression forg(t) reduces to the parabolic law. The diffusion zone (substratum) growth does not follow the parabolic law as well. However, the deviation occurs after long plasma nitriding time. The model can be used for experimentally determining the effective diffusion coefficients and the erosion rate during plasma nitriding of metal surfaces.     

The computer as a physical system: A microscopic quantum mechanical Hamiltonian model of computers as represented by Turing machines

In this paper a microscopic quantum mechanical model of computers as represented by Turing machines is constructed. It is shown that for each numberN and Turing machineQ there exists a HamiltonianH _N ^Q and a class of appropriate initial states such that if c is such an initial state, then _Q ^N (t)=exp(–1H _N ^Q t) _Q ^N (0) correctly describes at timest ₃,t ₆,,t _3N model states that correspond to the completion of the first, second, , Nth computation step ofQ. The model parameters can be adjusted so that for an arbitrary time interval aroundt ₃,t ₆,,t _3N, the machine part of _Q ^N (t) is stationary.     

Long-Time tails in a random diffusion model

Letw = {w(x)xZ^d} be a positive random field with i.i.d. distribution. Given its realization, letX _t be the position at timet of a particle starting at the origin and performing a simple random walk with jump rate w^–1(X_t). The processX={X _t:t0} combined withw on a common probability space is an example of random walk in random environment. We consider the quantities _t =(d/dt) E (X _t ² –M ^–1 t and _t(w) = (d/dt)E_w(X _t ² – M^– 1t). Here E_w. is expectation overX at fixedw and E = E_w (dw) is the expectation over bothX andw. We prove the following long-time tail results: (1) lim_t t^d/2_t= V²M^d/2–3(d/2)^d/2 and (2) lim_t t^d/4 _st(w)= Z_s weakly in path space, with {Z_s:s>0} the Gaussian process with EZ_s=0 and EZ_rZ_s= V²M^d/2–4(d)^d/2 (r + s)^–d/2. HereM and V² are the mean and variance of w(0) under . The main surprise is that fixingw changes the power of the long-time tail fromd/2 tod/4. Since , with ₀ the stationary measure for the environment process, our result (1) exhibits a long-time tail in an equilibrium autocorrelation function.     

Exact stationary probability distribution for a simple model of a nonequilibrium phase transition

We derive the exact stationary probability distribution for the coupled system of Langevin equationsd _t u=u–u s,d _t s=–s+d ²+F(t).     

Graphic Bernstein results in curved pseudo-Riemannian manifolds

We generalize a Bernstein-type result due to Albujer and Alías, for maximal surfaces in a curved Lorentzian product 3-manifold of the form , to higher dimension and codimension. We consider M a complete spacelike graphic submanifold with parallel mean curvature, defined by a map f:Σ₁→Σ₂ between two Riemannian manifolds and of sectional curvatures K₁ and K₂, respectively. We take on Σ₁×Σ₂ the pseudo-Riemannian product metric g₁−g₂. Under the curvature conditions, and K₁≥K₂, we prove that, if the second fundamental form of M satisfies an integrability condition, then M is totally geodesic, and it is a slice if at some point. For bounded K₁, K₂ and hyperbolic angle θ, we conclude that M must be maximal. If M is a maximal surface and , we show M is totally geodesic with no need for further assumptions. Furthermore, M is a slice if at some point pΣ₁, K₁(p)>0, and if Σ₁ is flat and K₂<0 at some point f(p), then the image of f lies on a geodesic of Σ₂.     

Existence of solutions for Schrödinger evolution equations

We study the existence, uniqueness and regularity of the solution of the initial value problem for the time dependent Schrödinger equationiu/t=(–1/2)u+V(t,x)u,u(0)=u ₀. We provide sufficient conditions onV(t,x) such that the equation generates a unique unitary propagatorU(t,s) and such thatU(t,s)u ₀C ¹(,L ²) C ⁰(H ²( ⁿ )) foru ₀H ²( ⁿ ). The conditions are general enough to accommodate moving singularities of type x^–2+(n4) or x^–n/2+(n3).