Past Stochastic Analysis Seminar

(joint work with Aurélien Alfonsi and Arturo Kohatsu-Higa)

We are interested in the Wasserstein distance on the space of continuous sample-paths equipped with the supremum norm between the laws of a uniformly elliptic one-dimensional diffusion process and its continuous-time Euler scheme with N steps. This distance controls the discretization biais for a large class of path-dependent payoffs.

Its convergence rate to 0 is clearly intermediate between -the rate -1/2 of the strong error estimation obtained when coupling the stochastic differential equation and its Euler scheme with the same Brownian motion -and the rate -1 of the weak error estimation obtained when comparing the expectations of the same function of the diffusion and its Euler scheme at the terminal time.

For uniformly elliptic one-dimensional stochastic differential equations, we prove that this rate is not worse than -2/3.

Abstract: In 2010, Erschler, Tóth and Werner introduced the so-called Stuck Walks, which are a class of self-interacting random walks on Z for which there is competition between repulsion at small scale and attraction at large scale. They proved that, for any positive integer L, if the relevant parameter belongs to a certain interval, then such random walks localize on L + 2 sites with positive probability. They also conjectured that it is the almost sure behaviour. We settle this conjecture partially, proving that the walk localizes on L + 2 or L + 3 sites almost surely, under the same assumptions.

In this talk, we consider the setting: a random realization of an evolving dynamical system, and explain how, using notions common in the theory of rough paths, such as the signature, and shuffle product, one can provide a new united approach to the fundamental problem of predicting the conditional distribution of the near future given the past. We will explain how the problem can be reduced to a linear regression and least squaresanalysis. The approach is clean and systematic and provides a clear gradation of finite dimensional approximations. The approach is also non-parametric and very general but still presents itself in computationally tractable and flexible restricted forms for concrete problems. Popular techniques in time series analysis such as GARCH can be seen to be restricted special cases of our approach but it is not clear they are always the best or most informative choices. Some numerical examples will be shown in order to compare our approach and standard time series models.

This talk is based on a joint work with Céline Labart. We are interested in this paper in the numerical simulation of solutions to Backward Stochastic Differential Equations. There are several existing methods to handle this problem and one of the main difficulty is always to compute conditional expectations.

Even though our approach can also be applied in the case of the dynamic programmation equation, our starting point is the use of Picard's iterations that we write in a forward way

In order to compute the conditional expectations, we use Wiener Chaos expansions of the underlying random variables. From a practical point of view, we keep only a finite number of terms in the expansions and we get explicit formulas.

We will present numerical experiments and results on the error analysis.

Convergence of the Bayes posterior measure is considered in canonical statistical settings (like density estimation or nonparametric regression) where observations sit on a geometrical object such as a compact manifold, or more generally on a compact metric space verifying some conditions.

A natural geometric prior based on randomly rescaled solutions of the heat equation is considered. Upper and lower bound posterior contraction rates are derived.

Jump processes, and Lévy processes in particular, are notoriously difficult to simulate. The task becomes even harder if the process is stopped when it crosses a certain boundary, which happens in applications to barrier option pricing or structural credit risk models. In this talk, I will present novel adaptive discretization

schemes for the simulation of stopped Lévy processes, which are several orders of magnitude faster than the traditional approaches based on uniform discretization, and provide an explicit control of the bias. The schemes are based on sharp asymptotic estimates for the exit probability and work by recursively adding discretization dates in the parts of the trajectory which are close to the boundary, until a specified error tolerance is met.

This is a joint work with Jose Figueroa-Lopez (Purdue).

Random wavelet series were introduced in the mid 90s as simple and flexible models that allow to take into account observed statistics of wavelet coefficients in signal and image processing. One of their most interesting properties is that they supply random processes whose pointwise regularity jumps form point to point in a very erratic way, thus supplying examples of multifractal processes.

Interest in such models has been renewed recently under the spur of new applications coming from widely different fields; e.g.

-in functional analysis, they allow to derive the regularity properties of ``generic'' functions in a given function space (in the sense of

prevalence)

-they offer toy examples on which one can check the accuracy of numerical algorithms that allow to derive the multifractal parameters associated with signals and images.

We will give an overview of these properties, and we will focus on recent extensions whose sample paths are not locally bounded, and offer models for signals which share this property.

Free probability theory has been introduced by Voiculescu in the 80's for the study of the von Neumann algebras of the free groups. It consists in an algebraic setting of non commutative probability, where one encodes "non commutative random variables" in abstract (non commutative) algebras endowed with linear forms (which satisfies properties in order to play the role of the expectation). In this context, Voiculescu introduce the notion of freeness which is the analogue of the classical independence.

A decade later, he realized that a family of independent random matrices invariant in law by conjugation by unitary matrices are asymptotically free. This phenomenon is called asymptotic freeness. It had a deep impact in operator algebra and probability and has been generalized in many directions. A simple particular case of Voiculescu's theorem gives an estimate, for N large, of the spectrum of an N by N Hermitian matrix H_N = A_N + 1/\sqrt N X_N, where A_N is a given deterministic Hermitian matrix and X_N has independent gaussian standard sub-diagonal entries.

Nevertheless, it turns out that asymptotic freeness does not hold in certain situations, e.g. when the entries of X_N as above have heavy-tails. To infer the spectrum of a larger class of matrices, we go further into Voiculescu's approach and introduce the distributions of traffics and their free product. This notion of distribution is richer than Voiculescu's notion of distribution of non commutative random variables and it generalizes the notion of law of a random graph. The notion of freeness for traffics is an intriguing mixing between the classical independence and Voiculescu's notion of freeness. We prove an asymptotic freeness theorem in that context for independent random matrices invariant in law by conjugation by permutation matrices.

The purpose of this talk is to give an introductory presentation of these notions.

In this talk we consider two questions about conformally invariant random curves known as Schramm-Loewner evolutions (SLE). The first question is about the "boundary zig-zags", i.e. the probabilities for a chordal SLE to pass through small neighborhoods of given boundary points in a given order. The second question is that of obtaining explicit descriptions of "multiple SLE pure geometries", i.e. those extremal multiple SLE probability measures which can not be expressed as non-trivial convex combinations of other multiple SLEs. For both problems one needs to find solutions of a system of partial differential equations with asymptotics conditions written recursively in terms of solution of the same problem with a smaller number of variables. We present a general correspondence, which translates these problems to linear systems of equations in finite dimensional representations of the quantum group U_q(sl_2), and we then explicitly solve these systems. The talk is based on joint works with Eveliina Peltola (Helsinki), and with Niko Jokela (Santiago de Compostela) and Matti Järvinen (Crete).

We will first review the return to equilibrium of the Ising model when a small external field is applied. The relaxation time is extremely long and can be estimated as the time needed to create critical droplets of the stable phase which will invade the whole system. We will then discuss the impact of disorder on this metastable behavior and show that for Ising model with random interactions (dilution of the couplings) the relaxation time is much faster as the disorder acts as a catalyst. In the last part of the talk, we will focus on the droplet growth and study a toy model describing interface motion in disordered media.

We relate the expected signature to the Fourier transform of n-point functions, first studied by O. Schramm, and subsequently
by J. Cardy and Simmon, D. Belyaev and J. Viklund. We also prove that the signatures determine the paths in the complement of a Chordal SLE null set. In the end, we will also discuss an idea on how to extend the uniqueness of signatures result by Hambly and Lyons (2006) to paths with finite 1<p<2variations.

Abstract: The aim of this lecture is to give a general introduction to the theory of interacting particle methods and an overview of its applications to numerical finance. We survey the main techniques and results on interacting particle systems and explain how they can be applied to deal with a variety of financial numerical problems such as: pricing complex path dependent European options, computing sensitivities, American option pricing or solving numerically partially observed control problems.

In many models of Applied Probability, the distributional limits of recursively defined quantities satisfy distributional identities that are reminiscent of equations of stability. Therefore, there is an interest in generalized concepts of equations of stability.

One extension of this concept is that of random variables ``stable by random weighted mean'' (this notion is due to Liu).

A random variable $X$ taking values in $\mathbb{R}^d$ is called ``stable by random weighted mean'' if it satisfies a recursive distributional equation of the following type:

\begin{equation} \tag{1} \label{eq:1}

X ~\stackrel{\mathcal{D}}{=}~ C + \sum_{j \geq 1} T_j X_j.

\end{equation}

Here, ``$\stackrel{\mathcal{D}}{=}$'' denotes equality of the corresponding distributions, $(C,T_1,T_2,\ldots)$ is a given sequence of real-valued random variables,

and $X_1, X_2, \ldots$ denotes a sequence of i.i.d.\;copies of the random variable $X$ that are independent of $(C,T_1,T_2,\ldots)$.

The distributions $P$ on $\mathbb{R}^d$ such that \eqref{eq:1} holds when $X$ has distribution $P$ are called fixed points of the smoothing transform

(associated with $(C,T_1,T_2,\ldots)$).

A particularly prominent instance of \eqref{eq:1} is the {\texttt Quicksort} equation, where $T_1 = 1-T_2 = U \sim \mathrm{Unif}(0,1)$, $T_j = 0$ for all $j \geq 3$ and $C = g(U)$ for some function $g$.

In this talk, I start with the {\texttt Quicksort} algorithm to motivate the study of \eqref{eq:1}.

Then, I consider the problem of characterizing the set of all solutions to \eqref{eq:1}

in a very general context.

Special emphasis is put on \emph{endogenous} solutions to \eqref{eq:1} since they play an important role in the given setting.

Abstract: Non-geometric rough paths arise
when one encounters stochastic integrals for which the the classical
integration by parts formula does not hold. We will introduce two notions of
non-geometric rough paths - one old (branched rough paths) and one new (quasi
geometric rough paths). The former (due to Gubinelli) assumes one knows nothing
about products of integrals, instead those products must be postulated as new
components of the rough path. The latter assumes one knows a bit about
products, namely that they satisfy a natural generalisation of the
"Ito" integration by parts formula. We will show why they are both
reasonable frameworks for a large class of integrals. Moreover, we will show
that Ito's formula can be derived in either framework and that this derivation
is completely algebraic. Finally, we will show that both types of non-geometric
rough path can be re-written as geometric rough paths living above an extended
version of the original path. This means that every non-geometric rough
differential equation can be re-written as a geometric rough differential
equation, hence generalising the Ito-Stratonovich correction formula.

Abstract: Burgers equation is a quasilinear partial differential equation (PDE), proposed in 1930's to model the evolution of turbulent fluid motion, which can be linearized to the heat equation via the celebrated Cole-Hopf transformation. In the first part of the talk, we study in detail general versions of stochastic Burgers equation with random coefficients, in both forward and backward sense. Concerning the former, the Cole-Hopf transformation still applies and we reduce a forward stochastic Burgers equation to a forward stochastic heat equation that can be treated in a “pathwise" manner. In case of deterministic coefficients, we obtain a probabilistic representation of the Cole-Hopf transformation by associating the backward Burgers equation with a system of forward-backward stochastic differential equations (FBSDEs). Returning to random coefficients, we exploit this representation in order to establish a stochastic version of the Cole-Hopf transformation. This generalized transformation allows us to find solutions to a backward stochastic Burgers equation through a backward stochastic heat equation, subject to additional constraints that reflect the presence of randomness in the coefficients. In both settings, forward and backward, stochastic Feynman-Kac formulae are derived for the solutions of the respective stochastic Burgers equations, as well. Finally, an application that illustrates the obtained results is presented to a pricing/hedging problem arising from mathematical finance.

In the second part of the talk, we study a class of stochastic saddlepoint systems, represented by fully coupled FBSDEs with infinite horizon, that gives rise to a continuous time rational expectations / consol rate model with random coefficients. Under standard Lipschitz and monotonicity conditions, and by means of the contraction mapping principle, we establish existence, uniqueness and dependence on a parameter of adapted solutions. Making further the connection with quasilinear backward stochastic PDEs (BSPDEs), we are led to the notion of stochastic viscosity solutions. A stochastic maximum principle for the optimal control problem of a large investor is also provided as an application to this framework.

This is joint work with N. Frangos, X.- I. Kartala and A. N. Yannacopoulos*

The standard Taylor series approach to the higher-order approximation of vector SDEs requires simulation of iterated stochastic integrals, which is difficult. The talk will describe an approach using methods from optimal transport theory which avoid this difficulty in the case of non-degenerate diffusions, for which one can attain arbitrarily high order pathwise approximation in the Vaserstein 2-metric, using easily generated random variables.

If one starts with a uniformly ergodic Markov chain on countable states, what sort of perturbation can one make to the transition rates and still retain uniform ergodicity? In this talk, we will consider a class of perturbations, that can be simply described, where a uniform estimate on convergence to an ergodic distribution can be obtained. We shall see how this is related to Ergodic BSDEs in this setting and outline some novel applications of this approach.

The star-triangle transformation is used to obtain an equivalence extending over a set bond percolation models on isoradial graphs. Amongst the consequences are box-crossing (RSW) inequalities and the universality of alternating arms exponents (assuming they exist) for such models, under some conditions. In particular this implies criticality for these models.

(joint with Geoffrey Grimmett)

I will give a new proof for the famous criteria by Novikov and Kazamaki, which provide sufficient conditions for the martingale property of a nonnegative local martingale. The proof is based on an extension theorem for probability measures that can be considered as a generalization of a Girsanov-type change of measure.

In the second part of my talk I will illustrate how a generalized Girsanov formula can be used to compute the distribution of the explosion time of a weak solution to a stochastic differential equation

Let (V, ≥) be a finite, partially ordered set. Say a directed forest on V is a set of directed edges [x,y&gt; with x ≤ y such that no vertex has indegree greater than one.

Thus for a finite measure μ on some partially ordered measurable space D we may define a Poisson random forest by choosing a set of vertices V according to a Poisson point process weighted by the number of directed forests on V, and selecting a directed forest uniformly.

We give a necessary and sufficient condition for such a process to exist and show that the process may be expressed as a multi-type branching process with type space D.

We build on this observation, together with a construction of the simple birth death process due to Kurtz and Rodrigues [2011] to develop a coalescent theory for rapidly expanding populations.

Abstract: A central question in the theory of random walks on groups is how symmetries of the underlying space gives rise to structure and rigidity of the random walks. For example, for nilpotent groups, it is known that random walks have diffusive behavior, namely that the rate of escape, defined as the expected distance of the walk from the identity satisfies E|Xn|~=n^{1/2}. On nonamenable groups, on the other hand we have E|Xn| ~= n. (~= meaning upto (multiplicative) constants )

In this work, for every 3/4 <= \beta< 1 we construct a finitely generated group so that the expected distance of the simple random walk from its starting point after n steps is n^\beta (up to constants). This answers a question of Vershik, Naor and Peres. In other examples, the speed exponent can fluctuate between any two values in this interval.

Previous examples were only of exponents of the form 1-1/2^k or 1 , and were based on lamplighter (wreath product) constructions.(Other than the standard beta=1/2 and beta=1 known for a wide variety of groups) In this lecture we will describe how a variation of the lamplighter construction, namely the permutational wreath product, can be used to get precise bounds on the rate of escape in terms of return probabilities of the random walk on some Schreier graphs. We will then show how groups of automorphisms of rooted trees, related to automata groups , can be constructed and analyzed to get the desired rate of escape. This is joint work with Balint Virag of the University of Toronto. (Paper available at http://arxiv.org/abs/1203.6226)

No previous knowledge of random walks,automaton groups or wreath products is assumed.

Abstract: Hairer recently had the remarkable insight that Lyons' theory of rough paths can be used to make sense of nonlinear SPDEs that were previously ill-defined due to spatial irregularities. Since rough path theory deals with the integration of functions defined on the real line, the SPDEs studied by Hairer have a one-dimensional spatial index variable. I will show how to combine paraproducts, a notion from functional analysis, with ideas from the theory of controlled rough paths, in order to develop a formulation of rough path theory that works in any index dimension. As an application, I will present existence and uniqueness results for an SPDE with multidimensional spatial index set, for which previously it was not known how to describe solutions. No prior knowledge of rough paths or paraproducts is required for understanding the talk. This is joint work with Massimiliano Gubinelli and Peter Imkeller.

(Joint work with P.E. Chaudru de Raynal and F. Delarue)

Several problems in financial mathematics, in particular that of contingent claim pricing, may be casted as decoupled Forward Backward Stochastic Differential Equations (FBSDEs). It is then of a practical interest to find efficient algorithms to solve these equations numerically with a reasonable complexity.

An efficient numerical approach using cubature on Wiener spaces was introduced by Crisan and Manoralakis [1]. The algorithm uses an approximation scheme requiring the calculation of conditional expectations, a task achieved through the cubature kernel approximation. This algorithm features several advantages, notably the fact that it is possible to solve with the same cubature tree several decoupled FBSDEs with different boundary conditions. There is, however, a drawback of this method: an exponential growth of the algorithm's complexity.

In this talk, we introduce a modification on the cubature method based on the recombination method of Litterer and Lyons [2] (as an alternative to Tree Branch Based Algorithm proposed in [1]). The main idea of the method is to modify the nodes and edges of the cubature trees in such a way as to preserve, up to a constant, the order of convergence of the expectation and conditional expectation approximations obtained via the cubature method, while at the same time controlling the complexity growth of the algorithm.

We have obtained estimations on the order of convergence and complexity growth of the algorithm under smoothness assumptions on the coefficients of the FBSDE and uniform ellipticity of the forward equation. We discuss that, just as in the case of the plain cubature method, the order of convergence of the algorithm may be degraded as an effect of solving FBSDEs with rougher boundary conditions. Finally, we illustrate the obtained estimations with some numerical tests.

References

[1] Crisan, D., and K. Manolarakis. “Solving Backward Stochastic Differential Equations Using the Cubature Method. Application to Nonlinear Pricing.” In Progress in Analysis and Its Applications, 389–397. World Sci. Publ., Hackensack, NJ, 2010.

[2] Litterer, C., and T. Lyons. “High Order Recombination and an Application to Cubature on Wiener Space.” The Annals of Applied Probability 22, no. 4 (August 2012): 1301–1327. doi:10.1214/11-AAP786.

In this talk I will consider the Burgers equation with a homogeneous Possion process as a forcing potential. In recent years, the randomly forced Burgers equation, with forcing that is ergodic in time, received a lot of attention, especially the almost sure existence of unique global solutions with given average velocity, that at each time only depend on the history up to that time. However, in all these results compactness in the space dimension of the forcing was essential. It was even conjectured that in the non-compact setting such unique global solutions would not exist. However, we have managed to use techniques developed for first and last passage percolation models to prove that in the case of Poisson forcing, these global solutions do exist almost surely, due to the existence of semi-infinite minimizers of the Lagrangian action. In this talk I will discuss this result and explain some of the techniques we have used.

This is joined work Yuri Bakhtin and Konstantin Khanin.

Abstract: When a strict local martingale is projected onto a subfiltration to which it is not adapted, the local martingale property may be lost, and the finite variation part of the projection may have singular paths. This phenomenon has consequences for arbitrage theory in mathematical finance. In this paper it is shown that the loss of the local martingale property is related to a measure extension problem for the associated Föllmer measure. When a solution exists, the finite variation part of the projection can be interpreted as the compensator, under the extended measure, of the explosion time of the original local martingale. In a topological setting, this leads to intuitive conditions under which its paths are singular. The measure extension problem is then solved in a Brownian framework, allowing an explicit treatment of several interesting examples.