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Lévy processes and infinitely divisible distributions
01 Jan 2013-
TL;DR: In this paper, the authors consider the distributional properties of Levy processes and propose a potential theory for Levy processes, which is based on the Wiener-Hopf factorization.
Abstract: Preface to the revised edition Remarks on notation 1. Basic examples 2. Characterization and existence 3. Stable processes and their extensions 4. The Levy-Ito decomposition of sample functions 5. Distributional properties of Levy processes 6. Subordination and density transformation 7. Recurrence and transience 8. Potential theory for Levy processes 9. Wiener-Hopf factorizations 10. More distributional properties Supplement Solutions to exercises References and author index Subject index.
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TL;DR: In this article, the authors consider a Levy process with a zooming-in limit and derive the moments of the difference of the supremum and the maximum over the grid points.
Abstract: For a Levy process $X$ on a finite time interval consider the probability that it exceeds some fixed threshold $x>0$ while staying below $x$ at the points of a regular grid. We establish exact asymptotic behavior of this probability as the number of grid points tends to infinity. We assume that $X$ has a zooming-in limit, which necessarily is $1/\alpha $-self-similar Levy process with $\alpha \in (0,2]$, and restrict to $\alpha >1$. Moreover, the moments of the difference of the supremum and the maximum over the grid points are analyzed and their asymptotic behavior is derived. It is also shown that the zooming-in assumption implies certain regularity properties of the ladder process, and the decay rate of the left tail of the supremum distribution is determined.
22 citations
TL;DR: A Feynman–Kac representation of variational solutions to partial integro-differential equations that characterize conditional expectations of functionals of killed time-inhomogeneous Lévy processes is derived and provides a rigorous basis for numerous applications in financial mathematics and in probability theory.
Abstract: The challenge to fruitfully merge state-of-the-art techniques from mathematical finance and numerical analysis has inspired researchers to develop fast deterministic option pricing methods. As a result, highly efficient algorithms to compute option prices in Levy models by solving partial integro-differential equations have been developed. In order to provide a solid mathematical foundation for these methods, we derive a Feynman–Kac representation of variational solutions to partial integro-differential equations that characterize conditional expectations of functionals of killed time-inhomogeneous Levy processes. We allow a wide range of underlying stochastic processes, comprising processes with Brownian part as well as a broad class of pure jump processes such as generalized hyperbolic, multivariate normal inverse Gaussian, tempered stable, and $\alpha$
-semistable Levy processes. By virtue of our mild regularity assumptions as to the killing rate and the initial condition of the partial integro-differential equation, our results provide a rigorous basis for numerous applications in financial mathematics and in probability theory. We implement a Galerkin scheme to solve the corresponding pricing equation numerically and illustrate the effect of a killing rate.
22 citations
Additional excerpts
...17 in [42] now implies that for all η ∈ R , ∫ T...
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TL;DR: In this paper, the Riemann hypothesis is proven to be true if and only if each σ(t) is a pretended-infinitely divisible characteristic function, which is defined in this paper, for each $1/2 1.
Abstract: Let $\sigma,t\in{\mathbb{R}}$, $s=\sigma+\mathrm{{i}}t$, $\Gamma (s)$ be the Gamma function, $\zeta(s)$ be the Riemann zeta function and $\xi(s):=s(s-1)\pi ^{-s/2}\Gamma(s/2)\zeta(s)$ be the complete Riemann zeta function. We show that $\Xi_{\sigma}(t):=\xi (\sigma-\mathrm{{i}}t)/\xi(\sigma)$ is a characteristic function for any $\sigma\in{\mathbb{R}}$ by giving the probability density function. Next we prove that the Riemann hypothesis is true if and only if each $\Xi_{\sigma}(t)$ is a pretended-infinitely divisible characteristic function, which is defined in this paper, for each $1/2 1$.
22 citations
Cites background from "Lévy processes and infinitely divis..."
...The characteristic function is given by μ̂(t) = a/(a − it) (see, for example, Sato [14], page 13)....
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...3) (see, for instance, Sato [14], page 45)....
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...A complete Riemann zeta distribution and the Riemann hypothesis 7 The absolute value of a characteristic function is not greater than 1 (see for instance Sato [14], Proposition 2....
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...The following Lévy–Khintchine representation is well known (see Sato [14], Section 2)....
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TL;DR: In this paper, the Fokker-Planck equations are derived in terms of infinite series for nonlinear stochastic differential equations with non-Gaussian L\'evy processes.
Abstract: The Fokker-Planck equations describe time evolution of probability densities of stochastic dynamical systems and are thus widely used to quantify random phenomena such as uncertainty propagation. For dynamical systems driven by non-Gaussian L\'evy processes, however, it is difficult to obtain explicit forms of Fokker-Planck equations because the adjoint operators of the associated infinitesimal generators usually do not have exact formulation. In the present paper, Fokker- Planck equations are derived in terms of infinite series for nonlinear stochastic differential equations with non-Gaussian L\'evy processes. A few examples are presented to illustrate the method.
22 citations
Cites background from "Lévy processes and infinitely divis..."
...Lévy processes are a class of stochastic processes having independent and stationary increments, as well as stochastically continuous sample paths [1, 8]....
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TL;DR: A new phenomenon which manifests as a qualitative transition in the spatial decay behavior of the stationary measure of a jump process under an external potential is reported, occurring on a combined change in the characteristics of the process and the lowest eigenvalue resulting from the effect of the potential.
Abstract: The time evolution of random variables with Levy statistics has the ability to develop jumps, displaying very different behaviors from continuously fluctuating cases. Such patterns appear in an ever broadening range of examples including random lasers, non-Gaussian kinetics, or foraging strategies. The penalizing or reinforcing effect of the environment, however, has been little explored so far. We report a new phenomenon which manifests as a qualitative transition in the spatial decay behavior of the stationary measure of a jump process under an external potential, occurring on a combined change in the characteristics of the process and the lowest eigenvalue resulting from the effect of the potential. This also provides insight into the fundamental question of what is the mechanism of the spatial decay of a ground state.
22 citations
References
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01 Jan 2014
TL;DR: In this article, Kloeden, P., Ombach, J., Cyganowski, S., Kostrikin, A. J., Reddy, J.A., Pokrovskii, A., Shafarevich, I.A.
Abstract: Algebra and Famous Inpossibilities Differential Systems Dumortier.: Qualitative Theory of Planar Jost, J.: Dynamical Systems. Examples of Complex Behaviour Jost, J.: Postmodern Analysis Jost, J.: Riemannian Geometry and Geometric Analysis Kac, V.; Cheung, P.: Quantum Calculus Kannan, R.; Krueger, C.K.: Advanced Analysis on the Real Line Kelly, P.; Matthews, G.: The NonEuclidean Hyperbolic Plane Kempf, G.: Complex Abelian Varieties and Theta Functions Kitchens, B. P.: Symbolic Dynamics Kloeden, P.; Ombach, J.; Cyganowski, S.: From Elementary Probability to Stochastic Differential Equations with MAPLE Kloeden, P. E.; Platen; E.; Schurz, H.: Numerical Solution of SDE Through Computer Experiments Kostrikin, A. I.: Introduction to Algebra Krasnoselskii, M.A.; Pokrovskii, A.V.: Systems with Hysteresis Kurzweil, H.; Stellmacher, B.: The Theory of Finite Groups. An Introduction Lang, S.: Introduction to Differentiable Manifolds Luecking, D.H., Rubel, L.A.: Complex Analysis. A Functional Analysis Approach Ma, Zhi-Ming; Roeckner, M.: Introduction to the Theory of (non-symmetric) Dirichlet Forms Mac Lane, S.; Moerdijk, I.: Sheaves in Geometry and Logic Marcus, D.A.: Number Fields Martinez, A.: An Introduction to Semiclassical and Microlocal Analysis Matoušek, J.: Using the Borsuk-Ulam Theorem Matsuki, K.: Introduction to the Mori Program Mazzola, G.; Milmeister G.; Weissman J.: Comprehensive Mathematics for Computer Scientists 1 Mazzola, G.; Milmeister G.; Weissman J.: Comprehensive Mathematics for Computer Scientists 2 Mc Carthy, P. J.: Introduction to Arithmetical Functions McCrimmon, K.: A Taste of Jordan Algebras Meyer, R.M.: Essential Mathematics for Applied Field Meyer-Nieberg, P.: Banach Lattices Mikosch, T.: Non-Life Insurance Mathematics Mines, R.; Richman, F.; Ruitenburg, W.: A Course in Constructive Algebra Moise, E. E.: Introductory Problem Courses in Analysis and Topology Montesinos-Amilibia, J.M.: Classical Tessellations and Three Manifolds Morris, P.: Introduction to Game Theory Nikulin, V.V.; Shafarevich, I. R.: Geometries and Groups Oden, J. J.; Reddy, J. N.: Variational Methods in Theoretical Mechanics Øksendal, B.: Stochastic Differential Equations Øksendal, B.; Sulem, A.: Applied Stochastic Control of Jump Diffusions Poizat, B.: A Course in Model Theory Polster, B.: A Geometrical Picture Book Porter, J. R.; Woods, R.G.: Extensions and Absolutes of Hausdorff Spaces Radjavi, H.; Rosenthal, P.: Simultaneous Triangularization Ramsay, A.; Richtmeyer, R.D.: Introduction to Hyperbolic Geometry Rees, E.G.: Notes on Geometry Reisel, R. B.: Elementary Theory of Metric Spaces Rey, W. J. J.: Introduction to Robust and Quasi-Robust Statistical Methods Ribenboim, P.: Classical Theory of Algebraic Numbers Rickart, C. E.: Natural Function Algebras Roger G.: Analysis II Rotman, J. J.: Galois Theory Jost, J.: Compact Riemann Surfaces Applications ́ Introductory Lectures on Fluctuations of Levy Processes with Kyprianou, A. : Rautenberg, W.; A Concise Introduction to Mathematical Logic Samelson, H.: Notes on Lie Algebras Schiff, J. L.: Normal Families Sengupta, J.K.: Optimal Decisions under Uncertainty Séroul, R.: Programming for Mathematicians Seydel, R.: Tools for Computational Finance Shafarevich, I. R.: Discourses on Algebra Shapiro, J. H.: Composition Operators and Classical Function Theory Simonnet, M.: Measures and Probabilities Smith, K. E.; Kahanpää, L.; Kekäläinen, P.; Traves, W.: An Invitation to Algebraic Geometry Smith, K.T.: Power Series from a Computational Point of View Smoryński, C.: Logical Number Theory I. An Introduction Stichtenoth, H.: Algebraic Function Fields and Codes Stillwell, J.: Geometry of Surfaces Stroock, D.W.: An Introduction to the Theory of Large Deviations Sunder, V. S.: An Invitation to von Neumann Algebras Tamme, G.: Introduction to Étale Cohomology Tondeur, P.: Foliations on Riemannian Manifolds Toth, G.: Finite Möbius Groups, Minimal Immersions of Spheres, and Moduli Verhulst, F.: Nonlinear Differential Equations and Dynamical Systems Wong, M.W.: Weyl Transforms Xambó-Descamps, S.: Block Error-Correcting Codes Zaanen, A.C.: Continuity, Integration and Fourier Theory Zhang, F.: Matrix Theory Zong, C.: Sphere Packings Zong, C.: Strange Phenomena in Convex and Discrete Geometry Zorich, V.A.: Mathematical Analysis I Zorich, V.A.: Mathematical Analysis II Rybakowski, K. P.: The Homotopy Index and Partial Differential Equations Sagan, H.: Space-Filling Curves Ruiz-Tolosa, J. R.; Castillo E.: From Vectors to Tensors Runde, V.: A Taste of Topology Rubel, L.A.: Entire and Meromorphic Functions Weintraub, S.H.: Galois Theory
401 citations
TL;DR: In this article, several definitions of the Riesz fractional Laplace operator in R^d have been studied, including singular integrals, semigroups of operators, Bochner's subordination, and harmonic extensions.
Abstract: This article reviews several definitions of the fractional Laplace operator (-Delta)^{alpha/2} (0 < alpha < 2) in R^d, also known as the Riesz fractional derivative operator, as an operator on Lebesgue spaces L^p, on the space C_0 of continuous functions vanishing at infinity and on the space C_{bu} of bounded uniformly continuous functions. Among these definitions are ones involving singular integrals, semigroups of operators, Bochner's subordination and harmonic extensions. We collect and extend known results in order to prove that all these definitions agree: on each of the function spaces considered, the corresponding operators have common domain and they coincide on that common domain.
372 citations
TL;DR: In this article, the authors give an up-to-date account of the theory and applications of scale functions for spectrally negative Levy processes, including the first extensive overview of how to work numerically with scale functions.
Abstract: The purpose of this review article is to give an up to date account of the theory and applications of scale functions for spectrally negative Levy processes. Our review also includes the first extensive overview of how to work numerically with scale functions. Aside from being well acquainted with the general theory of probability, the reader is assumed to have some elementary knowledge of Levy processes, in particular a reasonable understanding of the Levy–Khintchine formula and its relationship to the Levy–Ito decomposition. We shall also touch on more general topics such as excursion theory and semi-martingale calculus. However, wherever possible, we shall try to focus on key ideas taking a selective stance on the technical details. For the reader who is less familiar with some of the mathematical theories and techniques which are used at various points in this review, we note that all the necessary technical background can be found in the following texts on Levy processes; (Bertoin, Levy Processes (1996); Sato, Levy Processes and Infinitely Divisible Distributions (1999); Kyprianou, Introductory Lectures on Fluctuations of Levy Processes and Their Applications (2006); Doney, Fluctuation Theory for Levy Processes (2007)), Applebaum Levy Processes and Stochastic Calculus (2009).
288 citations
TL;DR: A closed formula for prices of perpetual American call options in terms of the overall supremum of the Lévy process, and a corresponding closed formulas for perpetual American put options involving the infimum of the after-mentioned process are obtained.
Abstract: Consider a model of a financial market with a stock driven by a Levy process and constant interest rate. A closed formula for prices of perpetual American call options in terms of the overall supremum of the Levy process, and a corresponding closed formula for perpetual American put options involving the infimum of the after-mentioned process are obtained. As a direct application of the previous results, a Black-Scholes type formula is given. Also as a consequence, simple explicit formulas for prices of call options are obtained for a Levy process with positive mixed-exponential and arbitrary negative jumps. In the case of put options, similar simple formulas are obtained under the condition of negative mixed-exponential and arbitrary positive jumps. Risk-neutral valuation is discussed and a simple jump-diffusion model is chosen to illustrate the results.
269 citations
01 May 2013
TL;DR: In this paper, the authors review work on extreme events, their causes and consequences, by a group of European and American researchers involved in a three-year project on these topics.
Abstract: We review work on extreme events, their causes and consequences, by a group of European and American researchers involved in a three-year project on these topics. The review covers theoretical aspects of time series analysis and of extreme value theory, as well as of the deterministic modeling of extreme events, via continuous and discrete dynamic models. The applications include climatic, seismic and socio-economic events, along with their prediction. Two important results refer to (i) the complementarity of spectral analysis of a time series in terms of the continuous and the discrete part of its power spectrum; and (ii) the need for coupled modeling of natural and socio-economic systems. Both these results have implications for the study and prediction of natural hazards and their human impacts.
166 citations