Stochastic modelling of financial time series with memory and multifractal scaling

Financial processes may possess long memory and their probability densities may display heavy tails. Many models have been developed to deal with this tail behaviour, which reflects the jumps in the sample paths. On the other hand, the presence of long memory, which contradicts the efficient market hypothesis, is still an issue for further debates. These difficulties present challenges with the problems of memory detection and modelling the co-presence of long memory and heavy tails. This PhD project aims to respond to these challenges. The first part aims to detect memory in a large number of financial time series on stock prices and exchange rates using their scaling properties. Since financial time series often exhibit stochastic trends, a common form of nonstationarity, strong trends in the data can lead to false detection of memory. We will take advantage of a technique known as multifractal detrended fluctuation analysis (MF-DFA) that can systematically eliminate trends of different orders. This method is based on the identification of scaling of the q-th-order moments and is a generalisation of the standard detrended fluctuation analysis (DFA) which uses only the second moment; that is, q = 2. We also consider the rescaled range R/S analysis and the periodogram method to detect memory in financial time series and compare their results with the MF-DFA. An interesting finding is that short memory is detected for stock prices of the American Stock Exchange (AMEX) and long memory is found present in the time series of two exchange rates, namely the French franc and the Deutsche mark. Electricity price series of the five states of Australia are also found to possess long memory. For these electricity price series, heavy tails are also pronounced in their probability densities. The second part of the thesis develops models to represent short-memory and longmemory financial processes as detected in Part I. These models take the form of continuous-time AR(∞) -type equations whose kernel is the Laplace transform of a finite Borel measure. By imposing appropriate conditions on this measure, short memory or long memory in the dynamics of the solution will result. A specific form of the models, which has a good MA(∞) -type representation, is presented for the short memory case. Parameter estimation of this type of models is performed via least squares, and the models are applied to the stock prices in the AMEX, which have been established in Part I to possess short memory. By selecting the kernel in the continuous-time AR(∞) -type equations to have the form of Riemann-Liouville fractional derivative, we obtain a fractional stochastic differential equation driven by Brownian motion. This type of equations is used to represent financial processes with long memory, whose dynamics is described by the fractional derivative in the equation. These models are estimated via quasi-likelihood, namely via a continuoustime version of the Gauss-Whittle method. The models are applied to the exchange rates and the electricity prices of Part I with the aim of confirming their possible long-range dependence established by MF-DFA. The third part of the thesis provides an application of the results established in Parts I and II to characterise and classify financial markets. We will pay attention to the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX), the NASDAQ Stock Exchange (NASDAQ) and the Toronto Stock Exchange (TSX). The parameters from MF-DFA and those of the short-memory AR(∞) -type models will be employed in this classification. We propose the Fisher discriminant algorithm to find a classifier in the two and three-dimensional spaces of data sets and then provide cross-validation to verify discriminant accuracies. This classification is useful for understanding and predicting the behaviour of different processes within the same market. The fourth part of the thesis investigates the heavy-tailed behaviour of financial processes which may also possess long memory. We consider fractional stochastic differential equations driven by stable noise to model financial processes such as electricity prices. The long memory of electricity prices is represented by a fractional derivative, while the stable noise input models their non-Gaussianity via the tails of their probability density. A method using the empirical densities and MF-DFA will be provided to estimate all the parameters of the model and simulate sample paths of the equation. The method is then applied to analyse daily spot prices for five states of Australia. Comparison with the results obtained from the R/S analysis, periodogram method and MF-DFA are provided. The results from fractional SDEs agree with those from MF-DFA, which are based on multifractal scaling, while those from the periodograms, which are based on the second order, seem to underestimate the long memory dynamics of the process. This highlights the need and usefulness of fractal methods in modelling non-Gaussian financial processes with long memory.

Numerical simulation of the Riesz fractional diffusion equation with a nonlinear source term

In this paper, A Riesz fractional diffusion equation with a nonlinear source term (RFDE-NST) is considered. This equation is commonly used to model the growth and spreading of biological species. According to the equivalent of the Riemann-Liouville(R-L) and Gr¨unwald-Letnikov(GL) fractional derivative definitions, an implicit difference approximation (IFDA) for the RFDE-NST is derived. We prove the IFDA is unconditionally stable and convergent. In order to evaluate the efficiency of the IFDA, a comparison with a fractional method of lines (FMOL) is used. Finally, two numerical examples are presented to show that the numerical results are in good agreement with our theoretical analysis.

Novel analytical and numerical methods for solving fractional dynamical systems

During the past three decades, the subject of fractional calculus (that is, calculus of integrals and derivatives of arbitrary order) has gained considerable popularity and importance, mainly due to its demonstrated applications in numerous diverse and widespread fields in science and engineering. For example, fractional calculus has been successfully applied to problems in system biology, physics, chemistry and biochemistry, hydrology, medicine, and finance. In many cases these new fractional-order models are more adequate than the previously used integer-order models, because fractional derivatives and integrals enable the description of the memory and hereditary properties inherent in various materials and processes that are governed by anomalous diffusion. Hence, there is a growing need to find the solution behaviour of these fractional differential equations. However, the analytic solutions of most fractional differential equations generally cannot be obtained. As a consequence, approximate and numerical techniques are playing an important role in identifying the solution behaviour of such fractional equations and exploring their applications. The main objective of this thesis is to develop new effective numerical methods and supporting analysis, based on the finite difference and finite element methods, for solving time, space and time-space fractional dynamical systems involving fractional derivatives in one and two spatial dimensions. A series of five published papers and one manuscript in preparation will be presented on the solution of the space fractional diffusion equation, space fractional advectiondispersion equation, time and space fractional diffusion equation, time and space fractional Fokker-Planck equation with a linear or non-linear source term, and fractional cable equation involving two time fractional derivatives, respectively. One important contribution of this thesis is the demonstration of how to choose different approximation techniques for different fractional derivatives. Special attention has been paid to the Riesz space fractional derivative, due to its important application in the field of groundwater flow, system biology and finance. We present three numerical methods to approximate the Riesz space fractional derivative, namely the L1/ L2-approximation method, the standard/shifted Gr¨unwald method, and the matrix transform method (MTM). The first two methods are based on the finite difference method, while the MTM allows discretisation in space using either the finite difference or finite element methods. Furthermore, we prove the equivalence of the Riesz fractional derivative and the fractional Laplacian operator under homogeneous Dirichlet boundary conditions – a result that had not previously been established. This result justifies the aforementioned use of the MTM to approximate the Riesz fractional derivative. After spatial discretisation, the time-space fractional partial differential equation is transformed into a system of fractional-in-time differential equations. We then investigate numerical methods to handle time fractional derivatives, be they Caputo type or Riemann-Liouville type. This leads to new methods utilising either finite difference strategies or the Laplace transform method for advancing the solution in time. The stability and convergence of our proposed numerical methods are also investigated. Numerical experiments are carried out in support of our theoretical analysis. We also emphasise that the numerical methods we develop are applicable for many other types of fractional partial differential equations.

Numerical simulation for the variable-order Galilei invariant advection diffusion equation with a nonlinear source term

In this paper, we consider the variable-order Galilei advection diffusion equation with a nonlinear source term. A numerical scheme with first order temporal accuracy and second order spatial accuracy is developed to simulate the equation. The stability and convergence of the numerical scheme are analyzed. Besides, another numerical scheme for improving temporal accuracy is also developed. Finally, some numerical examples are given and the results demonstrate the effectiveness of theoretical analysis. Keywords: The variable-order Galilei invariant advection diffusion equation with a nonlinear source term; The variable-order Riemann–Liouville fractional partial derivative; Stability; Convergence; Numerical scheme improving temporal accuracy

Benign Epilepsy with Centro-temporal Spikes: Spike Triggered fMRI Shows Somato-sensory Cortex Activity

Summary:  Objective: We performed spike triggered functional MRI (fMRI) in a 12 year old girl with Benign Epilepsy with Centro-temporal Spikes (BECTS) and left-sided spikes. Our aim was to demonstrate the cerebral origin of her interictal spikes. Methods: EEG was recorded within the 3 Tesla MRI. Whole brain fMRI images were acquired, beginning 2–3 seconds after spikes. Baseline fMRI images were acquired when there were no spikes for 20 seconds. Image sets were compared with the Student's t-test. Results: Ten spike and 20 baseline brain volumes were analysed. Focal activiation was seen in the inferior left sensorimotor cortex near the face area. The anterior cingulate was more active during baseline than spikes. Conclusions: Left sided epileptiform activity in this patient with BECTS is associated with fMRI activation in the left face region of the somatosensory cortex, which would be consistent with the facial sensorimotor involvement in BECT seizures. The presence of BOLD signal change in other regions raises the possibility that the scalp recorded field of this patient with BECTs may reflect electrical change in more than one brain region.

Numerical simulation of a new two-dimensional variable-order fractional percolation equation in non-homogeneous porous media

Percolation flow problems are discussed in many research fields, such as seepage hydraulics, groundwater hydraulics, groundwater dynamics and fluid dynamics in porous media. Many physical processes appear to exhibit fractional-order behavior that may vary with time, or space, or space and time. The theory of pseudodifferential operators and equations has been used to deal with this situation. In this paper we use a fractional Darcys law with variable order Riemann-Liouville fractional derivatives, this leads to a new variable-order fractional percolation equation. In this paper, a new two-dimensional variable-order fractional percolation equation is considered. A new implicit numerical method and an alternating direct method for the two-dimensional variable-order fractional model is proposed. Consistency, stability and convergence of the implicit finite difference method are established. Finally, some numerical examples are given. The numerical results demonstrate the effectiveness of the methods. This technique can be used to simulate a three-dimensional variable-order fractional percolation equation.

A comparison of finite difference and finite volume methods for solving the space fractional advection-dispersion equation with variable coefficients

Transport processes within heterogeneous media may exhibit non-classical diffusion or dispersion; that is, not adequately described by the classical theory of Brownian motion and Fick's law. We consider a space fractional advection-dispersion equation based on a fractional Fick's law. The equation involves the Riemann-Liouville fractional derivative which arises from assuming that particles may make large jumps. Finite difference methods for solving this equation have been proposed by Meerschaert and Tadjeran. In the variable coefficient case, the product rule is first applied, and then the Riemann-Liouville fractional derivatives are discretised using standard and shifted Grunwald formulas, depending on the fractional order. In this work, we consider a finite volume method that deals directly with the equation in conservative form. Fractionally-shifted Grunwald formulas are used to discretise the fractional derivatives at control volume faces. We compare the two methods for several case studies from the literature, highlighting the convenience of the finite volume approach.

Finite volume methods for simulating anomalous transport

In this thesis a new approach for solving a certain class of anomalous diffusion equations was developed. The theory and algorithms arising from this work will pave the way for more efficient and more accurate solutions of these equations, with applications to science, health and industry. The method of finite volumes was applied to discretise the spatial derivatives, and this was shown to outperform existing methods in several key respects. The stability and convergence of the new method were rigorously established.

Sequential MRI reveals individual level deformities in the growing scoliotic spine that are clinically masked by the Cobb angle

Introduction Clinically, the Cobb angle method measures the overall scoliotic curve in the coronal plane but does not measure individual vertebra and disc wedging. The contributions of the vertebrae and discs in the growing scoliotic spine were measured to investigate coronal plane deformity progression with growth. Methods A 0.49mm isotropic 3D MRI technique was developed to investigate the level-by-level changes that occur in the growing spine of a group of Adolescent Idiopathic Scoliosis (AIS) patients, who received two to four sequential scans (spaced 3-12 months apart). The coronal plane wedge angles of each vertebra and disc in the major curve were measured to capture any changes that occurred during their adolescent growth phase. Results Seventeen patients had at least two scans. Mean patient age was 12.9 years (SD 1.5 years). Sixteen were classified as right-sided major thoracic Lenke Type 1 (one left sided). Mean standing Cobb angle at initial presentation was 31° (SD 12°). Six received two scans, nine three scans and two four scans, with 65% showing a Cobb angle progression of 5° or more between scans. Overall, there was no clear pattern of deformity progression of individual vertebrae and discs, nor between patients who progressed and those who didn’t. There were measurable changes in the wedging of the vertebrae and discs in all patients. In sequential scans, change in direction of wedging was also seen. In several patients there was reverse wedging in the discs that counteracted increased wedging of the vertebrae such that no change in overall Cobb angle was seen. Conclusion Sequential MRI data showed complex patterns of deformity progression. Changes to the wedging of individual vertebrae and discs may occur in patients who have no increase in Cobb angle measure; the Cobb method alone may be insufficient to capture the complex mechanisms of deformity progression.

Sequential MRI of growing scoliotic spines reveals individual level deformities that are clinically masked by the cobb angle

INTRODUCTION. Clinically, the Cobb angle method measures the overall scoliotic curve in the coronal plane but does not measure individual vertebra and disc wedging. The contributions of the vertebrae and discs in the growing scoliotic spine were measured to investigate coronal plane deformity progression with growth. METHODS. A 0.49mm isotropic 3D MRI technique was developed to investigate the level-by-level changes that occur in the growing spine of a group of Adolescent Idiopathic Scoliosis (AIS) patients, who received two to four sequential scans (spaced 3-12 months apart). The coronal plane wedge angles of each vertebra and disc in the major curve were measured to capture any changes that occurred during their adolescent growth phase. RESULTS. Seventeen patients had at least two scans. Mean patient age was 12.9 years (SD 1.5 years). Sixteen were classified as right-sided major thoracic Lenke Type 1 (one left sided). Mean standing Cobb angle at initial presentation was 31° (SD 12°). Six received two scans, nine three scans and two four scans, with 65% showing a Cobb angle progression of 5° or more between scans. Overall, there was no clear pattern of deformity progression of individual vertebrae and discs, nor between patients who progressed and those who didn’t. There were measurable changes in the wedging of the vertebrae and discs in all patients. In sequential scans, change in direction of wedging was also seen. In several patients there was reverse wedging in the discs that counteracted increased wedging of the vertebrae such that no change in overall Cobb angle was seen. CONCLUSION. Sequential MRI data showed complex patterns of deformity progression. Changes to the wedging of individual vertebrae and discs may occur in patients who have no increase in Cobb angle measure; the Cobb method alone may be insufficient to capture the complex mechanisms of deformity progression.

A compliant, banded outflow cannula for decreased afterload sensitivity of rotary right ventricular assist devices

Biventricular support with dual rotary ventricular assist devices (VADs) has been implemented clinically with restriction of the right VAD (RVAD) outflow cannula to artificially increase afterload and, therefore, operate within recommended design speed ranges. However, the low preload and high afterload sensitivity of these devices increase the susceptibility of suction events. Active control systems are prone to sensor drift or inaccurate inferred (sensor-less) data, therefore an alternative solution may be of benefit. This study presents the in vitro evaluation of a compliant outflow cannula designed to passively decrease the afterload sensitivity of rotary RVADs and minimize left-sided suction events. A one-way fluid-structure interaction model was initially used to produce a design with suitable flow dynamics and radial deformation. The resultant geometry was cast with different initial cross-sectional restrictions and concentrations of a softening diluent before evaluation in a mock circulation loop. Pulmonary vascular resistance (PVR) was increased from 50 dyne s/cm5 until left-sided suction events occurred with each compliant cannula and a rigid, 4.5 mm diameter outflow cannula for comparison. Early suction events (PVR ∼ 300 dyne s/cm5) were observed with the rigid outflow cannula. Addition of the compliant section with an initial 3 mm diameter restriction and 10% diluent expanded the outflow restriction as PVR increased, thus increasing RVAD flow rate and preventing left-sided suction events at PVR levels beyond 1000 dyne s/cm5. Therefore, the compliant, restricted outflow cannula provided a passive control system to assist in the prevention of suction events with rotary biventricular support while maintaining pump speeds within normal ranges of operation.

Epidemiology, treatment and outcome of Staphylococcus aureus bacteremia and endocarditis

Staphylococcus aureus is the second most common bloodstream isolate both in community- and hospital-acquired bacteremias. The clinical course of S. aureus bacteremia (SAB) is determined by its complications, particularly by the development of deep infections and thromboembolic events. Despite the progress of antimicrobial therapy, SAB is still associated with high mortality. However, injection drug users (IDUs) tend to have fewer complications and better prognosis than nonaddicts, especially in endocarditis. The present study was undertaken to investigate epidemiology, treatment and outcome of S. aureus bacteremia and endocarditis in Finland. In particular, differences in bacterial strains and their virulence factors, and host immune responses were compared between IDUs and nonaddicts. In Finland, 5045 SAB cases during 1995-2001 were included using the National Infectious Disease Register maintained by National Public Health Institute. The annual incidence of SAB increased, especially in elderly. While the increase in incidence may partly be explained by better reporting, it most likely reflects a growing population at risk, affected by such factors as age and/or severe comorbidity. Nosocomial infections accounted for 51% of cases, with no change in their proportion during the study period. The 28-day mortality was 17% and remained unchanged over time. A total of 381 patients with SAB were randomized to receive either standard antibiotic treatment or levofloxacin added to standard treatment. Levofloxacin combination therapy did not decrease the mortality, lower the incidence of deep infections, nor did it speed up the recovery during 3 months follow-up. However, patients with a deep infection appeared to benefit from combination therapy with rifampicin, as suggested also by experimental data. Deep infections were found in 84% of SAB patients within one week after randomization, and they appeared to be more common than previously reported. Endocarditis was observed in 74 of 430 patients (17%) with SAB, of whom 20 were IDUs and 54 nonaddicts. Right-sided involvement was diagnosed in 60% of addicts whereas 93% of nonaddicts had left-sided endocarditis. Unexpectedly, IDUs showed extracardiac deep infections, thromboembolic events and severe sepsis with the same frequency as nonaddicts. The prognosis of endocarditis was better among addicts due to their younger age and lack of underlying diseases in agreement with earlier reports. In total, all 44 IDUs with SAB were included and 20 of them had endocarditis. An equal number of nonaddicts with SAB were chosen as group matched controls. Serological tests were not helpful in identifying patients with a deep infection. No individual S. aureus strain dominated in endocarditis among addicts. Characterization of the virulence factors of bacterial strains did not reveal any significant differences in IDUs and nonaddicts.

Design of digital differentiators

A digital differentiator simply involves the derivation of an input signal. This work includes the presentation of first-degree and second-degree differentiators, which are designed as both infinite-impulse-response (IIR) filters and finite-impulse-response (FIR) filters. The proposed differentiators have low-pass magnitude response characteristics, thereby rejecting noise frequencies higher than the cut-off frequency. Both steady-state frequency-domain characteristics and Time-domain analyses are given for the proposed differentiators. It is shown that the proposed differentiators perform well when compared to previously proposed filters. When considering the time-domain characteristics of the differentiators, the processing of quantized signals proved especially enlightening, in terms of the filtering effects of the proposed differentiators. The coefficients of the proposed differentiators are obtained using an optimization algorithm, while the optimization objectives include magnitude and phase response. The low-pass characteristic of the proposed differentiators is achieved by minimizing the filter variance. The low-pass differentiators designed show the steep roll-off, as well as having highly accurate magnitude response in the pass-band. While having a history of over three hundred years, the design of fractional differentiator has become a ‘hot topic’ in recent decades. One challenging problem in this area is that there are many different definitions to describe the fractional model, such as the Riemann-Liouville and Caputo definitions. Through use of a feedback structure, based on the Riemann-Liouville definition. It is shown that the performance of the fractional differentiator can be improved in both the frequency-domain and time-domain. Two applications based on the proposed differentiators are described in the thesis. Specifically, the first of these involves the application of second degree differentiators in the estimation of the frequency components of a power system. The second example concerns for an image processing, edge detection application.

Two Cases of Late Shone Syndrome With Pulmonary Hypertension: Heart-Lung Transplant or Valve Surgery?

Two cases of Shone syndrome with severe mitral and aortic valve problems and pulmonary hypertension were referred for heart-lung transplantation. Severely elevated pulmonary vascular resistance (PVR) was confirmed as was severe periprosthetic mitral and aortic regurgitation. Based on the severity of the valve lesions in both patients, surgery was decided upon and undertaken. Both experienced early pulmonary hypertensive crises, one more than the other, that gradually subsided, followed by excellent recovery and reversal of pulmonary hypertension and PVR. These cases illustrate Braunwald's concept that pulmonary hypertension secondary to left-sided valve disease is reversible.

Orbits of operators commuting with the Volterra operator

Asymptotic estimates of the norms of orbits of certain operators that commute with the classical Volterra operator V acting on L-P[0,1], with 1 0, but also to operators of the form phi (V), where phi is a holomorphic function at zero. The method to obtain the estimates is based on the fact that the Riemann-Liouville operator as well as the Volterra operator can be related to the Levin-Pfluger theory of holomorphic functions of completely regular growth. Different methods, such as the Denjoy-Carleman theorem, are needed to analyze the behavior of the orbits of I - cV, where c > 0. The results are applied to the study of cyclic properties of phi (V), where phi is a holomorphic function at 0.