Consistent ADD scenario with stabilized extra dimension

A model with one compact extra dimension and a scalar field of Brans–Dicke type in the bulk is discussed. It describes two branes with non-zero tension embedded into the space-time with flat background. This setup allows one to use a very simple method for stabilization of the size of extra dimension. It appears that the four-dimensional Planck mass is expressed only through parameters of the scalar field potentials on the branes.     

Arithmetic Brownian motion and real options

We treat real option value when the underlying process is arithmetic Brownian motion (ABM). In contrast to the more common assumption of geometric Brownian motion (GBM) and multiplicative diffusion, with ABM the underlying project value is expressed as an additive process. Its variance remains constant over time rather than rising or falling along with the project’s value, even admitting the possibility of negative values. This is a more compelling paradigm for projects that are managed as a component of overall firm value. After outlining the case for ABM, we derive analytical formulas for European calls and puts on dividend-paying assets as well as a numerical algorithm for American-style and other more complex options based on ABM. We also provide examples of their use.     

Amino Acid Modified RNA Bases as Building Blocks of an Early Earth RNA-Peptide World

Fossils of extinct species allow us to reconstruct the process of Darwinian evolution that led to the species diversity we see on Earth today. The origin of the first functional molecules able to undergo molecular evolution and thus eventually able to create life, are largely unknown. The most prominent idea in the field posits that biology was preceded by an era of molecular evolution, in which RNA molecules encoded information and catalysed their own replication. This RNA world concept stands against other hypotheses, that argue for example that life may have begun with catalytic peptides and primitive metabolic cycles. The question whether RNA or peptides were first is addressed by the RNA-peptide world concept, which postulates a parallel existence of both molecular species. A plausible experimental model of how such an RNA-peptide world may have looked like, however, is absent. Here we report the synthesis and physicochemical evaluation of amino acid containing adenosine bases, which are closely related to molecules that are found today in the anticodon stem-loop of tRNAs from all three kingdoms of life. We show that these adenosines lose their base pairing properties, which allow them to equip RNA with amino acids independent of the sequence context. As such we may consider them to be living molecular fossils of an extinct molecular RNA-peptide world.     

Valuation and risk assessment of participating life insurance in the presence of credit risk

In participating life insurance, management decisions regarding the asset composition can substantially impact the value of a policy from the policyholders’ perspective as well as the insurer’s risk situation. Due to the long-term guarantees often embedded in these contracts, life insurers typically invest a considerable portion of their capital in long-term assets such as corporate and government bonds. Besides interest rate risk, the value of these bond investments is thus particularly influenced by credit risk. Thus, the aim of this paper is to examine the impact of market risk associated with the asset composition on fair valuation and risk assessment with focus on credit risk and its interaction with equity risk and interest rate risk. Our analysis emphasizes that the consideration of credit risk associated with bonds has a strong impact on the fair valuation and risk measurement in the context of participating life insurance contracts, even in case of higher grade bond exposures.     

Black holes in brane worlds

A Kerr metric describing a rotating black hole is obtained on the three brane in a five-dimensional Randall-Sundrum brane world by considering a rotating five-dimensional black string in the bulk. We examine the causal structure of this space-time through the geodesic equations.     

Bending of Light and Gravitational Signals in Certain On-Brane and Bulk Geometries

In this article, we first investigate the bending of light rays in 4D line elements representing spherically symmetric, static on–brane geometries. The amount of bending in these four dimensional, strong and weak field solutions is derived. Signatures, which appear in the bending formulae, due to the presence of extra dimensions are discussed. Subsequently, as a separate exercise, we calculate the bending of null geodesic trajectories in a bulk five dimensional spacetime with a Schwarzschild line element on the 3-brane section. We interpret the deviation of null trajectories as that of gravitational signals or five dimensional photons, which are, unlike light rays confined to four dimensions, allowed to propagate along the fifth (extra) dimension. Features of the presence of extra dimensions in the effective potentials and the bending formula are analysed in this context.     

Extracting deep information from limited observations on an evolved social network

We provide empirical evidence that in a social network which evolves over time, it is possible to extract deep information about the system from limited observations. In this paper, we consider a simple piece of readily available evidence on access to financial services by individuals in the UK. Detailed statistical analysis has shown that the decisions of agents on whether or not to have a basic financial account such as a bank account is heavily influenced by other individuals on their social network. We consider a small amount of straightforward and readily accessible information. We deduce from this, using an agent-based model, the type of social network across which information and influence on behaviour flows between agents in this context. Specifically, we show that information appears to flow across a small world network.     

The impact of investment lags on investment decision

This paper suggests a valuation framework for an investment project through the concept of real options. Generally, in real asset world, decision time and its payment time are not identical. This so-called investment lag problem should be considered when valuing real assets. When investment lags exist, firms’ accommodation capacities play important roles. In this paper, the real effect of investment lag on investment value is tested upon various conditions. We show the valuation process of real assets under the risk-neutral world. The closed-form formula is also provided for valuing real assets, including R&D project.     

Recovering risk-neutral probability density functions from options prices using cubic splines and ensuring nonnegativity

We present a new approach to estimate the risk-neutral probability density function (pdf) of the future prices of an underlying asset from the prices of options written on the asset. The estimation is carried out in the space of cubic spline functions, yielding appropriate smoothness. The resulting optimization problem, used to invert the data and determine the corresponding density function, is a convex quadratic or semidefinite programming problem, depending on the formulation. Both of these problems can be efficiently solved by numerical optimization software.