Corrigendum and addendum to ‘hyperfinite Lévy processes’ by Tom Lindstrøm (Stochastics 76(6):517–548, 2004)

A jump diffusion decomposition theorem for hyperfinite Lévy processes is proven; a counterexample to a previous attempt to phrase such a theorem is provided.     

On the Lévy-Khintchine decomposition of conditionally positive definite functions

Summary The main aim of the paper is to prove still another version of the Lévy--Khintchine decomposition of conditionally positive definite functions on a general locally compact Abelian group. The exposition is based on the two-cones theorem proved by N. Drumm in 1976. Application of the main result to the Euclidean group shows the novelty of the approach.     

Nonlinear stochastic integrals for hyperfinite Lévy processes

I develop a notion of nonlinear stochastic integrals for hyperfinite Lévy processes and use it to find exact formulas for expressions which are intuitively of the form and , where l is a Lévy process. These formulas are then applied to geometric Lévy processes, infinitesimal transformations of hyperfinite Lévy processes, and to minimal martingale measures. Some of the central concepts and results are closely related to those found in S. Cohen’s work on stochastic calculus for processes with jumps on manifolds, and the paper may be regarded as a reworking of his ideas in a different setting and with totally different techniques.     

On lévy measure and integrability of the norm in C[0, 1]

We prove that integrability of the norm is the best sufficient condition in terms of integrability of functions of the norm for a positive measure to be a Lévy Measure in C[0, 1].     

Computation of Greeks in LIBOR models driven by time–inhomogeneous Lévy processes

The aim of this article is to compute Greeks, i.e. price sensitivities in the framework of the Lévy LIBOR model. Two approaches are discussed. The first approach is based on the integration-by-parts formula, which lies at the core of the application of the Malliavin calculus to finance. The second approach consists of using Fourier-based methods for pricing derivatives. We illustrate the result by applying the formula to a caplet price where the jump part of the driving process of the underlying model is given by a time–inhomogeneous Gamma process and alternatively by a Variance Gamma process.     

Some result on stochastic partial differential equations by the stochastic characteristics method

We study a class of second order (in the drift term) stochastic partial differential equations by the stochastic characteristics method, as developped by Kunita for the first order stochastic partial differential equations. With this method the original problem is transformed in a family of deterministic parabolic problems.     

A Large Deviation Principle of Retarded Ornstein-Uhlenbeck Processes Driven by Lévy Noise

In this article, we develop a large deviation principle (LDP) for a class of retarded Ornstein-Uhlenbeck processes driven by Lévy processes. We first present a LDP result for time delay systems driven by cylindrical Wiener processes based on the large deviations of Gaussian processes. By using a contraction technique and passing on a finite-dimensional approximation, an LDP is obtained for stochastic time delay evolution equations driven by additive Lévy noise, whose solutions are generally not Lévy processes any more.     

Persistence and extinction of a stochastic non-autonomous Gilpin–Ayala system driven by Lévy noise

In this paper, we consider the persistence and extinction of a stochastic non-autonomous Gilpin–Ayala system driven by Lévy noise. Sufficient criteria for extinction, non-persistence in the mean and weak persistence of the system are established. The threshold between weak persistence and extinction is obtained. From the results we can see that both persistence and extinction have close relationships with Lévy noise. Some simulation figures are introduced to demonstrate the analytical findings.     

On Anticipative Girsanov Transformations for Lévy Processes

The smooth approach to Malliavin calculus for Lévy processes in (Osswald in J. Theor. Probab., 2008) is used to study time-anticipative Girsanov transformations for a large class of Lévy processes by means of the substitution rule in finite-dimensional analysis. Dedicated to Wolfram Pohlers on the occasion of his 65th birthday.     

A Note on the Suboptimality of Path-Dependent Pay-Offs in Lévy Markets

Abstract

Cox and Leland used techniques from the field of stochastic control theory to show that, in the particular case of a Brownian motion for the asset log-returns, risk-averse decision makers with a fixed investment horizon prefer path-independent pay-offs over path-dependent pay-offs. In this note we provide a novel and simple proof for the Cox and Leland result and we will extend it to general Lévy markets where pricing is based on the Esscher transform (exponential tilting). It is also shown that, in these markets, optimal path-independent pay-offs are increasing with the underlying final asset value. We provide examples that allow explicit verification of our theoretical findings and also show that the inefficiency cost of path-dependent pay-offs can be significant. Our results indicate that path-dependent investment pay-offs, the use of which is widespread in financial markets, do not offer good value from the investor's point of view.     

Operator Semi-Stable Distributions

Abstract

Jajte introduced the operator semi-stable distributions on R ⁿ in [2 Jajte , R. 1977 . Semi-stable probability measures on R ^N . Studia Math. 61 : 29 – 39 . [Google Scholar]] and proved an important fact: A full distribution μ is operator semi-stable, if and only if, there exist a number c(0 < c < 1), a vector h ∈ R ⁿ , and a nonsingular linear operator B in R ⁿ such that the formula μ ^c  = Bμ*δ(h) holds. In this paper, we make use of the eigenvalue of the matrix B to give a necessary and sufficient condition for ∫_|x|≤1|x| ^r M(dx) < ∞, where M is the Lévy measure of μ. Also, we use the symmetric group of μ to characterize the operators B in (1).     

Fluctuation theory for level-dependent Lévy risk processes

A level-dependent Lévy process solves the stochastic differential equation $dU\left(t\right)=dX\left(t\right)??\left(U\left(t\right)\right)dt$, where $X$ is a spectrally negative Lévy process. A special case is a multi-refracted Lévy process with ${?}_k\left(x\right)={\sum }_{j=1}^k{\delta }_j{\mathbf{1}}_{\{x\ge b_j\}}$. A general rate function $?$ that is non-decreasing and locally Lipschitz continuous is also considered. We discuss solutions of the above stochastic differential equation and investigate the so-called scale functions, which are counterparts of the scale functions from the theory of Lévy processes. We show how fluctuation identities for $U$ can be expressed via these scale functions. We demonstrate that the derivatives of the scale functions are solutions of Volterra integral equations.     

Lowest priority waiting time distribution in an accumulating priority Lévy queue

We derive the waiting time distribution of the lowest class in an accumulating priority (AP) queue with positive Lévy input. The priority of an infinitesimal customer (particle) is a function of their class and waiting time in the system, and the particles with the highest AP are the next to be processed. To this end we introduce a new method that relies on the construction of a workload overtaking process and solving a first-passage problem using an appropriate stopping time.     

On the well-posedness of coupled forward–backward stochastic differential equations driven by Teugels martingales

We deal with a class of fully coupled forward–backward stochastic differential equations (FBSDEs), driven by Teugels martingales associated with a general Lévy process. Under some assumptions on the derivatives of the coefficients, we prove the existence and uniqueness of a global solution on an arbitrarily large time interval. Moreover, we establish stability and comparison theorems for the solutions of such equations. Note that the present work extends known results proved for FBSDEs driven by a Brownian motion, by using martingale techniques related to jump processes, to overcome the lack of continuity.     

Symmetric Lévy type operator

The study of symmetric property in the L^2-sense for the non-positive definite operator is motivated by the theory of probability and analysis. This paper presents some sufficient conditions for the existence of symmetric measure for Lévy type operator. Some new examples are illustrated. The present study is an important step for considering various ergodic properties and functional inequalities of Lévy type operator.