A Sequential Quadratic Programming Method for Volatility Estimation in Option Pricing

Our goal is to identify the volatility function in Dupire's equation from given option prices. Following an optimal control approach in a Lagrangian framework, we propose a globalized sequential quadratic programming (SQP) algorithm with a modified Hessian - to ensure that every SQP step is a descent direction - and implement a line search strategy. In each level of the SQP method a linear-quadratic optimal control problem with box constraints is solved by a primal-dual active set strategy. This guarantees L1 constraints for the volatility, in particular assuring its positivity. The proposed algorithm is founded on a thorough first- and second-order optimality analysis. We prove the existence of local optimal solutions and of a Lagrange multiplier associated with the inequality constraints. Furthermore, we prove a sufficient second-order optimality condition and present some numerical results underlining the good properties of the numerical scheme.Dupire equation, parameter identification, optimal control, optimality conditions, SQP method, primal-dual active set strategy

Efficient hedging in Bates model using high-order compact finite differences

We evaluate the hedging performance of the scheme developed in B. Düring, A. Pitkin, ”High-order compact finite difference scheme for option pricing in stochastic volatility jump models”, 2017. We compare the scheme’s hedging performance to standard finite difference methods in different examples. We observe that the new scheme achieves fourth-order convergence, outperforming a standard, second-order central finite difference approximation in all our experiments

Boltzmann and Fokker-Planck equations modelling the Elo rating system with learning effects

In this paper we propose and study a new kinetic rating model for a large number of players, which is motivated by the well-known Elo rating system. Each player is characterised by an intrinsic strength and a rating, which are both updated after each game. We state and analyse the respective Boltzmann type equation and derive the corresponding nonlinear, nonlocal Fokker-Planck equation. We investigate the existence of solutions to the Fokker-Planck equation and discuss their behaviour in the long time limit. Furthermore, we illustrate the dynamics of the Boltzmann and Fokker-Planck equation with various numerical experiments

Symmetry Induced 4-Wave Capillary Wave Turbulence

We report theoretical and experimental results on 4-wave capillary wave turbulence. A system consisting of two inmiscible and incompressible fluids of the same density can be written in a Hamiltonian way for the conjugated pair $(\eta,\Psi)$. When given the symmetry $z\to-z$, the set of weakly non-linear interacting waves display a Kolmogorov-Zakharov (KZ) spectrum $n_k\sim k^{-4}$ in wave vector space. The wave system was studied experimentally with two inmiscible fluids of almost equal densities (water and silicon oil) where the capillary surface waves are excited by a low frequency random forcing. The power spectral density (PSD) and probability density function (PDF) of the local wave amplitude are studied. Both theoretical and experimental results are in fairly good agreement with each other.Comment: 6 pages, 2 figure

Pre-oil globalization in a rural community: the Late Islamic village of Sahlat in the Suhar region

Archaeology of the Near Eas

Kinetic models for optimal control of wealth inequalities

We introduce and discuss optimal control strategies for kinetic models for wealth distribution in a simple market economy, acting to minimize the variance of the wealth density among the population. Our analysis is based on a finite time horizon approximation, or model predictive control, of the corresponding control problem for the microscopic agents' dynamic and results in an alternative theoretical approach to the taxation and redistribution policy at a global level. It is shown that in general the control is able to modify the Pareto index of the stationary solution of the corresponding Boltzmann kinetic equation, and that this modification can be exactly quantified. Connections between previous Fokker-Planck based models and taxation-redistribution policies and the present approach are also discussed

Fourier analysis of wave turbulence in a thin elastic plate

The spatio-temporal dynamics of the deformation of a vibrated plate is measured by a high speed Fourier transform profilometry technique. The space-time Fourier spectrum is analyzed. It displays a behavior consistent with the premises of the Weak Turbulence theory. A isotropic continuous spectrum of waves is excited with a non linear dispersion relation slightly shifted from the linear dispersion relation. The spectral width of the dispersion relation is also measured. The non linearity of this system is weak as expected from the theory. Finite size effects are discussed. Despite a qualitative agreement with the theory, a quantitative mismatch is observed which origin may be due to the dissipation that ultimately absorbs the energy flux of the Kolmogorov-Zakharov casade.Comment: accepted for publication in European Physical Journal B see http://www.epj.or

Transient dynamics for sequence processing neural networks

An exact solution of the transient dynamics for a sequential associative memory model is discussed through both the path-integral method and the statistical neurodynamics. Although the path-integral method has the ability to give an exact solution of the transient dynamics, only stationary properties have been discussed for the sequential associative memory. We have succeeded in deriving an exact macroscopic description of the transient dynamics by analyzing the correlation of crosstalk noise. Surprisingly, the order parameter equations of this exact solution are completely equivalent to those of the statistical neurodynamics, which is an approximation theory that assumes crosstalk noise to obey the Gaussian distribution. In order to examine our theoretical findings, we numerically obtain cumulants of the crosstalk noise. We verify that the third- and fourth-order cumulants are equal to zero, and that the crosstalk noise is normally distributed even in the non-retrieval case. We show that the results obtained by our theory agree with those obtained by computer simulations. We have also found that the macroscopic unstable state completely coincides with the separatrix.Comment: 21 pages, 4 figure