Risks and return of banking activities related to hedge funds.

There are approximately 10,000 hedge funds worldwide, managing assets of over USD 1.5 trillion. Investment banking activities are more and more intertwined with hedge funds, as hedge funds obtain financing from banks through prime brokerage and are clients or counterparties of banks for all sorts of products. The development of hedge funds has therefore created many opportunities for investment banks. Bank benefit from hedge funds activities directly to the extent that hedge funds are their clients. All capital market activities benefit from it, from brokerage and research to derivatives. Prime brokerage has become a growing source of income. Banks have a very important business of providing derivatives and products, from vanilla products to more complex, customized and exotic products. Hedge funds are also possible underlyings for derivatives. Many banks, including Société Générale, have developed a business of writing options on hedge funds as well as providing leverage to funds of funds. Investment banks are not only making profits by transacting with hedge funds. They also benefi t indirectly through more trading: on certain specifi c specialized market, like structured complex derivatives, there would be no market at all without the availability of hedge funds that are willing to take the risks. Together, as two intertwined partners, hedge funds and investment banks have extended the reach and effi ciency of capital markets. The benefi ts that this system brings to the economy as a whole is widely recognized. Not only do hedge funds provide important benefi ts for the economy in general but their risks are manageable. The risks for investors are overplayed. Whatever the risk measure, hedge funds are clearly less risky than equities. As regards operational risks, the market itself is able to generate protection solutions. Academic research has shown that operational risks can be dealt in the most extensive way by using managed account platforms, such as the Lyxor platform. The risks for banks are under control and the move toward “risk-based margining” has improved very much their risk management. Banks in general invest a lot of resources in monitoring hedge funds qualitatively through due-diligences. They also put different types of limits in order to cover different aspects of risks: nominal limits, stress test limits, limits on delta, limits on vega, expected tail loss limits. Moreover, they regulate their capital requirements using not only Value at Risk, the usual tool used by banks to allocate capital to market risks, but also stress tests losses based on the worst possible scenarios. These very sophisticated models are quite convincing. There is no reason to believe that they will not work in practice under stress conditions. There are also general consideration about a systemic risk that would be something else than banking risks, but it has no real argument to back it up. Hedge funds are fi rst of all the result of a signifi cant improvement of asset management techniques. These improvements are here to stay, whatever the regulatory environment will become, since these techniques will be more and more part of the mainstream asset management world. Hedge funds are more and more institutionalized. They will eventually merge with “classical” asset management, while some forms of compromises between hedge funds and classical asset management, such as absolute return funds or 130-30 funds, are becoming more common. Hedge funds are just a nice new development of capital markets that, like all past capital market developments, will be irreversible and will contribute to a more effi cient fi nancial system.

Prototype ultrasonic instrument for quantitative testing

Ultrasonic instrument has been developed for use in quantitative nondestructive evaluation of material defects such as cracks, voids, inclusions, and unbonds. Instrument is provided with standard pulse source and transducer for each frequency range selected and includes integral aids that allow calibration to prescribed standards

Linear Connections in Non-Commutative Geometry

A construction is proposed for linear connections on non-commutative algebras. The construction relies on a generalisation of the Leibnitz rules of commutative geometry and uses the bimodule structure of $\Omega^1$. A special role is played by the extension to the framework of non-commutative geometry of the permutation of two copies of $\Omega^1$. The construction of the linear connection as well as the definition of torsion and curvature is first proposed in the setting of the derivations based differential calculus of Dubois- Violette and then a generalisation to the framework proposed by Connes as well as other non-commutative differential calculi is suggested. The covariant derivative obtained admits an extension to the tensor product of several copies of $\Omega^1$. These constructions are illustrated with the example of the algebra of $n \times n$ matrices.Comment: 15 pages, LMPM ../94 (uses phyzzx

Fractionalization of minimal excitations in integer quantum Hall edge channels

A theoretical study of the single electron coherence properties of Lorentzian and rectangular pulses is presented. By combining bosonization and the Floquet scattering approach, the effect of interactions on a periodic source of voltage pulses is computed exactly. When such excitations are injected into one of the channels of a system of two copropagating quantum Hall edge channels, they fractionalize into pulses whose charge and shape reflects the properties of interactions. We show that the dependence of fractionalization induced electron/hole pair production in the pulses amplitude contains clear signatures of the fractionalization of the individual excitations. We propose an experimental setup combining a source of Lorentzian pulses and an Hanbury Brown and Twiss interferometer to measure interaction induced electron/hole pair production and more generally to reconstruct single electron coherence of these excitations before and after their fractionalization.Comment: 18 pages, 10 figures, 1 tabl

Properties of Phase transitions of a Higher Order

The following is a thermodynamic analysis of a III order (and some aspects of a IV order) phase transition. Such a transition can occur in a superconductor if the normal state is a diamagnet. The equation for a phase boundary in an H-T (H is the magnetic field, T, the temperature) plane is derived. by considering two possible forms of the gradient energy, it is possible to construct a field theory which describes a III or a IV order transition and permits a study of thermal fluctuations and inhomogeneous order parameters.Comment: 13 pages, revtex, no figure

The Origin of Chiral Anomaly and the Noncommutative Geometry

We describe the scalar and spinor fields on noncommutative sphere starting from canonical realizations of the enveloping algebra ${\cal A}={\cal U}{u(2))}$. The gauge extension of a free spinor model, the Schwinger model on a noncommutative sphere, is defined and the model is quantized. The noncommutative version of the model contains only a finite number of dynamical modes and is non-perturbatively UV-regular. An exact expresion for the chiral anomaly is found. In the commutative limit the standard formula is recovered.Comment: 30 page