Scaling and long-range dependence in option pricing III: A fractional version of the Merton model with transaction costs

A model for option pricing of fractional version of the Merton model with ‘Hurst exponent’ H being in [1/2,1) is established with transaction costs. In particular, for H(1/2,1) the minimal price C_min(t,S_t) of an option under transaction costs is obtained, which displays that the timestep δt and the ‘Hurst exponent’ H play an important role in option pricing with transaction costs.     

A quantum model of option pricing: When Black-Scholes meets Schrödinger and its semi-classical limit

The Black-Scholes equation can be interpreted from the point of view of quantum mechanics, as the imaginary time Schrödinger equation of a free particle. When deviations of this state of equilibrium are considered, as a product of some market imperfection, such as: Transaction cost, asymmetric information issues, short-term volatility, extreme discontinuities, or serial correlations; the classical non-arbitrage assumption of the Black-Scholes model is violated, implying a non-risk-free portfolio. From Haven (2002) [1] we know that an arbitrage environment is a necessary condition to embedding the Black-Scholes option pricing model in a more general quantum physics setting. The aim of this paper is to propose a new Black-Scholes-Schrödinger model based on the endogenous arbitrage option pricing formulation introduced by Contreras et al. (2010) [2]. Hence, we derive a more general quantum model of option pricing, that incorporates arbitrage as an external time dependent force, which has an associated potential related to the random dynamic of the underlying asset price. This new resultant model can be interpreted as a Schrödinger equation in imaginary time for a particle of mass 1/σ² with a wave function in an external field force generated by the arbitrage potential. As pointed out above, this new model can be seen as a more general formulation, where the perfect market equilibrium state postulated by the Black-Scholes model represent a particular case. Finally, since the Schrödinger equation is in place, we can apply semiclassical methods, of common use in theoretical physics, to find an approximate analytical solution of the Black-Scholes equation in the presence of market imperfections, as it is the case of an arbitrage bubble. Here, as a numerical illustration of the potential of this Schrödinger equation analogy, the semiclassical approximation is performed for different arbitrage bubble forms (step, linear and parabolic) and compare with the exact solution of our general quantum model of option pricing.     

Discrete growth models on deterministic fractal substrate

The growth of the modified Family model and the Etching model on the Sierpinski carpet is studied by means of numerical simulations. The evolving interface of the aggregates is described by the well-established Family-Vicsek dynamic scaling approach. The results of the modified Family model prove the universality of the fractional Langevin equation introduced by Lee and Kim [S.B. Lee, J.M. Kim, Phys. Rev. E 80 (2009) 021101]. The Etching model also shows good scaling behavior. We conjecture that the systematic deviations of the data found in the ballistic deposition [C.M. Horowitz, F. Romá, E.V. Albano, Phys. Rev. E 78 (2008) 061118] may be due to the finite-size effects of the Ballistic Deposition model.     

Boundary-value problem for a class of second-order parameter-dependent dynamic equations on a time scale

In this study, we consider a boundary value problem generated by a second-order dynamic equation on a time scale and boundary conditions depending on the spectral parameter. We give some properties of the solutions and obtain a formulation of the number of eigenvalues of the problem.     

On a multiple credit rating migration model with stochastic interest rate

In this paper, we explore a pricing model for corporate bond accompanied with multiple credit rating migration risk and stochastic interest rate. The bond price volatility strongly depends on potentially multiple credit rating migration and stochastic change of interest rate. A free boundary problem of partial differential equation is presented, which is the equivalent transformation of the pricing model. The existence, uniqueness, and regularity for the free boundary problem are established to guarantee the rationality of the pricing model. Due to the stochastic change of interest rate, the discontinuous coefficient in the free boundary problem depends explicitly on the time variable but is convergent as time tends to infinity. Accordingly, an auxiliary free boundary problem is constructed, whose coefficient is the convergent limit of the coefficient in the original free boundary problem. With some constraint on the risk discount rate satisfied, we prove that a unique traveling wave exists in the auxiliary free boundary problem. The inductive method is adopted to fit the multiplicity of credit rating. Then we show that the solution of the original free boundary problem converges to the traveling wave in the auxiliary free boundary problem. Returning to the pricing model with multiple credit rating migration and stochastic interest rate, we conclude that the bond price profile can be captured by a traveling wave pattern coupling with a guaranteed bond price with face value equal to one at the maturity.     

Requirements in mathematics textbooks: a five-dimensional analysis of textbook exercises and examples

Mathematics textbooks play a very important role in mathematics education and textbook tasks are used by students for practice to a large extent. Since the nature of the tasks may influence the way students think it is important that the textbooks provide a balance of a variety of tasks. The analyses of the requirements in textbook tasks contain the usual dimensions of content, cognitive demands, question type and contextual features. The aim of this study is to embed a new fifth dimension into the framework: mathematical activities. This addresses the question of what a student should do in a particular textbook task: to represent, to compute, to interpret or to use argumentation. The analysis encompassed more than 22,000 tasks from the most commonly used Croatian mathematics textbooks in the 6th, 7th and 8th grade. The results show that the textbooks do not provide a full range of task types. There is an emphasis on computation, while argumentation and interpretation activities, reflective thinking and open answer tasks are underrepresented. The study revealed that incorporating mathematical activities into the multidimensional framework of textbook tasks may help to better understand the opportunities to learn which are afforded students by using mathematics textbooks.     

Incorporating the dynamic mathematics software GeoGebra into a history of mathematics course

The purpose of this study was to investigate pre-service teachers’ views about the history of mathematics course in which GeoGebra was used. The qualitative research design was used in this study. The participants of the study consisted of 23 pre-service mathematics teachers studying at a state university in Turkey. An open-ended questionnaire was used as a data collection tool. Qualitative data obtained from the pre-service teachers were analyzed by means of content analysis. As a result, it was determined that GeoGebra software was an effective tool in the learning and teaching of the history of mathematics.     

Fractional model and solution for the Black‐Scholes equation

This work presents a new model of the fractional Black‐Scholes equation by using the right fractional derivatives to model the terminal value problem. Through nondimensionalization and variable replacements, we convert the terminal value problem into an initial value problem for a fractional convection diffusion equation. Then the problem is solved by using the Fourier‐Laplace transform. The fundamental solutions of the derived initial value problem are given and simulated and display a slow anomalous diffusion in the fractional case.     

Hybrid pricing in a coupled European power market with more wind power

In the European electricity market, the promotion of wind power leads to more network congestion. Zonal pricing (market coupling), which does not take the physical characteristics of transmission into account, is the most commonly used method to relieve network congestion in Europe. However, zonal pricing fails to provide adequate locational price signals regarding scarcity of energy and thus creates a large amount of unscheduled cross-border flows originating from wind-generated power. In this paper, we investigate the effects of applying a hybrid congestion management model, i.e., a nodal pricing model for one country embedded in a zonal pricing system for the rest of the market. We find that, compared to full nodal pricing, hybrid pricing fails to fully utilize all the resources in the network and some wrong price signals might be given. However, hybrid pricing still outperforms zonal pricing. The results from the study cases show that, within the area applying nodal pricing, better price signals are given; the need for re-dispatching is reduced; more congestion rent is collected domestically and the unit cost of power is reduced.     

具有全局交互作用的时滞周期格微分系统的front-like整体解

研究了一类一维空间周期格上的具有时滞和全局交互作用的微分系统的front⁃like整体解.通过建立适当的比较原理,并融合不同方向的波前解与连接稳定态和不稳定态的空间周期解,构造了front⁃like整体解并证明了一些定性性质.与波前解相比,front⁃like整体解能够展示出新的动力学行为.