Function estimation via wavelets for data with long-range dependence

In this paper, we propose a fractional stochastic volatility jump-diffusion model which extends the Bates(1996) model. Where we model the volatility as a fractional process. Extensive empirical studies show that the distributions of the logarithmic returns of financial asset usually exhibit properties of self-similarity and long-range dependence and since the fractional Brownian motion has these two important properties, it has the ability to capture the behavior of underlying asset price. Further incorporating jumps into the stochastic volatility framework gives further freedom to financial mathematicians to fit both the short and long end of the implied volatility surface. We propose a stochastic model which contains both fractional and jump process. Then we price options using Monte Carlo simulations along with a variance reduction technique(antithetic variates). We use market data from the S&P 500 index and we compare our results with the Heston and Bates model using error measures. The results show our model greatly outperforms previous models in terms of estimation accuracy.

Accurate evaluation of the long-range dependence in hydroclimatic time series is important for understanding its inherent characteristics. However, the reliability of its evaluation may be questioned, since different methods may yield various outcomes. In this study, we evaluate the performances of seven widely used methods for estimating long-range dependence: absolute moment estimation, difference variance estimation, residuals variance estimation, rescaled range estimation, periodogram estimation, wavelet estimation (WLE), and discrete second derivative estimation (DSDE). We examine the influences of six major factors: data length, mean value, three nonstationary components (trend, jump, and periodicity), and one stationary component (short-range dependence). Results from the Monte Carlo experiments show that WLE and DSDE have greater credibility than the other five methods. They also reveal that data length, as well as stationary and nonstationary components, have notable influences on the evaluation of long-range dependence. Following it, we use the WLE and DSDE methods to evaluate the long-range dependence of precipitation during 1961–2015 on the Tibetan Plateau. The results indicate that the precipitation variability mirrors the long-range dependence of the Indian summer monsoon but with obvious spatial difference. This result is consistent with the observations made by previous studies, further confirming the superiority of the WLE and DSDE methods. The outcomes from this study have important implications for modeling and prediction of hydroclimatic time series.

Recent results from packet measurement analysis have shown that packet traffic exhibits fractal properties such as self-similarity (or its concomitant, long-range dependence) which are fundamentally different from features found in circuit switched voice traffic and captured by commonly used packet traffic models such as batch-Poisson and Markov modulated Poisson process (MMPP). These fractal properties are associated with the well-known burstiness of packet traffic, and self-similar traffic models (e.g., fractional Brownian motion (FBM)) permit parsimonious descriptions of packet traffic. The FBM model requires only 3 parameters: mean rate, peakedness (a measure of the fluctuations about the mean rate), and the Hurst parameter (characterizing long-range dependence). From the viewpoint of applying such models in practice, the estimation of these parameters is of crucial importance. We use a semi-parametric periodogram-based algorithm (SPA) to estimate the Hurst parameter and the peakedness. The algorithm is based on the fact that the power spectral density (PSD) of long-range dependent processes obey a power-law near the origin (i.e., 1/f-noise). We apply SPA to estimate the traffic parameters of both synthetically generated FBM traces as well as real Ethernet traces. Our analysis indicates that, compared with other methods SPA offers several advantages: (i) the marginals of the traffic time series are not required to be Gaussian (ii) it is computationally efficient (iii) it can estimate the peakedness factor as well as the Hurst parameter.

The long-range dependence and self-similarity of fractional Brownian motion make it an attractive model for traffic in many data transfer networks. Reflected fractional Brownian Motion appears in the storage process of such a network. In this paper, we focus on the simulation of reflected fractional Brownian motion using a straightforward discretization scheme and we show that its strong error is of order hH, where h is the discretization step and H ∈ (0, 1) is the Hurst index.

Traffic measurement studies from a wide range of working packet networks have convincingly established the presence of significant statistical features that are characteristic of fractal traffic processes, in the sense that these features span many time scales. Of particular interest in packet traffic modeling is a property called long-range dependence (LRD), which is marked by the presence of correlations that can extend over many time scales. We demonstrate empirically that, beyond its statistical significance in traffic measurements, long-range dependence has considerable impact on queueing performance, and is a dominant characteristic for a number of packet traffic engineering problems. In addition, we give conditions under which the use of compact and simple traffic models that incorporate long-range dependence in a parsimonious manner (e.g., fractional Brownian motion) is justified and can lead to new insights into the traffic management of high speed networks.

Long-range dependence has been recently asserted to be an important characteristic in modeling telecommunications traffic. Inspired by the integral relationship between the fractional Brownian motion and the standard Brownian motion, we model a process with long-range dependence, Y, as a fractional integral of Riemann-Liouville type applied to a more standard process X—one that does not have long-range dependence. When X takes the form of a sample path process with bounded stationary increments, we provide a criterion for X to satisfy a moderate deviations principle (MDP). Based on the MDP of X, we then establish the MDP for Y. Furthermore, we characterize, in terms of the MDP, the transient behavior of queues when fed with the long-range dependent input process Y. In particular, we identify the most likely path that leads to a large queue, and demonstrate that unlike the case where the input has short-range dependence, the path here is nonlinear.

Strong approximation of fractional Brownian motion by moving averages of simple random walks

<p>Since the fractional $ G $-Brownian motion (fGBm) generalizes the concepts of the standard Brownian motion, fractional Brownian motion, and $ G $-Brownian motion, while it can exhibit long-range dependence or antipersistence and feature the volatility uncertainty simultaneously, it can be a better alternative stochastic process in the financial applications. Thus, in this paper, some empirical studies for the financial applications of the fGBm were carried out, where the recent high-frequency data for some selected assets in the financial market are from the Oxford-Man Institute of Quantitative Finance Realized Library. There are two main empirical findings. One was that the H-$ G $-normal distributions associated with the fGBm are more suitable in describing the dynamics of daily returns and increments of log-volatility for these assets than the usual distributions, since they not only characterize the properties of skewness, excess kurtosis, and long-range dependence $ \left(\frac{1}{2} < H < 1\right) $ or antipersistence $ \left(0 < H < \frac{1}{2}\right) $, but also feature the volatility uncertainty. The other one was that the daily return and log-volatility both behave essentially as fGBm with different $ \underline{\sigma}^2 $ and $ \overline{\sigma}^2 $, but Hurst parameters $ H < \frac{1}{2} $, at any reasonable time scale. Then a generalized stochastic model for the dynamics of the assets called rough fractional stochastic volatility model driven by fGBm (RFSV-fGBm) was developed. Finally, some parameter estimates and numerical experiments for the RFSV-fGBm model were investigated and carried out.</p>

In modeling terrain images corresponding to infrared scenes it has been found the images are characterized by a long-range dependence structure and high variability. The long-range dependence manifests itself in a `1/f' type behavior in the power spectral density and statistical self-similarity, both of which suggest the use of a stochastic fractal model. The traditional stochastic fractal model is fractional Brownian motion, which assumes the increment process arises from a Gaussian distribution. This model has been found to be rather limiting due to this restriction and therefore is incapable of modeling processes possessing high variability and emanating from long-tailed non-Gaussian distributions. Stable distributions have been shown to be good models of such behavior and have been incorporated into the stochastic fractal model, resulting in the fractional Levy stable motion model. The model is demonstrated on a terrain image and is used in an interpolation scheme to improve the resolution of the image.

Heavy traffic analysis for a multiplexer driven by M∨GI∨∞ input processes

Stochastic models for fractal processes

A successful mathematical description of natural landscapes relies upon a class of random processes known as fractional Brownian motions (fBms), which may exhibit correlation with long-range dependence (LRD). In remote sensing applications, the sensor observes a certain real scene <i xmlns:mml="http://www.w3.org/1998/Math/MathML" xmlns:xlink="http://www.w3.org/1999/xlink">B</i> and records data <i xmlns:mml="http://www.w3.org/1998/Math/MathML" xmlns:xlink="http://www.w3.org/1999/xlink">I</i> for successive signal processing tasks. Assuming that <i xmlns:mml="http://www.w3.org/1998/Math/MathML" xmlns:xlink="http://www.w3.org/1999/xlink">B </i> is modeled as an fBm, does the recorded signal <i xmlns:mml="http://www.w3.org/1998/Math/MathML" xmlns:xlink="http://www.w3.org/1999/xlink">I</i> preserve the LRD character of <i xmlns:mml="http://www.w3.org/1998/Math/MathML" xmlns:xlink="http://www.w3.org/1999/xlink">B</i> ? More in general, can we relate the Hurst coefficient (an index of LRD) of the real scene to that of the recorded data? We address the problem in a simplified setup in which the data are related to (the slope of) the original scene through a zero-memory mapping. A mathematical framework is presented in which the above questions can be answered in the asymptotic regime of infinite data size. The effect of the finite sample size is also investigated. The mathematical model is also validated by real data, which are collected by a synthetic aperture radar that is mounted onboard of ERS-1/2 satellites.

Fractional Brownian Motions, Fractional Noises and Applications

Time series modeling and analysis provides means of predicting the future and has been widely used in a variety of fields ranging from seismology for predicting earthquake and volcanic eruption, to finance for risk assessment, and to quantum information processing. The conventional integer order models can only capture short-range dependence; for example, Poisson processes, Markov processes, autoregressive (AR), moving average (MA), autoregressive moving average (ARMA) and autoregressive integrated moving average (ARIMA) processes. In time series analysis, one of the conventional assumptions is that the coupling between values at different time instants decreases rapidly as the time difference or distance increases. However, there are situations where strong coupling between values at different times exhibit properties of long range dependence which cannot be processed by the conventional time series analysis. Typical examples of long range dependence signals include financial time series, underwater noise, electroencephalography (EEG) signal, etc. ARFIMA, a fractional order signal processing technique, is the generalization of the conventional integer order techniques, namely, ARIMA and ARMA methods. Hence, it is capable of capturing both short-range dependence and long-range dependence in signals. Compared to conventional integer order models, the ARFIMA model gives a better fit and result when dealing with the data which possess the long range dependence property. In this paper, we investigate the application of the ARFIMA as well as AR methods to model EEG signals obtained from different brain channels. We analyze the resulting correlations for comparison the benefits of ARFIMA over AR on the EEG data exhibiting the long range dependency property. The results showed that the prediction results have a better performance compared to the conventional ARMA models.

The objective of the present paper is to introduce the concept of a spatially inhomogeneous linear inverse problem where the degree of ill-posedness of operator $Q$ depends not only on the scale but also on location. In this case, the rates of convergence are determined by the interaction of four parameters, the smoothness and spatial homogeneity of the unknown function $f$ and degrees of ill-posedness and spatial inhomogeneity of operator $Q$. Estimators obtained in the paper are based either on wavelet-vaguelette decomposition (if the norms of all vaguelettes are finite) or on a hybrid of wavelet-vaguelette decomposition and Galerkin method (if vaguelettes in the neighborhood of the singularity point have infinite norms). The hybrid estimator is a combination of a linear part in the vicinity of the singularity point and the nonlinear block thresholding wavelet estimator elsewhere. To attain adaptivity, an optimal resolution level for the linear, singularity affected, portion of the estimator is obtained using Lepski [Theory Probab. Appl. 35 (1990) 454-466 and 36 (1991) 682-697] method and is used subsequently as the lowest resolution level for the nonlinear wavelet estimator. We show that convergence rates of the hybrid estimator lie within a logarithmic factor of the optimal minimax convergence rates. The theory presented in the paper is supplemented by examples of deconvolution with a spatially inhomogeneous kernel and deconvolution in the presence of locally extreme noise or extremely inhomogeneous design. The first two problems are examined via a limited simulation study which demonstrates advantages of the hybrid estimator when the degree of spatial inhomogeneity is high. In addition, we apply the technique to recovery of a convolution signal transmitted via amplitude modulation.