Interest rates in quantum finance: Caps, swaptions and bond options

The prices of the main interest rate options in the financial markets, derived from the Libor (London Interbank Overnight Rate), are studied in the quantum finance model of interest rates. The option prices show new features for the Libor Market Model arising from the fact that, in the quantum finance formulation, all the different Libor payments are coupled and (imperfectly) correlated.Black’s caplet formula for quantum finance is given an exact path integral derivation. The coupon and zero coupon bond options as well as the Libor European and Asian swaptions are derived in the framework of quantum finance. The approximate Libor option prices are derived using the volatility expansion.The BGM-Jamshidian (Gatarek et al. (1996) [1], Jamshidian (1997) [2]) result for the Libor swaption prices is obtained as the limiting case when all the Libors are exactly correlated. A path integral derivation is given of the approximate BGM-Jamshidian approximate price.     

Empirical investigation of a field theory formula and Black's formula for the price of an interest-rate caplet

The industry standard for pricing an interest-rate caplet is Black's formula. Another distinct price of the same caplet can be derived using a quantum field theory model of the forward interest rates. An empirical study is carried out to compare the two caplet pricing formulae. Historical volatility and correlation of forward interest rates are used to generate the field theory caplet price; another approach is to fit a parametric formula for the effective volatility using market caplet price. The study shows that the field theory model generates the price of a caplet and cap fairly accurately. Black's formula for a caplet is compared with field theory pricing formula. It is seen that the field theory formula for caplet price has many advantages over Black's formula.     

Simulation of coupon bond European and barrier options in quantum finance

Coupon bond European and barrier options are studied in the framework of quantum finance. The prices of European and barrier options are analyzed by generating sample values of the forward interest rates f(t,x) using a two-dimensional Gaussian quantum field A(t,x). The strong correlations of forward interest rates are described by the stiff propagator of the quantum field A(t,x). Using the Cholesky decomposition, A(t,x) is expressed in terms of white noise. The simulation results for European coupon bond and barrier options are compared with approximate formulas, which are obtained as power series in the volatility of the forward interest rates. The simulation shows that the simulated price deviates from the approximate value for large volatilities. The numerical algorithm is flexible and can be used for pricing any kind of option. It is shown that the three-factor HJM model can be derived from the quantum finance formulation.     

The sensitivity analysis of propagator for path independent quantum finance model

Quantum finance successfully implements the imperfectly correlated fluctuation of forward interest rates at different maturities, by replacing the Wiener process with a two-dimensional quantum field. Interest rate derivatives can be priced at a more realistic value under this new framework. The quantum finance model requires three main ingredients for pricing: the initial forward interest rates, the volatility of forward interest rates, and the correlation of forward interest rates at different maturities. However, the hedging strategy only focused on fluctuation of forward interest rates. This hedging method is based on the assumption that the propagator, the covariance of forward interest rates, has an ergodic property. Since inserting the propagator is the main characteristic that distinguishes quantum finance from the Libor market model (LMM) and the Heath, Jarrow and Morton (HJM) model, understanding the impact of propagator dynamics on the price of interest rate derivatives is crucial. This research is the first step in developing a hedge strategy with respect to the evolution of the propagator. We analyze the dynamics of the propagator from Libor futures data and the integrated propagator from zero-coupon bond rate data. Then we study the sensitivity of the implied volatility of caplets and swaptions according to the three dominant dynamics of the propagator, and the change of the zero-coupon bond option price according to the two dominant dynamics of the integrated propagator.     

Empirical analysis of quantum finance interest rates models

Empirical forward interest rates drive the debt markets. Libor and Euribor futures data is used to calibrate and test models of interest rates based on the formulation of quantum finance. In particular, all the model parameters, including interest rate volatilities, are obtained from market data. The random noise driving the forward interest rates is taken to be a Euclidean two dimension quantum field. We analyze two models, namely the bond forward interest rates, which is a linear theory and the Libor Market Model, which is a nonlinear theory. Both the models are analyzed using Libor and Euribor data, with various approximations to match the linear and nonlinear models. The results are quite good, with the linear model having an accuracy of about 99% and the nonlinear model being slightly less accurate. We extend our analysis by directly using the Zero Coupon Yield Curve (ZCYC) data for Libor and for bonds; but due to some technical difficulties we could not derive the models parameters directly from the ZCYC data.     

Path integral approach to Asian options in the Black-Scholes model

We derive a closed-form solution for the price of an average strike as well as an average price geometric Asian option, by making use of the path integral formulation. Our results are compared to a numerical Monte Carlo simulation. We also develop a pricing formula for an Asian option with a barrier on a control process, combining the method of images with a partitioning of the set of paths according to the average along the path. This formula is exact when the correlation is zero, and is approximate when the correlation increases.     

Phase matching in quantum searching

When arbitrary phase rotations are used instead of inversions in Grover's quantum algorithm, they must satisfy a matching condition. When phase matching is satisfied, the quantum search is an approximate rotation in 2-dimensional space. An approximate formula for the amplitude is derived. A simple explanation is also given.     

The effect of the size of polymer chain on the energy transfer between chromophores bound to the ends of the chain

The dependence of the luminescence quantum yield of linear polymer molecules that contain chromophores at the ends on the number of units of polymer chain is studied. Numerical calculations for the dipole-dipole energy transfer between chromophores show that an increase in the chain length by a factor of 2 leads to a several-fold increase in the luminescence quantum yield depending on the ratio of the Förster radius to the radius of polymer coil. An approximate formula is derived for the adequate analysis of the dependence at the Förster radius that is significantly less than the radius of polymer coil. The dependence of the luminescence quantum yield of linear polymer molecules on the length of the statistical segment (unit) at a constant total length of the chain is also studied.     

On Solutions of Quantum Eigenvalue Problems: A Supersymmetric Approach

We study solutions of various quantum mechanical eigenvalue problems using the formalism of one dimensional supersymmetric quantum mechanics. The problems studied includes among other problems the non-polynomial oscillator and the doubly anharmonic oscillator potentials. The solutions obtained here are of two types — exact analytical solutions and approximate solutions. The method of obtaining exact solutions have been shown to be general enough to be applied to a large class of potentials. The method of obtaining approximate solutions have been studied in details and their accuracy have been compared with exact numerical results.     

A path integral way to option pricing

An efficient computational algorithm to price financial derivatives is presented. It is based on a path integral formulation of the pricing problem. It is shown how the path integral approach can be worked out in order to obtain fast and accurate predictions for the value of a large class of options, including those with path-dependent and early exercise features. As examples, the application of the method to European and American options in the Black–Scholes model is illustrated. A particularly simple and fast semi-analytical approximation for the price of American options is derived. The results of the algorithm are compared with those obtained with the standard procedures known in the literature and found to be in good agreement.     

静压下Zn1-xCdxSe/ZnSe窄量子阱的激子和光跃迁

利用波恩公式近似建立了应变与介电常量的定量关系考虑应变对介电常量、有效质量、晶格常量(体积)等诸多物理量的影响,用变分法计算了静压下Zn_1-xCd_xSe/ZnSe窄量子阱中激子结合能和光跃迁能量随压力的变化理论计算结果与其他作者的实验和理论结果进行了比较和讨论.     

Femtosecond pump-probe fluorescence signals from classical trajectories: comparison with wave-packet calculations

A classical approach to simulate femtosecond pump-probe experiments is presented and compared to the quantum mechanical treatment. We restrict the study to gas-phase systems using the I₂ molecule as a numerical example. Thus, no relaxation processes are included. This allows for a direct comparison between purely quantum mechanical results and those obtained from classical trajectory calculations. The classical theory is derived from the phase-space representation of quantum mechanics. Various approximate quantum mechanical treatments are compared to their classical counterparts. Thereby it is demonstrated that the representation of the radial density as prepared in the pump-process is most crucial to obtain reliable signals within the classical approach. Received 28 March 2001     

Feature extraction of micro-motion frequency and the maximum wobble angle in a small range of missile warhead based on micro-Doppler effect

Micro-Doppler effect is induced by the micro-motion dynamics of the radar target itself or any structure on the target. In this paper, a simplified cone-shaped model for ballistic missile warhead with micro-nutation is established, followed by the theoretical formula of micro-nutation is derived. It is confirmed that the theoretical results are identical to simulation results by using short-time Fourier transform. Then we propose a new method for nutation period extraction via signature maximum energy fitting based on empirical mode decomposition and short-time Fourier transform. The maximum wobble angle is also extracted by distance approximate approach in a small range of wobble angle, which is combined with the maximum likelihood estimation. By the simulation studies, it is shown that these two feature extraction methods are both valid even with low signal-to-noise ratio.     

Propagation of vectorial Gaussian beams behind a circular aperture

Based on the vectorial Rayleigh diffraction integral and the hard-edge aperture function expanded as the sum of finite-term complex Gaussian functions, an approximate analytical expression for the propagation equation of vectorial Gaussian beams diffracted at a circular aperture is derived and some special cases are discussed. By using the approximate analytical formula and diffraction integral formula, some numerical simulation comparisons are done, and some special cases are discussed. We find that a circular aperture can produce the focusing effect but the beam becomes the shape of ellipse in the Fresnel region. When the Fresnel number is equal to unity, the beam is circular and the focused spot reaches a minimum.     

State reconstruction of molecular spatial rotation

We establish a reconstruction approach for the rotational quantum state of linear molecules possessing a magnetic manifold. Our approximate method contains an iteration with generalized matrix inverses, processing the tomographic integral of the time-dependent molecular-axis distribution in a polar angle. As shown in a simulated example for an alignment state, the density matrix is determined in a high fidelity. An analytic tomographic formula is also derived for the symmetric top rotation. The state coherent in the quantum space of both the angular momentum and its magnetic projection can be approximately retrieved from the observable time-resolved solid-angle distribution of the molecular axis.     

Quantum simulation of the t–J model

Computer simulation of a many-particle quantum system is bound to reach the inevitable limits of its ability as the system size increases. The primary reason for this is that the memory size used in a classical simulator grows polynomially whereas the Hilbert space of the quantum system does so exponentially. Replacing the classical simulator by a quantum simulator would be an effective method of surmounting this obstacle. The prevailing techniques for simulating quantum systems on a quantum computer have been developed for purposes of computing numerical algorithms designed to obtain approximate physical quantities of interest. The method suggested here requires no numerical algorithms; it is a direct isomorphic translation between a quantum simulator and the quantum system to be simulated. In the quantum simulator, physical parameters of the system, which are the fixed parameters of the simulated quantum system, are under the control of the experimenter. A method of simulating a model for high-temperature superconducting oxides, the t–J model, by optical control, as an example of such a quantum simulation, is presented.     

Improved Analytical Approximations to the Scattering Solutions of the Schrdinger Equation with a Hyperbolical Potential

Using an improved approximate formula to the centrifugal term, we present arbitrary l-state scattering solutions of the hyperbolic potential. The approximate analytical formula of scattering phase shifts and normalized wavefunctions are presented. All data calculated by the above approximate analytical formula are compared with those obtained by using the numerical integration method in the scattering state cases. We find that this improved approximate formula is better than previous one since the calculated results are in good agreement with those exact ones.     

Improved Analytical Approximations to the Scattering Solutions of the Schrödinger Equation with a Hyperbolical Potential

Using an improved approximate formula to the centrifugal term, we present arbitrary l-state scattering solutions of the hyperbolic potential. The approximate analytical formula of scattering phase shifts and normalized wavefunctions are presented. All data calculated by the above approximate analytical formula are compared with those obtained by using the numerical integration method in the scattering state cases. We find that this improved approximate formula is better than previous one since the calculated results are in good agreement with those exact ones.     

Quantum cloning machine of a state in a belt of Bloch sphere

We analyze the problem of approximate quantum cloning when the quantum state is between two latitudes on the Bloch’s sphere. We present an analytical formula for the optimized 1-to-2 cloning. The formula unifies the universal quantum cloning (UQCM) and the phase covariant quantum cloning.