Modelling nonlinear stochastic dynamics in financial time series

For analysing financial time series two main opposing viewpoints exist, either capital markets are completely stochastic and therefore prices follow a random walk, or they are deterministic and consequently predictable. For each of these views a great variety of tools exist with which it can be tried to confirm the hypotheses. Unfortunately, these methods are not well suited for dealing with data characterised in part by both paradigms. This thesis investigates these two approaches in order to model the behaviour of financial time series. In the deterministic framework methods are used to characterise the dimensionality of embedded financial data. The stochastic approach includes here an estimation of the unconditioned and conditional return distributions using parametric, non- and semi-parametric density estimation techniques. Finally, it will be shown how elements from these two approaches could be combined to achieve a more realistic model for financial time series.

Dynamics of cholesteric liquid crystals in the presence of a random magnetic field:stochastic dynamics of cholesteric liquid crystal

Based on dynamic renormalization group techniques, this letter analyzes the effects of external stochastic perturbations on the dynamical properties of cholesteric liquid crystals, studied in presence of a random magnetic field. Our analysis quantifies the nature of the temperature dependence of the dynamics; the results also highlight a hitherto unexplored regime in cholesteric liquid crystal dynamics. We show that stochastic fluctuations drive the system to a second-ordered Kosterlitz-Thouless phase transition point, eventually leading to a Kardar-Parisi-Zhang (KPZ) universality class. The results go beyond quasi-first order mean-field theories, and provides the first theoretical understanding of a KPZ phase in distorted nematic liquid crystal dynamics.

Necessary conditions for the emergence of homochirality via autocatalytic self-replication

We analyze a recent proposal for spontaneous mirror symmetry breaking based on the coupling of first-order enantioselective autocatalysis and direct production of the enantiomers that invokes a critical role for intrinsic reaction noise. For isolated systems, the racemic state is the unique stable outcome for both stochastic and deterministic dynamics when the system is in compliance with the constraints dictated by the thermodynamics of chemical reaction processes. In open systems, the racemic outcome also results for both stochastic and deterministic dynamics when driving the auto-catalysis unidirectionally by external reagents. Nonracemic states can result in the latter only if the reverse reactions are strictly zero: these are kinetically controlled outcomes for small populations and volumes, and can be simulated by stochastic dynamics. However, the stability of the thermodynamic limit proves that the racemic outcome is the unique stable state for strictly irreversible externally driven autocatalysis. These findings contradict the suggestion that the inhibition requirement of the Frank autocatalytic model for the emergence of homochirality may be relaxed in a noise-induced mechanism.

Dynamics of spatial heterogeneity in a landfill with interacting phase densities:a stochastic analysis

A landfill represents a complex and dynamically evolving structure that can be stochastically perturbed by exogenous factors. Both thermodynamic (equilibrium) and time varying (non-steady state) properties of a landfill are affected by spatially heterogenous and nonlinear subprocesses that combine with constraining initial and boundary conditions arising from the associated surroundings. While multiple approaches have been made to model landfill statistics by incorporating spatially dependent parameters on the one hand (data based approach) and continuum dynamical mass-balance equations on the other (equation based modelling), practically no attempt has been made to amalgamate these two approaches while also incorporating inherent stochastically induced fluctuations affecting the process overall. In this article, we will implement a minimalist scheme of modelling the time evolution of a realistic three dimensional landfill through a reaction-diffusion based approach, focusing on the coupled interactions of four key variables - solid mass density, hydrolysed mass density, acetogenic mass density and methanogenic mass density, that themselves are stochastically affected by fluctuations, coupled with diffusive relaxation of the individual densities, in ambient surroundings. Our results indicate that close to the linearly stable limit, the large time steady state properties, arising out of a series of complex coupled interactions between the stochastically driven variables, are scarcely affected by the biochemical growth-decay statistics. Our results clearly show that an equilibrium landfill structure is primarily determined by the solid and hydrolysed mass densities only rendering the other variables as statistically "irrelevant" in this (large time) asymptotic limit. The other major implication of incorporation of stochasticity in the landfill evolution dynamics is in the hugely reduced production times of the plants that are now approximately 20-30 years instead of the previous deterministic model predictions of 50 years and above. The predictions from this stochastic model are in conformity with available experimental observations.

Noisy fitness evaluation in genetic algorithms and the dynamics of learning

A theoretical model is presented which describes selection in a genetic algorithm (GA) under a stochastic fitness measure and correctly accounts for finite population effects. Although this model describes a number of selection schemes, we only consider Boltzmann selection in detail here as results for this form of selection are particularly transparent when fitness is corrupted by additive Gaussian noise. Finite population effects are shown to be of fundamental importance in this case, as the noise has no effect in the infinite population limit. In the limit of weak selection we show how the effects of any Gaussian noise can be removed by increasing the population size appropriately. The theory is tested on two closely related problems: the one-max problem corrupted by Gaussian noise and generalization in a perceptron with binary weights. The averaged dynamics can be accurately modelled for both problems using a formalism which describes the dynamics of the GA using methods from statistical mechanics. The second problem is a simple example of a learning problem and by considering this problem we show how the accurate characterization of noise in the fitness evaluation may be relevant in machine learning. The training error (negative fitness) is the number of misclassified training examples in a batch and can be considered as a noisy version of the generalization error if an independent batch is used for each evaluation. The noise is due to the finite batch size and in the limit of large problem size and weak selection we show how the effect of this noise can be removed by increasing the population size. This allows the optimal batch size to be determined, which minimizes computation time as well as the total number of training examples required.

Approximate Bayesian techniques for inference in stochastic dynamical systems

This thesis is concerned with approximate inference in dynamical systems, from a variational Bayesian perspective. When modelling real world dynamical systems, stochastic differential equations appear as a natural choice, mainly because of their ability to model the noise of the system by adding a variant of some stochastic process to the deterministic dynamics. Hence, inference in such processes has drawn much attention. Here two new extended frameworks are derived and presented that are based on basis function expansions and local polynomial approximations of a recently proposed variational Bayesian algorithm. It is shown that the new extensions converge to the original variational algorithm and can be used for state estimation (smoothing). However, the main focus is on estimating the (hyper-) parameters of these systems (i.e. drift parameters and diffusion coefficients). The new methods are numerically validated on a range of different systems which vary in dimensionality and non-linearity. These are the Ornstein-Uhlenbeck process, for which the exact likelihood can be computed analytically, the univariate and highly non-linear, stochastic double well and the multivariate chaotic stochastic Lorenz '63 (3-dimensional model). The algorithms are also applied to the 40 dimensional stochastic Lorenz '96 system. In this investigation these new approaches are compared with a variety of other well known methods such as the ensemble Kalman filter / smoother, a hybrid Monte Carlo sampler, the dual unscented Kalman filter (for jointly estimating the systems states and model parameters) and full weak-constraint 4D-Var. Empirical analysis of their asymptotic behaviour as a function of observation density or length of time window increases is provided.

Estimating parameters in stochastic systems:a variational Bayesian approach

This work is concerned with approximate inference in dynamical systems, from a variational Bayesian perspective. When modelling real world dynamical systems, stochastic differential equations appear as a natural choice, mainly because of their ability to model the noise of the system by adding a variation of some stochastic process to the deterministic dynamics. Hence, inference in such processes has drawn much attention. Here a new extended framework is derived that is based on a local polynomial approximation of a recently proposed variational Bayesian algorithm. The paper begins by showing that the new extension of this variational algorithm can be used for state estimation (smoothing) and converges to the original algorithm. However, the main focus is on estimating the (hyper-) parameters of these systems (i.e. drift parameters and diffusion coefficients). The new approach is validated on a range of different systems which vary in dimensionality and non-linearity. These are the Ornstein–Uhlenbeck process, the exact likelihood of which can be computed analytically, the univariate and highly non-linear, stochastic double well and the multivariate chaotic stochastic Lorenz ’63 (3D model). As a special case the algorithm is also applied to the 40 dimensional stochastic Lorenz ’96 system. In our investigation we compare this new approach with a variety of other well known methods, such as the hybrid Monte Carlo, dual unscented Kalman filter, full weak-constraint 4D-Var algorithm and analyse empirically their asymptotic behaviour as a function of observation density or length of time window increases. In particular we show that we are able to estimate parameters in both the drift (deterministic) and the diffusion (stochastic) part of the model evolution equations using our new methods.

A Bayesian perspective on stochastic neurocontrol

Control design for stochastic uncertain nonlinear systems is traditionally based on minimizing the expected value of a suitably chosen loss function. Moreover, most control methods usually assume the certainty equivalence principle to simplify the problem and make it computationally tractable. We offer an improved probabilistic framework which is not constrained by these previous assumptions, and provides a more natural framework for incorporating and dealing with uncertainty. The focus of this paper is on developing this framework to obtain an optimal control law strategy using a fully probabilistic approach for information extraction from process data, which does not require detailed knowledge of system dynamics. Moreover, the proposed control method framework allows handling the problem of input-dependent noise. A basic paradigm is proposed and the resulting algorithm is discussed. The proposed probabilistic control method is for the general nonlinear class of discrete-time systems. It is demonstrated theoretically on the affine class. A nonlinear simulation example is also provided to validate theoretical development.

Dynamics of anchored polymers under an oscillating force

We study the dynamics of a polymer of varying stiffness, pinned or grafted at both ends and subjected to an oscillatory forcing at an intermediate point. Via stochastic simulations, we find a crossover from a periodic limit cycle to an aperiodic dynamics as the polymer gets "stiffer." An analytical argument valid in the 2D grafted case shows that in such a case this aperiodic dynamics has some chaotic signatures. © 2007 The American Physical Society.

Comparison between conventional and stochastic pinning control

Theoretical developments on pinning control of complex dynamical networks have mainly focused on the deterministic versions of the model dynamics. However, the dynamical behavior of most real networks is often affected by stochastic noise components. In this paper the pinning control of a stochastic version of the coupled map lattice network with spatiotemporal characteristics is studied. The control of these complex dynamical networks have functional uncertainty which should be considered when calculating stabilizing control signals. Two feedback control methods are considered: the conventional feedback control and modified stochastic feedback control. It is shown that the typically-used conventional control method suffers from the ignorance of model uncertainty leading to a reduction and potentially a collapse in the control efficiency. Numerical verification of the main result is provided for a chaotic coupled map lattice network. © 2011 IEEE.

Generalised Riccati solution and pinning control of complex stochastic networks

This paper considers the global synchronisation of a stochastic version of coupled map lattices networks through an innovative stochastic adaptive linear quadratic pinning control methodology. In a stochastic network, each state receives only noisy measurement of its neighbours' states. For such networks we derive a generalised Riccati solution that quantifies and incorporates uncertainty of the forward dynamics and inverse controller in the derivation of the stochastic optimal control law. The generalised Riccati solution is derived using the Lyapunov approach. A probabilistic approximation type algorithm is employed to estimate the conditional distributions of the state and inverse controller from historical data and quantifying model uncertainties. The theoretical derivation is complemented by its validation on a set of representative examples.

Temporal dynamics in an immunological synapse:role of thermal fluctuations in signaling

The article analyzes the contribution of stochastic thermal fluctuations in the attachment times of the immature T-cell receptor TCR: peptide-major-histocompatibility-complex pMHC immunological synapse bond. The key question addressed here is the following: how does a synapse bond remain stabilized in the presence of high-frequency thermal noise that potentially equates to a strong detaching force? Focusing on the average time persistence of an immature synapse, we show that the high-frequency nodes accompanying large fluctuations are counterbalanced by low-frequency nodes that evolve over longer time periods, eventually leading to signaling of the immunological synapse bond primarily decided by nodes of the latter type. Our analysis shows that such a counterintuitive behavior could be easily explained from the fact that the survival probability distribution is governed by two distinct phases, corresponding to two separate time exponents, for the two different time regimes. The relatively shorter timescales correspond to the cohesion:adhesion induced immature bond formation whereas the larger time reciprocates the association:dissociation regime leading to TCR:pMHC signaling. From an estimate of the bond survival probability, we show that, at shorter timescales, this probability PΔ(τ) scales with time τ as a universal function of a rescaled noise amplitude DΔ2, such that PΔ(τ)∼τ-(ΔD+12),Δ being the distance from the mean intermembrane (T cell:Antigen Presenting Cell) separation distance. The crossover from this shorter to a longer time regime leads to a universality in the dynamics, at which point the survival probability shows a different power-law scaling compared to the one at shorter timescales. In biological terms, such a crossover indicates that the TCR:pMHC bond has a survival probability with a slower decay rate than the longer LFA-1:ICAM-1 bond justifying its stability.

Intensity dynamics and statistical properties of random distributed feedback fiber laser

We present first experimental investigation of fast-intensity dynamics of random distributed feedback (DFB) fiber lasers. We found that the laser dynamics are stochastic on a short time scale and exhibit pronounced fluctuations including generation of extreme events. We also experimentally characterize statistical properties of radiation of random DFB fiber lasers. We found that statistical properties deviate from Gaussian and depend on the pump power.

Interaction dynamics in small networks of nonlinear elements

We study a small circuit of coupled nonlinear elements to investigate general features of signal transmission through networks. The small circuit itself is perceived as building block for larger networks. Individual dynamics and coupling are motivated by neuronal systems: We consider two types of dynamical modes for an individual element, regular spiking and chattering and each individual element can receive excitatory and/or inhibitory inputs and is subjected to different feedback types (excitatory and inhibitory; forward and recurrent). Both, deterministic and stochastic simulations are carried out to study the input-output relationships of these networks. Major results for regular spiking elements include frequency locking, spike rate amplification for strong synaptic coupling, and inhibition-induced spike rate control which can be interpreted as a output frequency rectification. For chattering elements, spike rate amplification for low frequencies and silencing for large frequencies is characteristic