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Rama Cont

Publications and source records attributed to Rama Cont.

At least 19 recordsLinked to original sources

Functional representation and functional calculus for controlled paths

We study the relation between non-anticipative functional calculus and compatible families of controlled paths. For a non-anticipative functional satisfying horizontal Lipschitz regularity, we show that the iterated vertical derivatives generate compatible higher-order controlled Taylor expansions along H\"older controls, with level-dependent remainder exponents. We derive a rough-integration criterion from these estimates and show that, for $\gamma-$H\"older controls with $\tfrac{1}{2}\geq \gamma>\sqrt{2}-1$, the first-order remainder estimate is recovered. Our main result is a converse representation theorem. We consider non-anticipative functionals $G_0,\ldots,G_p$ which satisfy compatible higher-order controlled Taylor estimates along $\gamma$-H\"older paths. Under natural continuity and compatibility assumptions, we prove that they can be represented as the iterated vertical derivatives of the base functional: $ G_j=\nabla_\omega^jG_0,\qquad j=1,\ldots,p.$ Thus the Gubinelli coefficients of a compatible controlled family are symmetric and uniquely determined by its base functional; in particular, the Gubinelli derivative is identified with the vertical derivative introduced in functional It\^o calculus, giving the coefficient hierarchy an intrinsic path-space differential structure. We show that this class of compatible coefficient families is stable under admissible non-anticipative functional composition and derive the corresponding functional chain rule. As an application, we obtain well-posedness for a class of path-dependent rough differential equations with Volterra memory, and identify the Gubinelli derivative of the resulting path-dependent rough coefficient.

math.FA

Higher-order variation and pathwise Ito calculus on manifolds

We develop an intrinsic calculus for smooth functions of paths of arbitrarily low regularity on smooth manifolds. The regularity of paths is defined in terms of a $p$-th variation tensor along a sequence of partitions, for an arbitrary integer $p$; this tensor is constructed as a local symmetric tensor measure along the path. We define pathwise integrals of closed one-forms along paths with finite $p$-th variation and derive a change of variable formula for smooth functions of such paths. For $p=2$, our results give a manifold version of H. F\"ollmer's pathwise It\^o calculus. Our construction only requires an affine connection on the manifold and may be viewed as a higher-order analogue of L. Schwartz's second-order differential geometry. The connection provides a splitting of higher-order tangent vectors into symmetric tensor components and leads to a geometric transfer principle: the change-of-variable formula defines an intrinsic, connection-independent functional of the reduced $p$-jet of the test function, whose canonical highest-order component is determined by the $p$-th variation tensor. Although our results are purely geometric, they apply to manifold-valued stochastic processes with highly irregular paths and yield a higher-order It\^o-type calculus for such processes. We illustrate this calculus for exponential lifts of fractional Brownian motions to Riemannian manifolds and Lie groups.

math.PR

A pathwise Ito formula for weakly differentiable functions

We prove a version of F\"ollmer's pathwise It\^o formula for weakly differentiable functions of continuous paths with finite quadratic variation along a sequence of partitions. For each such path $\omega$, we introduce a path-dependent Sobolev space $W_{\omega,\pi}^{2}$ defined through smooth approximation of the weak Hessian in a seminorm generated by discrete weighted occupation measures of the path $\omega$. For $F\in W_{\omega,\pi}^{2}$, we construct the pathwise integral $\int \nabla F(\omega)\,d^{\pi}\omega$ and the covariation $[\nabla F(\omega),\omega]_{\pi}$, and prove the change-of-variable formula $$ F(\omega(t))-F(\omega(0)) = \int_{0}^{t}\nabla F(\omega(s))\,d^{\pi}\omega(s) + \frac12[\nabla F(\omega),\omega]_{\pi}(t). $$ Our result does not require any assumption on the existence of local time for the path; the Ito term appears as a quadratic covariation. For Brownian motion, we show that functions in $W^{2+,p}(\mathbb{R}^{d})\cap W^{2,1}(\mathbb{R}^{d})$ belong almost surely to the corresponding path-dependent space, outside a polar exceptional set of starting points. If, in addition, $F\in W_{\mathrm{loc}}^{1,2}(\mathbb{R}^{d})$, the pathwise integral agrees with the stochastic It\^o integral, yielding a pathwise version of the multidimensional F\"ollmer--Protter formula.

math.PR

Reflected diffusion, no-flux continuity equations and confined Lagrangian flows in bounded domains

Motivated by marginal distribution flows of reflected diffusions in bounded domains, we investigate when a density/flux pair solving a no-flux continuity equation admits a regular Lagrangian flow that remains in the closed domain and generates the prescribed density flow. We give sufficient conditions in terms of interior bounded-variation regularity, bounded-variation control on a boundary collar, a one-sided bound on an absolutely continuous divergence, and vanishing normal trace of the velocity. The proof uses the fact that tangency removes the singular boundary contribution to the divergence of the zero extension, thereby making the extended velocity admissible for the Ambrosio-DiPerna-Lions theory. We show that these boundary assumptions cannot be jointly relaxed so as to admit a boundary current mechanism. We construct an explicit smooth density/flux pair carrying a boundary current. Its density evolution is unique in a weighted class and its characteristics are unique, confined and transport the marginals, yet it admits no regular Lagrangian flow because the compressibility bound fails arbitrarily close to the initial time. We also establish two uniqueness results for no-flux Fokker-Planck equations: a duality result for bounded measurable drifts and a weighted energy result for entrance-type drifts singular at the boundary. Our results provide a rigorous mathematical justification for using the ODE-based sampling of reflected diffusion models under minimal regularity assumptions on the coefficients, and also indicate when such ODE-based samplers may fail.

math.CA

Mimicking diffusion processes with differential equations

The probability-flow ordinary differential equation (PF-ODE) associated with a diffusion process is widely used in score-based generative modeling as a deterministic sampler that reproduces the marginal distributions of the diffusion. The validity of this marginal-matching property depends on the well-posedness of an ordinary differential equation whose velocity field is constructed from the score function of the diffusion. We examine the precise mathematical relation between a diffusion process, the Fokker-Planck equation and the associated PF-ODE under weak regularity assumptions on the drift and score. We establish existence and uniqueness of the marginal density flow as a solution of the Fokker--Planck equation under minimal regularity assumptions. We then study the corresponding Lagrangian problem using the DiPerna-Lions-Ambrosio theory of regular Lagrangian flows. We prove existence, uniqueness and stability of the flow, and show that it transports the initial distribution onto the diffusion marginals, under Sobolev or bounded-variation regularity of the score together with one-sided bounds on the divergence of the probability-flow velocity. We identify sufficient conditions for the required regularity in diffusion models relevant for applications. Our analysis underlines a fundamental distinction between Eulerian and Lagrangian descriptions. We construct a counterexample in which the Fokker--Planck equation has a unique density flow while the associated PF-ODE fails to admit a regular Lagrangian flow from the initial time, demonstrating that uniqueness of the density evolution does not in general imply the existence of a deterministic probability-flow representation. Finally, we derive stability estimates for probability-flow trajectories under learned score approximations. Our findings have implications for the training and deployment of score-based diffusion models.

math.PR

Homogenization and Mean-Field Approximation for Multi-Player Games

We investigate how the framework of mean-field games may be used to study strategic interactions in large heterogeneous populations. Starting from a partition of the player population into groups, we introduce an intermediate finite-player game of mean-field type and derive explicit non-asymptotic bounds for the average exploitability of strategy profiles obtained by lifting strategies from the associated multi-population mean-field game. The approximation error decomposes into two components: a finite-population mean-field error, controlled by empirical-measure approximation within each group, and a heterogeneity error measuring deviations of the original players' rewards and transition dynamics from their group-level approximations. Our results apply to compact state and action spaces and allow heterogeneous deterministic initial states within each population. We further study the resulting trade-off between group size and intra-group heterogeneity. In a parametrized heterogeneous setting, the choice of partition minimizing the resulting certified upper bound can be formulated as a mixed-integer second-order cone program. In the large-population regime, this problem is shown to be related to $K$-means clustering.

math.OC

Causal transport on path space

We study properties of causal couplings for probability measures on the space of continuous functions. We first provide a characterization of bicausal couplings between weak solutions of stochastic differential equations. We then provide a complete description of all such bicausal Monge couplings. In particular, we show that bicausal Monge couplings of $d$-dimensional Wiener measures are induced by stochastic integrals of rotation-valued integrands. As an application, we give necessary and sufficient conditions for bicausal couplings to be induced by Monge maps and show that such bicausal Monge transports are dense in the set of bicausal couplings between laws of SDEs with regular coefficients.

math.PR

A mathematical framework for modelling order book dynamics

We present a general framework for modelling the dynamics of limit order books, built on the combination of two modelling ingredients: the order flow, modelled as a general spatial point process, and market clearing, modelled via a deterministic mass transport operator acting on distributions of buy and sell orders. At the mathematical level, this corresponds to a natural decomposition of the infinitesimal generator describing the evolution of the limit order book into two operators: the generator of the order flow and the clearing operator. Our model provides a flexible framework for modelling and simulating order book dynamics and studying various scaling limits of discrete order book models. We show that our framework includes previous models as special cases and yields insights into the interplay between order flow and price dynamics.

q-fin.MF

Asymptotic Analysis of Deep Residual Networks

We investigate the asymptotic properties of deep Residual networks (ResNets) as the number of layers increases. We first show the existence of scaling regimes for trained weights markedly different from those implicitly assumed in the neural ODE literature. We study the convergence of the hidden state dynamics in these scaling regimes, showing that one may obtain an ODE, a stochastic differential equation (SDE) or neither of these. In particular, our findings point to the existence of a diffusive regime in which the deep network limit is described by a class of stochastic differential equations (SDEs). Finally, we derive the corresponding scaling limits for the backpropagation dynamics.

cs.LG

A model-free approach to continuous-time finance

We present a non-probabilistic, pathwise approach to continuous-time finance based on causal functional calculus. We introduce a definition of self-financing, free from any integration concept and show that the value of a self-financing portfolio is a pathwise integral (every self-financing strategy is a gradient) and that generic domain of functional calculus is inherently arbitrage-free. We then consider the problem of hedging a path-dependent payoff across a generic set of scenarios. We apply the transition principle of Isaacs in differential games and obtain a verification theorem for the optimal solution, which is characterised by a fully non-linear path-dependent equation. For the Asian option, we obtain explicit solution.

q-fin.MF

Fast and Slow Optimal Trading with Exogenous Information

We consider a stochastic game between a slow institutional investor and a high-frequency trader who are trading a risky asset and their aggregated order-flow impacts the asset price. We model this system by means of two coupled stochastic control problems, in which the high-frequency trader exploits the available information on a price predicting signal more frequently, but is also subject to periodic "end of day" inventory constraints. We first derive the optimal strategy of the high-frequency trader given any admissible strategy of the institutional investor. Then, we solve the problem of the institutional investor given the optimal signal-adaptive strategy of the high-frequency trader, in terms of the resolvent of a Fredholm integral equation, thus establishing the unique multi-period Stackelberg equilibrium of the game. Our results provide an explicit solution to the game, which shows that the high-frequency trader can adopt either predatory or cooperative strategies in each period, depending on the tradeoff between the order-flow and the trading signal. We also show that the institutional investor's strategy is considerably more profitable when the order-flow of the high-frequency trader is taken into account in her trading strategy.

q-fin.TR

Convergence and Implicit Regularization Properties of Gradient Descent for Deep Residual Networks

We prove linear convergence of gradient descent to a global optimum for the training of deep residual networks with constant layer width and smooth activation function. We show that if the trained weights, as a function of the layer index, admit a scaling limit as the depth increases, then the limit has finite $p-$variation with $p=2$. Proofs are based on non-asymptotic estimates for the loss function and for norms of the network weights along the gradient descent path. We illustrate the relevance of our theoretical results to practical settings using detailed numerical experiments on supervised learning problems.

cs.LG

Rough volatility: fact or artefact?

We investigate the statistical evidence for the use of `rough' fractional processes with Hurst exponent $H< 0.5$ for the modeling of volatility of financial assets, using a model-free approach. We introduce a non-parametric method for estimating the roughness of a function based on discrete sample, using the concept of normalized $p$-th variation along a sequence of partitions. We investigate the finite sample performance of our estimator for measuring the roughness of sample paths of stochastic processes using detailed numerical experiments based on sample paths of fractional Brownian motion and other fractional processes. We then apply this method to estimate the roughness of realized volatility signals based on high-frequency observations. Detailed numerical experiments based on stochastic volatility models show that, even when the instantaneous volatility has diffusive dynamics with the same roughness as Brownian motion, the realized volatility exhibits rough behaviour corresponding to a Hurst exponent significantly smaller than $0.5$. Comparison of roughness estimates for realized and instantaneous volatility in fractional volatility models with different values of Hurst exponent shows that, irrespective of the roughness of the spot volatility process, realized volatility always exhibits `rough' behaviour with an apparent Hurst index $\hat{H}<0.5$. These results suggest that the origin of the roughness observed in realized volatility time-series lies in the microstructure noise rather than the volatility process itself.

q-fin.ST

Tail-GAN: Learning to Simulate Tail Risk Scenarios

The estimation of loss distributions for dynamic portfolios requires the simulation of scenarios representing realistic joint dynamics of their components. We propose a novel data-driven approach for simulating realistic, high-dimensional multi-asset scenarios, focusing on accurately representing tail risk for a class of static and dynamic trading strategies. We exploit the joint elicitability property of Value-at-Risk (VaR) and Expected Shortfall (ES) to design a Generative Adversarial Network (GAN) that learns to simulate price scenarios preserving these tail risk features. We demonstrate the performance of our algorithm on synthetic and market data sets through detailed numerical experiments. In contrast to previously proposed data-driven scenario generators, our proposed method correctly captures tail risk for a broad class of trading strategies and demonstrates strong generalization capabilities. In addition, combining our method with principal component analysis of the input data enhances its scalability to large-dimensional multi-asset time series, setting our framework apart from the univariate settings commonly considered in the literature.

q-fin.RM

Cross-Impact of Order Flow Imbalance in Equity Markets

We investigate the impact of order flow imbalance (OFI) on price movements in equity markets in a multi-asset setting. First, we propose a systematic approach for combining OFIs at the top levels of the limit order book into an integrated OFI variable which better explains price impact, compared to the best-level OFI. We show that once the information from multiple levels is integrated into OFI, multi-asset models with cross-impact do not provide additional explanatory power for contemporaneous impact compared to a sparse model without cross-impact terms. On the other hand, we show that lagged cross-asset OFIs do improve the forecasting of future returns. We also establish that this lagged cross-impact mainly manifests at short-term horizons and decays rapidly in time.

q-fin.TR

Fractional Ito calculus

We derive It\^o-type change of variable formulas for smooth functionals of irregular paths with non-zero $p-$th variation along a sequence of partitions where $p \geq 1$ is arbitrary, in terms of fractional derivative operators, extending the results of the F\"ollmer-Ito calculus to the general case of paths with 'fractional' regularity. In the case where $p$ is not an integer, we show that the change of variable formula may sometimes contain a non-zero a 'fractional' It\^o remainder term and provide a representation for this remainder term. These results are then extended to paths with non-zero $\phi-$variation and multi-dimensional paths. Finally, we derive an isometry property for the pathwise F\"ollmer integral in terms of $\phi$ variation.

math.CA

Quadratic variation along refining partitions: Constructions and Examples

We present several constructions of paths and processes with finite quadratic variation along a refining sequence of partitions, extending previous constructions to the non-uniform case. We study in particular the dependence of quadratic variation with respect to the sequence of partitions for these constructions. We identify a class of paths whose quadratic variation along a partition sequence is invariant under {\it coarsening}. This class is shown to include typical sample paths of Brownian motion, but also paths which are $\frac{1}{2}$-H\"older continuous. Finally, we show how to extend these constructions to higher dimensions.

math.PR

Scaling Properties of Deep Residual Networks

Residual networks (ResNets) have displayed impressive results in pattern recognition and, recently, have garnered considerable theoretical interest due to a perceived link with neural ordinary differential equations (neural ODEs). This link relies on the convergence of network weights to a smooth function as the number of layers increases. We investigate the properties of weights trained by stochastic gradient descent and their scaling with network depth through detailed numerical experiments. We observe the existence of scaling regimes markedly different from those assumed in neural ODE literature. Depending on certain features of the network architecture, such as the smoothness of the activation function, one may obtain an alternative ODE limit, a stochastic differential equation or neither of these. These findings cast doubts on the validity of the neural ODE model as an adequate asymptotic description of deep ResNets and point to an alternative class of differential equations as a better description of the deep network limit.

cs.LG