Mathematical Aspects of Financial Markets with Frictions

Frictions are factors that hinder trading of securities in financial markets. Typical frictions include limited market depth, transaction costs, lack of infinite divisibility of securities, and taxes. Conventional models used in mathematical finance often gloss over these issues, which affect almost all financial markets, by arguing that the impact of frictions is negligible and, consequently, the frictionless models are valid approximations. This dissertation consists of three research papers, which are related to the study of the validity of such approximations in two distinct modeling problems. Models of price dynamics that are based on diffusion processes, i.e., continuous strong Markov processes, are widely used in the frictionless scenario. The first paper establishes that diffusion models can indeed be understood as approximations of price dynamics in markets with frictions. This is achieved by introducing an agent-based model of a financial market where finitely many agents trade a financial security, the price of which evolves according to price impacts generated by trades. It is shown that, if the number of agents is large, then under certain assumptions the price process of security, which is a pure-jump process, can be approximated by a one-dimensional diffusion process. In a slightly extended model, in which agents may exhibit herd behavior, the approximating diffusion model turns out to be a stochastic volatility model. Finally, it is shown that when agents' tendency to herd is strong, logarithmic returns in the approximating stochastic volatility model are heavy-tailed. The remaining papers are related to no-arbitrage criteria and superhedging in continuous-time option pricing models under small-transaction-cost asymptotics. Guasoni, Rásonyi, and Schachermayer have recently shown that, in such a setting, any financial security admits no arbitrage opportunities and there exist no feasible superhedging strategies for European call and put options written on it, as long as its price process is continuous and has the so-called conditional full support (CFS) property. Motivated by this result, CFS is established for certain stochastic integrals and a subclass of Brownian semistationary processes in the two papers. As a consequence, a wide range of possibly non-Markovian local and stochastic volatility models have the CFS property.

Dynamic Instabilities in Slender Space Launch Vehicles under Propulsive Thrust and Aerodynamic Forces

A mechanics based linear analysis of the problem of dynamic instabilities in slender space launch vehicles is undertaken. The flexible body dynamics of the moving vehicle is studied in an inertial frame of reference, including velocity induced curvature effects, which have not been considered so far in the published literature. Coupling among the rigid-body modes, the longitudinal vibrational modes and the transverse vibrational modes due to asymmetric lifting-body cross-section are considered. The model also incorporates the effects of aerodynamic forces and the propulsive thrust of the vehicle. The effects of the coupling between the combustion process (mass variation, developed thrust etc.) and the variables involved in the flexible body dynamics (displacements and velocities) are clearly brought out. The model is one-dimensional, and it can be employed to idealised slender vehicles with complex shapes. Computer simulations are carried out using a standard eigenvalue problem within h-p finite element modelling framework. Stability regimes for a vehicle subjected to propulsive thrust are validated by comparing the results from published literature. Numerical simulations are carried out for a representative vehicle to determine the instability regimes with vehicle speed and propulsive thrust as the parameters. The phenomena of static instability (divergence) and dynamic instability (flutter) are observed. The results at low Mach number match closely with the results obtained from previous models published in the literature.

Finite element analysis of curved anisotropic laminated hollow bars

Curved hollow bars of laminated anisotropic construction are used as structural members in many industries. They are used in order to save weight without loss of stiffness in comparison with solid sections. In this paper are presented the details of the development of the stiffness matrices of laminated anisotropic curved hollow bars under line member assumptions for two typical sections, circular and square. They are 16dof elements which make use of one-dimensional first-order Hermite interpolation polynomials for the description of assumed displacement state. Problems for which analytical or other solutions are available are first solved using these elements. Good agreement was found between the results. In order to show the capability of the element, application is made to carbon fibre reinforced plastic layered anisotropic curved hollow bars.

Turbulence measurements in an equilibrium axisymmetric wall jet

This paper reports measurements of turbulent quantities in an axisymmetric wall jet subjected to an adverse pressure gradient in a conical diffuser, in such a way that a suitably defined pressure-gradient parameter is everywhere small. Self-similarity is observed in the mean velocity profile, as well as the profiles of many turbulent quantities at sufficiently large distances from the injection slot. Autocorrelation measurements indicate that, in the region of turbulent production, the time scale of ν fluctuations is very much smaller than the time scale of u fluctuations. Based on the data on these time scales, a possible model is proposed for the Reynolds stress. One-dimensional energy spectra are obtained for the u, v and w components at several points in the wall jet. It is found that self-similarity is exhibited by the one-dimensional wavenumber spectrum of $\overline{q^2}(=\overline{u^2}+\overline{v^2}+\overline{w^2})$, if the half-width of the wall jet and the local mean velocity are used for forming the non-dimensional wavenumber. Both the autocorrelation curves and the spectra indicate the existence of periodicity in the flow. The rate of dissipation of turbulent energy is estimated from the $\overline{q^2}$ spectra, using a slightly modified version of a previously suggested method.

Mechanics of transition in an axisymmetric laminar boundary layer on a circular cylinder

Measurements of the growth of artificially generated turbulent spots and intermittency distribution in the transition region on a circular cylinder in axial flow show that the instability Reynolds number of 11,000 has a marked effect on the properties. In particular, it is found that the spot production in the initial region when a single turbulent spot has not yet wrapped around the cylinder and the propagation is essentially two-dimensional, is significantly altered. But the transition in the downstream or latter region, where most of the turbulent spots propagate onedimensionally (like the turbulent plugs in a pipe), is not affected. When the radius Reynolds number is more than 11,000, the intermittency law in the initial region is essentially the same as in twodimensional flow on a flat plate and in the latter region it is the one-dimensional flow in a pipe, the demarcation between the two regions being quite sharp.

Localised spin wave modes in a Heisenberg ferromagnet with biquadratic interaction

The presence of biquadratic exchange in a one-dimensional ferromagnetic Heisenberg chain with an impurity spin is shown to change the nature of the impurity modes and its eigenvalues considerably which can be observed experimentally.

Non-diffusive classical transport in a medium with static randomness

The probability distribution for the displacement x of a particle moving in a one-dimensional continuum is derived exactly for the general case of combined static and dynamic gaussian randomness of the applied force. The dynamics of the particle is governed by the high-friction limit of Brownian motion discussed originally by Einstein and Smoluchowski. In particular, the mean square displacement of the particle varies as t2 for t to infinity . This ballistic motion induced by the disorder does not give rise to a 1/f power spectrum, contrary to recent suggestions based on the above dynamical model.

Structure of shock waves in partially ionized argon

The paper presents a unified picture of the structure of steady one-dimensional shock waves in partially ionized argon in the absence of external electric and magnetic fields. The study is based on a two-temperature three-fluid continuum approach using the Navier-Stokes equations as a model and taking account of nonequilibrium ionization. The analysis of the governing equations is based on the method of matched asymptotic expansions and leads to three layers: (1) a broad thermal layer dominated by electron thermal conduction; (2) an atom-ion shock structured by heavy-particle collisional dissipative mechanisms; and (3) an ionization relaxation layer in which electron-atom inelastic collisions dominate.

Theoretical gain optimization studies in 10.6 µm CO2-N2 gasdynamic lasers. IV. Further results of parametric study

Based on a method proposed by Reddy and Shanmugasundaram, similar solutions have been obtained for the steady inviscid quasi-one-dimensional nonreacting flow in the supersonic nozzle of CO2-N2-H2O and CO2-N2-He gasdynamic laser systems. Instead of using the correlations of a nonsimilar function NS for pure N2 gas, as is done in previous publications, the NS correlations are computed here for the actual gas mixtures used in the gasdynamic lasers. Optimum small-signal optical gain and the corresponding optimum values of the operating parameters like reservoir pressure and temperature and nozzle area ratio are computed using these correlations. The present results are compared with the previous results and the main differences are discussed. Journal of Applied Physics is copyrighted by The American Institute of Physics.

Theory of Non-linear Waves in Multi-dimensions: with Special Reference to Surface Water Waves

The surface water waves are "modal" waves in which the "physical space" (t, x, y, z) is the product of a propagation space (t, x, y) and a cross space, the z-axis in the vertical direction. We have derived a new set of equations for the long waves in shallow water in the propagation space. When the ratio of the amplitude of the disturbance to the depth of the water is small, these equations reduce to the equations derived by Whitham (1967) by the variational principle. Then we have derived a single equation in (t, x, y)-space which is a generalization of the fourth order Boussinesq equation for one-dimensional waves. In the neighbourhood of a wave froat, this equation reduces to the multidimensional generalization of the KdV equation derived by Shen & Keller (1973). We have also included a systematic discussion of the orders of the various non-dimensional parameters. This is followed by a presentation of a general theory of approximating a system of quasi-linear equations following one of the modes. When we apply this general method to the surface water wave equations in the propagation space, we get the Shen-Keller equation.

Subspace intersection method of high-resolution bearing estimation in shallow ocean using acoustic vector sensors

The subspace intersection method (SIM) provides unbiased bearing estimates of multiple acoustic sources in a range-independent shallow ocean using a one-dimensional search without prior knowledge of source ranges and depths. The original formulation of this method is based on deployment of a horizontal linear array of hydrophones which measure acoustic pressure. In this paper, we extend SIM to an array of acoustic vector sensors which measure pressure as well as all components of particle velocity. Use of vector sensors reduces the minimum number of sensors required by a factor of 4, and also eliminates the constraint that the intersensor spacing should not exceed half wavelength. The additional information provided by the vector sensors leads to performance enhancement in the form of lower estimation error and higher resolution.

Entire Solutions of Hydrodynamical Equations with Exponential Dissipation

We consider a modification of the three-dimensional Navier-Stokes equations and other hydrodynamical evolution equations with space-periodic initial conditions in which the usual Laplacian of the dissipation operator is replaced by an operator whose Fourier symbol grows exponentially as e(vertical bar k vertical bar/kd) at high wavenumbers vertical bar k vertical bar. Using estimates in suitable classes of analytic functions, we show that the solutions with initially finite energy become immediately entire in the space variables and that the Fourier coefficients decay faster than e-(C(k/kd) ln(vertical bar k vertical bar/kd)) for any C < 1/(2 ln 2). The same result holds for the one-dimensional Burgers equation with exponential dissipation but can be improved: heuristic arguments and very precise simulations, analyzed by the method of asymptotic extrapolation of van der Hoeven, indicate that the leading-order asymptotics is precisely of the above form with C = C-* = 1/ ln 2. The same behavior with a universal constant C-* is conjectured for the Navier-Stokes equations with exponential dissipation in any space dimension. This universality prevents the strong growth of intermittency in the far dissipation range which is obtained for ordinary Navier-Stokes turbulence. Possible applications to improved spectral simulations are briefly discussed.

The Consequences of Phenotypic Plasticity in Cyclically Varying Environments: A Genetic Algorithm Study

By “phenotypic plasticity” we refer to the capacity of a genotype to exhibit different phenotypes, whether in the same or in different environments. We have previously demonstrated that phenotypic plasticity can improve the degree of adaptation achieved via natural selection (Behera & Nanjundiah, 1995). That result was obtained from a genetic algorithm model of haploid genotypes (idealized as one-dimensional strings of genes) evolving in a fixed environment. Here, the dynamics of evolution is examined under conditions of a cyclically varying environment. We find that the rate of evolution, as well as the extent of adaptation (as measured by mean population fitness) is lowered because of environmental cycling. The decrease is adaptation caused by a varying environment can, however, be partly or wholly compensated by an increase in the degree of plasticity that a genotype is capable of. Also, the reduction of population fitness caused by a variable environment can be partially offset by decreasing the total number of genetic loci. We conjecture that an increase in genome size may have been among the factors responsible for the evolution of phenotypic plasticity.

1,2,3-Trifluorobenzene

In the title compound, C6H3F3, weak electrostatic and dispersive forces between C(delta+)-F(delta-) and H(delta+)-C(delta-) groups are at the borderline of the hydrogen-bond phenomenon and are poorly directional and further deformed in the presence of pi-pi stacking interactions. The molecule lies on a twofold rotation axis. In the crystal structure, one-dimensional tapes are formed via two antidromic C-H center dot center dot center dot F hydrogen bonds. These tapes are, in turn, connected into corrugated two-dimensional sheets by bifurcated C-H center dot center dot center dot F hydrogen bonds. Packing in the third dimension is furnished by pi-pi stacking interactions with a centroid-centroid distance of 3.6362 (14) angstrom.

Nonspecifically bound proteins spin while diffusing along DNA

It is known that DNA-binding proteins can slide along the DNA helix while searching for specific binding sites, but their path of motion remains obscure. Do these proteins undergo simple one-dimensional (1D) translational diffusion, or do they rotate to maintain a specific orientation with respect to the DNA helix? We measured 1D diffusion constants as a function of protein size while maintaining the DNA-protein interface. Using bootstrap analysis of single-molecule diffusion data, we compared the results to theoretical predictions for pure translational motion and rotation-coupled sliding along the DNA. The data indicate that DNA-binding proteins undergo rotation-coupled sliding along the DNA helix and can be described by a model of diffusion along the DNA helix on a rugged free-energy landscape. A similar analysis including the 1D diffusion constants of eight proteins of varying size shows that rotation-coupled sliding is a general phenomenon. The average free-energy barrier for sliding along the DNA was 1.1 +/- 0.2 k(B)T. Such small barriers facilitate rapid search for binding sites.