A Penalty Method for the Numerical Solution of Hamilton-Jacobi-Bellman (HJB) Equations in Finance

We present a simple and easy to implement method for the numerical solution of a rather general class of Hamilton-Jacobi-Bellman (HJB) equations. In many cases, the considered problems have only a viscosity solution, to which, fortunately, many intuitive (e.g. finite difference based) discretisations can be shown to converge. However, especially when using fully implicit time stepping schemes with their desirable stability properties, one is still faced with the considerable task of solving the resulting nonlinear discrete system. In this paper, we introduce a penalty method which approximates the nonlinear discrete system to first order in the penalty parameter, and we show that an iterative scheme can be used to solve the penalised discrete problem in finitely many steps. We include a number of examples from mathematical finance for which the described approach yields a rigorous numerical scheme and present numerical results.Comment: 18 Pages, 4 Figures. This updated version has a slightly more detailed introduction. In the current form, the paper will appear in SIAM Journal on Numerical Analysi

Evanescence in Coined Quantum Walks

In this paper we complete the analysis begun by two of the authors in a previous work on the discrete quantum walk on the line [J. Phys. A 36:8775-8795 (2003) quant-ph/0303105 ]. We obtain uniformly convergent asymptotics for the "exponential decay'' regions at the leading edges of the main peaks in the Schr{\"o}dinger (or wave-mechanics) picture. This calculation required us to generalise the method of stationary phase and we describe this extension in some detail, including self-contained proofs of all the technical lemmas required. We also rigorously establish the exact Feynman equivalence between the path-integral and wave-mechanics representations for this system using some techniques from the theory of special functions. Taken together with the previous work, we can now prove every theorem by both routes.Comment: 32 pages AMS LaTeX, 5 figures in .eps format. Rewritten in response to referee comments, including some additional references. v3: typos fixed in equations (131), (133) and (134). v5: published versio

Hawking radiation as tunneling from charged black holes in 0A string theory

There has been much work on explaining Hawking radiation as a quantum tunneling process through horizons. Basically, this intuitive picture requires the calculation of the imaginary part of the action for outgoing particle. And two ways are known for achieving this goal: the null-geodesic method and the Hamilton-Jacobi method. We apply these methods to the charged black holes in 2D dilaton gravity which is originated from the low energy effective theory of type 0A string theory. We derive the correct Hawking temperature of the black holes including the effect of the back reaction of the radiation, and obtain the entropy by using the 1st law of black hole thermodynamics. For fixed-charge ensemble, the 0A black holes are free of phase transition and thermodynamically stable regardless of mass-charge ratio. We show this by interpreting the back reaction term as the inverse of the heat capacity of the black holes. Finally, the possibility of the phase transition in the fixed-potential ensemble is discussed.Comment: 12 pages; v2: references added, revised with some changes in formula and unaltered conclusions, to be published in Phys. Lett.

Nonlinear Scattering of a Bose-Einstein Condensate on a Rectangular Barrier

We consider the nonlinear scattering and transmission of an atom laser, or Bose-Einstein condensate (BEC) on a finite rectangular potential barrier. The nonlinearity inherent in this problem leads to several new physical features beyond the well-known picture from single-particle quantum mechanics. We find numerical evidence for a denumerably infinite string of bifurcations in the transmission resonances as a function of nonlinearity and chemical potential, when the potential barrier is wide compared to the wavelength of oscillations in the condensate. Near the bifurcations, we observe extended regions of near-perfect resonance, in which the barrier is effectively invisible to the BEC. Unlike in the linear case, it is mainly the barrier width, not the height, that controls the transmission behavior. We show that the potential barrier can be used to create and localize a dark soliton or dark soliton train from a phonon-like standing wave.Comment: 15 pages, 15 figures, new version includes clarification of definition of transmission coefficient in general nonlinear vs. linear cas

Improving Tatonnement Methods for Solving Heterogeneous Agent Models

This paper modifies standard block Gauss-Seidel iterations used by tatonnement methods for solving large scale deterministic heterogeneous agent models. The composite method between first- and second-order tatonnement methods is shown to considerably improve convergence both in terms of speed as well as robustness relative to conventional first-order tatonnement methods. In addition, the relative advantage of the modified algorithm increases in the size and complexity of the economic model. Therefore, the algorithm allows significant reductions in computational time when solving large models. The algorithm is particularly attractive since it is easy to implement - it only augments conventional and intuitive tatonnement iterations with standard numerical methods.