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Dorje C. Brody

Publications and source records attributed to Dorje C. Brody.

At least 73 records · Page 4Linked to original sources
arXiv2010

Credit Risk, Market Sentiment and Randomly-Timed Default

We propose a model for the credit markets in which the random default times of bonds are assumed to be given as functions of one or more independent "market factors". Market participants are assumed to have partial information about each of the market factors, represented by the values of a set of market factor information processes. The market filtration is taken to be generated jointly by the various information processes and by the default indicator processes of the various bonds. The value of a discount bond is obtained by taking the discounted expectation of the value of the default indicator function at the maturity of the bond, conditional on the information provided by the market filtration. Explicit expressions are derived for the bond price processes and the associated default hazard rates. The latter are not given a priori as part of the model but rather are deduced and shown to be functions of the values of the information processes. Thus the "perceived" hazard rates, based on the available information, determine bond prices, and as perceptions change so do the prices. In conclusion, explicit expressions are derived for options on discount bonds, the values of which also fluctuate in line with the vicissitudes of market sentiment.

q-fin.PR↗
arXiv2010

Coherent states and rational surfaces

The state spaces of generalised coherent states associated with special unitary groups are shown to form rational curves and surfaces in the space of pure states. These curves and surfaces are generated by the various Veronese embeddings of the underlying state space into higher-dimensional state spaces. This construction is applied to the parameterisation of generalised coherent states, which is useful for practical calculations and provides an elementary combinatorial approach to the geometry of the coherent state space. The results are extended to Hilbert spaces with indefinite inner products, leading to the introduction of a new kind of generalised coherent states.

quant-ph↗
arXiv2010

Modelling Information Flows in Financial Markets

This paper presents an overview of information-based asset pricing. In this approach, an asset is defined by its cash-flow structure. The market is assumed to have access to "partial" information about future cash flows. Each cash flow is determined by a collection of independent market factors called X-factors. The market filtration is generated by a set of information processes, each of which carries information about one of the X-factors, and eventually reveals the X-factor. Each information process has two terms, one of which contains a "signal" about the associated X-factor, and the other of which represents "market noise". The price of an asset is given by the expectation of the discounted cash flows in the risk-neutral measure, conditional on the information provided by the market. When the market noise is modelled by a Brownian bridge one is able to construct explicit formulae for asset prices, as well as semi-analytic expressions for the prices and greeks of options and derivatives. In particular, option price data can be used to determine the information flow-rate parameters implicit in the definitions of the information processes. One consequence of the modelling framework is a specific scheme of stochastic volatility and correlation processes. Instead of imposing a volatility and correlation model upon the dynamics of a set of assets, one is able to deduce the dynamics of the volatilities and correlations of the asset price movements from more primitive assumptions involving the associated cash flows. The paper concludes with an examination of situations involving asymmetric information. We present a simple model for informed traders and show how this can be used as a basis for so-called statistical arbitrage. Finally, we consider the problem of price formation in a heterogeneous market with multiple agents.

q-fin.PR↗
arXiv2010

Outsider Trading

In this paper we examine inefficiencies and information disparity in the Japanese stock market. By carefully analysing information publicly available on the internet, an `outsider' to conventional statistical arbitrage strategies--which are based on market microstructure, company releases, or analyst reports--can nevertheless pursue a profitable trading strategy. A large volume of blog data is used to demonstrate the existence of an inefficiency in the market. An information-based model that replicates the trading strategy is developed to estimate the degree of information disparity.

q-fin.TR↗
arXiv2009

Classical fields as statistical states

We present a rough outline for an idea that characterises the observed, macroscopic realisation of the electromagnetic field in terms of a probability distribution on the underlying quantum electrodynamic state space.

quant-ph↗
arXiv2009

Nonlinearity and constrained quantum motion

The dynamical equation satisfied by the density matrix, when a quantum system is subjected to one or more constraints arising from conserved quantities, is derived. The resulting nonlinear motion of the density matrix has the property that the evolution is independent of the specific composition of the pure-state mixture generating the initial state of the system.

quant-ph↗
arXiv2009

Dequantisation of the Dirac Monopole

Using a sheaf-theoretic extension of conventional principal bundle theory, the Dirac monopole is formulated as a spherically symmetric model free of singularities outside the origin such that the charge may assume arbitrary real values. For integral charges, the construction effectively coincides with the usual model. Spin structures and Dirac operators are also generalised by the same technique.

hep-th↗
arXiv2009

Information of Interest

A pricing formula for discount bonds, based on the consideration of the market perception of future liquidity risk, is established. An information-based model for liquidity is then introduced, which is used to obtain an expression for the bond price. Analysis of the bond price dynamics shows that the bond volatility is determined by prices of certain weighted perpetual annuities. Pricing formulae for interest rate derivatives are derived.

q-fin.PR↗
arXiv2009

Metric approach to quantum constraints

A new framework for deriving equations of motion for constrained quantum systems is introduced, and a procedure for its implementation is outlined. In special cases the framework reduces to a quantum analogue of the Dirac theory of constrains in classical mechanics. Explicit examples involving spin-1/2 particles are worked out in detail: in one example our approach coincides with a quantum version of the Dirac formalism, while the other example illustrates how a situation that cannot be treated by Dirac's approach can nevertheless be dealt with in the present scheme.

quant-ph↗
arXiv2009

Random Hamiltonian in thermal equilibrium

A framework for the investigation of disordered quantum systems in thermal equilibrium is proposed. The approach is based on a dynamical model--which consists of a combination of a double-bracket gradient flow and a uniform Brownian fluctuation--that `equilibrates' the Hamiltonian into a canonical distribution. The resulting equilibrium state is used to calculate quenched and annealed averages of quantum observables.

quant-ph↗
arXiv2008

Informed Traders

An asymmetric information model is introduced for the situation in which there is a small agent who is more susceptible to the flow of information in the market than the general market participant, and who tries to implement strategies based on the additional information. In this model market participants have access to a stream of noisy information concerning the future return of an asset, whereas the informed trader has access to a further information source which is obscured by an additional noise that may be correlated with the market noise. The informed trader uses the extraneous information source to seek statistical arbitrage opportunities, while at the same time accommodating the additional risk. The amount of information available to the general market participant concerning the asset return is measured by the mutual information of the asset price and the associated cash flow. The worth of the additional information source is then measured in terms of the difference of mutual information between the general market participant and the informed trader. This difference is shown to be nonnegative when the signal-to-noise ratio of the information flow is known in advance. Explicit trading strategies leading to statistical arbitrage opportunities, taking advantage of the additional information, are constructed, illustrating how excess information can be translated into profit.

q-fin.TR↗
arXiv2008

Hamiltonian statistical mechanics

A framework for statistical-mechanical analysis of quantum Hamiltonians is introduced. The approach is based upon a gradient flow equation in the space of Hamiltonians such that the eigenvectors of the initial Hamiltonian evolve toward those of the reference Hamiltonian. The nonlinear double-bracket equation governing the flow is such that the eigenvalues of the initial Hamiltonian remain unperturbed. The space of Hamiltonians is foliated by compact invariant subspaces, which permits the construction of statistical distributions over the Hamiltonians. In two dimensions, an explicit dynamical model is introduced, wherein the density function on the space of Hamiltonians approaches an equilibrium state characterised by the canonical ensemble. This is used to compute quenched and annealed averages of quantum observables.

quant-ph↗
arXiv2008

Information geometry in vapour-liquid equilibrium

Using the square-root map p-->\sqrt{p} a probability density function p can be represented as a point of the unit sphere S in the Hilbert space of square-integrable functions. If the density function depends smoothly on a set of parameters, the image of the map forms a Riemannian submanifold M in S. The metric on M induced by the ambient spherical geometry of S is the Fisher information matrix. Statistical properties of the system modelled by a parametric density function p can then be expressed in terms of information geometry. An elementary introduction to information geometry is presented, followed by a precise geometric characterisation of the family of Gaussian density functions. When the parametric density function describes the equilibrium state of a physical system, certain physical characteristics can be identified with geometric features of the associated information manifold M. Applying this idea, the properties of vapour-liquid phase transitions are elucidated in geometrical terms. For an ideal gas, phase transitions are absent and the geometry of M is flat. In this case, the solutions to the geodesic equations yield the adiabatic equations of state. For a van der Waals gas, the associated geometry of M is highly nontrivial. The scalar curvature of M diverges along the spinodal boundary which envelopes the unphysical region in the phase diagram. The curvature is thus closely related to the stability of the system.

cond-mat.stat-mech↗
arXiv2008

Optimal Time Evolution for Hermitian and Non-Hermitian Hamiltonians

Consider the set of all Hamiltonians whose largest and smallest energy eigenvalues, E_max and E_min, differ by a fixed energy ω. Given two quantum states, an initial state |ψ_I> and a final state |ψ_F>, there exist many Hamiltonians H belonging to this set under which |ψ_I> evolves in time into |ψ_F>. Which Hamiltonian transforms the initial state to the final state in the least possible time τ? For Hermitian Hamiltonians, $τ$ has a nonzero lower bound. However, among complex non-Hermitian PT-symmetric Hamiltonians satisfying the same energy constraint, τcan be made arbitrarily small without violating the time-energy uncertainty principle. The minimum value of τcan be made arbitrarily small because for PT-symmetric Hamiltonians the evolution path from the vector |ψ_I> to the vector |ψ_F>, as measured using the Hilbert-space metric appropriate for this theory, can be made arbitrarily short. The mechanism described here resembles the effect in general relativity in which two space-time points can be made arbitrarily close if they are connected by a wormhole. This result may have applications in quantum computing.

quant-ph↗
arXiv2008

Symplectic approach to quantum constraints

A general prescription for the treatment of constrained quantum motion is outlined. We consider in particular constraints defined by algebraic submanifolds of the quantum state space. The resulting formalism is applied to obtain solutions to the constrained dynamics of systems of multiple spin-1/2 particles. When the motion is constrained to a certain product space containing all of the energy eigenstates, the dynamics thus obtained are quasi-unitary in the sense that the equations of motion take a form identical to that of unitary motion, but with different boundary conditions. When the constrained subspace is a product space of disentangled states, the associated motion is more intricate. Nevertheless, the equations of motion satisfied by the dynamical variables are obtained in closed form.

quant-ph↗
arXiv2008

Quantum effects in classical systems having complex energy

On the basis of extensive numerical studies it is argued that there are strong analogies between the probabilistic behavior of quantum systems defined by Hermitian Hamiltonians and the deterministic behavior of classical mechanical systems extended into the complex domain. Three models are examined: the quartic double-well potential $V(x)=x^4-5x^2$, the cubic potential $V(x)=frac{1}{2}x^2-gx^3$, and the periodic potential $V(x)=-\cos x$. For the quartic potential a wave packet that is initially localized in one side of the double-well can tunnel to the other side. Complex solutions to the classical equations of motion exhibit a remarkably analogous behavior. Furthermore, classical solutions come in two varieties, which resemble the even-parity and odd-parity quantum-mechanical bound states. For the cubic potential, a quantum wave packet that is initially in the quadratic portion of the potential near the origin will tunnel through the barrier and give rise to a probability current that flows out to infinity. The complex solutions to the corresponding classical equations of motion exhibit strongly analogous behavior. For the periodic potential a quantum particle whose energy lies between -1 and 1 can tunnel repeatedly between adjacent classically allowed regions and thus execute a localized random walk as it hops from region to region. Furthermore, if the energy of the quantum particle lies in a conduction band, then the particle delocalizes and drifts freely through the periodic potential. A classical particle having complex energy executes a qualitatively analogous local random walk, and there exists a narrow energy band for which the classical particle becomes delocalized and moves freely through the potential.

hep-th↗
arXiv2007

Dam Rain and Cumulative Gain

We consider a financial contract that delivers a single cash flow given by the terminal value of a cumulative gains process. The problem of modelling and pricing such an asset and associated derivatives is important, for example, in the determination of optimal insurance claims reserve policies, and in the pricing of reinsurance contracts. In the insurance setting, the aggregate claims play the role of the cumulative gains, and the terminal cash flow represents the totality of the claims payable for the given accounting period. A similar example arises when we consider the accumulation of losses in a credit portfolio, and value a contract that pays an amount equal to the totality of the losses over a given time interval. An explicit expression for the value process is obtained. The price of an Arrow-Debreu security on the cumulative gains process is determined, and is used to obtain a closed-form expression for the price of a European-style option on the value of the asset. The results obtained make use of various remarkable properties of the gamma bridge process, and are applicable to a wide variety of financial products based on cumulative gains processes such as aggregate claims, credit portfolio losses, defined-benefit pension schemes, emissions, and rainfall.

q-fin.PR↗