Test of recent advances in extracting information from option prices

© 2017 Elsevier Inc. A large literature exists on techniques for extracting probability distributions for future asset prices from option prices. No definitive method has been developed however. The parametric 'mixture of normals', and non-parametric 'smoothed implied volatility' methods remain the most widespread approaches. These though are subject to estimation errors due to discretization, truncation, and noise. Recently, several authors have derived 'model free' formulae for computing the moments of the risk neutral density (RND) directly from option prices, without first estimating the full density. The accuracy of these formulae is studied here for the first time. The Black-Scholes formula is used to generate option prices, and error curves for the first 4 moments of the RND are computed using the 'model-free' formulae. It is found that, in practice, the formulae are prone to large and economically significant errors, because they contain definite integrals that can only be solved numerically. We show that without mathematically equivalent expressions with analytical solutions the formulae are difficult to deploy effectively in practice

Intermittency of Height Fluctuations and Velocity Increment of The Kardar-Parisi-Zhang and Burgers Equations with infinitesimal surface tension and Viscosity in 1+1 Dimensions

The Kardar-Parisi-Zhang (KPZ) equation with infinitesimal surface tension, dynamically develops sharply connected valley structures within which the height derivative is not continuous. We discuss the intermittency issue in the problem of stationary state forced KPZ equation in 1+1--dimensions. It is proved that the moments of height increments $C_a =$ behave as $|x_1 -x_2|^{\xi_a}$ with $\xi_a = a$ for length scales $|x_1-x_2| << \sigma$. The length scale $\sigma$ is the characteristic length of the forcing term. We have checked the analytical results by direct numerical simulation.Comment: 13 pages, 9 figure

Associations of sitting accumulation patterns with cardio-metabolic risk biomarkers in Australian adults

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Energy Barriers for Flux Lines in 3 Dimensions

I determine the scaling behavior of the free energy barriers encountered by a flux line in moving through a three-dimensional random potential. A combination of numerical simulations and analytic arguments suggest that these barriers scale with the length of the line in the same way as the fluctuation in the free energy.Comment: 12 pages Latex, 4 postscript figures tarred, compressed, uuencoded using `uufiles', coming with a separate fil

Quenched Averages for self-avoiding walks and polygons on deterministic fractals

We study rooted self avoiding polygons and self avoiding walks on deterministic fractal lattices of finite ramification index. Different sites on such lattices are not equivalent, and the number of rooted open walks W_n(S), and rooted self-avoiding polygons P_n(S) of n steps depend on the root S. We use exact recursion equations on the fractal to determine the generating functions for P_n(S), and W_n(S) for an arbitrary point S on the lattice. These are used to compute the averages $, ,$ and $<log W_n(S)>$ over different positions of S. We find that the connectivity constant $\mu$, and the radius of gyration exponent $\nu$ are the same for the annealed and quenched averages. However, $~ n log \mu + (\alpha_q -2) log n$, and $~ n log \mu + (\gamma_q -1)log n$, where the exponents $\alpha_q$ and $\gamma_q$ take values different from the annealed case. These are expressed as the Lyapunov exponents of random product of finite-dimensional matrices. For the 3-simplex lattice, our numerical estimation gives $\alpha_q \simeq 0.72837 \pm 0.00001$; and $\gamma_q \simeq 1.37501 \pm 0.00003$, to be compared with the annealed values $\alpha_a = 0.73421$ and $\gamma_a = 1.37522$.Comment: 17 pages, 10 figures, submitted to Journal of Statistical Physic

Fluctuating loops and glassy dynamics of a pinned line in two dimensions

We represent the slow, glassy equilibrium dynamics of a line in a two-dimensional random potential landscape as driven by an array of asymptotically independent two-state systems, or loops, fluctuating on all length scales. The assumption of independence enables a fairly complete analytic description. We obtain good agreement with Monte Carlo simulations when the free energy barriers separating the two sides of a loop of size L are drawn from a distribution whose width and mean scale as L^(1/3), in agreement with recent results for scaling of such barriers.Comment: 11 pages, 4 Postscript figure

Extremal statistics in the energetics of domain walls

We study at T=0 the minimum energy of a domain wall and its gap to the first excited state concentrating on two-dimensional random-bond Ising magnets. The average gap scales as $\Delta E_1 \sim L^\theta f(N_z)$, where $f(y) \sim [\ln y]^{-1/2}$, $\theta$ is the energy fluctuation exponent, $L$ length scale, and $N_z$ the number of energy valleys. The logarithmic scaling is due to extremal statistics, which is illustrated by mapping the problem into the Kardar-Parisi-Zhang roughening process. It follows that the susceptibility of domain walls has also a logarithmic dependence on system size.Comment: Accepted for publication in Phys. Rev.

Scaling of interfaces in brittle fracture and perfect plasticity

The roughness properties of two-dimensional fracture surfaces as created by the slow failure of random fuse networks are considered and compared to yield surfaces of perfect plasticity with similar disorder. By studying systems up to a linear size L=350 it is found that in the cases studied the fracture surfaces exhibit self-affine scaling with a roughness exponent close to 2/3, which is asymptotically exactly true for plasticity though finite-size effects are evident for both. The overlap of yield or minimum energy and fracture surfaces with exactly the same disorder configuration is shown to be a decreasing function of the system size and to be of a rather large magnitude for all cases studied. The typical ``overlap cluster'' length between pairs of such interfaces converges to a constant with $L$ increasing.Comment: Accepted for publication in Phys. Rev.

Pinning-induced transition to disordered vortex phase in layered superconductors

Destruction of the vortex lattice by random point pinning is considered as a mechanism of the ``second peak'' transition observed experimentally in weakly coupled layered high temperature superconductors. The transition field separating the topologically ordered quasilattice from the amorphous vortex configuration is strongly influenced by the layered structure and by the nonlocal nature of the vortex tilt energy due to the magnetic interlayer coupling. We found three different regimes of transition depending on the relative strength of the Josephson and magnetic couplings. The regimes can be distinguished by the dependence of the transition fieldComment: 8 pages, 3 Postscript figures. Accepted to Phys. Rev.B. (regular article