Risk Minimizing Option Pricing for a Class of Exotic Options in a Markov-Modulated Market

We address risk minimizing option pricing in a regime switching market where the floating interest rate depends on a finite state Markov process. The growth rate and the volatility of the stock also depend on the Markov process. Using the minimal martingale measure, we show that the locally risk minimizing prices for certain exotic options satisfy a system of Black-Scholes partial differential equations with appropriate boundary conditions. We find the corresponding hedging strategies and the residual risk. We develop suitable numerical methods to compute option prices.

Flap-lag-torsion stability in hover and forward flight with three-dimensional wake

The contributions of full-wake dynamics in trim analysis are demonstrated for finding the control inputs and periodic responses simultaneously, as well as in Floquet eigenanalysis for finding the damping levels. The equations of flap bending, lag bending, and torsion are coupled with a three-dimensional, finite state wake, and low-frequency (<1/rev) to high frequency (>1/rev) multiblade modes are considered. Full blade-wake dynamics is used in trim analysis and Floquet eigenanalysis. A uniform cantilever blade in trimmed flight is investigated over a range of thrust levels, advance ratios, number of blades, and blade torsional frequencies. The investigation includes the convergence characteristics of control inputs, periodic responses, and damping levels with respect to the number of spatial azimuthal harmonics and radial shape functions in the wake representation. It also includes correlation with the measured lag damping of a three-bladed untrimmed rotor. The parametric study shows the dominant influence of wake dynamics on control inputs, periodic responses, and damping levels, and wake theory generally improves the correlation.

Parallel computing concepts and methods for floquet analysis of helicopter trim and stability

Floquet analysis is widely used for small-order systems (say, order M < 100) to find trim results of control inputs and periodic responses, and stability results of damping levels and frequencies, Presently, however, it is practical neither for design applications nor for comprehensive analysis models that lead to large systems (M > 100); the run time on a sequential computer is simply prohibitive, Accordingly, a massively parallel Floquet analysis is developed with emphasis on large systems, and it is implemented on two SIMD or single-instruction, multiple-data computers with 4096 and 8192 processors, The focus of this development is a parallel shooting method with damped Newton iteration to generate trim results; the Floquet transition matrix (FTM) comes out as a byproduct, The eigenvalues and eigenvectors of the FTM are computed by a parallel QR method, and thereby stability results are generated, For illustration, flap and flap-lag stability of isolated rotors are treated by the parallel analysis and by a corresponding sequential analysis with the conventional shooting and QR methods; linear quasisteady airfoil aerodynamics and a finite-state three-dimensional wake model are used, Computational reliability is quantified by the condition numbers of the Jacobian matrices in Newton iteration, the condition numbers of the eigenvalues and the residual errors of the eigenpairs, and reliability figures are comparable in both the parallel and sequential analyses, Compared to the sequential analysis, the parallel analysis reduces the run time of large systems dramatically, and the reduction increases with increasing system order; this finding offers considerable promise for design and comprehensive-analysis applications.

Analysing Message Sequence Graph Specifications

We give a detailed construction of a finite-state transition system for a com-connected Message Sequence Graph. Though this result is well-known in the literature and forms the basis for the solution to several analysis and verification problems concerning MSG specifications, the constructions given in the literature are either not amenable to implementation, or imprecise, or simply incorrect. In contrast we give a detailed construction along with a proof of its correctness. Our transition system is amenable to implementation, and can also be used for a bounded analysis of general (not necessarily com-connected) MSG specifications.

On the Decidability of Model-Checking Information Flow Properties

Current standard security practices do not provide substantial assurance about information flow security: the end-to-end behavior of a computing system. Noninterference is the basic semantical condition used to account for information flow security. In the literature, there are many definitions of noninterference: Non-inference, Separability and so on. Mantel presented a framework of Basic Security Predicates (BSPs) for characterizing the definitions of noninterference in the literature. Model-checking these BSPs for finite state systems was shown to be decidable in [8]. In this paper, we show that verifying these BSPs for the more expressive system model of pushdown systems is undecidable. We also give an example of a simple security property which is undecidable even for finite-state systems: the property is a weak form of non-inference called WNI, which is not expressible in Mantel’s BSP framework.

A Simultaneous Deterministic Perturbation Actor-Critic Algorithm with an Application to Optimal Mortgage Refinancing

We develop a simulation-based, two-timescale actor-critic algorithm for infinite horizon Markov decision processes with finite state and action spaces, with a discounted reward criterion. The algorithm is of the gradient ascent type and performs a search in the space of stationary randomized policies. The algorithm uses certain simultaneous deterministic perturbation stochastic approximation (SDPSA) gradient estimates for enhanced performance. We show an application of our algorithm on a problem of mortgage refinancing. Our algorithm obtains the optimal refinancing strategies in a computationally efficient manner

Coding for High-Density Recording on a 1-D Granular Magnetic Medium

In terabit-density magnetic recording, several bits of data can be replaced by the values of their neighbors in the storage medium. As a result, errors in the medium are dependent on each other and also on the data written. We consider a simple 1-D combinatorial model of this medium. In our model, we assume a setting where binary data is sequentially written on the medium and a bit can erroneously change to the immediately preceding value. We derive several properties of codes that correct this type of errors, focusing on bounds on their cardinality. We also define a probabilistic finite-state channel model of the storage medium, and derive lower and upper estimates of its capacity. A lower bound is derived by evaluating the symmetric capacity of the channel, i.e., the maximum transmission rate under the assumption of the uniform input distribution of the channel. An upper bound is found by showing that the original channel is a stochastic degradation of another, related channel model whose capacity we can compute explicitly.

A Markov Decision Theoretic Approach to Pilot Allocation and Receive Antenna Selection

This paper considers antenna selection (AS) at a receiver equipped with multiple antenna elements but only a single radio frequency chain for packet reception. As information about the channel state is acquired using training symbols (pilots), the receiver makes its AS decisions based on noisy channel estimates. Additional information that can be exploited for AS includes the time-correlation of the wireless channel and the results of the link-layer error checks upon receiving the data packets. In this scenario, the task of the receiver is to sequentially select (a) the pilot symbol allocation, i.e., how to distribute the available pilot symbols among the antenna elements, for channel estimation on each of the receive antennas; and (b) the antenna to be used for data packet reception. The goal is to maximize the expected throughput, based on the past history of allocation and selection decisions, and the corresponding noisy channel estimates and error check results. Since the channel state is only partially observed through the noisy pilots and the error checks, the joint problem of pilot allocation and AS is modeled as a partially observed Markov decision process (POMDP). The solution to the POMDP yields the policy that maximizes the long-term expected throughput. Using the Finite State Markov Chain (FSMC) model for the wireless channel, the performance of the POMDP solution is compared with that of other existing schemes, and it is illustrated through numerical evaluation that the POMDP solution significantly outperforms them.

Transmit power Control with ARQ in energy harvesting sensors: a decision-theoretic approach

This paper addresses the problem of finding optimal power control policies for wireless energy harvesting sensor (EHS) nodes with automatic repeat request (ARQ)-based packet transmissions. The EHS harvests energy from the environment according to a Bernoulli process; and it is required to operate within the constraint of energy neutrality. The EHS obtains partial channel state information (CSI) at the transmitter through the link-layer ARQ protocol, via the ACK/NACK feedback messages, and uses it to adapt the transmission power for the packet (re)transmission attempts. The underlying wireless fading channel is modeled as a finite state Markov chain with known transition probabilities. Thus, the goal of the power management policy is to determine the best power setting for the current packet transmission attempt, so as to maximize a long-run expected reward such as the expected outage probability. The problem is addressed in a decision-theoretic framework by casting it as a partially observable Markov decision process (POMDP). Due to the large size of the state-space, the exact solution to the POMDP is computationally expensive. Hence, two popular approximate solutions are considered, which yield good power management policies for the transmission attempts. Monte Carlo simulation results illustrate the efficacy of the approach and show that the approximate solutions significantly outperform conventional approaches.

State Minimization of Incompletely Specified Sequential Machines

A simple procedure for the state minimization of an incompletely specified sequential machine whose number of internal states is not very large is presented. It introduces the concept of a compatibility graph from which the set of maximal compatibles of the machine can be very conveniently derived. Primary and secondary implication trees associated with each maximal compatible are then constructed. The minimal state machine covering the incompletely specified machine is then obtained from these implication trees.

Globally coupled stochastic two-state oscillators: Fluctuations due to finite numbers

Infinite arrays of coupled two-state stochastic oscillators exhibit well-defined steady states. We study the fluctuations that occur when the number N of oscillators in the array is finite. We choose a particular form of global coupling that in the infinite array leads to a pitchfork bifurcation from a monostable to a bistable steady state, the latter with two equally probable stationary states. The control parameter for this bifurcation is the coupling strength. In finite arrays these states become metastable: The fluctuations lead to distributions around the most probable states, with one maximum in the monostable regime and two maxima in the bistable regime. In the latter regime, the fluctuations lead to transitions between the two peak regions of the distribution. Also, we find that the fluctuations break the symmetry in the bimodal regime, that is, one metastable state becomes more probable than the other, increasingly so with increasing array size. To arrive at these results, we start from microscopic dynamical evolution equations from which we derive a Langevin equation that exhibits an interesting multiplicative noise structure. We also present a master equation description of the dynamics. Both of these equations lead to the same Fokker-Planck equation, the master equation via a 1/N expansion and the Langevin equation via standard methods of Ito calculus for multiplicative noise. From the Fokker-Planck equation we obtain an effective potential that reflects the transition from the monomodal to the bimodal distribution as a function of a control parameter. We present a variety of numerical and analytic results that illustrate the strong effects of the fluctuations. We also show that the limits N -> infinity and t -> infinity(t is the time) do not commute. In fact, the two orders of implementation lead to drastically different results.

A Doubly curved Quadrilateral finite-element for the analysis of laminated anisotropic thin shells of revoution

The details of development of the stiffness matrix for a doubly curved quadrilateral element suited for static and dynamic analysis of laminated anisotropic thin shells of revolution are reported. Expressing the assumed displacement state over the middle surface of the shell as products of one-dimensional first order Hermite polynomials, it is possible to ensure that the displacement state for the assembled set of such elements, is geometrically admissible. Monotonic convergence of total potential energy is therefore possible as the modelling is successively refined. Systematic evaluation of performance of the element is conducted, considering various examples for which analytical or other solutions are available.

State Dependent Attempt Rate Modeling of Single Cell IEEE 802.11 WLANs with Homogeneous Nodes and Poisson Arrivals

Analytical models of IEEE 802.11-based WLANs are invariably based on approximations, such as the well-known mean-field approximations proposed by Bianchi for saturated nodes. In this paper, we provide a new approach for modeling the situation when the nodes are not saturated. We study a State Dependent Attempt Rate (SDAR) approximation to model M queues (one queue per node) served by the CSMA/CA protocol as standardized in the IEEE 802.11 DCF. The approximation is that, when n of the M queues are non-empty, the attempt probability of the n non-empty nodes is given by the long-term attempt probability of n saturated nodes as provided by Bianchi's model. This yields a coupled queue system. When packets arrive to the M queues according to independent Poisson processes, we provide an exact model for the coupled queue system with SDAR service. The main contribution of this paper is to provide an analysis of the coupled queue process by studying a lower dimensional process and by introducing a certain conditional independence approximation. We show that the numerical results obtained from our finite buffer analysis are in excellent agreement with the corresponding results obtained from ns-2 simulations. We replace the CSMA/CA protocol as implemented in the ns-2 simulator with the SDAR service model to show that the SDAR approximation provides an accurate model for the CSMA/CA protocol. We also report the simulation speed-ups thus obtained by our model-based simulation.

Sol → gel transition with rings in a finite polycondensing system in solution

We report a theoretical formulation for the mean cluster size distribution in a finite polycondensing system. Expressions for the mean number of n-mers with j bonds ( nj) are developed. Numerical calculations show that while the non-cyclic molecules make the dominant contribution to the small clusters, the large clusters are dominated by cyclic structures. The number of particles in ringless chains, n n,n-1, decays monotonically with n at all extents of reaction, but n n becomes bimodal near the gel point. We also find that the solvent plays an important role in the cluster size distribution.

A laminated anisotropic curved beam and shell stiffening finite element

The details of development of the stiffness matrix of a laminated anisotropic curved beam finite element are reported. It is a 16 dof element which makes use of 1-D first order Hermite interpolation polynomials for expressing it's assumed displacement state. The performance of the element is evaluated considering various examples for which analytical or other solutions are available.