A general theory of intertemporal decision-making and the perception of time

Animals and humans make decisions based on their expected outcomes. Since relevant outcomes are often delayed, perceiving delays and choosing between earlier versus later rewards (intertemporal decision-making) is an essential component of animal behavior. The myriad observations made in experiments studying intertemporal decision-making and time perception have not yet been rationalized within a single theory. Here we present a theory-Training--Integrated Maximized Estimation of Reinforcement Rate (TIMERR)--that explains a wide variety of behavioral observations made in intertemporal decision-making and the perception of time. Our theory postulates that animals make intertemporal choices to optimize expected reward rates over a limited temporal window; this window includes a past integration interval (over which experienced reward rate is estimated) and the expected delay to future reward. Using this theory, we derive a mathematical expression for the subjective representation of time. A unique contribution of our work is in finding that the past integration interval directly determines the steepness of temporal discounting and the nonlinearity of time perception. In so doing, our theory provides a single framework to understand both intertemporal decision-making and time perception.Comment: 37 pages, 4 main figures, 3 supplementary figure

Heavy tails and electricity prices

In the first years after the emergence of deregulated power markets it became apparent that for the valuation of electricity derivatives we cannot simply rely on models developed for financial or other commodity markets. However, before adequate models can be put forward the unique characteristics of electricity (spot) prices have to be thoroughly analyzed. In particular, the extreme volatility and price spikes which lead to heavy-tailed distributions of returns. In this paper we first analyze the stylized facts of electricity prices, then present two modeling approaches: jump-diffusion and regime-switching, which to some extent address the pertinent issues.Heavy-tailed distribution; Electricity spot price; Seasonality; Volatility; Price spike;

Statistical Mechanics of 2+1 Gravity From Riemann Zeta Function and Alexander Polynomial:Exact Results

In the recent publication (Journal of Geometry and Physics,33(2000)23-102) we demonstrated that dynamics of 2+1 gravity can be described in terms of train tracks. Train tracks were introduced by Thurston in connection with description of dynamics of surface automorphisms. In this work we provide an example of utilization of general formalism developed earlier. The complete exact solution of the model problem describing equilibrium dynamics of train tracks on the punctured torus is obtained. Being guided by similarities between the dynamics of 2d liquid crystals and 2+1 gravity the partition function for gravity is mapped into that for the Farey spin chain. The Farey spin chain partition function, fortunately, is known exactly and has been thoroughly investigated recently. Accordingly, the transition between the pseudo-Anosov and the periodic dynamic regime (in Thurston's terminology) in the case of gravity is being reinterpreted in terms of phase transitions in the Farey spin chain whose partition function is just a ratio of two Riemann zeta functions. The mapping into the spin chain is facilitated by recognition of a special role of the Alexander polynomial for knots/links in study of dynamics of self homeomorphisms of surfaces. At the end of paper, using some facts from the theory of arithmetic hyperbolic 3-manifolds (initiated by Bianchi in 1892), we develop systematic extension of the obtained results to noncompact Riemannian surfaces of higher genus. Some of the obtained results are also useful for 3+1 gravity. In particular, using the theorem of Margulis, we provide new reasons for the black hole existence in the Universe: black holes make our Universe arithmetic. That is the discrete Lie groups of motion are arithmetic.Comment: 69 pages,11 figures. Journal of Geometry and Physics (in press

Statistical Mechanics of 2+1 Gravity From Riemann Zeta Function and Alexander Polynomial:Exact Results

In the recent publication (Journal of Geometry and Physics,33(2000)23-102) we demonstrated that dynamics of 2+1 gravity can be described in terms of train tracks. Train tracks were introduced by Thurston in connection with description of dynamics of surface automorphisms. In this work we provide an example of utilization of general formalism developed earlier. The complete exact solution of the model problem describing equilibrium dynamics of train tracks on the punctured torus is obtained. Being guided by similarities between the dynamics of 2d liquid crystals and 2+1 gravity the partition function for gravity is mapped into that for the Farey spin chain. The Farey spin chain partition function, fortunately, is known exactly and has been thoroughly investigated recently. Accordingly, the transition between the pseudo-Anosov and the periodic dynamic regime (in Thurston's terminology) in the case of gravity is being reinterpreted in terms of phase transitions in the Farey spin chain whose partition function is just a ratio of two Riemann zeta functions. The mapping into the spin chain is facilitated by recognition of a special role of the Alexander polynomial for knots/links in study of dynamics of self homeomorphisms of surfaces. At the end of paper, using some facts from the theory of arithmetic hyperbolic 3-manifolds (initiated by Bianchi in 1892), we develop systematic extension of the obtained results to noncompact Riemannian surfaces of higher genus. Some of the obtained results are also useful for 3+1 gravity. In particular, using the theorem of Margulis, we provide new reasons for the black hole existence in the Universe: black holes make our Universe arithmetic. That is the discrete Lie groups of motion are arithmetic.Comment: 69 pages,11 figures. Journal of Geometry and Physics (in press

Static hedging of Asian options under Lévy models: the comonotonicity approach.

In this paper we present a simple static super-hedging strategy for the payoff of an arithmetic Asian option in terms of a portfolio of European options. Moreover, it is shown that the obtained hedge is optimal in some sense. The strategy is based on stop-loss transforms and is applicable under general stock price models. We focus on some popular Lévy models. Numerical illustrations of the hedging performance are given for various Lévy models calibrated to market data of the S&P 500.Comonotonicity; Data; Hedging; Market; Model; Models; Optimal; Options; Performance; Portfolio; Strategy;

Nonuniform Fuchsian codes for noisy channels

We develop a new transmission scheme for additive white Gaussian noisy (AWGN) channels based on Fuchsian groups from rational quaternion algebras. The structure of the proposed Fuchsian codes is nonlinear and nonuniform, hence conventional decoding methods based on linearity and symmetry do not apply. Previously, only brute force decoding methods with complexity that is linear in the code size exist for general nonuniform codes. However, the properly discontinuous character of the action of the Fuchsian groups on the complex upper half-plane translates into decoding complexity that is logarithmic in the code size via a recently introduced point reduction algorithm

Tradable Schemes

In this article we present a new approach to the numerical valuation of derivative securities. The method is based on our previous work where we formulated the theory of pricing in terms of tradables. The basic idea is to fit a finite difference scheme to exact solutions of the pricing PDE. This can be done in a very elegant way, due to the fact that in our tradable based formulation there appear no drift terms in the PDE. We construct a mixed scheme based on this idea and apply it to price various types of arithmetic Asian options, as well as plain vanilla options (both european and american style) on stocks paying known cash dividends. We find prices which are accurate to $\sim 0.1$ in about 10ms on a Pentium 233MHz computer and to $\sim 0.001$ in a second. The scheme can also be used for market conform pricing, by fitting it to observed option prices.Comment: 13 pages, 5 tables, LaTeX 2