Volatility Skew and Smile of Interest Rate products (Swaption and Caplet) are represented by SABR (Stochastic Alpha Beta Rho model). So, the Interest Rate derivatives model for pricing the callable exotic swaps should be comparable to the SABR volatility surface. In the interest rate derivatives models, Libor Market Model (LMM) (in a post-Libor world, Forward Market Model (FMM)) is one of the most popular models used in the market. So, there are many attempts to develop LMMs that are comparable to the SABR surface. It is called SABR/LMM. There are many references for SABR/LMM, but most of them only treat SABR/LMM, which is not flexible enough to be used practically in global banks. The purpose of this paper is to provide a comprehensive definition of SABR/LMM and a complete description of how it is to be implemented.
We examine whether model-based spot volatility estimators extracted from traded options data enhance the predictive power of the Heterogeneous Autoregressive (HAR) model for realized volatility. Specifically, we infer spot volatility under the rough stochastic volatility model via an iterative two-step approach following Andersen et al. (2015a) and adopt a deep learning surrogate to accelerate model estimation from large-scale options panels. Benchmarked against traditional stochastic volatility models (Heston, Bates, SVCJ) and the VIX index, our results demonstrate that the augmented HAR-RV-RHeston model improves daily realized volatility forecasting accuracy and sustains superior performance across horizons up to one month.
We study an overlapping generations (OLG) exchange economy with an asset that yields dividends. First, we derive general conditions, based on exogenous parameters, that give rise to three distinct scenarios: (1) only bubbleless equilibria exist, (2) a bubbleless equilibrium coexists with a continuum of bubbly equilibria, and (3) all equilibria are bubbly. Under stationary endowments and standard assumptions, we provide a complete characterization of the equilibrium set and the associated asset price dynamics. In this setting, a bubbly equilibrium exists if and only if the interest rate in the economy without the asset is strictly lower than the population growth rate and the sum of per capita dividends is finite. Second, we establish necessary and sufficient conditions for Pareto optimality. Finally, we investigate the relationship between asset price behaviors and the optimality of equilibria.
We demonstrate the use of Conditional Variational Encoder (CVAE) to improve the forecasts of daily stock volume time series in both short and long term forecasting tasks, with the use of advanced information of input variables such as rebalancing dates. CVAE generates non-linear time series as out-of-sample forecasts, which have better accuracy and closer fit of correlation to the actual data, compared to traditional linear models. These generative forecasts can also be used for scenario generation, which aids interpretation. We further discuss correlations in non-stationary time series and other potential extensions from the CVAE forecasts.
The cytochrome bcl complex is an oligomeric membrane protein complex which is a component of the mitochondrial respiratory chain and of the electron transfer chains of numerous bacteria which use oxygen, nitrogen, and sulfur compounds as terminal electron acceptors. The cytochrome bcl complex also participates in the cyclic transfer of electrons to and from the photosynthetic reaction centers in anoxygenic photosynthetic bacteria. In all of these species the cytochrome bcl complex transfers electrons from ubiquinol to cytochrome c and links this electron transfer to translocation of protons across the membrane in which the bcl complex resides. The mechanism by which the cytochrome bcl complex links electron transfer to proton translocation is the protonmotive Q cycle (1). This protonmotive electron transfer is one of the most important mechanisms of cellular energy transduction, found in a phylogenetically diverse range of organisms (2). The purpose of this review is to explain the protonmotive Q cycle.
William Busching, Delphine Hintz, Oleksii Mostovyi
et al.
We consider the problem of fair pricing and hedging under small perturbations of the numéraire. We show that for replicable claims, the change of numéraire affects neither the fair price nor the hedging strategy. For non-replicable claims, we demonstrate that is not the case. By reformulating the key stochastic control problem in a more tractable form, we show that both the fair price and optimal strategy are stable with respect to small perturbations of the numéraire. Further, our approach allows for explicit asymptotic formulas describing the fair price and hedging strategy's leading order correction terms. Mathematically, our results constitute stability and asymptotic analysis of a stochastic control problem under certain perturbations of the integrator of the controlled process, where constraints make this problem hard to analyze.
Over 90% of exchange trading on crypto options has always been on the Deribit platform. This centralised crypto exchange only lists inverse products because they do not accept fiat currency. Currently, fiat-based traders can only make deposits in bitcoin, although they can withdraw both bitcoin and ether to their on-chain wallets. Likewise, other major crypto options platforms only list crypto--stablecoin trading pairs in so-called direct options, which are similar to the standard crypto options listed by the CME except the U.S. dollar is replaced by a stablecoin version. Until now a clear mathematical exposition of these products has been lacking. We discuss the sources of market incompleteness in direct and inverse options and compare their pricing and hedging characteristics. Then we discuss the useful applications of currency protected "quanto" direct and inverse options for fiat-based traders and describe their pricing and hedging characteristics, all in the Black-Scholes setting.
We consider Heston's (1993) stochastic volatility model for valuation of European options to which (semi) closed form solutions are available and are given in terms of characteristic functions. We prove that the class of scale-parameter distributions with mean being the forward spot price satisfies Heston's solution. Thus, we show that any member of this class could be used for the direct risk-neutral valuation of the option price under Heston's SV model. In fact, we also show that any RND with mean being the forward spot price that satisfies Hestons' option valuation solution, must be a member of a scale-family of distributions in that mean. As particular examples, we show that one-parameter versions of the {\it Log-Normal, Inverse-Gaussian, Gamma, Weibull} and the {\it Inverse-Weibull} distributions are all members of this class and thus provide explicit risk-neutral densities (RND) for Heston's pricing model. We demonstrate, via exact calculations and Monte-Carlo simulations, the applicability and suitability of these explicit RNDs using already published Index data with a calibrated Heston model (S\&P500, Bakshi, Cao and Chen (1997), and ODAX, Mrázek and Pospíšil (2017)), as well as current option market data (AMD).
Roberto Daluiso, Emanuele Nastasi, Andrea Pallavicini
et al.
In this work we deal with the funding costs rising from hedging the risky securities underlying a target volatility strategy (TVS), a portfolio of risky assets and a risk-free one dynamically rebalanced in order to keep the realized volatility of the portfolio on a certain level. The uncertainty in the TVS risky portfolio composition along with the difference in hedging costs for each component requires to solve a control problem to evaluate the option prices. We derive an analytical solution of the problem in the Black and Scholes (BS) scenario. Then we use Reinforcement Learning (RL) techniques to determine the fund composition leading to the most conservative price under the local volatility (LV) model, for which an a priori solution is not available. We show how the performances of the RL agents are compatible with those obtained by applying path-wise the BS analytical strategy to the TVS dynamics, which therefore appears competitive also in the LV scenario.
We investigate the suitability of toroidal microcavities for strong-coupling cavity quantum electrodynamics (QED). Numerical modeling of the optical modes demonstrate a significant reduction of the modal volume with respect to the whispering gallery modes of dielectric spheres, while retaining the high-quality factors representative of spherical cavities. The extra degree of freedom of toroid microcavities can be used to achieve improved cavity QED characteristics. Numerical results for atom-cavity coupling strength g, critical atom number No, and critical photon number no for cesium are calculated and shown to exceed values currently possible using Fabry-Perot cavities. Modeling predicts coupling rates g/2π exceeding 700 MHz and critical atom numbers approaching 10^(-7) in optimized structures. Furthermore, preliminary experimental measurements of toroidal cavities at a wavelength of 852 nm indicate that quality factors in excess of 108 can be obtained in a 50-µm principal diameter cavity, which would result in strong-coupling values of (g/(2π),n(0),N-0) = (86 MHz, 4.6 x 10^(-4), 1.0 x 10^(-3)).
Samuel Collins, Thomas James, Felicity Southworth
et al.
Abstract The decontamination of exposed persons is a priority following the release of toxic chemicals. Efficacious decontamination reduces the risk of harm to those directly affected and prevents the uncontrolled spread of contamination. Human studies examining the effectiveness of emergency decontamination procedures have primarily focused on decontaminating skin, with few examining the decontamination of hair and scalp. We report the outcome of two studies designed to evaluate the efficacy of current United Kingdom (UK) improvised, interim and specialist mass casualty decontamination protocols when conducted in sequence. Decontamination efficacy was evaluated using two chemical simulants, methyl salicylate (MeS) and benzyl salicylate (BeS) applied to and recovered from the hair of volunteers. Twenty-four-hour urinary MeS and BeS were measured as a surrogate for systemic bioavailability. Current UK decontamination methods performed in sequence were partially effective at removing MeS and BeS from hair and underlying scalp. BeS and MeS levels in urine indicated that decontamination had no significant effect on systemic exposure raising important considerations with respect to the speed of decontamination. The decontamination of hair may therefore be challenging for first responders, requiring careful management of exposed persons following decontamination. Further work to extend these studies is required with a broader range of chemical simulants, a larger group of volunteers and at different intervention times.
A photonic nanocavity with a high Q factor of 100,000 and a modal volume V of 0.71 cubic wavelengths, is demonstrated. According to the cavity design rule that we discovered recently, we further improve a point-defect cavity in a two-dimensional (2D) photonic crystal (PC) slab, where the arrangement of six air holes near the cavity edges is fine-tuned. We demonstrate that the measured Q factor for the designed cavity increases by a factor of 20 relative to that for a cavity without displaced air holes, while the calculated modal volume remains almost constant.
A negative basis trade enters a long bond position and buys protection on the issuer of the bond through credit default swap (CDS), aiming at arbitrage profit due to the bond-CDS basis. To classic reduced form model theorists, the existence of the basis is an abnormality or merely liquidity noise. Such a view, however, fails to explain large basis trading losses incurred during the financial crisis. Employing a bond continuously hedged by CDS under a dynamic spread model with bond repo financing, we find that there is unhedged and unhedgeable residual jump to default risk that can't be diversified because of credit correlation. An economic capital approach has to apply and a charge on the use of capital follows. Together with the hedge funding cost, it allows us to better understand the basis's economics and to predict its fair level.
In this paper, using the structural approach is derived a mathematical model of the discrete coupon bond with the provision that allow the holder to demand early redemption at any coupon dates prior to the maturity and based on this model is provided some analysis including min-max and gradient estimates of the bond price. Using these estimates the existence and uniqueness of the default boundaries and some relationships between the design parameters of the discrete coupon bond with early redemption provision are described. Then under some assumptions the existence and uniqueness of the early redemption boundaries is proved and the analytic formula of the bond price is provided using higher binary options. Finally for our bond is provided the analysis on the duration and credit spread, which are used widely in financial reality. Our works provide a design guide of the discrete coupon bond with the early redemption provision
We have demonstrated all-optical bistable switching operation of resonant-tunnelling devices with ultra-small high-Q Si photonic-crystal nanocavities. Due to their high Q/V ratio, the switching energy is extremely small in comparison with that of conventional devices using the same optical nonlinear mechanism. We also show that they exhibit all-opticaltransistor action by using two resonant modes. These ultrasmall unique nonlinear bistable devices have potentials to function as various signal processing functions in photonic-crystal-based optical-circuits.