An optimal Skorokhod embedding for diffusions

AbstractGiven a Brownian motion (Bt)t⩾0 and a general target law μ (not necessarily centered or even in L1) we show how to construct an embedding of μ in B. This embedding is an extension of an embedding due to Perkins, and is optimal in the sense that it simultaneously minimises the distribution of the maximum and maximises the distribution of the minimum among all embeddings of μ. The embedding is then applied to regular diffusions, and used to characterise the target laws for which a Hp-embedding may be found

The joint law of the extrema, final value and signature of a stopped random walk

A complete characterization of the possible joint distributions of the maximum and terminal value of uniformly integrable martingale has been known for some time, and the aim of this paper is to establish a similar characterization for continuous martingales of the joint law of the minimum, final value, and maximum, along with the direction of the final excursion. We solve this problem completely for the discrete analogue, that of a simple symmetric random walk stopped at some almost-surely finite stopping time. This characterization leads to robust hedging strategies for derivatives whose value depends on the maximum, minimum and final values of the underlying asset

Robust pricing and hedging of double no-touch options

Double no-touch options, contracts which pay out a fixed amount provided an underlying asset remains within a given interval, are commonly traded, particularly in FX markets. In this work, we establish model-free bounds on the price of these options based on the prices of more liquidly traded options (call and digital call options). Key steps are the construction of super- and sub-hedging strategies to establish the bounds, and the use of Skorokhod embedding techniques to show the bounds are the best possible. In addition to establishing rigorous bounds, we consider carefully what is meant by arbitrage in settings where there is no {\it a priori} known probability measure. We discuss two natural extensions of the notion of arbitrage, weak arbitrage and weak free lunch with vanishing risk, which are needed to establish equivalence between the lack of arbitrage and the existence of a market model.Comment: 32 pages, 5 figure

An Excursion-Theoretic Approach to Stability of Discrete-Time Stochastic Hybrid Systems

We address stability of a class of Markovian discrete-time stochastic hybrid systems. This class of systems is characterized by the state-space of the system being partitioned into a safe or target set and its exterior, and the dynamics of the system being different in each domain. We give conditions for $L_1$-boundedness of Lyapunov functions based on certain negative drift conditions outside the target set, together with some more minor assumptions. We then apply our results to a wide class of randomly switched systems (or iterated function systems), for which we give conditions for global asymptotic stability almost surely and in $L_1$. The systems need not be time-homogeneous, and our results apply to certain systems for which functional-analytic or martingale-based estimates are difficult or impossible to get.Comment: Revised. 17 pages. To appear in Applied Mathematics & Optimizatio

Intercalibration of the barrel electromagnetic calorimeter of the CMS experiment at start-up

Calibration of the relative response of the individual channels of the barrel electromagnetic calorimeter of the CMS detector was accomplished, before installation, with cosmic ray muons and test beams. One fourth of the calorimeter was exposed to a beam of high energy electrons and the relative calibration of the channels, the intercalibration, was found to be reproducible to a precision of about 0.3%. Additionally, data were collected with cosmic rays for the entire ECAL barrel during the commissioning phase. By comparing the intercalibration constants obtained with the electron beam data with those from the cosmic ray data, it is demonstrated that the latter provide an intercalibration precision of 1.5% over most of the barrel ECAL. The best intercalibration precision is expected to come from the analysis of events collected in situ during the LHC operation. Using data collected with both electrons and pion beams, several aspects of the intercalibration procedures based on electrons or neutral pions were investigated

A measurement of the tau mass and the first CPT test with tau leptons

We measure the mass of the tau lepton to be 1775.1+-1.6(stat)+-1.0(syst.) MeV using tau pairs from Z0 decays. To test CPT invariance we compare the masses of the positively and negatively charged tau leptons. The relative mass difference is found to be smaller than 3.0 10^-3 at the 90% confidence level.Comment: 10 pages, 4 figures, Submitted to Phys. Letts.

First Measurement of Z/gamma* Production in Compton Scattering of Quasi-real Photons

We report the first observation of Z/gamma* production in Compton scattering of quasi-real photons. This is a subprocess of the reaction e+e- to e+e-Z/gamma*, where one of the final state electrons is undetected. Approximately 55 pb-1 of data collected in the year 1997 at an e+e- centre-of-mass energy of 183 GeV with the OPAL detector at LEP have been analysed. The Z/gamma* from Compton scattering has been detected in the hadronic decay channel. Within well defined kinematic bounds, we measure the product of cross-section and Z/gamma* branching ratio to hadrons to be (0.9+-0.3+-0.1) pb for events with a hadronic mass larger than 60 GeV, dominated by (e)eZ production. In the hadronic mass region between 5 GeV and 60 GeV, dominated by (e)egamma* production, this product is found to be (4.1+-1.6+-0.6) pb. Our results agree with the predictions of two Monte Carlo event generators, grc4f and PYTHIA.Comment: 18 pages, LaTeX, 5 eps figures included, submitted to Physics Letters

The role of fundamental solution in Potential and Regularity Theory for subelliptic PDE

In this survey we consider a general Hormander type operator, represented as a sum of squares of vector fields plus a drift and we outline the central role of the fundamental solution in developing Potential and Regularity Theory for solutions of related PDEs. After recalling the Gaussian behavior at infinity of the kernel, we show some mean value formulas on the level sets of the fundamental solution, which are the starting point to obtain a comprehensive parallel of the classical Potential Theory. Then we show that a precise knowledge of the fundamental solution leads to global regularity results, namely estimates at the boundary or on the whole space. Finally in the problem of regularity of non linear differential equations we need an ad hoc modification of the parametrix method, based on the properties of the fundamental solution of an approximating problem

A search for neutral Higgs bosons in the MSSM and models with two scalar field doublets

A search is described for the neutral Higgs bosons h^0 and A^0 predicted by models with two scalar field doublets and, in particular, the Minimal Supersymmetric Standard Model (MSSM). The search in the Z^0 h^0 and h^0 A^0 production channels is based on data corresponding to an integrated luminosity of 25 pb^{-1} from e^+e^- collisions at centre-of-mass energies between 130 and 172GeV collected with the OPAL detector at LEP. The observation of a number of candidates consistent with Standard Model background expectations is used in combination with earlier results from data collected at the Z^0 resonance to set limits on m_h and m_A in general models with two scalar field doublets and in the MSSM. For example, in the MSSM, for tan(beta) > 1, minimal and maximal scalar top quark mixing and soft SUSY-breaking masses of 1 TeV, the 95% confidence level limits m_h > 59.0 GeV and m_A > 59.5 GeV are obtained. For the first time, the MSSM parameter space is explored in a detailed scan.A search is described for the neutral Higgs bosons h^0 and A^0 predicted by models with two scalar field doublets and, in particular, the Minimal Supersymmetric Standard Model (MSSM). The search in the Z^0 h^0 and h^0 A^0 production channels is based on data corresponding to an integrated luminosity of 25 pb^{-1} from e^+e^- collisions at centre-of-mass energies between 130 and 172 GeV collected with the OPAL detector at LEP. The observation of a number of candidates consistent with Standard Model background expectations is used in combination with earlier results from data collected at the Z^0 resonance to set limits on m_h and m_A in general models with two scalar field doublets and in the MSSM. For example, in the MSSM, for tan(beta) > 1, minimal and maximal scalar top quark mixing and soft SUSY-breaking masses of 1 TeV, the 95% confidence level limits m_h > 59.0 GeV and m_A > 59.5 GeV are obtained. For the first time, the MSSM parameter space is explored in a detailed scan