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In this manuscript, we develop a nite liquidity framework for two-asset markets. In contrast to the standard multi-asset Black-Scholes framework, trading in our market model has a direct impact on the asset's price. The price impact is incorporated into the dynamics of the first asset through a specific trading strategy, as in large trader liquidity models. We adopt Euler- Maruyama and Milstein scheme in the simulation of asset prices. Exchange and Spread option values are numerically estimated by Monte Carlo with the Margrabe option as a controlled variate. The time complexity of these numerical schemes is included. Finally, we provide some deep learning frameworks to implement these pricing models effectively. / Thesis / Master of Science (MSc)

Accurate estimation of the coefficient of friction (CoF) is essential to accurately modeling railroad dynamics, reducing maintenance costs, and increasing safety factors in rail operations. The assumption of a constant CoF is popularly used in simulation studies for ease of implementation, however many evidences demonstrated that CoF depends on various dynamic parameters and instantaneous conditions. In the real world, accurately estimating the CoF is difficult due to effects of various uncertain parameters, such as wheel and rail materials, rail roughness, contact patch, and so on. In this study, the newly developed 3-D nonlinear CoF model for the dry rail condition is introduced and the CoF variation is tested using this model with dynamic parameters estimated from the wheel-rail simulation model. In order to account for uncertain parameters, a stochastic analysis using the polynomial chaos (poly-chaos) theory is performed using the CoF and wheel-rail dynamics models. The wheel-rail system at a right traction wheel is modeled as a mass-spring-damper system to simulate the basic wheel-rail dynamics and the CoF variation. The wheel-rail model accounts for wheel-rail contact, creepage effect, and creep force, among others. Simulations are performed at train speed of 20 m/s for 4 sec using rail roughness as a unique excitation source. The dynamic simulation has been performed for the deterministic model and for the stochastic model. The dynamics results of the deterministic model provide the starting point for the uncertainty analysis. Six uncertain parameters have been studied with an assumption of 50% uncertainty, intentionally imposed for testing extreme conditions. These parameters are: the maximum amplitude of rail roughness (MARR), the wheel lateral displacement, the track stiffness and damping coefficient, the sleeper distance, and semi-elliptical contact lengths. A symmetric beta distribution is assumed for these six uncertain parameters. The PDF of the CoF has been obtained for each uncertain parameter study, for combinations of two different uncertain parameters, and also for combinations of three different uncertain parameters. The results from the deterministic model show acceptable vibration results for the body, the wheel, and the rail. The introduced CoF model demonstrates the nonlinear variation of the total CoF, the stick component, and the slip component. In addition, it captures the maximum CoF value (initial peak) successfully. The stochastic analysis results show that the total CoF PDF before 1 sec is dominantly affected by the stick phenomenon, while the slip dominantly influences the total CoF PDF after 1 sec. Although a symmetric distribution has been used for the uncertain parameters considered, the uncertainty in the response obtained displayed a skewed distribution for some of the situations investigated. The CoF PDFs obtained from simulations with combinations of two and three uncertain parameters have wider PDF ranges than those obtained for only one uncertain parameter. FFT analysis using the rail displacement has been performed for the qualitative validation of the stochastic simulation result due to the absence of the experimental data. The FFT analysis of the deterministic rail displacement and of the stochastic rail displacement with uncertainties demonstrates consistent trends commensurate with loss of tractive efficiency, such as the bandwidth broadening, peak frequency shifts, and side band occurrence. Thus, the FFT analysis validates qualitatively that the stochastic modeling with various uncertainties is well executed and is reflecting observable, real-world results. In conclusions, the development of an effective model which helps to understand the nonlinear nature of wheel-rail friction is critical to the progress of railroad component technology and rail safety. In the real world, accurate estimation of the CoF at the wheel-rail interface is very difficult since it is influenced by several uncertain parameters as illustrated in this study. Using the deterministic CoF value can cause underestimation or overestimation of CoF values leading to inaccurate decisions in the design of the wheel-rail system. Thus, the possible PDF ranges of the CoF according to key uncertain parameters must be considered in the design of the wheel-rail system. / Ph. D.

The valuation of many types of financial contracts and contingent claim agreements is complicated by the possibility that one party will default on their contractual obligations. This dissertation develops a general model that prices Black-Scholes options subject to intertemporal default risk using stochastic barrier option pricing theory. The explicit closed-form solution is obtained by generalizing the reflection principle to k-space to determine the appropriate transition density function. The European analytical valuation formula has a straightforward economic interpretation and preserves much of the intuitive appeal of the traditional Black-Scholes model. The hedging properties of this model are compared and contrasted with the default-free model. The model is extended to include partial recoveries. In one situation, the option holder is assumed to recover α (a constant) percent of the value of the writer’s assets at the time of default. This version of the partial recovery option leads to an analytical valuation formula for a first passage option - an option with a random payoff at a random time. / Ph. D.

This dissertation studies the pricing of Outside barrier call options, when their activation starts at a hitting time. The pricing of Outside barrier options when their activation starts at time zero, and the pricing of standard barrier options when their activation starts at a hitting time of a pre speci ed barrier level, have been studied previously (see [21], [24]). The new work that this dissertation will do is to price Outside barrier call options, where they will be activated when the triggering asset crosses or hits a pre speci ed barrier level, and also the pricing of Outside barrier call options where they will be activated when the triggering asset crosses or hits a sequence of two pre specifed barrier levels. Closed form solutions are derived using Girsanov's theorem and the re ection principle. Existing results are derived from the new results, and properties of the new results are illustrated numerically and discussed. / Mathematical Sciences / M. Sc. (Applied Mathematics)

This doctoral thesis is concerned with some theoretical and practical questions related to backward stochastic differential equations (BSDEs) and more specifically their connection with some parabolic partial differential equations (PDEs). The thesis is made of three parts. In the first part, we study the probabilistic representation for a class of multidimensional PDEs with quadratic nonlinearities of a special form. We obtain a representation formula for the PDE solution in terms of the solutions to a Lipschitz BSDE. We then use this representation to obtain an estimate on the gradient of the PDE solutions by probabilistic means. In the course of our analysis, we are led to prove some results for the associated multidimensional quadratic BSDEs, namely an existence result and a partial uniqueness result. In the second part, we study the well-posedness of a very general quadratic reflected BSDE driven by a continuous martingale. We obtain the comparison theorem, the special comparison theorem for reflected BSDEs (which allows to compare the increasing processes of two solutions), the uniqueness and existence of solutions, as well as a stability result. The comparison theorem (from which uniqueness follows) and the special comparison theorem are obtained through natural techniques and minimal assumptions. The existence is based on a perturbative procedure, and holds for a driver whis is Lipschitz, or slightly-superlinear, or monotone with arbitrary growth in y. Finally, we obtain a stability result, which gives in particular a local Lipschitz estimate in BMO for the martingale part of the solution. In the third and last part, we study the time-discretization of BSDEs having nonlinearities that are monotone but with polynomial growth in the primary variable. We show that in that case, the explicit Euler scheme is likely to diverge, while the implicit scheme converges. In fact, by studying the family of θ-schemes, which are mixed explicit-implicit, θ characterizing the degree of implicitness, we find that the scheme converges when the implicit component is dominant (θ ≥ 1/2 ). We then propose a tamed explicit scheme, which converges. We show that the implicit-dominant schemes with θ > 1/2 and our tamed explicit scheme converge with order 1/2 , while the trapezoidal scheme (θ = 1/2) converges with order 7/4.

This research aims at understanding the conditions that lead to reaction initiation of polymer-bonded explosives (PBXs) as they undergo mechanical and thermal processes subsequent to impact. To analyze this issue, a cohesive finite element method (CFEM) based finite deformation framework is developed and used to quantify the thermomechanical response of PBXs at the microstructure level. This framework incorporates the effects of large deformation, thermomechanical coupling, failure in the forms of micro-cracks in both bulk constituents and along grain/matrix interfaces, and frictional heating. A novel criterion for the ignition of heterogeneous energetic materials under impact loading is developed, which is used to quantify the critical impact velocity, critical time to ignition, and critical input work at ignition for non-shock conditions as functions of microstructure of granular HMX and PBX. A threshold relation between impact velocity and critical input energy at ignition for non-shock loading is developed, involving an energy cutoff and permitting the effects of microstructure and loading to be accounted for. Finally, a novel approach for computationally predicting and quantifying the stochasticity of the ignition process in energetic materials is developed, allowing prediction of the critical time to ignition and the critical impact velocity below which no ignition occurs based on basic material properties and microstructure attributes. Results are cast in the form of the Weibull distribution and used to establish microstructure-ignition behavior relations.

Stochastic dynamic programming is a recursive method for solving sequential or multistage decision problems. It helps economists and mathematicians construct and solve a huge variety of sequential decision making problems in stochastic cases. Research on stochastic dynamic programming is important and meaningful because stochastic dynamic programming reflects the behavior of the decision maker without risk aversion; i.e., decision making under uncertainty. In the solution process, it is extremely difficult to represent the existing or future state precisely since uncertainty is a state of having limited knowledge. Indeed, compared to the deterministic case, which is decision making under certainty, the stochastic case is more realistic and gives more accurate results because the majority of problems in reality inevitably have many unknown parameters. In addition, time scale calculus theory is applicable to any field in which a dynamic process can be described with discrete or continuous models. Many stochastic dynamic models are discrete or continuous, so the results of time scale calculus are directly applicable to them as well. The aim of this thesis is to introduce a general form of a stochastic dynamic sequence problem on complex discrete time domains and to find the optimal sequence which maximizes the sequence problem.

Thesis (M.S.)--University of North Carolina Wilmington, 2009. / Title from PDF title page (February 16, 2010) Includes bibliographical references (p. 30)

Thesis (M.S.)--University of North Carolina Wilmington, 2009. / Title from PDF title page (February 16, 2010) Includes bibliographical references (p. 34-35)