An Unbiased Risk Estimator for Multiplicative Noise - Application to 1-D Signal Denoising

The effect of multiplicative noise on a signal when compared with that of additive noise is very large. In this paper, we address the problem of suppressing multiplicative noise in one-dimensional signals. To deal with signals that are corrupted with multiplicative noise, we propose a denoising algorithm based on minimization of an unbiased estimator (MURE) of meansquare error (MSE). We derive an expression for an unbiased estimate of the MSE. The proposed denoising is carried out in wavelet domain (soft thresholding) by considering time-domain MURE. The parameters of thresholding function are obtained by minimizing the unbiased estimator MURE. We show that the parameters for optimal MURE are very close to the optimal parameters considering the oracle MSE. Experiments show that the SNR improvement for the proposed denoising algorithm is competitive with a state-of-the-art method.

Lack of Critical Slowing Down Suggests that Financial Meltdowns Are Not Critical Transitions, yet Rising Variability Could Signal Systemic Risk

Complex systems inspired analysis suggests a hypothesis that financial meltdowns are abrupt critical transitions that occur when the system reaches a tipping point. Theoretical and empirical studies on climatic and ecological dynamical systems have shown that approach to tipping points is preceded by a generic phenomenon called critical slowing down, i.e. an increasingly slow response of the system to perturbations. Therefore, it has been suggested that critical slowing down may be used as an early warning signal of imminent critical transitions. Whether financial markets exhibit critical slowing down prior to meltdowns remains unclear. Here, our analysis reveals that three major US (Dow Jones Index, S&P 500 and NASDAQ) and two European markets (DAX and FTSE) did not exhibit critical slowing down prior to major financial crashes over the last century. However, all markets showed strong trends of rising variability, quantified by time series variance and spectral function at low frequencies, prior to crashes. These results suggest that financial crashes are not critical transitions that occur in the vicinity of a tipping point. Using a simple model, we argue that financial crashes are likely to be stochastic transitions which can occur even when the system is far away from the tipping point. Specifically, we show that a gradually increasing strength of stochastic perturbations may have caused to abrupt transitions in the financial markets. Broadly, our results highlight the importance of stochastically driven abrupt transitions in real world scenarios. Our study offers rising variability as a precursor of financial meltdowns albeit with a limitation that they may signal false alarms.