Pricing Index Options with Stochastic Volatility

The objective of this paper is to investigate the pricing accuracy under stochastic volatility where the volatility follows a square root process. The theoretical prices are compared with market price data (the German DAX index options market) by using two different techniques of parameter estimation, the method of moments and implicit estimation by inversion. Standard Black & Scholes pricing is used as a benchmark. The results indicate that the stochastic volatility model with parameters estimated by inversion using the available prices on the preceding day, is the most accurate pricing method of the three in this study and can be considered satisfactory. However, as the same model with parameters estimated using a rolling window (the method of moments) proved to be inferior to the benchmark, the importance of stable and correct estimation of the parameters is evident.

Stochastic models of IEEE 802.11e wireless net works with multimedia applications

We provide a survey of some of our recent results ([9], [13], [4], [6], [7]) on the analytical performance modeling of IEEE 802.11 wireless local area networks (WLANs). We first present extensions of the decoupling approach of Bianchi ([1]) to the saturation analysis of IEEE 802.11e networks with multiple traffic classes. We have found that even when analysing WLANs with unsaturated nodes the following state dependent service model works well: when a certain set of nodes is nonempty, their channel attempt behaviour is obtained from the corresponding fixed point analysis of the saturated system. We will present our experiences in using this approximation to model multimedia traffic over an IEEE 802.11e network using the enhanced DCF channel access (EDCA) mechanism. We have found that we can model TCP controlled file transfers, VoIP packet telephony, and streaming video in the IEEE802.11e setting by this simple approximation.

A suprathreshold stochastic resonance based pre-processor for direction-of-arrival estimation

In this paper we propose a nonlinear preprocessor for enhancing the performance of processors used for direction-of-arrival (DOA) estimation in heavy-tailed non-Gaussian noise. The preprocessor based on the phenomenon of suprathreshold stochastic resonance (SSR), provides SNR gain. The preprocessed data is used for DOA estimation by the MUSIC algorithm. Simulation results are presented to show that the SSR preprocessor provides a significant improvement in the performance of MUSIC in heavy-tailed noise at low SNR.

Prediction of inplane damping from deterministic and stochastic models

This paper reviews computational reliability, computer algebra, stochastic stability and rotating frame turbulence (RFT) in the context of predicting the blade inplane mode stability, a mode which is at best weakly damped. Computational reliability can be built into routine Floquet analysis involving trim analysis and eigenanalysis, and a highly portable special purpose processor restricted to rotorcraft dynamics analysis is found to be more economical than a multipurpose processor. While the RFT effects are dominant in turbulence modeling, the finding that turbulence stabilizes the inplane mode is based on the assumption that turbulence is white noise.

Learning dynamic prices in multiseller electronic retail markets with price sensitive customers, stochastic demands, and inventory replenishments

In this paper, we use reinforcement learning (RL) as a tool to study price dynamics in an electronic retail market consisting of two competing sellers, and price sensitive and lead time sensitive customers. Sellers, offering identical products, compete on price to satisfy stochastically arriving demands (customers), and follow standard inventory control and replenishment policies to manage their inventories. In such a generalized setting, RL techniques have not previously been applied. We consider two representative cases: 1) no information case, were none of the sellers has any information about customer queue levels, inventory levels, or prices at the competitors; and 2) partial information case, where every seller has information about the customer queue levels and inventory levels of the competitors. Sellers employ automated pricing agents, or pricebots, which use RL-based pricing algorithms to reset the prices at random intervals based on factors such as number of back orders, inventory levels, and replenishment lead times, with the objective of maximizing discounted cumulative profit. In the no information case, we show that a seller who uses Q-learning outperforms a seller who uses derivative following (DF). In the partial information case, we model the problem as a Markovian game and use actor-critic based RL to learn dynamic prices. We believe our approach to solving these problems is a new and promising way of setting dynamic prices in multiseller environments with stochastic demands, price sensitive customers, and inventory replenishments.

Stochastic Analysis of Yielding System

The probability distribution of the instantaneous incremental yield of an inelastic system is characterized in terms of a conditional probability and average rate of crossing. The detailed yield statistics of a single degree-of-freedom elasto-plastic system under a Gaussian white noise are obtained for both nonstationary and stationary response. The present analysis indicates that the yield damage is sensitive to viscous damping. The spectra of mean and mean square damage rate are presented.

Estimating Frequencies of Minority Nevirapine-Resistant Strains in Chronically HIV-1-Infected Individuals Naive to Nevirapine by Using Stochastic Simulations and a Mathematical Model

Nevirapine forms the mainstay of our efforts to curtail the pediatric AIDS epidemic through prevention of mother-to-child transmission of HIV-1. A key limitation, however, is the rapid selection of HIV-1 strains resistant to nevirapine following the administration of a single dose. This rapid selection of resistance suggests that nevirapine-resistant strains preexist in HIV-1 patients and may adversely affect outcomes of treatment. The frequencies of nevirapine-resistant strains in vivo, however, remain poorly estimated, possibly because they exist as a minority below current assay detection limits. Here, we employ stochastic simulations and a mathematical model to estimate the frequencies of strains carrying different combinations of the common nevirapine resistance mutations K103N, V106A, Y181C, Y188C, and G190A in chronically infected HIV-1 patients naive to nevirapine. We estimate the relative fitness of mutant strains from an independent analysis of previous competitive growth assays. We predict that single mutants are likely to preexist in patients at frequencies (similar to 0.01% to 0.001%) near or below current assay detection limits (>0.01%), emphasizing the need for more-sensitive assays. The existence of double mutants is subject to large stochastic variations. Triple and higher mutants are predicted not to exist. Our estimates are robust to variations in the recombination rate, cellular superinfection frequency, and the effective population size. Thus, with 10(7) to 10(8) infected cells in HIV-1 patients, even when undetected, nevirapine-resistant genomes may exist in substantial numbers and compromise efforts to prevent mother-to-child transmission of HIV-1, accelerate the failure of subsequent antiretroviral treatments, and facilitate the transmission of drug resistance.

Studies of cryotreatment on the performance of integral diaphragm pressure transducers for space application

The integral diaphragm pressure transducers machined out of precipitation hardened martensite stainless steel (APX4) are widely used for propellant pressure measurements in space applications. These transducers are expected to exhibit dimensional stability and linearity for their entire useful life. These vital factors are very critical for the reliable performance and dependability of the pressure transducers. However, these transducers invariably develop internal stresses during various stages of machining. These stresses have an adverse effect on the performance of the transducers causing deviation from linearity. In order to eliminate these possibilities, it was planned to cryotreat the machined transducers to improve both the long-term linearity and dimensional stability. To study these effects, an experimental cryotreatment unit was designed and developed based on the concept of indirect cooling using the concept of cold nitrogen gas forced closed loop convection currents. The system has the capability of cryotreating large number of samples for varied rates of cooling, soaking and warm-up. After obtaining the initial levels of residual stress and retained austenite using X-ray diffraction techniques, the pressure transducers were cryotreated at 98 K for 36 h. Immediately after cryotreatment, the transducers were tempered at 510 degrees C for 3 h in vacuum furnace. Results after cryo treatment clearly indicated significant reduction in residual stress levels and conversion of retained austenite to martensite. These changes have brought in improvements in long term zero drift and dimensional stability. The cryotreated pressure transducers have been incorporated for actual space applications. (c) 2010 Published by Elsevier Ltd.

Free vibration of a stochastic beam-column using stochastic fem

The free vibrational characteristics of a beam-column, which is having randomly varying Young's modulus and mass density and subjected to randomly distributed axial loading is analysed. The material property fluctuations and axial loadings are considered to constitute independent one-dimensional, uni-variate, homogeneous real, spatially distributed stochastic fields. Hamilton's principle is used to formulate the problem using stochastic FEM. Vibration frequencies and mode shapes are analysed for their statistical descriptions. A numerical example is shown.

Exact path-integral evaluation of the heat distribution function of a trapped Brownian oscillator

Using path integrals, we derive an exact expression-valid at all times t-for the distribution P(Q,t) of the heat fluctuations Q of a Brownian particle trapped in a stationary harmonic well. We find that P(Q, t) can be expressed in terms of a modified Bessel function of zeroth order that in the limit t > infinity exactly recovers the heat distribution function obtained recently by Imparato et al. Phys. Rev. E 76, 050101(R) (2007)] from the approximate solution to a Fokker-Planck equation. This long-time result is in very good agreement with experimental measurements carried out by the same group on the heat effects produced by single micron-sized polystyrene beads in a stationary optical trap. An earlier exact calculation of the heat distribution function of a trapped particle moving at a constant speed v was carried out by van Zon and Cohen Phys. Rev. E 69, 056121 (2004)]; however, this calculation does not provide an expression for P(Q, t) itself, but only its Fourier transform (which cannot be analytically inverted), nor can it be used to obtain P(Q, t) for the case v=0.

Path-integral derivation of the superconformal anomaly for the N=1 supersymmetric Yang-Mills theory

Fujikawa's method of evaluating the supercurrent and the superconformal current anomalies, using the heat-kernel regularization scheme, is extended to theories with gauge invariance, in particular, to the off-shell N=1 supersymmetric Yang-Mills (SSYM) theory. The Jacobians of supersymmetry and superconformal transformations are finite. Although the gauge-fixing term is not supersymmetric and the regularization scheme is not manifestly supersymmetric, we find that the regularized Jacobians are gauge invariant and finite and they can be expressed in such a way that there is no one-loop supercurrent anomaly for the N=1 SSYM theory. The superconformal anomaly is nonzero and the anomaly agrees with a similar result obtained using other methods.