Estimation of jump-diffusion processes via empirical characteristic functions

Preface The starting point for this work and eventually the subject of the whole thesis was the question: how to estimate parameters of the affine stochastic volatility jump-diffusion models. These models are very important for contingent claim pricing. Their major advantage, availability T of analytical solutions for characteristic functions, made them the models of choice for many theoretical constructions and practical applications. At the same time, estimation of parameters of stochastic volatility jump-diffusion models is not a straightforward task. The problem is coming from the variance process, which is non-observable. There are several estimation methodologies that deal with estimation problems of latent variables. One appeared to be particularly interesting. It proposes the estimator that in contrast to the other methods requires neither discretization nor simulation of the process: the Continuous Empirical Characteristic function estimator (EGF) based on the unconditional characteristic function. However, the procedure was derived only for the stochastic volatility models without jumps. Thus, it has become the subject of my research. This thesis consists of three parts. Each one is written as independent and self contained article. At the same time, questions that are answered by the second and third parts of this Work arise naturally from the issues investigated and results obtained in the first one. The first chapter is the theoretical foundation of the thesis. It proposes an estimation procedure for the stochastic volatility models with jumps both in the asset price and variance processes. The estimation procedure is based on the joint unconditional characteristic function for the stochastic process. The major analytical result of this part as well as of the whole thesis is the closed form expression for the joint unconditional characteristic function for the stochastic volatility jump-diffusion models. The empirical part of the chapter suggests that besides a stochastic volatility, jumps both in the mean and the volatility equation are relevant for modelling returns of the S&P500 index, which has been chosen as a general representative of the stock asset class. Hence, the next question is: what jump process to use to model returns of the S&P500. The decision about the jump process in the framework of the affine jump- diffusion models boils down to defining the intensity of the compound Poisson process, a constant or some function of state variables, and to choosing the distribution of the jump size. While the jump in the variance process is usually assumed to be exponential, there are at least three distributions of the jump size which are currently used for the asset log-prices: normal, exponential and double exponential. The second part of this thesis shows that normal jumps in the asset log-returns should be used if we are to model S&P500 index by a stochastic volatility jump-diffusion model. This is a surprising result. Exponential distribution has fatter tails and for this reason either exponential or double exponential jump size was expected to provide the best it of the stochastic volatility jump-diffusion models to the data. The idea of testing the efficiency of the Continuous ECF estimator on the simulated data has already appeared when the first estimation results of the first chapter were obtained. In the absence of a benchmark or any ground for comparison it is unreasonable to be sure that our parameter estimates and the true parameters of the models coincide. The conclusion of the second chapter provides one more reason to do that kind of test. Thus, the third part of this thesis concentrates on the estimation of parameters of stochastic volatility jump- diffusion models on the basis of the asset price time-series simulated from various "true" parameter sets. The goal is to show that the Continuous ECF estimator based on the joint unconditional characteristic function is capable of finding the true parameters. And, the third chapter proves that our estimator indeed has the ability to do so. Once it is clear that the Continuous ECF estimator based on the unconditional characteristic function is working, the next question does not wait to appear. The question is whether the computation effort can be reduced without affecting the efficiency of the estimator, or whether the efficiency of the estimator can be improved without dramatically increasing the computational burden. The efficiency of the Continuous ECF estimator depends on the number of dimensions of the joint unconditional characteristic function which is used for its construction. Theoretically, the more dimensions there are, the more efficient is the estimation procedure. In practice, however, this relationship is not so straightforward due to the increasing computational difficulties. The second chapter, for example, in addition to the choice of the jump process, discusses the possibility of using the marginal, i.e. one-dimensional, unconditional characteristic function in the estimation instead of the joint, bi-dimensional, unconditional characteristic function. As result, the preference for one or the other depends on the model to be estimated. Thus, the computational effort can be reduced in some cases without affecting the efficiency of the estimator. The improvement of the estimator s efficiency by increasing its dimensionality faces more difficulties. The third chapter of this thesis, in addition to what was discussed above, compares the performance of the estimators with bi- and three-dimensional unconditional characteristic functions on the simulated data. It shows that the theoretical efficiency of the Continuous ECF estimator based on the three-dimensional unconditional characteristic function is not attainable in practice, at least for the moment, due to the limitations on the computer power and optimization toolboxes available to the general public. Thus, the Continuous ECF estimator based on the joint, bi-dimensional, unconditional characteristic function has all the reasons to exist and to be used for the estimation of parameters of the stochastic volatility jump-diffusion models.

Viscoelasticity in Achilles Tendonopathy: Quantitative Assessment by Using Real-time Shear-Wave Elastography.

Purpose To investigate the differences in viscoelastic properties between normal and pathologic Achilles tendons ( AT Achilles tendon s) by using real-time shear-wave elastography ( SWE shear-wave elastography ). Materials and Methods The institutional review board approved this study, and written informed consent was obtained from 25 symptomatic patients and 80 volunteers. One hundred eighty ultrasonographic (US) and SWE shear-wave elastography studies of AT Achilles tendon s without tendonopathy and 30 studies of the middle portion of the AT Achilles tendon in patients with tendonopathy were assessed prospectively. Each study included data sets acquired at B-mode US (tendon morphology and cross-sectional area) and SWE shear-wave elastography (axial and sagittal mean velocity and relative anisotropic coefficient) for two passively mobilized ankle positions. The presence of AT Achilles tendon tears at B-mode US and signal-void areas at SWE shear-wave elastography were noted. Results Significantly lower mean velocity was shown in tendons with tendonopathy than in normal tendons in the relaxed position at axial SWE shear-wave elastography (P < .001) and in the stretched position at sagittal (P < .001) and axial (P = .0026) SWE shear-wave elastography . Tendon softening was a sign of tendonopathy in relaxed AT Achilles tendon s when the mean velocity was less than or equal to 4.06 m · sec(-1) at axial SWE shear-wave elastography (sensitivity, 54.2%; 95% confidence interval [ CI confidence interval ]: 32.8, 74.4; specificity, 91.5%; 95% CI confidence interval : 86.3, 95.1) and less than or equal to 5.70 m · sec(-1) at sagittal SWE shear-wave elastography (sensitivity, 41.7%; 95% CI confidence interval : 22.1, 63.3; specificity, 81.8%; 95% CI confidence interval : 75.3, 87.2) and in stretched AT Achilles tendon s, when the mean velocity was less than or equal to 4.86 m · sec(-1) at axial SWE shear-wave elastography (sensitivity, 66.7%; 95% CI confidence interval : 44.7, 84.3; specificity, 75.6%; 95% CI confidence interval : 68.5, 81.7) and less than or equal to 14.58 m · sec(-1) at sagittal SWE shear-wave elastography (sensitivity, 58.3%; 95% CI confidence interval : 36.7, 77.9; specificity, 83.5%; 95% CI confidence interval : 77.2, 88.7). Anisotropic results were not significantly different between normal and pathologic AT Achilles tendon s. Six of six (100%) partial-thickness tears appeared as signal-void areas at SWE shear-wave elastography . Conclusion Whether the AT Achilles tendon was relaxed or stretched, SWE shear-wave elastography helped to confirm and quantify pathologic tendon softening in patients with tendonopathy in the midportion of the AT Achilles tendon and did not reveal modifications of viscoelastic anisotropy in the tendon. Tendon softening assessed by using SWE shear-wave elastography appeared to be highly specific, but sensitivity was relatively low. © RSNA, 2014.

Stochastic delay differential equations driven by fractional Brownian motion with Hurst parameter H 1/2

We consider the Cauchy problem for a stochastic delay differential equation driven by a fractional Brownian motion with Hurst parameter H>¿. We prove an existence and uniqueness result for this problem, when the coefficients are sufficiently regular. Furthermore, if the diffusion coefficient is bounded away from zero and the coefficients are smooth functions with bounded derivatives of all orders, we prove that the law of the solution admits a smooth density with respect to Lebesgue measure on R.

Comparison of Setting Time Measured Using Ultrasonic Wave Propagation with Saw-Cutting Times on Pavements, TR-675, 2015

At present, there is little fundamental guidance available to assist contractors in choosing when to schedule saw cuts on joints. To conduct pavement finishing and sawing activities effectively, however, contractors need to know when a concrete mixture is going to reach initial set, or when the sawing window will open. Previous research investigated the use of the ultrasonic pulse velocity (UPV) method to predict the saw-cutting window for early entry sawing. The results indicated that the method has the potential to provide effective guidance to contractors as to when to conduct early entry sawing. The aim of this project was to conduct similar work to observe the correlation between initial setting and conventional sawing time. Sixteen construction sites were visited in Minnesota and Missouri over a two-year period. At each site, initial set was determined using a p-wave propagation technique with a commercial device. Calorimetric data were collected using a commercial semi-adiabatic device at a majority of the sites. Concrete samples were collected in front of the paver and tested using both methods with equipment that was set up next to the pavement during paving. The data collected revealed that the UPV method looks promising for early entry and conventional sawing in the field, both early entry and conventional sawing times can be predicted for the range of mixtures tested.

Biased diffusion in confined media: Test of the Fick-Jacobs approximation and validity criteria

We study biased, diffusive transport of Brownian particles through narrow, spatially periodic structures in which the motion is constrained in lateral directions. The problem is analyzed under the perspective of the Fick-Jacobs equation, which accounts for the effect of the lateral confinement by introducing an entropic barrier in a one-dimensional diffusion. The validity of this approximation, based on the assumption of an instantaneous equilibration of the particle distribution in the cross section of the structure, is analyzed by comparing the different time scales that characterize the problem. A validity criterion is established in terms of the shape of the structure and of the applied force. It is analytically corroborated and verified by numerical simulations that the critical value of the force up to which this description holds true scales as the square of the periodicity of the structure. The criterion can be visualized by means of a diagram representing the regions where the Fick-Jacobs description becomes inaccurate in terms of the scaled force versus the periodicity of the structure.

Valuing equity-linked death benefits in jump diffusion models

The paper is motivated by the valuation problem of guaranteed minimum death benefits in various equity-linked products. At the time of death, a benefit payment is due. It may depend not only on the price of a stock or stock fund at that time, but also on prior prices. The problem is to calculate the expected discounted value of the benefit payment. Because the distribution of the time of death can be approximated by a combination of exponential distributions, it suffices to solve the problem for an exponentially distributed time of death. The stock price process is assumed to be the exponential of a Brownian motion plus an independent compound Poisson process whose upward and downward jumps are modeled by combinations (or mixtures) of exponential distributions. Results for exponential stopping of a Lévy process are used to derive a series of closed-form formulas for call, put, lookback, and barrier options, dynamic fund protection, and dynamic withdrawal benefit with guarantee. We also discuss how barrier options can be used to model lapses and surrenders.

Cultural Diffusion Was the Main Driving Mechanism of the Neolithic Transition in Southern Africa

It is well known that the Neolithic transition spread across Europe at a speed of about 1 km/yr. This result has been previously interpreted as a range expansion of the Neolithic driven mainly by demic diffusion (whereas cultural diffusion played a secondary role). However, a long-standing problem is whether this value (1 km/yr) and its interpretation (mainly demic diffusion) are characteristic only of Europe or universal (i.e. intrinsic features of Neolithic transitions all over the world). So far Neolithic spread rates outside Europe have been barely measured, and Neolithic spread rates substantially faster than 1 km/yr have not been previously reported. Here we show that the transition from hunting and gathering into herding in southern Africa spread at a rate of about 2.4 km/yr, i.e. about twice faster than the European Neolithic transition. Thus the value 1 km/yr is not a universal feature of Neolithic transitions in the world. Resorting to a recent demic-cultural wave-of-advance model, we also find that the main mechanism at work in the southern African Neolithic spread was cultural diffusion (whereas demic diffusion played a secondary role). This is in sharp contrast to the European Neolithic. Our results further suggest that Neolithic spread rates could be mainly driven by cultural diffusion in cases where the final state of this transition is herding/pastoralism (such as in southern Africa) rather than farming and stockbreeding (as in Europe)

Numerical study of Petrov-Galerkin formulations for the shallow water wave equations

The behavior of Petrov-Galerkin formulations for shallow water wave equations is evaluated numerically considering typical one-dimensional propagation problems. The formulations considered here use stabilizing operators to improve classical Galerkin approaches. Their advantages and disadvantages are pointed out according to the intrinsic time scale (free parameter) which has a particular importance in this kind of problem. The influence of the Courant number and the performance of the formulation in dealing with spurious oscillations are adressed.

Exact property estimation from diffusion Monte Carlo with minimal stochastic reconfiguration /

Our objective is to develop a diffusion Monte Carlo (DMC) algorithm to estimate the exact expectation values, ($o|^|^o), of multiplicative operators, such as polarizabilities and high-order hyperpolarizabilities, for isolated atoms and molecules. The existing forward-walking pure diffusion Monte Carlo (FW-PDMC) algorithm which attempts this has a serious bias. On the other hand, the DMC algorithm with minimal stochastic reconfiguration provides unbiased estimates of the energies, but the expectation values ($o|^|^) are contaminated by ^, an user specified, approximate wave function, when A does not commute with the Hamiltonian. We modified the latter algorithm to obtain the exact expectation values for these operators, while at the same time eliminating the bias. To compare the efficiency of FW-PDMC and the modified DMC algorithms we calculated simple properties of the H atom, such as various functions of coordinates and polarizabilities. Using three non-exact wave functions, one of moderate quality and the others very crude, in each case the results are within statistical error of the exact values.

Analytical Studies on Diffusion and lntermittency in Chaotic Maps

The study of simple chaotic maps for non-equilibrium processes in statistical physics has been one of the central themes in the theory of chaotic dynamical systems. Recently, many works have been carried out on deterministic diffusion in spatially extended one-dimensional maps This can be related to real physical systems such as Josephson junctions in the presence of microwave radiation and parametrically driven oscillators. Transport due to chaos is an important problem in Hamiltonian dynamics also. A recent approach is to evaluate the exact diffusion coefficient in terms of the periodic orbits of the system in the form of cycle expansions. But the fact is that the chaotic motion in such spatially extended maps has two complementary aspects- - diffusion and interrnittency. These are related to the time evolution of the probability density function which is approximately Gaussian by central limit theorem. It is noticed that the characteristic function method introduced by Fujisaka and his co-workers is a very powerful tool for analysing both these aspects of chaotic motion. The theory based on characteristic function actually provides a thermodynamic formalism for chaotic systems It can be applied to other types of chaos-induced diffusion also, such as the one arising in statistics of trajectory separation. It was noted that there is a close connection between cycle expansion technique and characteristic function method. It was found that this connection can be exploited to enhance the applicability of the cycle expansion technique. In this way, we found that cycle expansion can be used to analyse the probability density function in chaotic maps. In our research studies we have successfully applied the characteristic function method and cycle expansion technique for analysing some chaotic maps. We introduced in this connection, two classes of chaotic maps with variable shape by generalizing two types of maps well known in literature.

Femtosecond time-resolved wave packet motion in molecular multiphoton ionization and fragmentation

The dynamics of molecular multiphoton ionization and fragmentation of a diatomic molecule (Na_2) have been studied in molecular beam experiments. Femtosecond laser pulses from an amplified colliding-pulse mode-locked (CPM) ring dye laser are employed to induce and probe the molecular transitions. The final continuum states are analyzed by photoelectron spectroscopy, by ion mass spectrometry and by measuring the kinetic energy of the formed ionic fragments. Pump-probe spectra employing 70-fs laser pulses have been measured to study the time dependence of molecular multiphoton ionization and fragmentation. The oscillatory structure of the transient spectra showing the dynamics on the femtosecond time scale can best be understood in terms of the motion of wave packets in bound molecular potentials. The transient Na_2^+ ionization and the transient Na^+ fragmentation spectra show that contributions from direct photoionization of a singly excited electronic state and from excitation and autoionization of a bound doubly excited molecular state determine the time evolution of molecular multiphoton ionization.

An integral equation method for a boundary value problem arising in unsteady water wave problems

In this paper we consider the 2D Dirichlet boundary value problem for Laplace’s equation in a non-locally perturbed half-plane, with data in the space of bounded and continuous functions. We show uniqueness of solution, using standard Phragmen-Lindelof arguments. The main result is to propose a boundary integral equation formulation, to prove equivalence with the boundary value problem, and to show that the integral equation is well posed by applying a recent partial generalisation of the Fredholm alternative in Arens et al [J. Int. Equ. Appl. 15 (2003) pp. 1-35]. This then leads to an existence proof for the boundary value problem. Keywords. Boundary integral equation method, Water waves, Laplace’s