From Smile Asymptotics to Market Risk Measures

The left tail of the implied volatility skew, coming from quotes on out-of-the-money put options, can be thought to reflect the market's assessment of the risk of a huge drop in stock prices. We analyze how this market information can be integrated into the theoretical framework of convex monetary measures of risk. In particular, we make use of indifference pricing by dynamic convex risk measures, which are given as solutions of backward stochastic differential equations (BSDEs), to establish a link between these two approaches to risk measurement. We derive a characterization of the implied volatility in terms of the solution of a nonlinear PDE and provide a small time-to-maturity expansion and numerical solutions. This procedure allows to choose convex risk measures in a conveniently parametrized class, distorted entropic dynamic risk measures, which we introduce here, such that the asymptotic volatility skew under indifference pricing can be matched with the market skew. We demonstrate this in a calibration exercise to market implied volatility data.Comment: 24 pages, 4 figure

Neutrino Oscillations in the Early Universe with Nonequilibrium Neutrino Distributions

Around one second after the big bang, neutrino decoupling and $e^+$-$e^-$ annihilation distort the Fermi-Dirac spectrum of neutrino energies. Assuming neutrinos have masses and can mix, we compute the distortions using nonequilibrium thermodynamics and the Boltzmann equation. The flavor behavior of neutrinos is studied during and following the generation of the distortion.Comment: accepted for publication in Physical Review

Mappings of least Dirichlet energy and their Hopf differentials

The paper is concerned with mappings between planar domains having least Dirichlet energy. The existence and uniqueness (up to a conformal change of variables in the domain) of the energy-minimal mappings is established within the class $\bar{\mathscr H}_2(X, Y)$ of strong limits of homeomorphisms in the Sobolev space $W^{1,2}(X, Y)$, a result of considerable interest in the mathematical models of Nonlinear Elasticity. The inner variation leads to the Hopf differential $h_z \bar{h_{\bar{z}}} dz \otimes dz$ and its trajectories. For a pair of doubly connected domains, in which $X$ has finite conformal modulus, we establish the following principle: A mapping $h \in \bar{\mathscr H}_2(X, Y)$ is energy-minimal if and only if its Hopf-differential is analytic in $X$ and real along the boundary of $X$. In general, the energy-minimal mappings may not be injective, in which case one observes the occurrence of cracks in $X$. Nevertheless, cracks are triggered only by the points in the boundary of $Y$ where $Y$ fails to be convex. The general law of formation of cracks reads as follows: Cracks propagate along vertical trajectories of the Hopf differential from the boundary of $X$ toward the interior of $X$ where they eventually terminate before making a crosscut.Comment: 51 pages, 4 figure