Incomplete Markets and Calibrations for Coherence with Hedged Portfolios. Thought of the Day 154.0



In complete market models such as the Black-Scholes model, probability does not really matter: the “objective” evolution of the asset is only there to define the set of “impossible” events and serves to specify the class of equivalent measures. Thus, two statistical models P1 ∼ P2 with equivalent measures lead to the same option prices in a complete market setting.

This is not true anymore in incomplete markets: probabilities matter and model specification has to be taken seriously since it will affect hedging decisions. This situation is more realistic but also more challenging and calls for an integrated approach between option pricing methods and statistical modeling. In incomplete markets, not only does probability matter but attitudes to risk also matter: utility based methods explicitly incorporate these into the hedging problem via utility functions. While these methods are focused on hedging with the underlying asset, common practice is to use liquid call/put options to hedge exotic options. In incomplete markets, options are not redundant assets; therefore, if options are available as hedging instruments they can and should be used to improve hedging performance.

While the lack of liquidity in the options market prevents in practice from using dynamic hedges involving options, options are commonly used for static hedging: call options are frequently used for dealing with volatility or convexity exposures and for hedging barrier options.

What are the implications of hedging with options for the choice of a pricing rule? Consider a contingent claim H and assume that we have as hedging instruments a set of benchmark options with prices Ci, i = 1 . . . n and terminal payoffs Hi, i = 1 . . . n. A static hedge of H is a portfolio composed from the options Hi, i = 1 . . . n and the numeraire, in order to match as closely as possible the terminal payoff of H:

H = V0 + ∑i=1n xiHi + ∫0T φdS + ε —– (1)

where ε is an hedging error representing the nonhedgeable risk. Typically Hi are payoffs of call or put options and are not possible to replicate using the underlying so adding them to the hedge portfolio increases the span of hedgeable claims and reduces residual risk.

Consider a pricing rule Q. Assume that EQ[ε] = 0 (otherwise EQ[ε] can be added to V0). Then the claim H is valued under Q as:

e-rTEQ[H] = V0 ∑i=1n xe-rTEQ[Hi] —– (2)

since the stochastic integral term, being a Q-martingale, has zero expectation. On the other hand, the cost of setting up the hedging portfolio is:

V0 + ∑i=1n xCi —– (3)

So the value of the claim given by the pricing rule Q corresponds to the cost of the hedging portfolio if the model prices of the benchmark options Hi correspond to their market prices Ci:

∀i = 1, …, n

e-rTEQ[Hi] = Ci∗ —– (4)

This condition is called calibration, where a pricing rule verifies the calibration of the option prices Ci, i = 1, . . . , n. This condition is necessary to guarantee the coherence between model prices and the cost of hedging with portfolios and if the model is not calibrated then the model price for a claim H may have no relation with the effective cost of hedging it using the available options Hi. If a pricing rule Q is specified in an ad hoc way, the calibration conditions will not be verified, and thus one way to ensure them is to incorporate them as constraints in the choice of the pricing measure Q.


Self-Financing and Dynamically Hedged Portfolio – Robert Merton’s Option Pricing. Thought of the Day 153.0


As an alternative to the riskless hedging approach, Robert Merton derived the option pricing equation via the construction of a self-financing and dynamically hedged portfolio containing the risky asset, option and riskless asset (in the form of money market account). Let QS(t) and QV(t) denote the number of units of asset and option in the portfolio, respectively, and MS(t) and MV(t) denote the currency value of QS(t) units of asset and QV(t) units of option, respectively. The self-financing portfolio is set up with zero initial net investment cost and no additional funds are added or withdrawn afterwards. The additional units acquired for one security in the portfolio is completely financed by the sale of another security in the same portfolio. The portfolio is said to be dynamic since its composition is allowed to change over time. For notational convenience, dropping the subscript t for the asset price process St, the option value process Vt and the standard Brownian process Zt. The portfolio value at time t can be expressed as

Π(t) = MS(t) + MV(t) + M(t) = QS(t)S + QV(t)V + M(t) —– (1)

where M(t) is the currency value of the riskless asset invested in a riskless money market account. Suppose the asset price process is governed by the stochastic differential equation (1) in here, we apply the Ito lemma to obtain the differential of the option value V as:

dV = ∂V/∂t dt + ∂V/∂S dS + σ2/2 S22V/∂S2 dt = (∂V/∂t + μS ∂V/∂S σ2/2 S22V/∂S2)dt + σS ∂V/∂S dZ —– (2)

If we formally write the stochastic dynamics of V as

dV/V = μV dt + σV dZ —– (3)

then μV and σV are given by

μV = (∂V/∂t + ρS ∂V/∂S + σ2/2 S22V/∂S2)/V —– (4)


σV = (σS ∂V/∂S)/V —– (5)

The instantaneous currency return dΠ(t) of the above portfolio is attributed to the differential price changes of asset and option and interest accrued, and the differential changes in the amount of asset, option and money market account held. The differential of Π(t) is computed as:

dΠ(t) = [QS(t) dS + QV(t) dV + rM(t) dt] + [S dQS(t) + V dQV(t) + dM(t)] —– (6)

where rM(t)dt gives the interest amount earned from the money market account over dt and dM(t) represents the change in the money market account held due to net currency gained/lost from the sale of the underlying asset and option in the portfolio. And if the portfolio is self-financing, the sum of the last three terms in the above equation is zero. The instantaneous portfolio return dΠ(t) can then be expressed as:

dΠ(t) = QS(t) dS + QV(t) dV + rM(t) dt = MS(t) dS/S + MV(t) dV/V +  rM(t) dt —– (7)

Eliminating M(t) between (1) and (7) and expressing dS/S and dV/V in terms of their stochastic dynamics, we obtain

dΠ(t) = [(μ − r)MS(t) + (μV − r)MV(t)]dt + [σMS(t) + σV MV(t)]dZ —– (8)

How can we make the above self-financing portfolio instantaneously riskless so that its return is non-stochastic? This can be achieved by choosing an appropriate proportion of asset and option according to

σMS(t) + σV MV(t) = σS QS(t) + σS ∂V/∂S QV(t) = 0

that is, the number of units of asset and option in the self-financing portfolio must be in the ratio

QS(t)/QV(t) = -∂V/∂S —– (9)

at all times. The above ratio is time dependent, so continuous readjustment of the portfolio is necessary. We now have a dynamic replicating portfolio that is riskless and requires zero initial net investment, so the non-stochastic portfolio return dΠ(t) must be zero.

(8) becomes

0 = [(μ − r)MS(t) + (μV − r)MV(t)]dt

substituting the ratio factor in the above equation, we get

(μ − r)S ∂V/∂S = (μV − r)V —– (10)

Now substituting μfrom (4) into the above equation, we get the black-Scholes equation for V,

∂V/∂t + σ2/2 S22V/∂S2 + rS ∂V/∂S – rV = 0

Suppose we take QV(t) = −1 in the above dynamically hedged self-financing portfolio, that is, the portfolio always shorts one unit of the option. By the ratio factor, the number of units of risky asset held is always kept at the level of ∂V/∂S units, which is changing continuously over time. To maintain a self-financing hedged portfolio that constantly keeps shorting one unit of the option, we need to have both the underlying asset and the riskfree asset (money market account) in the portfolio. The net cash flow resulting in the buying/selling of the risky asset in the dynamic procedure of maintaining ∂V/∂S units of the risky asset is siphoned to the money market account.

Derivative Pricing Theory: Call, Put Options and “Black, Scholes'” Hedged Portfolio.Thought of the Day 152.0



Fischer Black and Myron Scholes revolutionized the pricing theory of options by showing how to hedge continuously the exposure on the short position of an option. Consider the writer of a call option on a risky asset. S/he is exposed to the risk of unlimited liability if the asset price rises above the strike price. To protect the writer’s short position in the call option, s/he should consider purchasing a certain amount of the underlying asset so that the loss in the short position in the call option is offset by the long position in the asset. In this way, the writer is adopting the hedging procedure. A hedged position combines an option with its underlying asset so as to achieve the goal that either the asset compensates the option against loss or otherwise. By adjusting the proportion of the underlying asset and option continuously in a portfolio, Black and Scholes demonstrated that investors can create a riskless hedging portfolio where the risk exposure associated with the stochastic asset price is eliminated. In an efficient market with no riskless arbitrage opportunity, a riskless portfolio must earn an expected rate of return equal to the riskless interest rate.

Black and Scholes made the following assumptions on the financial market.

  1. Trading takes place continuously in time.
  2. The riskless interest rate r is known and constant over time.
  3. The asset pays no dividend.
  4. There are no transaction costs in buying or selling the asset or the option, and no taxes.
  5. The assets are perfectly divisible.
  6. There are no penalties to short selling and the full use of proceeds is permitted.
  7. There are no riskless arbitrage opportunities.

The stochastic process of the asset price St is assumed to follow the geometric Brownian motion

dSt/St = μ dt + σ dZt —– (1)

where μ is the expected rate of return, σ is the volatility and Zt is the standard Brownian process. Both μ and σ are assumed to be constant. Consider a portfolio that involves short selling of one unit of a call option and long holding of Δt units of the underlying asset. The portfolio value Π (St, t) at time t is given by

Π = −c + Δt St —– (2)

where c = c(St, t) denotes the call price. Note that Δt changes with time t, reflecting the dynamic nature of hedging. Since c is a stochastic function of St, we apply the Ito lemma to compute its differential as follows:

dc = ∂c/∂t dt + ∂c/∂St dSt + σ2/2 St2 ∂2c/∂St2 dt

such that

-dc + Δt dS= (-∂c/∂t – σ2/2 St2 ∂2c/∂St2)dt + (Δ– ∂c/∂St)dSt

= [-∂c/∂t – σ2/2 St2 ∂2c/∂St+ (Δ– ∂c/∂St)μSt]dt + (Δ– ∂c/∂St)σSdZt

The cumulative financial gain on the portfolio at time t is given by

G(Π (St, t )) = ∫0t -dc + ∫0t Δu dSu

= ∫0t [-∂c/∂u – σ2/2 Su22c/∂Su2 + (Δ– ∂c/∂Su)μSu]du + ∫0t (Δ– ∂c/∂Su)σSdZ—– (3)

The stochastic component of the portfolio gain stems from the last term, ∫0t (Δ– ∂c/∂Su)σSdZu. Suppose we adopt the dynamic hedging strategy by choosing Δu = ∂c/∂Su at all times u < t, then the financial gain becomes deterministic at all times. By virtue of no arbitrage, the financial gain should be the same as the gain from investing on the risk free asset with dynamic position whose value equals -c + Su∂c/∂Su. The deterministic gain from this dynamic position of riskless asset is given by

Mt = ∫0tr(-c + Su∂c/∂Su)du —– (4)

By equating these two deterministic gains, G(Π (St, t)) and Mt, we have

-∂c/∂u – σ2/2 Su22c/∂Su2 = r(-c + Su∂c/∂Su), 0 < u < t

which is satisfied for any asset price S if c(S, t) satisfies the equation

∂c/∂t + σ2/2 S22c/∂S+ rS∂c/∂S – rc = 0 —– (5)

This parabolic partial differential equation is called the Black–Scholes equation. Strangely, the parameter μ, which is the expected rate of return of the asset, does not appear in the equation.

To complete the formulation of the option pricing model, let’s prescribe the auxiliary condition. The terminal payoff at time T of the call with strike price X is translated into the following terminal condition:

c(S, T ) = max(S − X, 0) —– (6)

for the differential equation.

Since both the equation and the auxiliary condition do not contain ρ, one concludes that the call price does not depend on the actual expected rate of return of the asset price. The option pricing model involves five parameters: S, T, X, r and σ. Except for the volatility σ, all others are directly observable parameters. The independence of the pricing model on μ is related to the concept of risk neutrality. In a risk neutral world, investors do not demand extra returns above the riskless interest rate for bearing risks. This is in contrast to usual risk averse investors who would demand extra returns above r for risks borne in their investment portfolios. Apparently, the option is priced as if the rates of return on the underlying asset and the option are both equal to the riskless interest rate. This risk neutral valuation approach is viable if the risks from holding the underlying asset and option are hedgeable.

The governing equation for a put option can be derived similarly and the same Black–Scholes equation is obtained. Let V (S, t) denote the price of a derivative security with dependence on S and t, it can be shown that V is governed by

∂V/∂t + σ2/2 S22V/∂S+ rS∂V/∂S – rV = 0 —– (7)

The price of a particular derivative security is obtained by solving the Black–Scholes equation subject to an appropriate set of auxiliary conditions that model the corresponding contractual specifications in the derivative security.

The original derivation of the governing partial differential equation by Black and Scholes focuses on the financial notion of riskless hedging but misses the precise analysis of the dynamic change in the value of the hedged portfolio. The inconsistencies in their derivation stem from the assumption of keeping the number of units of the underlying asset in the hedged portfolio to be instantaneously constant. They take the differential change of portfolio value Π to be

dΠ =−dc + Δt dSt,

which misses the effect arising from the differential change in Δt. The ability to construct a perfectly hedged portfolio relies on the assumption of continuous trading and continuous asset price path. It has been commonly agreed that the assumed Geometric Brownian process of the asset price may not truly reflect the actual behavior of the asset price process. The asset price may exhibit jumps upon the arrival of a sudden news in the financial market. The interest rate is widely recognized to be fluctuating over time in an irregular manner rather than being constant. For an option on a risky asset, the interest rate appears only in the discount factor so that the assumption of constant/deterministic interest rate is quite acceptable for a short-lived option. The Black–Scholes pricing approach assumes continuous hedging at all times. In the real world of trading with transaction costs, this would lead to infinite transaction costs in the hedging procedure.

Philosophical Equivariance – Sewing Holonomies Towards Equal Trace Endomorphisms.

In d-dimensional topological field theory one begins with a category S whose objects are oriented (d − 1)-manifolds and whose morphisms are oriented cobordisms. Physicists say that a theory admits a group G as a global symmetry group if G acts on the vector space associated to each (d−1)-manifold, and the linear operator associated to each cobordism is a G-equivariant map. When we have such a “global” symmetry group G we can ask whether the symmetry can be “gauged”, i.e., whether elements of G can be applied “independently” – in some sense – at each point of space-time. Mathematically the process of “gauging” has a very elegant description: it amounts to extending the field theory functor from the category S to the category SG whose objects are (d − 1)-manifolds equipped with a principal G-bundle, and whose morphisms are cobordisms with a G-bundle. We regard S as a subcategory of SG by equipping each (d − 1)-manifold S with the trivial G-bundle S × G. In SG the group of automorphisms of the trivial bundle S × G contains G, and so in a gauged theory G acts on the state space H(S): this should be the original “global” action of G. But the gauged theory has a state space H(S,P) for each G-bundle P on S: if P is non-trivial one calls H(S,P) a “twisted sector” of the theory. In the case d = 2, when S = S1 we have the bundle Pg → S1 obtained by attaching the ends of [0,2π] × G via multiplication by g. Any bundle is isomorphic to one of these, and Pg is isomorphic to Pg iff g′ is conjugate to g. But note that the state space depends on the bundle and not just its isomorphism class, so we have a twisted sector state space Cg = H(S,Pg) labelled by a group element g rather than by a conjugacy class.

We shall call a theory defined on the category SG a G-equivariant Topological Field Theory (TFT). It is important to distinguish the equivariant theory from the corresponding “gauged theory”. In physics, the equivariant theory is obtained by coupling to nondynamical background gauge fields, while the gauged theory is obtained by “summing” over those gauge fields in the path integral.

An alternative and equivalent viewpoint which is especially useful in the two-dimensional case is that SG is the category whose objects are oriented (d − 1)-manifolds S equipped with a map p : S → BG, where BG is the classifying space of G. In this viewpoint we have a bundle over the space Map(S,BG) whose fibre at p is Hp. To say that Hp depends only on the G-bundle pEG on S pulled back from the universal G-bundle EG on BG by p is the same as to say that the bundle on Map(S,BG) is equipped with a flat connection allowing us to identify the fibres at points in the same connected component by parallel transport; for the set of bundle isomorphisms p0EG → p1EG is the same as the set of homotopy classes of paths from p0 to p1. When S = S1 the connected components of the space of maps correspond to the conjugacy classes in G: each bundle Pg corresponds to a specific point pg in the mapping space, and a group element h defines a specific path from pg to phgh−1 .

G-equivariant topological field theories are examples of “homotopy topological field theories”. Using Vladimir Turaev‘s two main results: first, an attractive generalization of the theorem that a two-dimensional TFT “is” a commutative Frobenius algebra, and, secondly, a classification of the ways of gauging a given global G-symmetry of a semisimple TFT.


Definition of the product in the G-equivariant closed theory. The heavy dot is the basepoint on S1. To specify the morphism unambiguously we must indicate consistent holonomies along a set of curves whose complement consists of simply connected pieces. These holonomies are always along paths between points where by definition the fibre is G. This means that the product is not commutative. We need to fix a convention for holonomies of a composition of curves, i.e., whether we are using left or right path-ordering. We will take h(γ1 ◦ γ2) = h(γ1) · h(γ2).

A G-equivariant TFT gives us for each element g ∈ G a vector space Cg, associated to the circle equipped with the bundle pg whose holonomy is g. The usual pair-of-pants cobordism, equipped with the evident G-bundle which restricts to pg1 and pg2 on the two incoming circles, and to pg1g2 on the outgoing circle, induces a product

Cg1 ⊗ Cg2 → Cg1g2 —– (1)


making C := ⊕g∈GCg into a G-graded algebra. Also there is a trace θ: C1  → C defined by the disk diagram with one ingoing circle. The holonomy around the boundary of the disk must be 1. Making the standard assumption that the cylinder corresponds to the unit operator we obtain a non-degenerate pairing

Cg ⊗ Cg−1 → C

A new element in the equivariant theory is that G acts as an automorphism group on C. That is, there is a homomorphism α : G → Aut(C) such that

αh : Cg → Chgh−1 —– (2)

Diagramatically, αh is defined by the surface in the immediately above figure. Now let us note some properties of α. First, if φ ∈ Ch then αh(φ) = φ. The reason for this is diagrammatically in the below figure.


If the holonomy along path P2 is h then the holonomy along path P1 is 1. However, a Dehn twist around the inner circle maps P1 into P2. Therefore, αh(φ) = α1(φ) = φ, if φ ∈ Ch.

Next, while C is not commutative, it is “twisted-commutative” in the following sense. If φ1 ∈ Cg1 and φ2 ∈ Cg2 then

αg212 = φ2φ1 —– (3)

The necessity of this condition is illustrated in the figure below.


The trace of the identity map of Cg is the partition function of the theory on a torus with the bundle with holonomy (g,1). Cutting the torus the other way, we see that this is the trace of αg on C1. Similarly, by considering the torus with a bundle with holonomy (g,h), where g and h are two commuting elements of G, we see that the trace of αg on Ch is the trace of αh on Cg−1. But we need a strengthening of this property. Even when g and h do not commute we can form a bundle with holonomy (g,h) on a torus with one hole, around which the holonomy will be c = hgh−1g−1. We can cut this torus along either of its generating circles to get a cobordism operator from Cc ⊗ Ch to Ch or from Cg−1 ⊗ Cc to Cg−1. If ψ ∈ Chgh−1g−1. Let us introduce two linear transformations Lψ, Rψ associated to left- and right-multiplication by ψ. On the one hand, Lψαg : φ􏰀 ↦ ψαg(φ) is a map Ch → Ch. On the other hand Rψαh : φ ↦ αh(φ)ψ is a map Cg−1 → Cg−1. The last sewing condition states that these two endomorphisms must have equal traces:

TrCh 􏰌Lψαg􏰍 = TrCg−1 􏰌Rψαh􏰍 —– (4)



(4) was taken by Turaev as one of his axioms. It can, however, be reexpressed in a way that we shall find more convenient. Let ∆g ∈ Cg ⊗ Cg−1 be the “duality” element corresponding to the identity cobordism of (S1,Pg) with both ends regarded as outgoing. We have ∆g = ∑ξi ⊗ ξi, where ξi and ξi ru􏰟n through dual bases of Cg and Cg−1. Let us also write

h = ∑ηi ⊗ ηi ∈ Ch ⊗ Ch−1. Then (4) is easily seen to be equivalent to

∑αhii = 􏰟 ∑ηiαgi) —– (5)

in which both sides are elements of Chgh−1g−1.

Playing in the Dark: How Online Games Provide Shelter for Criminal Organizations in the Surveillance Age?


The “architecture of the Internet also lends itself to vulnerabilities and makes it more difficult to wiretap” on a manageable scale. Expanding surveillance programs like CALEA (Commission on Accreditation for Law Enforcement Agencies) to the Internet would consequently “require a different and more complicated protocol, which would create serious security problems.” Furthermore, because “[t]he Internet is easier to undermine than a telephone network due to its ‘flexibility and dynamism,'” incorporating means for surveying its use would “build security vulnerabilities into the communication protocols.” Attempts to add similar features in the past have “resulted in new, easily exploited security flaws rather than better law enforcement access.”

Moreover, Internet surveillance would likely cost a significant amount of money, much of which would be foisted upon online companies themselves. Consequently, not only would expanded surveillance lead to a “technology and security headache,” but the “hassles of implementation” and “the investigative burden and costs will shift to providers.”

Despite those concerns, however, online surveillance might be less costly and more effective than traditional wiretapping. Online surveillance allows for large quantities of data to be “gathered at minimal cost, either as it is produced or at some time later.” Additionally, though the development of computerized surveillance systems may be difficult, once created, they “may be duplicated at a fraction of the cost.” Further, online surveillance potentially makes identifying users easier because the content discovered often includes identifying information, like IP addresses. Finally, electronic surveillance may prove efficient for law enforcement because it does not require “contemporaneous listening.” Unlike traditional wiretapping, where agents listen to conversations live and stop recording if the conversations do not contain criminal content, electronic surveillance seems to require only “after-the-fact filtering,” which eliminates the need to have an agent monitor communications in real time. Thus, because online surveillance “offers cheaper, richer, and more reliable information with less risk,” its use might be more effective than other evidence-gathering techniques, especially “to the extent that law enforcement agents [can] focus their efforts on a particular person who spends time online.”

PLAYING IN THE DARK by Mathew Ruskin

Hochschild Cohomology Tethers to Closed String Algebra by way of Cyclicity.


When we have an open and closed Topological Field Theory (TFT) each element ξ of the closed algebra C defines an endomorphism ξa = ia(ξ) ∈ Oaa of each object a of B, and η ◦ ξa = ξb ◦ η for each morphism η ∈ Oba from a to b. The family {ξa} thus constitutes a natural transformation from the identity functor 1B : B → B to itself.

For any C-linear category B we can consider the ring E of natural transformations of 1B. It is automatically commutative, for if {ξa}, {ηa} ∈ E then ξa ◦ ηa = ηa ◦ ξa by the definition of naturality. (A natural transformation from 1B to 1B is a collection of elements {ξa ∈ Oaa} such that ξa ◦ f = f ◦ ξb for each morphism f ∈ Oab from b to a. But we can take a = b and f = ηa.) If B is a Frobenius category then there is a map πab : Obb → Oaa for each pair of objects a, b, and we can define jb : Obb → E by jb(η)a = πab(η) for η ∈ Obb. In other words, jb is defined so that the Cardy condition ιa ◦ jb = πab holds. But the question arises whether we can define a trace θ : E → C to make E into a Frobenius algebra, and with the property that

θaa(ξ)η) = θ(ξja(η)) —– (1)

∀ ξ ∈ E and η ∈ Oaa. This is certainly true if B is a semisimple Frobenius category with finitely many simple objects, for then E is just the ring of complex-valued functions on the set of classes of these simple elements, and we can readily define θ : E → C by θ(εa) = θa(1a)2, where a is an irreducible object, and εa ∈ E is the characteristic function of the point a in the spectrum of E. Nevertheless, a Frobenius category need not be semisimple, and we cannot, unfortunately, take E as the closed string algebra in the general case. If, for example, B has just one object a, and Oaa is a commutative local ring of dimension greater than 1, then E = Oaa, and so ιa : E → Oaa is an isomorphism, and its adjoint map ja ought to be an isomorphism too. But that contradicts the Cardy condition, as πaa is multiplication by ∑ψiψi, which must be nilpotent.

The commutative algebra E of natural endomorphisms of the identity functor of a linear category B is called the Hochschild cohomology HH0(B) of B in degree 0. The groups HHp(B) for p > 0, vanish if B is semisimple, but in the general case they appear to be relevant to the construction of a closed string algebra from B. For any Frobenius category B there is a natural homomorphism K(B) → HH0(B) from the Grothendieck group of B, which assigns to an object a the transformation whose value on b is πba(1a) ∈ Obb. In the semisimple case this homomorphism induces an isomorphism K(B) ⊗ C → HH0(B).

For any additive category B the Hochschild cohomology is defined as the cohomology of the cochain complex in which a k-cochain F is a rule that to each composable k-tuple of morphisms

Y0φ1 Y1φ2 ··· →φk Yk —– (2)

assigns F(φ1,…,φk) ∈ Hom(Y0,Yk). The differential in the complex is defined by

(dF)(φ1,…,φk+1) = F(φ2,…,φk+1) ◦ φ1 + ∑i=1k(−1)i F(φ1,…,φi+1 ◦ φi,…,φk+1) + (−1)k+1φk+1 ◦ F(φ1,…,φk) —– (3)

(Notice, in particular, that a 0-cochain assigns an endomorphism FY to each object Y, and is a cocycle if the endomorphisms form a natural transformation. Similarly, a 2-cochain F gives a possible infinitesimal deformation F(φ1, φ2) of the composition law (φ1, φ2) ↦ φ2 ◦ φ1 of the category, and the deformation preserves the associativity of composition iff F is a cocycle.)

In the case of a category B with a single object whose algebra of endomorphisms is O the cohomology just described is usually called the Hochschild cohomology of the algebra O with coefficients in O regarded as a O-bimodule. This must be carefully distinguished from the Hochschild cohomology with coefficients in the dual O-bimodule O. But if O is a Frobenius algebra it is isomorphic as a bimodule to O, and the two notions of Hochschild cohomology need not be distinguished. The same applies to a Frobenius category B: because Hom(Yk, Y0) is the dual space of Hom(Y0, Yk) we can think of a k-cochain as a rule which associates to each composable k-tuple of morphisms a linear function of an element φ0 ∈ Hom(Yk, Y0). In other words, a k-cochain is a rule which to each “circle” of k + 1 morphisms

···→φ0 Y0φ1 Y1 →φ2···→φk Ykφ0··· —– (4)

assigns a complex number F(φ01,…,φk).

If in this description we restrict ourselves to cochains which are cyclically invariant under rotating the circle of morphisms (φ01,…,φk) then we obtain a sub-cochain complex of the Hochschild complex whose cohomology is called the cyclic cohomology HC(B) of the category B. The cyclic cohomology, which evidently maps to the Hochschild cohomology is a more natural candidate for the closed string algebra associated to B than is the Hochschild cohomology. A very natural Frobenius category on which to test these ideas is the category of holomorphic vector bundles on a compact Calabi-Yau manifold.

Acceleration in String Theory – Savdeep Sethi

If it is true string theory cannot accommodate stable dark energy, that may be a reason to doubt string theory. But it is a reason to doubt dark energy – that is, dark energy in its most popular form, called a cosmological constant. The idea originated in 1917 with Einstein and was revived in 1998 when astronomers discovered that not only is spacetime expanding – the rate of that expansion is picking up. The cosmological constant would be a form of energy in the vacuum of space that never changes and counteracts the inward pull of gravity. But it is not the only possible explanation for the accelerating universe. An alternative is “quintessence,” a field pervading spacetime that can evolve. According to Cumrun Vafa, Harvard, “Regardless of whether one can realize a stable dark energy in string theory or not, it turns out that the idea of having dark energy changing over time is actually more natural in string theory. If this is the case, then one can measure this sliding of dark energy by astrophysical observations currently taking place.”

So far all astrophysical evidence supports the cosmological constant idea, but there is some wiggle room in the measurements. Upcoming experiments such as Europe’s Euclid space telescope, NASA’s Wide-Field Infrared Survey Telescope (WFIRST) and the Simons Observatory being built in Chile’s desert will look for signs dark energy was stronger or weaker in the past than the present. “The interesting thing is that we’re already at a sensitivity level to begin to put pressure on [the cosmological constant theory].” Paul Steinhardt, Princeton University says. “We don’t have to wait for new technology to be in the game. We’re in the game now.” And even skeptics of Vafa’s proposal support the idea of considering alternatives to the cosmological constant. “I actually agree that [a changing dark energy field] is a simplifying method for constructing accelerated expansion,” Eva Silverstein, Stanford University says. “But I don’t think there’s any justification for making observational predictions about the dark energy at this point.”

Quintessence is not the only other option. In the wake of Vafa’s papers, Ulf Danielsson, a physicist at Uppsala University and colleagues proposed another way of fitting dark energy into string theory. In their vision our universe is the three-dimensional surface of a bubble expanding within a larger-dimensional space. “The physics within this surface can mimic the physics of a cosmological constant,” Danielsson says. “This is a different way of realizing dark energy compared to what we’ve been thinking so far.”