Something Out of Almost Nothing. Drunken Risibility.

Kant’s first antinomy makes the error of the excluded third option, i.e. it is not impossible that the universe could have both a beginning and an eternal past. If some kind of metaphysical realism is true, including an observer-independent and relational time, then a solution of the antinomy is conceivable. It is based on the distinction between a microscopic and a macroscopic time scale. Only the latter is characterized by an asymmetry of nature under a reversal of time, i.e. the property of having a global (coarse-grained) evolution – an arrow of time – or many arrows, if they are independent from each other. Thus, the macroscopic scale is by definition temporally directed – otherwise it would not exist.

On the microscopic scale, however, only local, statistically distributed events without dynamical trends, i.e. a global time-evolution or an increase of entropy density, exist. This is the case if one or both of the following conditions are satisfied: First, if the system is in thermodynamic equilibrium (e.g. there is degeneracy). And/or second, if the system is in an extremely simple ground state or meta-stable state. (Meta-stable states have a local, but not a global minimum in their potential landscape and, hence, they can decay; ground states might also change due to quantum uncertainty, i.e. due to local tunneling events.) Some still speculative theories of quantum gravity permit the assumption of such a global, macroscopically time-less ground state (e.g. quantum or string vacuum, spin networks, twistors). Due to accidental fluctuations, which exceed a certain threshold value, universes can emerge out of that state. Due to some also speculative physical mechanism (like cosmic inflation) they acquire – and, thus, are characterized by – directed non-equilibrium dynamics, specific initial conditions, and, hence, an arrow of time.

It is a matter of debate whether such an arrow of time is

1) irreducible, i.e. an essential property of time,

2) governed by some unknown fundamental and not only phenomenological law,

3) the effect of specific initial conditions or

4) of consciousness (if time is in some sense subjective), or

5) even an illusion.

Many physicists favour special initial conditions, though there is no consensus about their nature and form. But in the context at issue it is sufficient to note that such a macroscopic global time-direction is the main ingredient of Kant’s first antinomy, for the question is whether this arrow has a beginning or not.

Time’s arrow is inevitably subjective, ontologically irreducible, fundamental and not only a kind of illusion, thus if some form of metaphysical idealism for instance is true, then physical cosmology about a time before time is mistaken or quite irrelevant. However, if we do not want to neglect an observer-independent physical reality and adopt solipsism or other forms of idealism – and there are strong arguments in favor of some form of metaphysical realism -, Kant’s rejection seems hasty. Furthermore, if a Kantian is not willing to give up some kind of metaphysical realism, namely the belief in a “Ding an sich“, a thing in itself – and some philosophers actually insisted that this is superfluous: the German idealists, for instance -, he has to admit that time is a subjective illusion or that there is a dualism between an objective timeless world and a subjective arrow of time. Contrary to Kant’s thoughts: There are reasons to believe that it is possible, at least conceptually, that time has both a beginning – in the macroscopic sense with an arrow – and is eternal – in the microscopic notion of a steady state with statistical fluctuations.

Is there also some physical support for this proposal?

Surprisingly, quantum cosmology offers a possibility that the arrow has a beginning and that it nevertheless emerged out of an eternal state without any macroscopic time-direction. (Note that there are some parallels to a theistic conception of the creation of the world here, e.g. in the Augustinian tradition which claims that time together with the universe emerged out of a time-less God; but such a cosmological argument is quite controversial, especially in a modern form.) So this possible overcoming of the first antinomy is not only a philosophical conceivability but is already motivated by modern physics. At least some scenarios of quantum cosmology, quantum geometry/loop quantum gravity, and string cosmology can be interpreted as examples for such a local beginning of our macroscopic time out of a state with microscopic time, but with an eternal, global macroscopic timelessness.

To put it in a more general, but abstract framework and get a sketchy illustration, consider the figure.

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Physical dynamics can be described using “potential landscapes” of fields. For simplicity, here only the variable potential (or energy density) of a single field is shown. To illustrate the dynamics, one can imagine a ball moving along the potential landscape. Depressions stand for states which are stable, at least temporarily. Due to quantum effects, the ball can “jump over” or “tunnel through” the hills. The deepest depression represents the ground state.

In the common theories the state of the universe – the product of all its matter and energy fields, roughly speaking – evolves out of a metastable “false vacuum” into a “true vacuum” which has a state of lower energy (potential). There might exist many (perhaps even infinitely many) true vacua which would correspond to universes with different constants or laws of nature. It is more plausible to start with a ground state which is the minimum of what physically can exist. According to this view an absolute nothingness is impossible. There is something rather than nothing because something cannot come out of absolutely nothing, and something does obviously exist. Thus, something can only change, and this change might be described with physical laws. Hence, the ground state is almost “nothing”, but can become thoroughly “something”. Possibly, our universe – and, independent from this, many others, probably most of them having different physical properties – arose from such a phase transition out of a quasi atemporal quantum vacuum (and, perhaps, got disconnected completely). Tunneling back might be prevented by the exponential expansion of this brand new space. Because of this cosmic inflation the universe not only became gigantic but simultaneously the potential hill broadened enormously and got (almost) impassable. This preserves the universe from relapsing into its non-existence. On the other hand, if there is no physical mechanism to prevent the tunneling-back or makes it at least very improbable, respectively, there is still another option: If infinitely many universes originated, some of them could be long-lived only for statistical reasons. But this possibility is less predictive and therefore an inferior kind of explanation for not tunneling back.

Another crucial question remains even if universes could come into being out of fluctuations of (or in) a primitive substrate, i.e. some patterns of superposition of fields with local overdensities of energy: Is spacetime part of this primordial stuff or is it also a product of it? Or, more specifically: Does such a primordial quantum vacuum have a semi-classical spacetime structure or is it made up of more fundamental entities? Unique-universe accounts, especially the modified Eddington models – the soft bang/emergent universe – presuppose some kind of semi-classical spacetime. The same is true for some multiverse accounts describing our universe, where Minkowski space, a tiny closed, finite space or the infinite de Sitter space is assumed. The same goes for string theory inspired models like the pre-big bang account, because string and M- theory is still formulated in a background-dependent way, i.e. requires the existence of a semi-classical spacetime. A different approach is the assumption of “building-blocks” of spacetime, a kind of pregeometry also the twistor approach of Roger Penrose, and the cellular automata approach of Stephen Wolfram. The most elaborated accounts in this line of reasoning are quantum geometry (loop quantum gravity). Here, “atoms of space and time” are underlying everything.

Though the question whether semiclassical spacetime is fundamental or not is crucial, an answer might be nevertheless neutral with respect of the micro-/macrotime distinction. In both kinds of quantum vacuum accounts the macroscopic time scale is not present. And the microscopic time scale in some respect has to be there, because fluctuations represent change (or are manifestations of change). This change, reversible and relationally conceived, does not occur “within” microtime but constitutes it. Out of a total stasis nothing new and different can emerge, because an uncertainty principle – fundamental for all quantum fluctuations – would not be realized. In an almost, but not completely static quantum vacuum however, macroscopically nothing changes either, but there are microscopic fluctuations.

The pseudo-beginning of our universe (and probably infinitely many others) is a viable alternative both to initial and past-eternal cosmologies and philosophically very significant. Note that this kind of solution bears some resemblance to a possibility of avoiding the spatial part of Kant’s first antinomy, i.e. his claimed proof of both an infinite space without limits and a finite, limited space: The theory of general relativity describes what was considered logically inconceivable before, namely that there could be universes with finite, but unlimited space, i.e. this part of the antinomy also makes the error of the excluded third option. This offers a middle course between the Scylla of a mysterious, secularized creatio ex nihilo, and the Charybdis of an equally inexplicable eternity of the world.

In this context it is also possible to defuse some explanatory problems of the origin of “something” (or “everything”) out of “nothing” as well as a – merely assumable, but never provable – eternal cosmos or even an infinitely often recurring universe. But that does not offer a final explanation or a sufficient reason, and it cannot eliminate the ultimate contingency of the world.

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Suspicion on Consciousness as an Immanent Derivative

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The category of the subject (like that of the object) has no place in an immanent world. There can be no transcendent, subjective essence. What, then, is the ontological status of a body and its attendant instance of consciousness? In what would it exist? Sanford Kwinter (conjuncted here) here offers:

It would exist precisely in the ever-shifting pattern of mixtures or composites: both internal ones – the body as a site marked and traversed by forces that converge upon it in continuous variation; and external ones – the capacity of any individuated substance to combine and recombine with other bodies or elements (ensembles), both influencing their actions and undergoing influence by them. The ‘subject’ … is but a synthetic unit falling at the midpoint or interface of two more fundamental systems of articulation: the first composed of the fluctuating microscopic relations and mixtures of which the subject is made up, the second of the macro-blocs of relations or ensembles into which it enters. The image produced at the interface of these two systems – that which replaces, yet is too often mistaken for, subjective essence – may in turn have its own individuality characterized with a certain rigor. For each mixture at this level introduces into the bloc a certain number of defining capacities that determine both what the ‘subject’ is capable of bringing to pass outside of itself and what it is capable of receiving (undergoing) in terms of effects.

This description is sufficient to explain the immanent nature of the subjective bloc as something entirely embedded in and conditioned by its surroundings. What it does not offer – and what is not offered in any detail in the entirety of the work – is an in-depth account of what, exactly, these “defining capacities” are. To be sure, it would be unfair to demand a complete description of these capacities. Kwinter himself has elsewhere referred to the states of the nervous system as “magically complex”. Regardless of the specificity with which these capacities can presently be defined, we must nonetheless agree that it is at this interface, as he calls it, at this location where so many systems are densely overlaid, that consciousness is produced. We may be convinced that this consciousness, this apparent internal space of thought, is derived entirely from immanent conditions and can only be granted the ontological status of an effect, but this effect still manages to produce certain difficulties when attempting to define modes of behavior appropriate to an immanent world.

There is a palpable suspicion of the role of consciousness throughout Kwinter’s work, at least insofar as it is equated with some kind of internal, subjective space. (In one text he optimistically awaits the day when this space will “be left utterly in shreds.”) The basis of this suspicion is multiple and obvious. Among the capacities of consciousness is the ability to attribute to itself the (false) image of a stable and transcendent essence. The workings of consciousness are precisely what allow the subjective bloc to orient itself in a sequence of time, separating itself from an absolute experience of the moment. It is within consciousness that limiting and arbitrary moral categories seem to most stubbornly lodge themselves. (To be sure this is the location of all critical thought.) And, above all, consciousness may serve as the repository for conditioned behaviors which believe themselves to be free of external determination. Consciousness, in short, contains within itself an enormous number of limiting factors which would retard the production of novelty. Insofar as it appears to possess the capacity for self-determination, this capacity would seem most productively applied by turning on itself – that is, precisely by making the choice not to make conscious decisions and instead to permit oneself to be seized by extra-subjective forces.

Derivability from Relational Logic of Charles Sanders Peirce to Essential Laws of Quantum Mechanics

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Charles Sanders Peirce made important contributions in logic, where he invented and elaborated novel system of logical syntax and fundamental logical concepts. The starting point is the binary relation SiRSj between the two ‘individual terms’ (subjects) Sj and Si. In a short hand notation we represent this relation by Rij. Relations may be composed: whenever we have relations of the form Rij, Rjl, a third transitive relation Ril emerges following the rule

RijRkl = δjkRil —– (1)

In ordinary logic the individual subject is the starting point and it is defined as a member of a set. Peirce considered the individual as the aggregate of all its relations

Si = ∑j Rij —– (2)

The individual Si thus defined is an eigenstate of the Rii relation

RiiSi = Si —– (3)

The relations Rii are idempotent

R2ii = Rii —– (4)

and they span the identity

i Rii = 1 —– (5)

The Peircean logical structure bears resemblance to category theory. In categories the concept of transformation (transition, map, morphism or arrow) enjoys an autonomous, primary and irreducible role. A category consists of objects A, B, C,… and arrows (morphisms) f, g, h,… . Each arrow f is assigned an object A as domain and an object B as codomain, indicated by writing f : A → B. If g is an arrow g : B → C with domain B, the codomain of f, then f and g can be “composed” to give an arrow gof : A → C. The composition obeys the associative law ho(gof) = (hog)of. For each object A there is an arrow 1A : A → A called the identity arrow of A. The analogy with the relational logic of Peirce is evident, Rij stands as an arrow, the composition rule is manifested in equation (1) and the identity arrow for A ≡ Si is Rii.

Rij may receive multiple interpretations: as a transition from the j state to the i state, as a measurement process that rejects all impinging systems except those in the state j and permits only systems in the state i to emerge from the apparatus, as a transformation replacing the j state by the i state. We proceed to a representation of Rij

Rij = |ri⟩⟨rj| —– (6)

where state ⟨ri | is the dual of the state |ri⟩ and they obey the orthonormal condition

⟨ri |rj⟩ = δij —– (7)

It is immediately seen that our representation satisfies the composition rule equation (1). The completeness, equation (5), takes the form

n|ri⟩⟨ri|=1 —– (8)

All relations remain satisfied if we replace the state |ri⟩ by |ξi⟩ where

i⟩ = 1/√N ∑n |ri⟩⟨rn| —– (9)

with N the number of states. Thus we verify Peirce’s suggestion, equation (2), and the state |ri⟩ is derived as the sum of all its interactions with the other states. Rij acts as a projection, transferring from one r state to another r state

Rij |rk⟩ = δjk |ri⟩ —– (10)

We may think also of another property characterizing our states and define a corresponding operator

Qij = |qi⟩⟨qj | —– (11)

with

Qij |qk⟩ = δjk |qi⟩ —– (12)

and

n |qi⟩⟨qi| = 1 —– (13)

Successive measurements of the q-ness and r-ness of the states is provided by the operator

RijQkl = |ri⟩⟨rj |qk⟩⟨ql | = ⟨rj |qk⟩ Sil —– (14)

with

Sil = |ri⟩⟨ql | —– (15)

Considering the matrix elements of an operator A as Anm = ⟨rn |A |rm⟩ we find for the trace

Tr(Sil) = ∑n ⟨rn |Sil |rn⟩ = ⟨ql |ri⟩ —– (16)

From the above relation we deduce

Tr(Rij) = δij —– (17)

Any operator can be expressed as a linear superposition of the Rij

A = ∑i,j AijRij —– (18)

with

Aij =Tr(ARji) —– (19)

The individual states could be redefined

|ri⟩ → ei |ri⟩ —– (20)

|qi⟩ → ei |qi⟩ —– (21)

without affecting the corresponding composition laws. However the overlap number ⟨ri |qj⟩ changes and therefore we need an invariant formulation for the transition |ri⟩ → |qj⟩. This is provided by the trace of the closed operation RiiQjjRii

Tr(RiiQjjRii) ≡ p(qj, ri) = |⟨ri |qj⟩|2 —– (22)

The completeness relation, equation (13), guarantees that p(qj, ri) may assume the role of a probability since

j p(qj, ri) = 1 —– (23)

We discover that starting from the relational logic of Peirce we obtain all the essential laws of Quantum Mechanics. Our derivation underlines the outmost relational nature of Quantum Mechanics and goes in parallel with the analysis of the quantum algebra of microscopic measurement.

Financial Forward Rate “Strings” (Didactic 1)

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Imagine that Julie wants to invest $1 for two years. She can devise two possible strategies. The first one is to put the money in a one-year bond at an interest rate r1. At the end of the year, she must take her money and find another one-year bond, with interest rate r1/2 which is the interest rate in one year on a loan maturing in two years. The final payoff of this strategy is simply (1 + r1)(1 + r1/2). The problem is that Julie cannot know for sure what will be the one-period interest rate r1/2 of next year. Thus, she can only estimate a return by guessing the expectation of r1/2.

Instead of making two separate investments of one year each, Julie could invest her money today in a bond that pays off in two years with interest rate r2. The final payoff is then (1 + r2)2. This second strategy is riskless as she knows for sure her return. Now, this strategy can be reinterpreted along the line of the first strategy as follows. It consists in investing for one year at the rate r1 and for the second year at a forward rate f2. The forward rate is like the r1/2 rate, with the essential difference that it is guaranteed : by buying the two-year bond, Julie can “lock in” an interest rate f2 for the second year.

This simple example illustrates that the set of all possible bonds traded on the market is equivalent to the so-called forward rate curve. The forward rate f(t,x) is thus the interest rate that can be contracted at time t for instantaneously riskless borrowing 1 or lending at time t + x. It is thus a function or curve of the time-to-maturity x2, where x plays the role of a “length” variable, that deforms with time t. Its knowledge is completely equivalent to the set of bond prices P(t,x) at time t that expire at time t + x. The shape of the forward rate curve f(t,x) incessantly fluctuates as a function of time t. These fluctuations are due to a combination of factors, including future expectation of the short-term interest rates, liquidity preferences, market segmentation and trading. It is obvious that the forward rate f (t, x+δx) for δx small can not be very different from f (t,x). It is thus tempting to see f(t,x) as a “string” characterized by a kind of tension which prevents too large local deformations that would not be financially acceptable. This superficial analogy is in the follow up of the repetitious intersections between finance and physics, starting with Bachelier who solved the diffusion equation of Brownian motion as a model of stock market price fluctuations five years before Einstein, continuing with the discovery of the relevance of Lévy laws for cotton price fluctuations by Mandelbrot that can be compared with the present interest of such power laws for the description of physical and natural phenomena. The present investigation delves into how to formalize mathematically this analogy between the forward rate curve and a string. We formulate the term structure of interest rates as the solution of a stochastic partial differential equation (SPDE), following the physical analogy of a continuous curve (string) whose shape moves stochastically through time.

The equation of motion of macroscopic physical strings is derived from conservation laws. The fundamental equations of motion of microscopic strings formulated to describe the fundamental particles derive from global symmetry principles and dualities between long-range and short-range descriptions. Are there similar principles that can guide the determination of the equations of motion of the more down-to-earth financial forward rate “strings”?

Suppose that in the middle ages, before Copernicus and Galileo, the Earth really was stationary at the centre of the universe, and only began moving later on. Imagine that during the nineteenth century, when everyone believed classical physics to be true, that it really was true, and quantum phenomena were non-existent. These are not philosophical musings, but an attempt to portray how physics might look if it actually behaved like the financial markets. Indeed, the financial world is such that any insight is almost immediately used to trade for a profit. As the insight spreads among traders, the “universe” changes accordingly. As G. Soros has pointed out, market players are “actors observing their own deeds”. As E. Derman, head of quantitative strategies at Goldman Sachs, puts it, in physics you are playing against God, who does not change his mind very often. In finance, you are playing against Gods creatures, whose feelings are ephemeral, at best unstable, and the news on which they are based keep streaming in. Value clearly derives from human beings, while mass, charge and electromagnetism apparently do not. This has led to suggestions that a fruitful framework to study finance and economy is to use evolutionary models inspired from biology and genetics.

This does not however guide us much for the determination of “fundamental” equa- tions, if any. Here, we propose to use the condition of absence of arbitrage opportunity and show that this leads to strong constraints on the structure of the governing equations. The basic idea is that, if there are arbitrage opportunities (free lunches), they cannot live long or must be quite subtle, otherwise traders would act on them and arbitrage them away. The no-arbitrage condition is an idealization of a self-consistent dynamical state of the market resulting from the incessant actions of the traders (ar- bitragers). It is not the out-of-fashion equilibrium approximation sometimes described but rather embodies a very subtle cooperative organization of the market.

We consider this condition as the fundamental backbone for the theory. The idea to impose this requirement is not new and is in fact the prerequisite of most models developed in the academic finance community. Modigliani and Miller [here and here] have indeed emphasized the critical role played by arbitrage in determining the value of securities. It is sometimes suggested that transaction costs and other market imperfections make irrelevant the no-arbitrage condition. Let us address briefly this question.

Transaction costs in option replication and other hedging activities have been extensively investigated since they (or other market “imperfections”) clearly disturb the risk-neutral argument and set option theory back a few decades. Transaction costs induce, for obvious reasons, dynamic incompleteness, thus preventing valuation as we know it since Black and Scholes. However, the most efficient dynamic hedgers (market makers) incur essentially no transaction costs when owning options. These specialized market makers compete with each other to provide liquidity in option instruments, and maintain inventories in them. They rationally limit their dynamic replication to their residual exposure, not their global exposure. In addition, the fact that they do not hold options until maturity greatly reduces their costs of dynamic hedging. They have an incentive in the acceleration of financial intermediation. Furthermore, as options are rarely replicated until maturity, the expected transaction costs of the short options depend mostly on the dynamics of the order flow in the option markets – not on the direct costs of transacting. For the efficient operators (and those operators only), markets are more dynamically complete than anticipated. This is not true for a second category of traders, those who merely purchase or sell financial instruments that are subjected to dynamic hedging. They, accordingly, neither are equipped for dynamic hedging, nor have the need for it, thanks to the existence of specialized and more efficient market makers. The examination of their transaction costs in the event of their decision to dynamically replicate their options is of no true theoretical contribution. A second important point is that the existence of transaction costs should not be invoked as an excuse for disregarding the no-arbitrage condition, but, rather should be constructively invoked to study its impacts on the models…..