pwc-archive/papers-with-abstracts huggingface dataset:
The Value of Timing Risk
Date: 2017-01-20 00:00:00

The aim of this paper is to provide a mathematical contribution on the
semi-static hedge of timing risk associated to positions in American-style
options under a multi-dimensional market model. Barrier options are considered
in the paper and semi-static hedges are studied and discussed for a fairly
large class of underlying price dynamics. Timing risk is identified with the
uncertainty associated to the time at which the payoff payment of the barrier
option is due. Starting from the work by Carr and Picron (1999), where the
authors show that the timing risk can be hedged via static positions in plain
vanilla options, the present paper extends the static hedge formula proposed in
Carr and Picron (1999) by giving sufficient conditions to decompose a
generalized timing risk into an integral of knock-in options in a
multi-dimensional market model. A dedicated study of the semi-static hedge is
then conducted by defining the corresponding strategy based on positions in
barrier options. The proposed methodology allows to construct not only first
order hedges but also higher order semi-static hedges, that can be interpreted
as asymptotic expansions of the hedging error. The convergence of these higher
order semi-static hedges to an exact hedge is shown. An illustration of the
main theoretical results is provided for i) a symmetric case, ii) a one
dimensional case, where the first order and second order hedging errors are
derived in analytic closed form. The materiality of the hedging benefit gain of
going from order one to order two by re-iterating the timing risk hedging
strategy is discussed through numerical evidences by showing that order two can
bring to more than 90% reduction of the hedging 'cost' w.r.t. order one
(depending on the specific barrier option characteristics).
Early monsoon drought and mid-summer vapor pressure deficit induce growth cessation of lower margin Picea crassifolia
Date: 2017-11-24 00:00:00

Extreme climatic events have been shown to be strong drivers of tree growth,
forest dynamics, and range contraction. Here we study the climatic drivers of
Picea crassifolia Kom., an endemic to northwest China where climate has
significantly warmed. Picea crassifolia was sampled from its lower
distributional margin to its upper distributional margin on the Helan Mountains
to test the hypothesis that 1) growth at the upper limit is limited by cool
temperatures and 2) is limited by drought at its lower limit. We found that
trees at the lower distributional margin have experienced a higher rate of
stem-growth cessation events since 2001 compared to trees at other elevations.
While all populations have a similar climatic sensitivity, stem-growth
cessation events in trees at lower distributional margin appear to be driven by
low precipitation in June as the monsoon begins to deliver moisture to the
region. Evidence indicates that mid-summer (July) vapor pressure deficit (VPD)
exacerbates the frequency of these events. These data and our analysis makes it
evident that an increase in severity and frequency of drought early in the
monsoon season could increase the frequency and severity of stem-growth
cessation in Picea crassifolia trees at lower elevations. Increases in VPD and
warming would likely exacerbate the growth stress of this species on Helan
Mountain. Hypothetically, if the combinations of low moisture and increased VPD
stress becomes more common, the mortality rate of lower distributional margin
trees could increase, especially of those that are already experiencing events
of temporary growth cessation.
Bank monitoring incentives under moral hazard and adverse selection
Date: 2019-01-16 00:00:00

In this paper, we extend the optimal securitisation model of Pag\`es [50] and
Possama\"i and Pag\`es [51] between an investor and a bank to a setting
allowing both moral hazard and adverse selection. Following the recent approach
to these problems of Cvitani\'c, Wan and Yang [14], we characterise explicitly
and rigorously the so-called credible set of the continuation and temptation
values of the bank, and obtain the value function of the investor as well as
the optimal contracts through a recursive system of first-order variational
inequalities with gradient constraints. We provide a detailed discussion of the
properties of the optimal menu of contracts.
Calibration of a Hybrid Local-Stochastic Volatility Stochastic Rates Model with a Control Variate Particle Method
Authors: Andrei Cozma, Matthieu Mariapragassam, Christoph Reisinger
Date: 2017-01-21 00:00:00

We propose a novel and generic calibration technique for four-factor foreign-exchange hybrid local-stochastic volatility models with stochastic short rates. We build upon the particle method introduced by Guyon and Labord\`ere [Nonlinear Option Pricing, Chapter 11, Chapman and Hall, 2013] and combine it with new variance reduction techniques in order to accelerate convergence. We use control variates derived from a calibrated pure local volatility model, a two-factor Heston-type LSV model (both with deterministic rates), and the stochastic (CIR) short rates. The method can be applied to a large class of hybrid LSV models and is not restricted to our particular choice of the diffusion. The calibration procedure is performed on real-world market data for the EUR-USD currency pair and has a comparable run-time to the PDE calibration of a two-factor LSV model alone.
Asymptotic efficiency of the proportional compensation scheme for a large number of producers
Date: 2017-01-21 00:00:00

We consider a manager, who allocates some fixed total payment amount between
$N$ rational agents in order to maximize the aggregate production. The profit
of $i$-th agent is the difference between the compensation (reward) obtained
from the manager and the production cost. We compare (i) the \emph{normative}
compensation scheme, where the manager enforces the agents to follow an optimal
cooperative strategy; (ii) the \emph{linear piece rates} compensation scheme,
where the manager announces an optimal reward per unit good; (iii) the
\emph{proportional} compensation scheme, where agent's reward is proportional
to his contribution to the total output. Denoting the correspondent total
production levels by $s^*$, $\hat s$ and $\overline s$ respectively, where the
last one is related to the unique Nash equilibrium, we examine the limits of
the prices of anarchy $\mathscr A_N=s^*/\overline s$, $\mathscr A_N'=\hat
s/\overline s$ as $N\to\infty$. These limits are calculated for the cases of
identical convex costs with power asymptotics at the origin, and for power
costs, corresponding to the Coob-Douglas and generalized CES production
functions with decreasing returns to scale. Our results show that
asymptotically no performance is lost in terms of $\mathscr A'_N$, and in terms
of $\mathscr A_N$ the loss does not exceed $31\%$.
Topology data analysis of critical transitions in financial networks
Date: 2017-01-21 00:00:00
Tasks: Time Series, Time Series Analysis

We develop a topology data analysis-based method to detect early signs for
critical transitions in financial data. From the time-series of multiple stock
prices, we build time-dependent correlation networks, which exhibit topological
structures. We compute the persistent homology associated to these structures
in order to track the changes in topology when approaching a critical
transition. As a case study, we investigate a portfolio of stocks during a
period prior to the US financial crisis of 2007-2008, and show the presence of
early signs of the critical transition.
Synthetic associative learning in engineered multicellular consortia
Date: 2017-01-21 00:00:00
Tasks: Decision Making

Associative learning is one of the key mechanisms displayed by living
organisms in order to adapt to their changing environments. It was early
recognized to be a general trait of complex multicellular organisms but also
found in "simpler" ones. It has also been explored within synthetic biology
using molecular circuits that are directly inspired in neural network models of
conditioning. These designs involve complex wiring diagrams to be implemented
within one single cell and the presence of diverse molecular wires become a
challenge that might be very difficult to overcome. Here we present three
alternative circuit designs based on two-cell microbial consortia able to
properly display associative learning responses to two classes of stimuli and
displaying long and short-term memory (i. e. the association can be lost with
time). These designs might be a helpful approach for engineering the human gut
microbiome or even synthetic organoids, defining a new class of decision-making
biological circuits capable of memory and adaptation to changing conditions.
The potential implications and extensions are outlined.
Monod-Wyman-Changeux Analysis of Ligand-Gated Ion Channel Mutants
Date: 2017-01-22 00:00:00

We present a framework for computing the gating properties of ligand-gated
ion channel mutants using the Monod-Wyman-Changeux (MWC) model of allostery. We
derive simple analytic formulas for key functional properties such as the
leakiness, dynamic range, half-maximal effective concentration, and effective
Hill coefficient, and explore the full spectrum of phenotypes that are
accessible through mutations. Specifically, we consider mutations in the
channel pore of nicotinic acetylcholine receptor (nAChR) and the ligand binding
domain of a cyclic nucleotide-gated (CNG) ion channel, demonstrating how each
mutation can be characterized as only affecting a subset of the biophysical
parameters. In addition, we show how the unifying perspective offered by the
MWC model allows us, perhaps surprisingly, to collapse the plethora of
dose-response data from different classes of ion channels into a universal
family of curves.
Recycling controls membrane domains
Date: 2017-01-22 00:00:00

We study the coarsening of strongly microphase separated membrane domains in
the presence of recycling of material. We study the dynamics of the domain size
distribution under both scale-free and size-dependent recycling. Closed form
solutions to the steady state distributions and its associated central moments
are obtained in both cases. Moreover, for the size-independent case, the~time
evolution of the moments is analytically calculated, which provide us with
exact results for their corresponding relaxation times. Since these moments and
relaxation times are measurable quantities, the biophysically significant free
parameters in our model may be determined by comparison with experimental data.
Economics cannot isolate itself from political theory: a mathematical demonstration
Date: 2016-10-27 00:00:00
Tasks: Philosophy, Position

The purpose of this paper is to provide a confession of sorts from an
economist to political science and philosophy. A confession of the weaknesses
of the political position of the economist. It is intended as a guide for
political scientists and philosophers to the ostensible policy criteria of
economics, and an illustration of an argument that demonstrates
logico-mathematically, therefore incontrovertibly, that any policy statement by
an economist contains, or is, a political statement. It develops an inescapable
compulsion that the absolute primacy and priority of political theory and
philosophy in the development of policy criteria must be recognised. Economic
policy cannot be divorced from politics as a matter of mathematical fact, and
rather, as Amartya Sen has done, it ought embrace political theory and
philosophy.
Evolutionary games on cycles with strong selection
Date: 2017-01-23 00:00:00

Evolutionary games on graphs describe how strategic interactions and
population structure determine evolutionary success, quantified by the
probability that a single mutant takes over a population. Graph structures,
compared to the well-mixed case, can act as amplifiers or suppressors of
selection by increasing or decreasing the fixation probability of a beneficial
mutant. Properties of the associated mean fixation times can be more intricate,
especially when selection is strong. The intuition is that fixation of a
beneficial mutant happens fast (in a dominance game), that fixation takes very
long (in a coexistence game), and that strong selection eliminates demographic
noise. Here we show that these intuitions can be misleading in structured
populations. We analyze mean fixation times on the cycle graph under strong
frequency-dependent selection for two different microscopic evolutionary update
rules (death-birth and birth-death). We establish exact analytical results for
fixation times under strong selection, and show that there are coexistence
games in which fixation occurs in time polynomial in population size. Depending
on the underlying game, we observe inherence of demographic noise even under
strong selection, if the process is driven by random death before selection for
birth of an offspring (death-birth update). In contrast, if selection for an
offspring occurs before random removal (birth-death update), strong selection
can remove demographic noise almost entirely.
Econophysics Macroeconomic Model
Date: 2017-01-20 00:00:00
Tasks: model

This paper presents macroeconomic model that is based on parallels between
macroeconomic multi-agent systems and multi-particle systems. We use risk
ratings of economic agents as their coordinates on economic space. Aggregates
of economic or financial variables like Investment, Assets, Demand, Credits and
etc. of economic agents near point x define corresponding macroeconomic
variables as functions of time t and coordinates x on economic space. Parallels
between multi-agent and multi-particle systems on economic space allow describe
transition from economic kinetic-like to economic hydrodynamic-like
approximation and derive macroeconomic hydrodynamic-like equations on economic
space. Economic or financial transactions between economic agents determine
evolution of macroeconomic variables This paper describes local macroeconomic
approximation that takes into account transactions between economic agents with
coordinates near same point x on economic space only and describes interaction
between macroeconomic variables by linear differential operators. For simple
model of interaction between macroeconomic variables as Demand on Investment
and Interest Rate we derive hydrodynamic-like equations in a closed form. For
perturbations of these macroeconomic variables we derive macroeconomic wave
equations. Macroeconomic waves on economic space can propagate with exponential
growth of amplitude and cause irregular time fluctuations of macroeconomic
variables or induce economic crises.
Identifiability and Reconstructibility of Species Phylogenies Under a Modified Coalescent
Date: 2017-01-24 00:00:00

Coalescent models of evolution account for incomplete lineage sorting by
specifying a species tree parameter which determines a distribution on gene
trees. It has been shown that the unrooted topology of the species tree
parameter of the multispecies coalescent is generically identifiable. Moreover,
a statistically consistent reconstruction method called SVDQuartets has been
developed to recover this parameter. In this paper, we describe a modified
multispecies coalescent model that allows for varying effective population size
and violations of the molecular clock. We show that the unrooted topology of
the species tree for these models is generically identifiable and that
SVDQuartets is still a statistically consistent method for inferring this
parameter.
A model for an aquatic ecosystem
Date: 2017-01-23 00:00:00
Tasks: model

An ecosystem made of nutrients, plants, detritus and dissolved oxygen is
presented. Its equilibria are established. Sufficient conditions for the
existence of the coexistence equilibrium are derived and its feasibility is
discussed in every detail.
Natural and fishing mortalities affecting eastern sea garfish, Hyporhamphus australis, inferred from age-frequency data using hazard functions
Date: 2017-01-26 00:00:00
Tasks: Management

Estimates of age-specific natural (M) and fishing (F) mortalities among
economically important stocks are required to determine sustainable yields and,
ultimately, facilitate effective resource management. Here we used hazard
functions to estimate mortality rates for eastern sea garfish, Hyporhamphus
australis, a pelagic species that forms the basis of an Australian commercial
lampara-net fishery. Data describing annual (2004 to 2015) age frequencies (0-1
to 5-6 years), yield, effort (boat-days), and average weights at age were used
to fit various stochastic models to estimate mortality rates by maximum
likelihood. The model best supported by the data implied: (i) the escape of
fish aged 0-1 years increased from approximately 90 to 97% as a result of a
mandated increase in stretched mesh opening from 25 to 28 mm; (ii) full
selectivity among older age groups; (iii) a constant M of 0.52 +- 0.06 per
year; and (iv) a decline in F between 2004 and 2015. Recruitment and biomass
were estimated to vary, but increased during the sampled period. The results
reiterate the utility of hazard functions to estimate and partition mortality
rates, and support traditional input controls designed to reduce both accounted
and unaccounted F.
If you are not paying for it, you are the product: How much do advertisers pay to reach you?
Authors: Papadopoulos Panagiotis, Kourtellis Nicolas, Rodriguez Pablo Rodriguez, Laoutaris Nikolaos
Date: 2017-09-24 00:00:00

Online advertising is progressively moving towards a programmatic model in
which ads are matched to actual interests of individuals collected as they
browse the web. Letting the huge debate around privacy aside, a very important
question in this area, for which little is known, is: How much do advertisers
pay to reach an individual? In this study, we develop a first of its kind
methodology for computing exactly that -- the price paid for a web user by the
ad ecosystem -- and we do that in real time. Our approach is based on tapping
on the Real Time Bidding (RTB) protocol to collect cleartext and encrypted
prices for winning bids paid by advertisers in order to place targeted ads. Our
main technical contribution is a method for tallying winning bids even when
they are encrypted. We achieve this by training a model using as ground truth
prices obtained by running our own "probe" ad-campaigns. We design our
methodology through a browser extension and a back-end server that provides it
with fresh models for encrypted bids. We validate our methodology using a one
year long trace of 1600 mobile users and demonstrate that it can estimate a
user's advertising worth with more than 82% accuracy.
Harnessing the Web for Population-Scale Physiological Sensing: A Case Study of Sleep and Performance
Authors: Althoff Tim, Horvitz Eric, White Ryen W., Zeitzer Jamie
Date: 2017-02-25 00:00:00

Human cognitive performance is critical to productivity, learning, and
accident avoidance. Cognitive performance varies throughout each day and is in
part driven by intrinsic, near 24-hour circadian rhythms. Prior research on the
impact of sleep and circadian rhythms on cognitive performance has typically
been restricted to small-scale laboratory-based studies that do not capture the
variability of real-world conditions, such as environmental factors,
motivation, and sleep patterns in real-world settings. Given these limitations,
leading sleep researchers have called for larger in situ monitoring of sleep
and performance. We present the largest study to date on the impact of
objectively measured real-world sleep on performance enabled through a
reframing of everyday interactions with a web search engine as a series of
performance tasks. Our analysis includes 3 million nights of sleep and 75
million interaction tasks. We measure cognitive performance through the speed
of keystroke and click interactions on a web search engine and correlate them
to wearable device-defined sleep measures over time. We demonstrate that
real-world performance varies throughout the day and is influenced by both
circadian rhythms, chronotype (morning/evening preference), and prior sleep
duration and timing. We develop a statistical model that operationalizes a
large body of work on sleep and performance and demonstrates that our estimates
of circadian rhythms, homeostatic sleep drive, and sleep inertia align with
expectations from laboratory-based sleep studies. Further, we quantify the
impact of insufficient sleep on real-world performance and show that two
consecutive nights with less than six hours of sleep are associated with
decreases in performance which last for a period of six days. This work
demonstrates the feasibility of using online interactions for large-scale
physiological sensing.
Quantification of myosin distribution predicts global morphogenetic flow in the fly embryo
Date: 2017-01-24 00:00:00

During embryogenesis tissue layers continuously rearrange and fold into
specific shapes. Developmental biology identified patterns of gene expression
and cytoskeletal regulation underlying local tissue dynamics, but how actions
of multiple domains of distinct cell types coordinate to remodel tissues at the
organ scale remains unclear. We use in toto light-sheet microscopy, automated
image analysis, and physical modeling to quantitatively investigate the link
between kinetics of global tissue transformations and force generation patterns
during Drosophila gastrulation. We find embryo-scale shape changes are
represented by a temporal sequence of three simple flow field configurations.
Each phase is accompanied by a characteristic spatial myosin distribution,
quantified in terms of a coarse-grained 'myosin tensor' that captures both
concentration and anisotropy. Our model assumes tissue flow is driven by stress
proportional to the myosin tensor, and is effectively visco-elastic with two
parameters that control 'irrotational' and 'divergence-less' components of the
flow. With just three global parameters, this model achieves up to 90%
agreement between predicted and measured flow. The analysis uncovers importance
of a) spatial modulation of myosin distribution and b) long-range spreading of
its effect due to mechanical interaction of cells. In particular, we find
germband extension phase is associated with the onset of effective areal
incompressibility of the epithelium, which makes the relation of flow and
myosin forcing strongly non-local. Our analysis also revealed a new function
for basal myosin in generating a dorsally directed flow and, combined with
mutant analysis, identified an unconventional control mechanism through twist
dependent reduction of basal myosin levels on the ventral side. We conclude
that understanding morphogenetic flow requires a fundamentally global
perspective.