1,023 research outputs found
Balance, growth and diversity of financial markets
A financial market comprising of a certain number of distinct companies is
considered, and the following statement is proved: either a specific agent will
surely beat the whole market unconditionally in the long run, or (and this "or"
is not exclusive) all the capital of the market will accumulate in one company.
Thus, absence of any "free unbounded lunches relative to the total capital"
opportunities lead to the most dramatic failure of diversity in the market: one
company takes over all other until the end of time. In order to prove this, we
introduce the notion of perfectly balanced markets, which is an equilibrium
state in which the relative capitalization of each company is a martingale
under the physical probability. Then, the weaker notion of balanced markets is
discussed where the martingale property of the relative capitalizations holds
only approximately, we show how these concepts relate to growth-optimality and
efficiency of the market, as well as how we can infer a shadow interest rate
that is implied in the economy in the absence of a bank.Comment: 25 page
Runge-Kutta methods for third order weak approximation of SDEs with multidimensional additive noise
A new class of third order Runge-Kutta methods for stochastic differential
equations with additive noise is introduced. In contrast to Platen's method,
which to the knowledge of the author has been up to now the only known third
order Runge-Kutta scheme for weak approximation, the new class of methods
affords less random variable evaluations and is also applicable to SDEs with
multidimensional noise. Order conditions up to order three are calculated and
coefficients of a four stage third order method are given. This method has
deterministic order four and minimized error constants, and needs in addition
less function evaluations than the method of Platen. Applied to some examples,
the new method is compared numerically with Platen's method and some well known
second order methods and yields very promising results.Comment: Two further examples added, small correction
COST ES0602: towards a European network on chemical weather forecasting and information systems
The COST ES0602 action provides a forum for benchmarking approaches and practices in data exchange and multi-model capabilities for chemical weather forecasting and near real-time information services in Europe. The action includes approximately 30 participants from 19 countries, and its duration is from 2007 to 2011 (<a href="http://www.chemicalweather.eu/" target="_blank">http://www.chemicalweather.eu/</a>). Major efforts have been dedicated in other actions and projects to the development of infrastructures for data flow. We have therefore aimed for collaboration with ongoing actions towards developing near real-time exchange of input data for air quality forecasting. We have collected information on the operational air quality forecasting models on a regional and continental scale in a structured form, and inter-compared and evaluated the physical and chemical structure of these models. We have also constructed a European chemical weather forecasting portal that includes links to most of the available chemical weather forecasting systems in Europe. The collaboration also includes the examination of the case studies that have been organized within COST-728, in order to inter-compare and evaluate the models against experimental data. We have also constructed an operational model forecasting ensemble. Data from a representative set of regional background stations have been selected, and the operational forecasts for this set of sites will be inter-compared and evaluated. The Action has investigated, analysed and reviewed existing chemical weather information systems and services, and will provide recommendations on best practices concerning the presentation and dissemination of chemical weather information towards the public and decision makers
On inversions and Doob -transforms of linear diffusions
Let be a regular linear diffusion whose state space is an open interval
. We consider a diffusion which probability law is
obtained as a Doob -transform of the law of , where is a positive
harmonic function for the infinitesimal generator of on . This is the
dual of with respect to where is the speed measure of
. Examples include the case where is conditioned to stay above
some fixed level. We provide a construction of as a deterministic
inversion of , time changed with some random clock. The study involves the
construction of some inversions which generalize the Euclidean inversions.
Brownian motion with drift and Bessel processes are considered in details.Comment: 19 page
Stochastic Calculus for a Time-changed Semimartingale and the Associated Stochastic Differential Equations
It is shown that under a certain condition on a semimartingale and a
time-change, any stochastic integral driven by the time-changed semimartingale
is a time-changed stochastic integral driven by the original semimartingale. As
a direct consequence, a specialized form of the Ito formula is derived. When a
standard Brownian motion is the original semimartingale, classical Ito
stochastic differential equations driven by the Brownian motion with drift
extend to a larger class of stochastic differential equations involving a
time-change with continuous paths. A form of the general solution of linear
equations in this new class is established, followed by consideration of some
examples analogous to the classical equations. Through these examples, each
coefficient of the stochastic differential equations in the new class is given
meaning. The new feature is the coexistence of a usual drift term along with a
term related to the time-change.Comment: 27 pages; typos correcte
Maximum likelihood drift estimation for a threshold diffusion
We study the maximum likelihood estimator of the drift parameters of a
stochastic differential equation, with both drift and diffusion coefficients
constant on the positive and negative axis, yet discontinuous at zero. This
threshold diffusion is called drifted Oscillating Brownian motion.For this
continuously observed diffusion, the maximum likelihood estimator coincide with
a quasi-likelihood estimator with constant diffusion term. We show that this
estimator is the limit, as observations become dense in time, of the
(quasi)-maximum likelihood estimator based on discrete observations. In long
time, the asymptotic behaviors of the positive and negative occupation times
rule the ones of the estimators. Differently from most known results in the
literature, we do not restrict ourselves to the ergodic framework: indeed,
depending on the signs of the drift, the process may be ergodic, transient or
null recurrent. For each regime, we establish whether or not the estimators are
consistent; if they are, we prove the convergence in long time of the properly
rescaled difference of the estimators towards a normal or mixed normal
distribution. These theoretical results are backed by numerical simulations
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