Asymptotics for the Euler-Discretized Hull-White Stochastic Volatility Model

We consider the stochastic volatility model d S _t = σ _t S _t d W _t ,d σ _t = ω σ _t d Z _t , with (W _t ,Z _t ) uncorrelated standard Brownian motions. This is a special case of the Hull-White and the β=1 (log-normal) SABR model, which are widely used in financial practice. We study the properties of this model, discretized in time under several applications of the Euler-Maruyama scheme, and point out that the resulting model has certain properties which are different from those of the continuous time model. We study the asymptotics of the time-discretized model in the n→∞ limit of a very large number of time steps of size τ, at fixed \(\beta =\frac 12\omega ^{2}\tau n^{2}\) and \(\rho ={\sigma _{0}^{2}}\tau \), and derive three results: i) almost sure limits, ii) fluctuation results, and iii) explicit expressions for growth rates (Lyapunov exponents) of the positive integer moments of S _t . Under the Euler-Maruyama discretization for (S _t ,logσ _t ), the Lyapunov exponents have a phase transition, which appears in numerical simulations of the model as a numerical explosion of the asset price moments. We derive criteria for the appearance of these explosions.     

Error estimates for a projection-difference method for a linear differential-operator equation

We study a projection-difference method for approximately solving the Cauchy problem u′(t) + A(t)u(t) + K(t)u(t) = h(t), u(0) = 0 for a linear differential-operator equation in a Hilbert space, where A(t) is a self-adjoint operator and K(t) is an operator subordinate to A(t). Time discretization is based on a three-level difference scheme, and space discretization is carried out by the Galerkin method. Under certain smoothness conditions on the function h(t), we obtain estimates for the convergence rate of the approximate solutions to the exact solution.     

Normed Topological Pseudovector Groups

A normed topological pseudovector group (NTPVG for short) is a valued topological group (V,?+?,||·||) (not necessarily Abelian) endowed with a continuous scalar multiplication \({\mathbb R}_+ \times V \ni (t,x) \mapsto t \cdot x \in V\) such that 0 ·x?=?e (e denotes the neutral element of V), 1 ·x?=?x, (st) ·x?=?s ·(t ·x), t ·(x?+?y)?=?(t ·x)?+?(t ·y) and ||t ·x||?=?t ||x|| for each t, \(s \in {\mathbb R}_+\) and x, y?∈?V. It is shown that every valued topological group can be isometrically and group-homomorphically embedded in a NTPVG as a closed subset by means of a functor. Locally compact NTPV groups are fully classified. It is shown that the (unbounded) Urysohn universal metric space can be endowed with a structure of a NTPV group of exponent 2.     

Moderate deviations for Euler-Maruyama approximation of Hull-White stochastic volatility model

We consider the Euler-Maruyama discretization of stochastic volatility model dS_t = σ_tS_tdW_t, dσ_t = ωσ_tdZ_t, t ∈ [0, T], which has been widely used in financial practice, where W_t,Z_t, t ∈ [0, T], are two uncorrelated standard Brownian motions. Using asymptotic analysis techniques, the moderate deviation principles for log S_n (or log |S_n| in case S_n is negative) are obtained as n → ∞ under different discretization schemes for the asset price process S_t and the volatility process σ_t. Numerical simulations are presented to compare the convergence speeds in different schemes.     

Probabilities of high extremes for a Gaussian stationary process in a random environment

Let ξ(t) be a zero-mean stationary Gaussian process with the covariance function r(t) of Pickands type, i.e., r(t) = 1 ? |t| ^α + o(|t| ^α ), t → 0, 0 < α ≤ 2, and η(t), ζ(t) be periodic random processes. The exact asymptotic behavior of the probabilities P(max _t∈[0,T] η(t)ξ(t) > u), P(max _t∈[0,T] (ξ(t) + η(t)) > u) and P(max _t∈[0,T] (η(t)ξ(t) + ζ(t)) > u) is obtained for u → ∞ for any T > 0 and independent ξ(t), η(t), ζ(t).     

Extremes of Gaussian processes with smooth random expectation and smooth random variance

Let ξ(t), t ∈ [0, T],T > 0, be a Gaussian stationary process with expectation 0 and variance 1, and let η(t) and μ(t) be other sufficiently smooth random processes independent of ξ(t). In this paper, we obtain an asymptotic exact result for P(sup _t∈[0,T](η(t)ξ(t) + μ(t)) > u) as u→∞.     

Inverse problem with nonlocal observation of finding the coefficient multiplying <Emphasis Type="Italic">u</Emphasis> <Subscript> <Emphasis Type="Italic">t</Emphasis> </Subscript> in the parabolic equation

We study the inverse problem of the reconstruction of the coefficient ?(x, t) = ?⁰(x, t) + r(x) multiplying u_t in a nonstationary parabolic equation. Here ?⁰(x, t) ≥ ?⁰ > 0 is a given function, and r(x) ≥ 0 is an unknown function of the class L_∞(Ω). In addition to the initial and boundary conditions (the data of the direct problem), we pose the problem of nonlocal observation in the form ∫₀^Tu(x, t) dμ(t) = χ(x) with a known measure dμ(t) and a function χ(x). We separately consider the case dμ(t) = ω(t)dt of integral observation with a smooth function ω(t). We obtain sufficient conditions for the existence and uniqueness of the solution of the inverse problem, which have the form of ready-to-verify inequalities. We suggest an iterative procedure for finding the solution and prove its convergence. Examples of particular inverse problems for which the assumptions of our theorems hold are presented.     

On the Fourier spectrum of symmetric Boolean functions

We study the following questionWhat is the smallest t such that every symmetric boolean function on κ variables (which is not a constant or a parity function), has a non-zero Fourier coefficient of order at least 1 and at most t?We exclude the constant functions for which there is no such t and the parity functions for which t has to be κ. Let τ (κ) be the smallest such t. Our main result is that for large κ, τ (κ)≤4κ/logκ.The motivation for our work is to understand the complexity of learning symmetric juntas. A κ-junta is a boolean function of n variables that depends only on an unknown subset of κ variables. A symmetric κ-junta is a junta that is symmetric in the variables it depends on. Our result implies an algorithm to learn the class of symmetric κ-juntas, in the uniform PAC learning model, in time n ^o(κ) . This improves on a result of Mossel, O’Donnell and Servedio in [16], who show that symmetric κ-juntas can be learned in time n ^2κ/3.     

Malliavin Calculus Approach to Statistical Inference for Lévy Driven SDE’s

By means of the Malliavin calculus, integral representations for the likelihood function and for the derivative of the log-likelihood function are given for a model based on discrete time observations of the solution to equation dX _t = a _θ (X _t )dt + dZ _t with a Lévy process Z. Using these representations, regularity of the statistical experiment and the Cramer-Rao inequality are proved.     

Secondary Hochschild Cohomology

For a B-algebra A we introduce a Hochschild-like cohomology and use it to describe simultaneous deformations of the product and of the B-algebra structure on A[[t]]. These deformations have the property that the natural projection A[[t]]→A is a morphism of B-algebras.     

On the total multiplicity of zeros of generalized polynomials related to nonoscillating trajectories

For a continuous curve L = {x: x = Z(t), t ∈ [a, b]} in R ⁿ , we study the number of zeros of the function l _h (t) = 〈h, Z(t)〉, where h ∈ R ⁿ . We introduce the notion of multiple zeros for such functions and study the possibility of estimating the total multiplicity of such zeros under the assumption that the system {z ₁(t), z ₂(t), …, z _n (t)} of coordinates of the function Z(t) is a Chebyshev system on [a, b].     

Boundary displacement control at one end of a string in the presence of a nonlocal boundary condition of one of four types,and its optimization

In the present paper, we exhaustively solve the problem of boundary control by the displacement u(0, t) = µ(t) at the end x = 0 of the string in the presence of a model nonlocal boundary condition of one of four types relating the values of the displacement u(x, t) or its derivative u _x (x, t) at the boundary point x = l of the string to their values at some interior point \(\mathop x\limits^ \circ\).     

Proof of a tournament partition conjecture and an application to 1-factors with prescribed cycle lengths

In 1982 Thomassen asked whether there exists an integer f(k,t) such that every strongly f(k,t)-connected tournament T admits a partition of its vertex set into t vertex classes V ₁,…V _t such that for all i the subtournament T[V _i] induced on T by V _i is strongly k-connected. Our main result implies an affirmative answer to this question. In particular we show that f(k, t)=O(k ⁷ t ⁴) suffices. As another application of our main result we give an affirmative answer to a question of Song as to whether, for any integer t, there exists aninteger h(t) such that every strongly h(t)-connected tournament has a 1-factor consisting of t vertex-disjoint cycles of prescribed lengths. We show that h(t)=O(t ⁵) suffices.     

Limit theorems for supremum of Gaussian processes over a random interval

Let {X(t), t ≥ 0} be a centered stationary Gaussian process with correlation r(t)such that 1-r(t) is asymptotic to a regularly varying function. With T being a nonnegative random variable and independent of X(t), the exact asymptotics of P(sup_(t∈[0,T])X(t) x) is considered, as x →∞.     

Global hypoellipticity for first-order operators on closed smooth manifolds

The main goal of this paper is to address global hypoellipticity issues for the class of first-order pseudo-differential operators L = D_t + C(t, x,D_x), where (t, x) ∈ T × M, T is the one-dimensional torus, M is a closed manifold, and C(t, x,D_x) is a first-order pseudo-differential operator on M, smoothly depending on the periodic variable t. In the case of separation of variables, when C(t, x,D_x) = a(t)p(x,D_x) + ib(t)q(x,D_x), we give necessary and sufficient conditions for the global hypoellipticity of L. In particular, we show that the famous (P) condition of Nirenberg-Treves is neither necessary nor sufficient to guarantee the global hypoellipticity of L.     

Connecting orbits of Lagrangian systems in a nonstationary force field

We study connecting orbits of a natural Lagrangian system defined on a complete Riemannian manifold subjected to the action of a nonstationary force field with potential U(q, t) = f(t)V(q). It is assumed that the factor f(t) tends to ∞ as t→±∞ and vanishes at a unique point t ₀ ∈ ?. Let X ₊, X _? denote the sets of isolated critical points of V (x) at which U(x, t) as a function of x distinguishes its maximum for any fixed t > t ₀ and t < t ₀, respectively. Under nondegeneracy conditions on points of X _± we prove the existence of infinitely many doubly asymptotic trajectories connecting X _? and X ₊.     

Positive existential definability of multiplication from addition and the range of a polynomial

We consider the problem of recovering multiplication in the integers from enrichments of its additive structure, in the positive existential context. We prove that if a conjecture by Caporaso–Harris–Mazur holds, then for all integer-valued polynomials F of degree at least 2, multiplication is positive-existentially definable in (Z; 0, 1,+, R_F, =) where R_F is the unary relation F(Z). Similar results were only known for the polynomials F(t) = t² (under the Bombieri–Lang conjecture) and F(t) = tⁿ (under a generalization of the abc conjecture).     

Estimation Problems for Periodically Correlated Isotropic Random Fields

Spectral theory of isotropic random fields in Euclidean space developed by M. I. Yadrenko is exploited to find a solution to the problem of optimal linear estimation of the functional

$$ A\zeta ={\sum\limits_{t=0}^{\infty}}\,\,\,{\int_{S_n}} \,\,a(t,x)\zeta (t,x)\,m_n(dx) $$

which depends on unknown values of a periodically correlated (cyclostationary with period T) with respect to time isotropic on the sphere S _n in Euclidean space E ⁿ random field ζ(t, x), t?∈?Z, x?∈?S _n . Estimates are based on observations of the field ζ(t, x)?+?θ(t, x) at points (t, x), t?=???1,???2, ..., x?∈?S _n , where θ(t, x) is an uncorrelated with ζ(t, x) periodically correlated with respect to time isotropic on the sphere S _n random field. Formulas for computing the value of the mean-square error and the spectral characteristic of the optimal linear estimate of the functional Aζ are obtained. The least favourable spectral densities and the minimax (robust) spectral characteristics of the optimal estimates of the functional Aζ are determined for some special classes of spectral densities.

     

Extended phase properties and stability analysis of RKN-type integrators for solving general oscillatory second-order initial value problems

In this paper, we study in detail the phase properties and stability of numerical methods for general oscillatory second-order initial value problems whose right-hand side functions depend on both the position y and velocity y ^'. In order to analyze comprehensively the numerical stability of integrators for oscillatory systems, we introduce a novel linear test model y ^?(t) + ? ² y(t) + µ y ^'(t)=0 with µ<2?. Based on the new model, further discussions and analysis on the phase properties and stability of numerical methods are presented for general oscillatory problems. We give the new definitions of dispersion and dissipation which can be viewed as an essential extension of the traditional ones based on the linear test model y ^?(t) + ? ² y(t)=0. The numerical experiments are carried out, and the numerical results showthatthe analysisofphase properties and stability presentedinthispaper ismoresuitableforthenumericalmethodswhentheyareappliedtothe generaloscillatory second-order initial value problem involving both the position and velocity.