"Efficient Static Replication of European Options under Exponential Levy Models"

This paper proposes a new scheme for the static replication of European options and their portfolios. First, we derive a general approximation formula for efficient static replication as an extension of Carr and Chou [1997, 2002] and Carr and Wu [2002]. Second, we present a concrete procedure for implementing our scheme by applying it to plain vanilla options under exponential LLevy models. Finally, numerical examples in a model developed by Carr, Geman, Madan and Yor [2002] are used to demonstrate that our replication scheme is more efficient and more effective in practice than a standard static replication method.

A New Scheme for Static Hedging of European Derivatives under Stochastic Volatility Models ( Revised in June 2008, Published in "Journal of Futures Markets", Vol.29-5, 397-413, 2009. )

This paper proposes a new scheme for static hedging of European path-independent derivatives under stochastic volatility models. First, we show that pricing European path-independent derivatives under stochastic volatility models is transformed to pricing those under one-factor local volatility models. Next, applying an efficient static replication method for one-dimensional price processes developed by Takahashi and Yamazaki[2007], we present a static hedging scheme for European path-independent derivatives. Finally, a numerical example comparing our method with a dynamic hedging method under the Heston[1993]?s stochastic volatility model is used to demonstrate that our hedging scheme is effective in practice.

Efficient Static Replication of European Options for Exponential Levy Models (Revised in January 2008, Published in "Journal of Futures Markets", Vol.29-1, 1-15, 2009. )

This paper proposes a new scheme for the static replication of European options and their portfolios. First, we derive a general approximation formula for efficient static replication as an extension of Carr and Chou [1997, 2002] and Carr and Wu [2002]. Second, we present a concrete procedure for implementing our scheme by applying it to plain vanilla options under exponential L?evy models. Finally, numerical examples in a model developed by Carr, Geman, Madan and Yor[2002] are used to demonstrate that our replication scheme is more efficient and more effective in practice than a standard static replication method.

Squeezing at 946nm with periodically-poled KTiOPO_4

We report generation of squeezed vacuum in sideband modes of continuous-wave light at 946 nm using a periodically poled KTiOPO_4 crystal in an optical parametric oscillator. At the pump power of 250 mW, we observe the squeezing level of -5.6+/-0.1 dB and the anti-squeezing level of +12.7+/-0.1 dB. The pump power dependence of the observed squeezing/anti-squeezing levels agrees with the theoretically calculated values when the phase fluctuation of locking is taken into account.Comment: 3 pages, 3 figures, submitted to Optics Letter

First-principles interatomic potentials for ten elemental metals via compressed sensing

Interatomic potentials have been widely used in atomistic simulations such as molecular dynamics. Recently, frameworks to construct accurate interatomic potentials that combine a systematic set of density functional theory (DFT) calculations with machine learning techniques have been proposed. One of these methods is to use compressed sensing to derive a sparse representation for the interatomic potential. This facilitates the control of the accuracy of interatomic potentials. In this study, we demonstrate the applicability of compressed sensing to deriving the interatomic potential of ten elemental metals, namely, Ag, Al, Au, Ca, Cu, Ga, In, K, Li and Zn. For each elemental metal, the interatomic potential is obtained from DFT calculations using elastic net regression. The interatomic potentials are found to have prediction errors of less than 3.5 meV/atom, 0.03 eV/\AA\ and 0.15 GPa for the energy, force and the stress tensor, respectively, which enable the accurate prediction of physical properties such as lattice constants and the phonon dispersion relationship.Comment: 11 pages, 5 figure

"Hedging European Derivatives with the Polynomial Variance Swap under Uncertain Volatility Environments"

This paper proposes a new hedging scheme of European derivatives under uncertain volatility environments, in which a weighted variance swap called the polynomial variance swap is added to the Black-Scholes delta hedging for managing exposure to volatility risk. In general, under these environments one cannot hedge the derivatives completely by using dynamic trading of only an underlying asset owing to volatility risk. Then, for hedging uncertain volatility risk, we design the polynomial variance, which can be dependent on the level of the underlying asset price. It is shown that the polynomial variance swap is not perfect, but more efficient as a hedging tool for the volatility exposure than the standard variance swap. In addition, our hedging scheme has a preferable property that any information on the volatility process of the underlying asset price is unnecessary. To demonstrate robustness of our scheme, we implement Monte Carlo simulation tests with three different settings, and compare the hedging performance of our scheme with that of standard dynamic hedging schemes such as the minimum-variance hedging. As a result, it is found that our scheme outperforms the others in all test cases. Moreover, it is noteworthy that the scheme proposed in this paper continues to be robust against model risks.