Generalized pricing formulas for stochastic volatility jump diffusion models applied to the exponential Vasicek model

Path integral techniques for the pricing of financial options are mostly based on models that can be recast in terms of a Fokker-Planck differential equation and that, consequently, neglect jumps and only describe drift and diffusion. We present a method to adapt formulas for both the path-integral propagators and the option prices themselves, so that jump processes are taken into account in conjunction with the usual drift and diffusion terms. In particular, we focus on stochastic volatility models, such as the exponential Vasicek model, and extend the pricing formulas and propagator of this model to incorporate jump diffusion with a given jump size distribution. This model is of importance to include non-Gaussian fluctuations beyond the Black-Scholes model, and moreover yields a lognormal distribution of the volatilities, in agreement with results from superstatistical analysis. The results obtained in the present formalism are checked with Monte Carlo simulations.Comment: 9 pages, 2 figures, 1 tabl

Fractional Quantum Hall Effect via Holography: Chern-Simons, Edge States, and Hierarchy

We present three holographic constructions of fractional quantum Hall effect (FQHE) via string theory. The first model studies edge states in FQHE using supersymmetric domain walls in N=6 Chern-Simons theory. We show that D4-branes wrapped on CP^1 or D8-branes wrapped on CP^3 create edge states that shift the rank or the level of the gauge group, respectively. These holographic edge states correctly reproduce the Hall conductivity. The second model presents a holographic dual to the pure U(N)_k (Yang-Mills-)Chern-Simons theory based on a D3-D7 system. Its holography is equivalent to the level-rank duality, which enables us to compute the Hall conductivity and the topological entanglement entropy. The third model introduces the first string theory embedding of hierarchical FQHEs, using IIA string on C^2/Z_n.Comment: 36 pages, 6 figures; v2: with an improved derivation of Hall conductivity in section 3.2, typo corrections, and additional references; v3: explanations and comments adde

Quantum phase transitions from topology in momentum space

Many quantum condensed matter systems are strongly correlated and strongly interacting fermionic systems, which cannot be treated perturbatively. However, physics which emerges in the low-energy corner does not depend on the complicated details of the system and is relatively simple. It is determined by the nodes in the fermionic spectrum, which are protected by topology in momentum space (in some cases, in combination with the vacuum symmetry). Close to the nodes the behavior of the system becomes universal; and the universality classes are determined by the toplogical invariants in momentum space. When one changes the parameters of the system, the transitions are expected to occur between the vacua with the same symmetry but which belong to different universality classes. Different types of quantum phase transitions governed by topology in momentum space are discussed in this Chapter. They involve Fermi surfaces, Fermi points, Fermi lines, and also the topological transitions between the fully gapped states. The consideration based on the momentum space topology of the Green's function is general and is applicable to the vacua of relativistic quantum fields. This is illustrated by the possible quantum phase transition governed by topology of nodes in the spectrum of elementary particles of Standard Model.Comment: 45 pages, 17 figures, 83 references, Chapter for the book "Quantum Simulations via Analogues: From Phase Transitions to Black Holes", to appear in Springer lecture notes in physics (LNP

Heavy quarkonium: progress, puzzles, and opportunities

A golden age for heavy quarkonium physics dawned a decade ago, initiated by the confluence of exciting advances in quantum chromodynamics (QCD) and an explosion of related experimental activity. The early years of this period were chronicled in the Quarkonium Working Group (QWG) CERN Yellow Report (YR) in 2004, which presented a comprehensive review of the status of the field at that time and provided specific recommendations for further progress. However, the broad spectrum of subsequent breakthroughs, surprises, and continuing puzzles could only be partially anticipated. Since the release of the YR, the BESII program concluded only to give birth to BESIII; the $B$-factories and CLEO-c flourished; quarkonium production and polarization measurements at HERA and the Tevatron matured; and heavy-ion collisions at RHIC have opened a window on the deconfinement regime. All these experiments leave legacies of quality, precision, and unsolved mysteries for quarkonium physics, and therefore beg for continuing investigations. The plethora of newly-found quarkonium-like states unleashed a flood of theoretical investigations into new forms of matter such as quark-gluon hybrids, mesonic molecules, and tetraquarks. Measurements of the spectroscopy, decays, production, and in-medium behavior of c\bar{c}, b\bar{b}, and b\bar{c} bound states have been shown to validate some theoretical approaches to QCD and highlight lack of quantitative success for others. The intriguing details of quarkonium suppression in heavy-ion collisions that have emerged from RHIC have elevated the importance of separating hot- and cold-nuclear-matter effects in quark-gluon plasma studies. This review systematically addresses all these matters and concludes by prioritizing directions for ongoing and future efforts.Comment: 182 pages, 112 figures. Editors: N. Brambilla, S. Eidelman, B. K. Heltsley, R. Vogt. Section Coordinators: G. T. Bodwin, E. Eichten, A. D. Frawley, A. B. Meyer, R. E. Mitchell, V. Papadimitriou, P. Petreczky, A. A. Petrov, P. Robbe, A. Vair

Connecting discrete and continuous path-dependent options

This paper develops methods for relating the prices of discrete- and continuous-time versions of path-dependent options sensitive to extremal values of the underlying asset, including lookback, barrier, and hindsight options. The relationships take the form of correction terms that can be interpreted as shifting a barrier, a strike, or an extremal price. These correction terms enable us to use closed-form solutions for continuous option prices to approximate their discrete counterparts. We also develop discrete-time discrete-state lattice methods for determining accurate prices of discrete and continuous path-dependent options. In several cases, the lattice methods use correction terms based on the connection between discrete- and continuous-time prices which dramatically improve convergence to the accurate price.Barrier options, lookback options, continuity corrections, trinomial trees