Phase transition in a log-normal Markov functional model

DOI10.1063/1.3526679zbMATH Open1314.82016arXiv1007.0691OpenAlexW3124495278MaRDI QIDQ5256183FDOQ5256183

Authors: Dan Pirjol 

Publication date: 22 June 2015

Published in: Journal of Mathematical Physics (Search for Journal in Brave)

Abstract: We derive the exact solution of a one-dimensional Markov functional model with log-normally distributed interest rates in discrete time. The model is shown to have two distinct limiting states, corresponding to small and asymptotically large volatilities, respectively. These volatility regimes are separated by a phase transition at some critical value of the volatility. We investigate the conditions under which this phase transition occurs, and show that it is related to the position of the zeros of an appropriately defined generating function in the complex plane, in analogy with the Lee-Yang theory of the phase transitions in condensed matter physics.

Full work available at URL: https://arxiv.org/abs/1007.0691

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Mathematics Subject Classification ID

Discrete-time Markov processes on general state spaces (60J05) Phase transitions (general) in equilibrium statistical mechanics (82B26) Critical phenomena in equilibrium statistical mechanics (82B27) Stochastic methods applied to problems in equilibrium statistical mechanics (82B31)

Cites Work

• Title not available (Why is that?)
• Statistical Theory of Equations of State and Phase Transitions. II. Lattice Gas and Ising Model
• Interest rate models -- theory and practice. With smile, inflation and credit
• On truncated Taylor series and the position of their spurious zeros
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• Markov-functional interest rate models
• Arbitrage-free discretization of lognormal forward Libor and swap rate models
• MARKOV MARKET MODEL CONSISTENT WITH CAP SMILE

Cited In (6)

• Hogan–Weintraub singularity and explosive behaviour in the Black–Derman–Toy model
• Inequality of chances as a symmetry phase transition
• A Unified Framework for Estimation in Lognormal Models
• Emergence of heavy-tailed distributions in a random multiplicative model driven by a Gaussian stochastic process
• Explosive behavior in a log-normal interest rate model
• Explosive behavior in the Black-Derman-Toy model

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