Explicit solution of an inverse first-passage time problem for L\'{e}vy processes and counterparty credit risk

For a given Markov process $X$ and survival function $\overline{H}$ on $\mathbb{R}^+$, the inverse first-passage time problem (IFPT) is to find a barrier function $b:\mathbb{R}^+\to[-\infty,+\infty]$ such that the survival function of the first-passage time $\tau_b=\inf \{t\ge0:X(t)<b(t)\}$ is given by $\overline{H}$. In this paper, we consider a version of the IFPT problem where the barrier is fixed at zero and the problem is to find an initial distribution $\mu$ and a time-change $I$ such that for the time-changed process $X\circ I$ the IFPT problem is solved by a constant barrier at the level zero. For any L\'{e}vy process $X$ satisfying an exponential moment condition, we derive the solution of this problem in terms of $\lambda$-invariant distributions of the process $X$ killed at the epoch of first entrance into the negative half-axis. We provide an explicit characterization of such distributions, which is a result of independent interest. For a given multi-variate survival function $\overline{H}$ of generalized frailty type, we construct subsequently an explicit solution to the corresponding IFPT with the barrier level fixed at zero. We apply these results to the valuation of financial contracts that are subject to counterparty credit risk.Comment: Published at http://dx.doi.org/10.1214/14-AAP1051 in the Annals of Applied Probability (http://www.imstat.org/aap/) by the Institute of Mathematical Statistics (http://www.imstat.org

Utility based pricing and hedging of jump diffusion processes with a view to applications

We discuss utility based pricing and hedging of jump diffusion processes with emphasis on the practical applicability of the framework. We point out two difficulties that seem to limit this applicability, namely drift dependence and essential risk aversion independence. We suggest to solve these by a re-interpretation of the framework. This leads to the notion of an implied drift. We also present a heuristic derivation of the marginal indifference price and the marginal optimal hedge that might be useful in numerical computations.Comment: 23 pages, v2: publishe

Streaming velocities as a dynamical estimator of Omega

It is well known that estimating the pairwise velocity of galaxies, v_{12}, from the redshift space galaxy correlation function is difficult because this method is highly sensitive to the assumed model of the pairwise velocity dispersion. Here we propose an alternative method to estimate v_{12} directly from peculiar velocity samples, which contain redshift-independent distances as well as galaxy redshifts. In contrast to other dynamical measures which determine beta = sigma_8 x Omega^{0.6}, our method can provide an estimate of (sigma_8)^2 x Omega^{0.6} for a range of sigma_8 (here Omega is the cosmological mass density parameter while sigma_8 is the standard normalization parameter for the spectrum of matter density fluctuations). We demonstrate how to measure this quantity from realistic catalogues.Comment: 8 pages of text, 4 figures Subject headings: Cosmology: theory - observation - peculiar velocities: large scale flows Last name of one of the authors was misspelled. It is now corrected. Otherwise the manuscript is identical to its original versio

Measuring Omega with Galaxy Streaming Velocities

The mean pairwise velocity of galaxies has traditionally been estimated from the redshift space galaxy correlation function. This method is notorious for being highly sensitive to the assumed model of the pairwise velocity dispersion. Here we propose an alternative method to estimate the streaming velocity directly from peculiar velocity samples, which contain redshift-independent distances as well as galaxy redshifts. This method can provide an estimate of $\Omega^{0.6}\sigma_8^2$ for a range of $\sigma_8$ where $\Omega$ is the cosmological density parameter, while $\sigma_8$ is the standard normalization for the power spectrum of density fluctuations. We demonstrate how to measure this quantity from realistic catalogues and identify the main sources of bias and errorsComment: Proceedings of New Worlds in Astroparticle Physics, 6 pages, 2 figure

Evidence for a low-density Universe from the relative velocities of galaxies

The motions of galaxies can be used to constrain the cosmological density parameter Omega and the clustering amplitude of matter on large scales. The mean relative velocity of galaxy pairs, estimated from the Mark III survey, indicates that Omega = 0.35 +0.35/-0.25. If the clustering of galaxies is unbiased on large scales, Omega = 0.35 +/- 0.15, so that an unbiased Einstein-de Sitter model (Omega = 1) is inconsistent with the data.Comment: 12 pages, 2 figures, to appear in the Jan.7 issue of ``Science''; In the original version, the title appeared twice. This problem has now been corrected. No other changes were mad

Inference on the tail process with application to financial time series modelling

To draw inference on serial extremal dependence within heavy-tailed Markov chains, Drees, Segers and Warcho{\l} [Extremes (2015) 18, 369--402] proposed nonparametric estimators of the spectral tail process. The methodology can be extended to the more general setting of a stationary, regularly varying time series. The large-sample distribution of the estimators is derived via empirical process theory for cluster functionals. The finite-sample performance of these estimators is evaluated via Monte Carlo simulations. Moreover, two different bootstrap schemes are employed which yield confidence intervals for the pre-asymptotic spectral tail process: the stationary bootstrap and the multiplier block bootstrap. The estimators are applied to stock price data to study the persistence of positive and negative shocks.Comment: 22 page

Determination of the gaseous hydrogen ductile-brittle transition in copper-nickel alloys

A series of copper-nickel alloys were fabricated, notched tensile specimens machined for each alloy, and the specimens tested in 34.5 MPa hydrogen and in air. A notched tensile ratio was determined for each alloy and the hydrogen environment embrittlement (HEE) determined for the alloys of 47.7 weight percent nickel to 73.5 weight percent nickel. Stacking fault probability and stacking fault energies were determined for each alloy using the x ray diffraction line shift and line profiles technique. Hydrogen environment embrittlement was determined to be influenced by stacking fault energies; however, the correlation is believed to be indirect and only partially responsible for the HEE behavior of these alloys

Fermion zero modes in N=2 supervortices

We study the fermionic zero modes of BPS semilocal magnetic vortices in N=2 supersymmetric QED with a Fayet-Iliopoulos term and two matter hypermultiplets of opposite charge. There is a one-parameter family of vortices with arbitrarily wide magnetic cores. Contrary to the situation in pure Nielsen-Olesen vortices, new zero modes are found which get their masses from Yukawa couplings to scalar fields that do not wind and are non-zero at the core. We clarify the relation between fermion mass and zero modes. The new zero modes have opposite chiralities and therefore do not affect the net counting (left minus right) of zero modes coming from index theorems but manage to evade other index theorems in the literature that count the total number (left plus right) of zero modes in simpler systems.Comment: 9 pages, 1 figure. Uses Revtex4. Revised version includes discussion about the back-reaction of the fermions on the background vortex. Version to be published in Phys. Rev.

Solutions to the tethered galaxy problem in an expanding universe and the observation of receding blueshifted objects

We use the dynamics of a galaxy, set up initially at a constant proper distance from an observer, to derive and illustrate two counter-intuitive general relativistic results. Although the galaxy does gradually join the expansion of the universe (Hubble flow), it does not necessarily recede from us. In particular, in the currently favored cosmological model, which includes a cosmological constant, the galaxy recedes from the observer as it joins the Hubble flow, but in the previously favored cold dark matter model, the galaxy approaches, passes through the observer, and joins the Hubble flow on the opposite side of the sky. We show that this behavior is consistent with the general relativistic idea that space is expanding and is determined by the acceleration of the expansion of the universe -- not a force or drag associated with the expansion itself. We also show that objects at a constant proper distance will have a nonzero redshift; receding galaxies can be blueshifted and approaching galaxies can be redshifted.Comment: 8 pages including 6 figures, to appear in Am. J. Phys., 2003. Reference added in postscrip

Computable functions, quantum measurements, and quantum dynamics

We construct quantum mechanical observables and unitary operators which, if implemented in physical systems as measurements and dynamical evolutions, would contradict the Church-Turing thesis which lies at the foundation of computer science. We conclude that either the Church-Turing thesis needs revision, or that only restricted classes of observables may be realized, in principle, as measurements, and that only restricted classes of unitary operators may be realized, in principle, as dynamics.Comment: 4 pages, REVTE