Risk Minimizing Option Pricing in a Semi-Markov Modulated Market

We address risk minimizing option pricing in a semi-Markov modulated market where the floating interest rate depends on a finite state semi-Markov process. The growth rate and the volatility of the stock also depend on the semi-Markov process. Using the Föllmer–Schweizer decomposition we find the locally risk minimizing price for European options and the corresponding hedging strategy. We develop suitable numerical methods for computing option prices.

Portfolio Optimization in a Semi-Markov Modulated Market

We address a portfolio optimization problem in a semi-Markov modulated market. We study both the terminal expected utility optimization on finite time horizon and the risk-sensitive portfolio optimization on finite and infinite time horizon. We obtain optimal portfolios in relevant cases. A numerical procedure is also developed to compute the optimal expected terminal utility for finite horizon problem.

Asymptotic analysis of option pricing in a Markov modulated market

We address asymptotic analysis of option pricing in a regime switching market where the risk free interest rate, growth rate and the volatility of the stocks depend on a finite state Markov chain. We study two variations of the chain namely, when the chain is moving very fast compared to the underlying asset price and when it is moving very slow. Using quadratic hedging and asymptotic expansion, we derive corrections on the locally risk minimizing option price.

The heat kernel on AdS(3) and its applications

We derive the heat kernel for arbitrary tensor fields on S-3 and (Euclidean) AdS(3) using a group theoretic approach. We use these results to also obtain the heat kernel on certain quotients of these spaces. In particular, we give a simple, explicit expression for the one loop determinant for a field of arbitrary spin s in thermal AdS(3). We apply this to the calculation of the one loop partition function of N = 1 supergravity on AdS(3). We find that the answer factorizes into left- and right-moving super Virasoro characters built on the SL(2, C) invariant vacuum, as argued by Maloney and Witten on general grounds.

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.

New Massive Gravity and AdS(4) Counterterms

We show that the recently proposed Dirac-Born-Infeld extension of new massive gravity emerges naturally as a counterterm in four-dimensional anti-de Sitter space (AdS(4)). The resulting on-shell Euclidean action is independent of the cutoff at zero temperature. We also find that the same choice of counterterm gives the usual area law for the AdS(4) Schwarzschild black hole entropy in a cutoff-independent manner. The parameter values of the resulting counterterm action correspond to a c = 0 theory in the context of the duality between AdS(3) gravity and two-dimensional conformal field theory. We rewrite this theory in terms of the gauge field that is used to recast 3D gravity as a Chern-Simons theory.

Pricing Defaultable Bonds in a Markov Modulated Market

We address the problem of pricing defaultable bonds in a Markov modulated market. Using Merton's structural approach we show that various types of defaultable bonds are combination of European type contingent claims. Thus pricing a defaultable bond is tantamount to pricing a contingent claim in a Markov modulated market. Since the market is incomplete, we use the method of quadratic hedging and minimal martingale measure to derive locally risk minimizing derivative prices, hedging strategies and the corresponding residual risks. The price of defaultable bonds are obtained as solutions to a system of PDEs with weak coupling subject to appropriate terminal and boundary conditions. We solve the system of PDEs numerically and carry out a numerical investigation for the defaultable bond prices. We compare their credit spreads with some of the existing models. We observe higher spreads in the Markov modulated market. We show how business cycles can be easily incorporated in the proposed framework. We demonstrate the impact on spreads of the inclusion of rare states that attempt to capture a tight liquidity situation. These states are characterized by low risk-free interest rate, high payout rate and high volatility.

CAVVA: Computational Affective Video-in-Video Advertising

Advertising is ubiquitous in the online community and more so in the ever-growing and popular online video delivery websites (e. g., YouTube). Video advertising is becoming increasingly popular on these websites. In addition to the existing pre-roll/post-roll advertising and contextual advertising, this paper proposes an in-stream video advertising strategy-Computational Affective Video-in-Video Advertising (CAVVA). Humans being emotional creatures are driven by emotions as well as rational thought. We believe that emotions play a major role in influencing the buying behavior of users and hence propose a video advertising strategy which takes into account the emotional impact of the videos as well as advertisements. Given a video and a set of advertisements, we identify candidate advertisement insertion points (step 1) and also identify the suitable advertisements (step 2) according to theories from marketing and consumer psychology. We formulate this two part problem as a single optimization function in a non-linear 0-1 integer programming framework and provide a genetic algorithm based solution. We evaluate CAVVA using a subjective user-study and eye-tracking experiment. Through these experiments, we demonstrate that CAVVA achieves a good balance between the following seemingly conflicting goals of (a) minimizing the user disturbance because of advertisement insertion while (b) enhancing the user engagement with the advertising content. We compare our method with existing advertising strategies and show that CAVVA can enhance the user's experience and also help increase the monetization potential of the advertising content.

CFT(4) partition functions and the heat kernel on AdS(5)

We consider four-dimensional CFTs which admit a large-N expansion, and whose spectrum contains states whose conformal dimensions do not scale with N. We explicitly reorganise the partition function obtained by exponentiating the one-particle partition function of these states into a heat kernel form for the dual string spectrum on AdS(5). On very general grounds, the heat kernel answer can be expressed in terms of a convolution of the one-particle partition function of the light states in the four-dimensional CFT. (C) 2013 Elsevier B.V. All rights reserved.

Constraining gravity using entanglement in AdS/CFT

We investigate constraints imposed by entanglement on gravity in the context of holography. First, by demanding that relative entropy is positive and using the Ryu-Takayanagi entropy functional, we find certain constraints at a nonlinear level for the dual gravity. Second, by considering Gauss-Bonnet gravity, we show that for a class of small perturbations around the vacuum state, the positivity of the two point function of the field theory stress tensor guarantees the positivity of the relative entropy. Further, if we impose that the entangling surface closes off smoothly in the bulk interior, we find restrictions on the coupling constant in Gauss-Bonnet gravity. We also give an example of an anisotropic excited state in an unstable phase with broken conformal invariance which leads to a negative relative entropy.

Spinning strings and minimal surfaces in AdS(3) with mixed 3-form fluxes

Motivated by the recent proposal for the S-matrix in AdS(3) x S-3 with mixed three form fluxes, we study classical folded string spinning in AdS(3) with both Ramond and Neveu-Schwarz three form fluxes. We solve the equations of motion of these strings and obtain their dispersion relation to the leading order in the Neveu-Schwarz flux b. We show that dispersion relation for the spinning strings with large spin S acquires a term given by -root lambda/2 pi b(2) log(2) S in addition to the usual root lambda/pi log S term where root lambda is proportional to the square of the radius of AdS(3). Using SO(2, 2) transformations and re-parmetrizations we show that these spinning strings can be related to light like Wilson loops in AdS(3) with Neveu-Schwarz flux b. We observe that the logarithmic divergence in the area of the light like Wilson loop is also deformed by precisely the same coefficient of the b(2) log(2) S term in the dispersion relation of the spinning string. This result indicates that the coefficient of b(2) log(2) S has a property similar to the coefficient of the log S term, known as cusp-anomalous dimension, and can possibly be determined to all orders in the coupling lambda using the recent proposal for the S-matrix.

Heat kernels on the AdS(2) cone and logarithmic corrections to extremal black hole entropy

We develop new techniques to efficiently evaluate heat kernel coefficients for the Laplacian in the short-time expansion on spheres and hyperboloids with conical singularities. We then apply these techniques to explicitly compute the logarithmic contribution to black hole entropy from an N = 4 vector multiplet about a Z(N) orbifold of the near-horizon geometry of quarter-BPS black holes in N = 4 supergravity. We find that this vanishes, matching perfectly with the prediction from the microstate counting. We also discuss possible generalisations of our heat kernel results to higher-spin fields over ZN orbifolds of higher-dimensional spheres and hyperboloids.

A Grassmann path from AdS(3) to flat space

We show that interpreting the inverse AdS(3) radius 1/l as a Grassmann variable results in a formal map from gravity in AdS(3) to gravity in flat space. The underlying reason for this is the fact that ISO(2, 1) is the Inonu-Wigner contraction of SO(2, 2). We show how this works for the Chern-Simons actions, demonstrate how the general (Banados) solution in AdS(3) maps to the general flat space solution, and how the Killing vectors, charges and the Virasoro algebra in the Brown-Henneaux case map to the corresponding quantities in the BMS3 case. Our results straightforwardly generalize to the higher spin case: the recently constructed flat space higher spin theories emerge automatically in this approach from their AdS counterparts. We conclude with a discussion of singularity resolution in the BMS gauge as an application.

AdS (in)stability: Lessons from the scalar field

We argued in arXiv: 1408.0624 that the quartic scalar field in AdS has features that could be instructive for answering the gravitational stability question of AdS. Indeed, the conserved charges identified there have recently been observed in the full gravity theory as well. In this paper, we continue our investigation of the scalar field in AdS and provide evidence that in the Two-Time Formalism (TTF), even for initial conditions that are far from quasi-periodicity, the energy in the higher modes at late times is exponentially suppressed in the mode number. Based on this and some related observations, we argue that there is no thermalization in the scalar TTF model within time-scales that go as similar to 1/epsilon(2), where epsilon measures the initial amplitude (with only low-lying modes excited). It is tempting to speculate that the result holds also for AdS collapse. (C) 2015 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY license.