Black-Scholes Theory and Diffusion Processes on the Cotangent Bundle of the Affine Group

The Black-Scholes partial differential equation (PDE) from mathematical finance has been analysed extensively and it is well known that the equation can be reduced to a heat equation on Euclidean space by a logarithmic transformation of variables. However, an alternative interpretation is proposed in this paper by reframing the PDE as evolving on a Lie group. This equation can be transformed into a diffusion process and solved using mean and covariance propagation techniques developed previously in the context of solving Fokker–Planck equations on Lie groups. An extension of the Black-Scholes theory with coupled asset dynamics produces a diffusion equation on the affine group, which is not a unimodular group. In this paper, we show that the cotangent bundle of a Lie group endowed with a semidirect product group operation, constructed in this paper for the case of groups with trivial centers, is always unimodular and considering PDEs as diffusion processes on the unimodular cotangent bundle group allows a direct application of previously developed mean and covariance propagation techniques, thereby offering an alternative means of solution of the PDEs. Ultimately these results, provided here in the context of PDEs in mathematical finance may be applied to PDEs arising in a variety of different fields and inform new methods of solution.

Effective Computational Approach for Prediction and Estimation of Space Object Breakup Dispersion during Uncontrolled Reentry

This paper provides an effective approach for the prediction and estimation of space debris due to a vehicle breakup during uncontrolled reentry. For an advanced analysis of the time evolution of space debris dispersion, new efficient computational approaches are proposed. A time evolution of the dispersion of space pieces from a breakup event to the ground impact time is represented in terms of covariance ellipsoids, and in this paper, two covariance propagation methods are introduced. First, a derivative-free statistical linear regression method using the unscented transformation is utilized for performing a covariance propagation. Second, a novel Gaussian moment-matching method is proposed to compute the estimation of the covariance of a debris dispersion by using a Gauss-Hermite cubature-based numerical integration approach. Compared to a linearized covariance propagation method such as the Lyapunov covariance equation, the newly proposed Gauss-Hermite cubature-based covariance computation approach could provide high flexibilities in terms of effectively representing an initial debris dispersion and also precisely computing the time evolution of the covariance matrices by utilizing a larger set of sigma points representing debris components. In addition, we also carry out a parametric study in order to analyze the effects on the accuracy of the covariance propagation due to modeling uncertainties. The effectiveness of the newly proposed statistical linear regression method and the Gauss-Hermite computational approach is demonstrated by carrying out various simulations.

Integrating uncertainty propagation in GNSS radio occultation retrieval: from excess phase to atmospheric bending angle profiles

Global Navigation Satellite System (GNSS) radio occultation (RO) observations are highly accurate, long-term stable data sets and are globally available as a continuous record from 2001. Essential climate variables for the thermodynamic state of the free atmosphere – such as pressure, temperature, and tropospheric water vapor profiles (involving background information) – can be derived from these records, which therefore have the potential to serve as climate benchmark data. However, to exploit this potential, atmospheric profile retrievals need to be very accurate and the remaining uncertainties quantified and traced throughout the retrieval chain from raw observations to essential climate variables. The new Reference Occultation Processing System (rOPS) at the Wegener Center aims to deliver such an accurate RO retrieval chain with integrated uncertainty propagation. Here we introduce and demonstrate the algorithms implemented in the rOPS for uncertainty propagation from excess phase to atmospheric bending angle profiles, for estimated systematic and random uncertainties, including vertical error correlations and resolution estimates. We estimated systematic uncertainty profiles with the same operators as used for the basic state profiles retrieval. The random uncertainty is traced through covariance propagation and validated using Monte Carlo ensemble methods. The algorithm performance is demonstrated using test day ensembles of simulated data as well as real RO event data from the satellite missions CHAllenging Minisatellite Payload (CHAMP); Constellation Observing System for Meteorology, Ionosphere, and Climate (COSMIC); and Meteorological Operational Satellite A (MetOp). The results of the Monte Carlo validation show that our covariance propagation delivers correct uncertainty quantification from excess phase to bending angle profiles. The results from the real RO event ensembles demonstrate that the new uncertainty estimation chain performs robustly. Together with the other parts of the rOPS processing chain this part is thus ready to provide integrated uncertainty propagation through the whole RO retrieval chain for the benefit of climate monitoring and other applications.

Integrating uncertainty propagation in GNSS radio occultation retrieval: from excess phase to atmospheric bending angle profiles

Global Navigation Satellite System (GNSS) radio occultation (RO) observations are highly accurate, long-term stable data sets, and are globally available as a continuous record since 2001. Essential climate variables for the thermodynamic state of the free atmosphere, such as pressure, temperature and tropospheric water vapor profiles (involving background information), can be derived from these records, which therefore have the potential to serve as climate benchmark data. However, to exploit this potential, atmospheric profile retrievals need to be very accurate and the remaining uncertainties quantified and traced throughout the retrieval chain from raw observations to essential climate variables. The new Reference Occultation Processing System (rOPS) at the Wegener Center aims to deliver such an accurate RO retrieval chain with integrated uncertainty propagation. Here we introduce and demonstrate the algorithms implemented in the rOPS for uncertainty propagation from excess phase to atmospheric bending angle profiles, for estimated systematic and random uncertainties, including vertical error correlations and resolution estimates. We estimated systematic uncertainty profiles with the same operators as used for the basic state profiles retrieval. The random uncertainty is traced through covariance propagation and validated using Monte-Carlo ensemble methods. The algorithm performance is demonstrated using test-day ensembles of simulated data as well as real RO event data from the satellite missions CHAMP and COSMIC. The results of the Monte-Carlo validation show that our covariance propagation delivers correct uncertainty quantification from excess phase to bending angle profiles. The results from the real RO event ensembles demonstrate that the new uncertainty estimation chain performs robustly. Together with the other parts of the rOPS processing chain this part is thus ready to provide integrated uncertainty propagation through the whole RO retrieval chain for the benefit of climate monitoring and other applications