Mathematical Aspects of Financial Markets with Frictions

Frictions are factors that hinder trading of securities in financial markets. Typical frictions include limited market depth, transaction costs, lack of infinite divisibility of securities, and taxes. Conventional models used in mathematical finance often gloss over these issues, which affect almost all financial markets, by arguing that the impact of frictions is negligible and, consequently, the frictionless models are valid approximations. This dissertation consists of three research papers, which are related to the study of the validity of such approximations in two distinct modeling problems. Models of price dynamics that are based on diffusion processes, i.e., continuous strong Markov processes, are widely used in the frictionless scenario. The first paper establishes that diffusion models can indeed be understood as approximations of price dynamics in markets with frictions. This is achieved by introducing an agent-based model of a financial market where finitely many agents trade a financial security, the price of which evolves according to price impacts generated by trades. It is shown that, if the number of agents is large, then under certain assumptions the price process of security, which is a pure-jump process, can be approximated by a one-dimensional diffusion process. In a slightly extended model, in which agents may exhibit herd behavior, the approximating diffusion model turns out to be a stochastic volatility model. Finally, it is shown that when agents' tendency to herd is strong, logarithmic returns in the approximating stochastic volatility model are heavy-tailed. The remaining papers are related to no-arbitrage criteria and superhedging in continuous-time option pricing models under small-transaction-cost asymptotics. Guasoni, Rásonyi, and Schachermayer have recently shown that, in such a setting, any financial security admits no arbitrage opportunities and there exist no feasible superhedging strategies for European call and put options written on it, as long as its price process is continuous and has the so-called conditional full support (CFS) property. Motivated by this result, CFS is established for certain stochastic integrals and a subclass of Brownian semistationary processes in the two papers. As a consequence, a wide range of possibly non-Markovian local and stochastic volatility models have the CFS property.

On Games on Non-Wellfounded Sets and Stationary Sets

In this thesis we study a few games related to non-wellfounded and stationary sets. Games have turned out to be an important tool in mathematical logic ranging from semantic games defining the truth of a sentence in a given logic to for example games on real numbers whose determinacies have important effects on the consistency of certain large cardinal assumptions. The equality of non-wellfounded sets can be determined by a so called bisimulation game already used to identify processes in theoretical computer science and possible world models for modal logic. Here we present a game to classify non-wellfounded sets according to their branching structure. We also study games on stationary sets moving back to classical wellfounded set theory. We also describe a way to approximate non-wellfounded sets with hereditarily finite wellfounded sets. The framework used to do this is domain theory. In the Banach-Mazur game, also called the ideal game, the players play a descending sequence of stationary sets and the second player tries to keep their intersection stationary. The game is connected to precipitousness of the corresponding ideal. In the pressing down game first player plays regressive functions defined on stationary sets and the second player responds with a stationary set where the function is constant trying to keep the intersection stationary. This game has applications in model theory to the determinacy of the Ehrenfeucht-Fraisse game. We show that it is consistent that these games are not equivalent.

Topological stability through tame retractions

A smooth map is said to be stable if small perturbations of the map only differ from the original one by a smooth change of coordinates. Smoothly stable maps are generic among the proper maps between given source and target manifolds when the source and target dimensions belong to the so-called nice dimensions, but outside this range of dimensions, smooth maps cannot generally be approximated by stable maps. This leads to the definition of topologically stable maps, where the smooth coordinate changes are replaced with homeomorphisms. The topologically stable maps are generic among proper maps for any dimensions of source and target. The purpose of this thesis is to investigate methods for proving topological stability by constructing extremely tame (E-tame) retractions onto the map in question from one of its smoothly stable unfoldings. In particular, we investigate how to use E-tame retractions from stable unfoldings to find topologically ministable unfoldings for certain weighted homogeneous maps or germs. Our first results are concerned with the construction of E-tame retractions and their relation to topological stability. We study how to construct the E-tame retractions from partial or local information, and these results form our toolbox for the main constructions. In the next chapter we study the group of right-left equivalences leaving a given multigerm f invariant, and show that when the multigerm is finitely determined, the group has a maximal compact subgroup and that the corresponding quotient is contractible. This means, essentially, that the group can be replaced with a compact Lie group of symmetries without much loss of information. We also show how to split the group into a product whose components only depend on the monogerm components of f. In the final chapter we investigate representatives of the E- and Z-series of singularities, discuss their instability and use our tools to construct E-tame retractions for some of them. The construction is based on describing the geometry of the set of points where the map is not smoothly stable, discovering that by using induction and our constructional tools, we already know how to construct local E-tame retractions along the set. The local solutions can then be glued together using our knowledge about the symmetry group of the local germs. We also discuss how to generalize our method to the whole E- and Z- series.

Passive vector turbulence

This thesis consists of three articles on passive vector fields in turbulence. The vector fields interact with a turbulent velocity field, which is described by the Kraichnan model. The effect of the Kraichnan model on the passive vectors is studied via an equation for the pair correlation function and its solutions. The first paper is concerned with the passive magnetohydrodynamic equations. Emphasis is placed on the so called "dynamo effect", which in the present context is understood as an unbounded growth of the pair correlation function. The exact analytical conditions for such growth are found in the cases of zero and infinite Prandtl numbers. The second paper contains an extensive study of a number of passive vector models. Emphasis is now on the properties of the (assumed) steady state, namely anomalous scaling, anisotropy and small and large scale behavior with different types of forcing or stirring. The third paper is in many ways a completion to the previous one in its study of the steady state existence problem. Conditions for the existence of the steady state are found in terms of the spatial roughness parameter of the turbulent velocity field.

Statistical and Information-Theoretic Methods for Data-Analysis

In this Thesis, we develop theory and methods for computational data analysis. The problems in data analysis are approached from three perspectives: statistical learning theory, the Bayesian framework, and the information-theoretic minimum description length (MDL) principle. Contributions in statistical learning theory address the possibility of generalization to unseen cases, and regression analysis with partially observed data with an application to mobile device positioning. In the second part of the Thesis, we discuss so called Bayesian network classifiers, and show that they are closely related to logistic regression models. In the final part, we apply the MDL principle to tracing the history of old manuscripts, and to noise reduction in digital signals.

Conformal Field Theory Methods for Variants of Schramm-Loewner Evolutions

This thesis consists of an introduction, four research articles and an appendix. The thesis studies relations between two different approaches to continuum limit of models of two dimensional statistical mechanics at criticality. The approach of conformal field theory (CFT) could be thought of as the algebraic classification of some basic objects in these models. It has been succesfully used by physicists since 1980's. The other approach, Schramm-Loewner evolutions (SLEs), is a recently introduced set of mathematical methods to study random curves or interfaces occurring in the continuum limit of the models. The first and second included articles argue on basis of statistical mechanics what would be a plausible relation between SLEs and conformal field theory. The first article studies multiple SLEs, several random curves simultaneously in a domain. The proposed definition is compatible with a natural commutation requirement suggested by Dubédat. The curves of multiple SLE may form different topological configurations, ``pure geometries''. We conjecture a relation between the topological configurations and CFT concepts of conformal blocks and operator product expansions. Example applications of multiple SLEs include crossing probabilities for percolation and Ising model. The second article studies SLE variants that represent models with boundary conditions implemented by primary fields. The most well known of these, SLE(kappa, rho), is shown to be simple in terms of the Coulomb gas formalism of CFT. In the third article the space of local martingales for variants of SLE is shown to carry a representation of Virasoro algebra. Finding this structure is guided by the relation of SLEs and CFTs in general, but the result is established in a straightforward fashion. This article, too, emphasizes multiple SLEs and proposes a possible way of treating pure geometries in terms of Coulomb gas. The fourth article states results of applications of the Virasoro structure to the open questions of SLE reversibility and duality. Proofs of the stated results are provided in the appendix. The objective is an indirect computation of certain polynomial expected values. Provided that these expected values exist, in generic cases they are shown to possess the desired properties, thus giving support for both reversibility and duality.

Direct and Inverse Scattering for Beltrami Fields

We consider an obstacle scattering problem for linear Beltrami fields. A vector field is a linear Beltrami field if the curl of the field is a constant times itself. We study the obstacles that are of Neumann type, that is, the normal component of the total field vanishes on the boundary of the obstacle. We prove the unique solvability for the corresponding exterior boundary value problem, in other words, the direct obstacle scattering model. For the inverse obstacle scattering problem, we deduce the formulas that are needed to apply the singular sources method. The numerical examples are computed for the direct scattering problem and for the inverse scattering problem.

Soluautomaattien approksimaatioista

Tässä tutkielmassa tarkastelen soluautomaatteja ja niiden yleisesti käytettyj ä keskivertokenttä- ("mean field") ja pariapproksimaatioita. Määrittelen soluautomaatin käsitteen yleisellä tasolla ja kuvailen kolme eri tyypillisesti käytettyä soluautomaattityyppiä, joista kahdesta esimerkkeinä mainitsen John Conwayn tunnetun "Game of Life" -soluautomaatin sekä epidemiologian alalla yleisesti käytetyn hilakontaktiprosessin. Tutkielman toisessa osassa esittelen eri tapoja, joilla soluautomaattien käyttäytymistä voidaan analyyttisesti approksimoida ja karakterisoida, mukaanlukien niin kutsuttu soluautomaatin aktiviteetti (λ) sekä yllämainitut keskivertokenttä- ja pariapproksimaatiot. Kahta jälkimmäistä sovellan hilakontaktiprosessiin, ja vertailen näin saatuja tuloksia.

Philosophy as a Path to Happiness : Attainment of Happiness in Arabic Peripatetic and Ismaili Philosophy

The aim of the dissertation is to explore the idea of philosophy as a path to happiness in classical Arabic philosophy. The starting point is in comparison of two distinct currents between the 10th and early 11th centuries, Peripatetic philosophy, represented by al-Fārābī and Ibn Sīnā, and Ismaili philosophy represented by al-Kirmānī and the Brethren of Purity. They initially offer two contrasting views about philosophy in that the attitude of the Peripatetics is rationalistic and secular in spirit, whereas for the Ismailis philosophy represents the esoteric truth behind revelation. Still, they converge in their view that the ultimate purpose of philosophy lies in its ability to lead man towards happiness. Moreover, they share a common concept of happiness as a contemplative ideal of human perfection, which refers primarily to an otherworldly state of the soul s ascent to the spiritual world. For both the way to happiness consists of two parts: theory and practice. The practical part manifests itself in the idea of the purification of the rational soul from its bodily attachments in order for it to direct its attention fully to the contemplative life. Hence, there appears an ideal of philosophical life with the goal of relative detachment from the worldly life. The regulations of the religious law in this context appear as the primary means for the soul s purification, but for all but al-Kirmānī they are complemented by auxiliary philosophical practices. The ascent to happiness, however, takes place primarily through the acquisition of theoretical knowledge. The saving knowledge consists primarily of the conception of the hierarchy of physical and metaphysical reality, but all of philosophy forms a curriculum through which the soul gradually ascends towards a spiritual state of being along an order that is inverse to the Neoplatonic emanationist hierarchy of creation. For Ismaili philosophy the ascent takes place from the exoteric religious sciences towards the esoteric philosophical knowledge. For Peripatetic philosophers logic performs the function of an instrument enabling the ascent, mathematics is treated either as propaedeutic to philosophy or as a mediator between physical and metaphysical knowledge, whereas physics and metaphysics provide the core of knowledge necessary for the attainment of happiness.

Embracing Integrability in Stellar and Planetary Dynamics

Hamiltonian systems in stellar and planetary dynamics are typically near integrable. For example, Solar System planets are almost in two-body orbits, and in simulations of the Galaxy, the orbits of stars seem regular. For such systems, sophisticated numerical methods can be developed through integrable approximations. Following this theme, we discuss three distinct problems. We start by considering numerical integration techniques for planetary systems. Perturbation methods (that utilize the integrability of the two-body motion) are preferred over conventional "blind" integration schemes. We introduce perturbation methods formulated with Cartesian variables. In our numerical comparisons, these are superior to their conventional counterparts, but, by definition, lack the energy-preserving properties of symplectic integrators. However, they are exceptionally well suited for relatively short-term integrations in which moderately high positional accuracy is required. The next exercise falls into the category of stability questions in solar systems. Traditionally, the interest has been on the orbital stability of planets, which have been quantified, e.g., by Liapunov exponents. We offer a complementary aspect by considering the protective effect that massive gas giants, like Jupiter, can offer to Earth-like planets inside the habitable zone of a planetary system. Our method produces a single quantity, called the escape rate, which characterizes the system of giant planets. We obtain some interesting results by computing escape rates for the Solar System. Galaxy modelling is our third and final topic. Because of the sheer number of stars (about 10^11 in Milky Way) galaxies are often modelled as smooth potentials hosting distributions of stars. Unfortunately, only a handful of suitable potentials are integrable (harmonic oscillator, isochrone and Stäckel potential). This severely limits the possibilities of finding an integrable approximation for an observed galaxy. A solution to this problem is torus construction; a method for numerically creating a foliation of invariant phase-space tori corresponding to a given target Hamiltonian. Canonically, the invariant tori are constructed by deforming the tori of some existing integrable toy Hamiltonian. Our contribution is to demonstrate how this can be accomplished by using a Stäckel toy Hamiltonian in ellipsoidal coordinates.

Properties of Toeplitz operators on analytic function spaces : from function symbols to distributions

Toeplitz operators are among the most important classes of concrete operators with applications to several branches of pure and applied mathematics. This doctoral thesis deals with Toeplitz operators on analytic Bergman, Bloch and Fock spaces. Usually, a Toeplitz operator is a composition of multiplication by a function and a suitable projection. The present work deals with generalizing the notion to the case where the function is replaced by a distributional symbol. Fredholm theory for Toeplitz operators with matrix-valued symbols is also considered. The subject of this thesis belongs to the areas of complex analysis, functional analysis and operator theory. This work contains five research articles. The articles one, three and four deal with finding suitable distributional classes in Bergman, Fock and Bloch spaces, respectively. In each case the symbol class to be considered turns out to be a certain weighted Sobolev-type space of distributions. The Bergman space setting is the most straightforward. When dealing with Fock spaces, some difficulties arise due to unboundedness of the complex plane and the properties of the Gaussian measure in the definition. In the Bloch-type spaces an additional logarithmic weight must be introduced. Sufficient conditions for boundedness and compactness are derived. The article two contains a portion showing that under additional assumptions, the condition for Bergman spaces is also necessary. The fifth article deals with Fredholm theory for Toeplitz operators having matrix-valued symbols. The essential spectra and index theorems are obtained with the help of Hardy space factorization and the Berezin transform, for instance. The article two also has a part dealing with matrix-valued symbols in a non-reflexive Bergman space, in which case a condition on the oscillation of the symbol (a logarithmic VMO-condition) must be added.

Playing Games on Sets and Models

The most prominent objective of the thesis is the development of the generalized descriptive set theory, as we call it. There, we study the space of all functions from a fixed uncountable cardinal to itself, or to a finite set of size two. These correspond to generalized notions of the universal Baire space (functions from natural numbers to themselves with the product topology) and the Cantor space (functions from natural numbers to the {0,1}-set) respectively. We generalize the notion of Borel sets in three different ways and study the corresponding Borel structures with the aims of generalizing classical theorems of descriptive set theory or providing counter examples. In particular we are interested in equivalence relations on these spaces and their Borel reducibility to each other. The last chapter shows, using game-theoretic techniques, that the order of Borel equivalence relations under Borel reduciblity has very high complexity. The techniques in the above described set theoretical side of the thesis include forcing, general topological notions such as meager sets and combinatorial games of infinite length. By coding uncountable models to functions, we are able to apply the understanding of the generalized descriptive set theory to the model theory of uncountable models. The links between the theorems of model theory (including Shelah's classification theory) and the theorems in pure set theory are provided using game theoretic techniques from Ehrenfeucht-Fraïssé games in model theory to cub-games in set theory. The bottom line of the research declairs that the descriptive (set theoretic) complexity of an isomorphism relation of a first-order definable model class goes in synch with the stability theoretical complexity of the corresponding first-order theory. The first chapter of the thesis has slightly different focus and is purely concerned with a certain modification of the well known Ehrenfeucht-Fraïssé games. There we (me and my supervisor Tapani Hyttinen) answer some natural questions about that game mainly concerning determinacy and its relation to the standard EF-game

Geometric Characterizations for Patterson-Sullivan Measures of Geometrically Finite Kleinian Groups

The main results of this thesis show that a Patterson-Sullivan measure of a non-elementary geometrically finite Kleinian group can always be characterized using geometric covering and packing constructions. This means that if the standard covering and packing constructions are modified in a suitable way, one can use either one of them to construct a geometric measure which is identical to the Patterson-Sullivan measure. The main results generalize and modify results of D. Sullivan which show that one can sometimes use the standard covering construction to construct a suitable geometric measure and sometimes the standard packing construction. Sullivan has shown also that neither or both of the standard constructions can be used to construct the geometric measure in some situations. The main modifications of the standard constructions are based on certain geometric properties of limit sets of Kleinian groups studied first by P. Tukia. These geometric properties describe how closely the limit set of a given Kleinian group resembles euclidean planes or spheres of varying dimension on small scales. The main idea is to express these geometric properties in a quantitative form which can be incorporated into the gauge functions used in the modified covering and packing constructions. Certain estimation results for general conformal measures of Kleinian groups play a crucial role in the proofs of the main results. These estimation results are generalizations and modifications of similar results considered, among others, by B. Stratmann, D. Sullivan, P. Tukia and S. Velani. The modified constructions are in general defined without reference to Kleinian groups, so they or their variants may prove useful in some other contexts in addition to that of Kleinian groups.

Global, Local and Vector-Valued Tb Theorems on Non-Homogeneous Metric Spaces

Various Tb theorems play a key role in the modern harmonic analysis. They provide characterizations for the boundedness of Calderón-Zygmund type singular integral operators. The general philosophy is that to conclude the boundedness of an operator T on some function space, one needs only to test it on some suitable function b. The main object of this dissertation is to prove very general Tb theorems. The dissertation consists of four research articles and an introductory part. The framework is general with respect to the domain (a metric space), the measure (an upper doubling measure) and the range (a UMD Banach space). Moreover, the used testing conditions are weak. In the first article a (global) Tb theorem on non-homogeneous metric spaces is proved. One of the main technical components is the construction of a randomization procedure for the metric dyadic cubes. The difficulty lies in the fact that metric spaces do not, in general, have a translation group. Also, the measures considered are more general than in the existing literature. This generality is genuinely important for some applications, including the result of Volberg and Wick concerning the characterization of measures for which the analytic Besov-Sobolev space embeds continuously into the space of square integrable functions. In the second article a vector-valued extension of the main result of the first article is considered. This theorem is a new contribution to the vector-valued literature, since previously such general domains and measures were not allowed. The third article deals with local Tb theorems both in the homogeneous and non-homogeneous situations. A modified version of the general non-homogeneous proof technique of Nazarov, Treil and Volberg is extended to cover the case of upper doubling measures. This technique is also used in the homogeneous setting to prove local Tb theorems with weak testing conditions introduced by Auscher, Hofmann, Muscalu, Tao and Thiele. This gives a completely new and direct proof of such results utilizing the full force of non-homogeneous analysis. The final article has to do with sharp weighted theory for maximal truncations of Calderón-Zygmund operators. This includes a reduction to certain Sawyer-type testing conditions, which are in the spirit of Tb theorems and thus of the dissertation. The article extends the sharp bounds previously known only for untruncated operators, and also proves sharp weak type results, which are new even for untruncated operators. New techniques are introduced to overcome the difficulties introduced by the non-linearity of maximal truncations.