text:
# The Cyclic Universe: An Informal Introduction

## 1 Introduction

Through a combination of inspired theoretical insights and ingenious experiments and observations, cosmologists have emerged with a consensus model model of the Universe, a mixture of the big bang picture and inflationary cosmology, that is able to explain a whole host of observations in exquisite detail. The results raise our confidence that we are converging on the right story of the evolution of the Universe. But maybe we’re not!

The purpose of this paper is to introduce a new type of cosmological model – not a variant of an older model, but, a genuinely new cosmological framework. This new paradigm turns cosmic history topsy-turvy. And yet, as you will see, it is able to reproduce all of the successful predictions of the consensus model with the same exquisite detail. Perhaps you will even conclude that the cyclic Universe accomplishes the feat more economically.

The key difference between the consensus paradigm and the new paradigm can be simply stated. The consensus model relies on the idea that space and time had a beginning when the Universe had nearly infinite temperature and density. It has been expanding every since, going from hot to cold, from dense to nearly vacuous. The new model predicts that the Universe is infinite in both space and time. It is cyclic in time, undergoing endless cycles of evolution and renewal, cooling and heating - in which the density and temperature remain finite throughout. All of the differences between the two paradigms harken back to the disparate assumptions about whether there is a “beginning” or not.

The cyclic model of the Universe draws heavily on ideas we developed earlier in collaboration with Justin Khoury (Princeton), Burt Ovrut (Penn) and Nathan Seiberg (IAS) in a precursor theory known as the ‘ekpyrotic Universe.’

Both cyclic and ekpyrotic scenarios were very much inspired by string theory, M-theory and the notion of brane-worlds. The introductory papers are expressed in this language. However, as is often the case, the notions that inspire an idea are not necessarily required. The idea may be more general. So it is, we think, for the cyclic Universe. To make that point most forcefully, we will present this paper with hardly any mention of string theory until the very end. Instead, we will use the more prosaic and generic language of 4d field theory, scalar fields, and potentials. Only at the end will we mention string theory to show how it provides a natural setting and simple geometric interpretation of these ideas.

## 2 The Consensus Model

To appreciate the cyclic model, it is useful to review the key features and assumptions that underly the consensus big bang/inflationary picture.

Big Bang: The consensus model is based on the notion that the big bang is a beginning of space and time with nearly infinite temperature and density. What is important is that the Universe starts out expanding, and there are patches over which the inflaton field has high potential energy density. Regions of higher potential energy would expand faster, and come to dominate. Hence one can argue that most of the Universe would be taken up by such high potential energy regions, which would then inflate for a long time. This is the idea underlying chaotic inflation, for example. However, if the big bang were not a beginning, but, rather, a transition from a pre-existing contracting phase, then the inflationary mechanism would fail (or require major amendments). During a contracting phase, scalar field potential energy drives exponentially rapid collapse so regions of high potential energy would shrink away faster than regions of low energy density (just the time reversed behavior), so regions of high potential energy would not survive into the expanding phase to drive inflation.

The assumptions are all physically plausible and reasonable. However, we raise these points to emphasize that they are unproven assumptions that should not be taken for granted. The theory is incomplete until they are proven. The issue is important because, as we shall see, the cyclic model makes different plausible and reasonable assumptions about the nature of the bang.

Inflation: The consensus model assumes that, shortly after the big bang, the Universe underwent a brief period of rapid, superluminal expansion: inflation. To have inflation, new ingredients have to be added to the simple big bang picture. In typical models of inflation, the ingredients consist of a scalar field (the inflaton) and a scalar potential with the property that, over some range of values, the field rolls so slowly down the potential that its kinetic energy is much less than its potential energy. Figure 1(a) is a schematic illustration. In this case, the slow-roll evolution occurs on the plateau (stage 1 in Figure 1(a)). When the potential energy dominates, the pressure of the scalar field (the difference between kinetic and potential energy density) is negative, causing the Universe to undergo a period of cosmic acceleration. The height of the plateau is chosen so that the acceleration is extraordinarily rapid, causing the Universe to double in size every $`10^{35}`$ seconds (a fiducial number, assuming GUT-scale inflation).

It is essential that the slow-roll comes to an end in order to stop inflation. In the schematic example, the end of inflation occurs where the scalar reaches the end of the plateau and falls into the potential well (stage 2). The field oscillates around the minimum and decays into ordinary matter and radiation.

Despite the period of inflation which causes the Universe to become homogeneous and flat, quantum fluctuations cause different regions to reach the end of the plateau and to reheat and cool at different times, leading to fluctuations in the temperature and density. The result of a careful analysis is that the spectrum of fluctuations is nearly scale-invariant, gaussian and adiabatic, in excellent accord with what is observed in measurements of the cosmic microwave background anisotropy and large-scale structure. All this must be accomplished before the Universe is a second old in order to recover the successful predictions of primordial nucleosynthesis.

Radiation and Matter Domination: When the Universe reheats after inflation, the temperature is higher than the characteristic scales of cosmic nucleosynthesis and structure formation, so the subsequent expansion and cooling precisely mimics the original big bang picture and all of the associated successful predictions are re-accrued. Nucleosynthesis occurs during the radiation epoch. The Universe becomes transparent and structure forms in the matter-dominated epoch.

Dark energy??: Recently, the consensus model has had to incorporate a major amendment, the addition of dark energy. The observations of the cosmic microwave background, large-scale structure and distant supernovae all suggest that most of the energy density of the universe is some form of dark energy component with negative pressure which causes the expansion of the Universe to accelerate.

The discovery of dark energy is a complete surprise from the point-of-view of big bang and inflationary cosmology. It serves no known role. It may consist of a vacuum energy (or cosmological constant) or quintessence. Although dark energy was not predicted, it can be accommodated by stipulating that the inflaton decayed into some combination of matter, radiation and dark energy. However, the added conditions are ad hoc, and extreme tuning is required to explain the ratio of dark energy to matter energy.

The future???: Because dark energy comes as a surprise and its nature is not predicted, the long-term future of the Universe is uncertain. If the dark energy is a cosmological constant, the accelerated expansion will continue forever, and the Universe will become increasingly empty. If the dark energy is quintessence, many alternatives are possible. For example, quintessence can decay and cause the acceleration to end.

## 3 The Cyclic Model

Cosmic evolution in the cyclic model differs remarkably from the consensus picture:

The “bang”: Each cycle can be said to begin with a bang. Unlike the traditional concept of the big bang, the density and temperature of the Universe do not diverge, and, in the M-theory picture, space does not disappear. Instead, the bang is a transition or bounce from a pre-existing contracting phase to an expanding phase during which matter and radiation are created at a large but finite temperature.

Radiation and Matter Domination: The bang is followed by an immediate entry into the radiation-dominated epoch. There is no inflation and no need for the scalar field or potential required by inflation. Other mechanisms, to be discussed below, are responsible for making the Universe homogeneous and flat and for making density fluctuations. The radiation and matter-dominated epoch are essentially identical to the consensus model.

Dark energy: The Universe subsequently enters the dark energy dominated epoch and cosmic acceleration commences. Recall that dark energy was unanticipated in the consensus model and has no purpose. Here, dark energy plays a pivotal, and absolutely crucial role. The field that comprises the dark energy is the engine that drives the whole cyclic scenario.

The dark energy is due to a scalar field rolling down a potential, similar to the inflaton of the consensus model. However, here the scalar field governs the whole of the evolution of the Universe, not just the beginning. In inflation, the scalar field causes acceleration and reheating. Here, the scalar field acts as dark energy, causes a period of slow acceleration, converts the acceleration into deceleration and contraction, triggers the bounce, reheats the Universe and begins the cycle anew. Furthermore, the scalar field has a natural geometric interpretation in string theory, as described in Section 7.

Compared to inflation, the potential is shifted downwards in energy, as illustrated in Figure 1(b). The plateau corresponds to a tiny potential energy density equal to the current dark energy density. The scalar field acts as a form of quintessence, and so we have labeled the height of the potential as $`\rho _Q^0`$. During the radiation and matter dominated phases, the scalar field is effectively frozen in place by the Hubble red shift of its kinetic energy (stage 1 in Fig. 1(b)). However, as the Universe cools and expands, the potential energy ultimately comes to dominate that energy density. Also, the field begins to roll downhill (stage 2).

The period in which the potential energy dominates is important for several reasons. It provides the source for the presently observed dark energy and cosmic acceleration. It makes the Universe flat and homogeneous, replacing inflation. Although both dark energy and inflation entail cosmic acceleration, the acceleration due to dark energy is 100 orders of magnitude smaller, causing the Universe to double in size every 15 billion years or so, compared to every $`10^{35}`$ seconds for inflation. The very slow acceleration is, nevertheless, sufficient to empty the Universe of its matter and radiation. After trillions of years, there is less than one particle per horizon. Locally, the Universe has been restored to nearly pristine vacuum.

The emptying of the Universe is crucial to a cyclic model. Historically, oscillatory models have been plagued by the fact that the entropy density rises from cycle to cycle, as shown by Richard Tolman in the 1930s. The lengths of cycles increase steadily. Consequently, extrapolating backwards in time, the lengths of cycles decrease steadily, so that the sum converges at a finite time – a beginning of the Universe that one was trying to avoid. In our cyclic model, the dark energy dilutes the entropy density to negligible levels at the end of each cycle, preparing the way for a new cycle of identical duration.

Note that the second law of thermodynamics is respected. The total entropy of the Universe rises from cycle to cycle. The number of black holes rises as well. (Equivalently, the entropy and black holes per unit comoving volume increase.) However, the physical entropy density – the entropy per proper volume – is expanded away in each cycle. Since it is the physical entropy density which determines the expansion rate, the expansion and contraction history in each cycle is the same from one cycle to the next. (A key feature is that entropy density decreases in the expansion phase but, as we shall see, does not grow significantly during the contraction phase due to the effects of the scalar field, countering the effects of contraction.)

It may seem peculiar that the entropy density remains finite at the crunch. That is, even if the entropy density is made exponentially small during the dark energy dominated phase, why doesn’t it diverge? The answer will be that the crunch is modified by the interaction between matter-radiation and the scalar field.

Contraction: As the field rolls off the plateau and heads downhill, the potential energy crosses zero (stage 3). The Universe is dominated by the kinetic energy of the scalar field, which causes the expansion to decelerate once again. As the field rolls to values where the potential energy is increasingly negative, the expansion stops altogether (stage 4) and reverses to contraction.

The contraction is extremely slow at first, taking billions of years. During this very slow evolution phase, quantum fluctuations have time to cause spatial variations in the rate of contraction. At first, these variations are only on large length scales, but, as time proceeds, they occur on smaller and smaller length scales. The big surprise, as first demonstrated by Khoury et al. in the context of the ekpyrotic model, is that the resulting spectrum is scale-invariant if the potential flattens exponentially at large $`\varphi `$. (Small deviations from exponential behaviour result in small deviations from scale-invariance.)

Differences in the contraction rate result in differences in when different regions bounce, reheat to high temperature and expand. Consequently, the scale-invariant spectrum generated in the contraction phase evolves to become a spectrum of temperature and density perturbations after the bang. (The detailed computation of perturbations in the ekpyrotic and cyclic models led to fierce debate in the literature over the precise matching conditions. Matching conditions according to which the scale-invariant spectrum generated in the contraction phase propagate across the singularity have been proposed, and whilst these have not yet been fully justified at a fundamental level, progress has been made .)

“Crunch” and “bounce”: The scalar field picks up speed as it rolls down into the potential well. One need not fear that the field will be stuck at the bottom. Contraction causes a Hubble blue-shift of the scalar field kinetic energy. The field literally accelerates out of the minimum and flies off towards negative infinity in a finite time (stage 5). At the same time, the scale factor in the effective 4d field theory rushes towards zero and the crunch ensues.

Unlike a conventional big crunch, the temperature and density remain small and finite before the crunch. This is because the scalar field is coupled to matter and radiation in a special way. The effect of contraction in increasing the density is directly compensated by the interaction with the scalar field that drains the energy density. We will illustrate how this is possible and well-motivated in M-theory.

The field reaches negative infinity in finite time, before heading back towards positive values (stage 6). The acceleration of the field at turnaround causes some conversion of scalar field kinetic energy to matter and radiation, reheating the Universe to high but finite temperature. At the same time, the scale factor reverses and the Universe begins to expand. The field rushes back towards where it started (stage 7), but its kinetic energy is now being red-shifted in the expanding phase, especially due to the presence of matter and radiation. Soon after the radiation dominates over the scalar kinetic energy density, the red-shift causes the field to grind to a halt (stage 1).

The Universe has now come full circle, returning to the expanding, radiation-dominated phase.

## 4 Another view: Expansion-Stagnation

We have described the cycle as a sequence of expansion contraction. Technically, we call the second stage contraction because the scale factor $`a(t)`$ is shrinking and, at the crunch, is equal to zero. However, as pointed out above, the scalar field conspires in such a way as to keep the temperature and density nearly fixed at a small value. In the brane picture, the expansion corresponds to the stretching of the branes, which dilutes and matter and radiatoin density. The contraction, though, is the contraction of the finite extra dimension, rather than the three large dimensions.

Consequently, an ordinary observer on our brane, say, would not recognize the behavior at the end of trillions of years of expansion as a contraction since the interval between distant objects would not appear to be shrinking in brane coordinates. Rather, since the branes stop stretching, it would appear that the expansion has stalled. The contraction of the extra dimension would not visible, but its physical consequences would be. Namely, coupling constants would change with time at a rate that increases as the bounce approaches. This would be perceived as some mysterious new form of energy. At the bounce, this energy would suddenly produce radiation and energy that fills the universe. As the branes bounce back, the couplings are returned to their initial values. The matter and radiation force a new period of expansion (brane-stretching).

In sum, if the story is retold from the ordinary observer’s point-of-view, the universe is going through cycles of expansion, stagnation, reignition and then the cycle begins again.

## 5 Consensus vs. Cyclic

We have outlined the basic elements of two cosmological scenarios based on different assumptions about the nature of space and time. The consensus picture assumes that space and time have a beginning at the big bang. The cyclic model assumes that the bang is simply a transition from contraction to expansion accompanied by the release of radiation.

Figure 2 compares the two scenarios. Several points are apparent.

> Inflation and Cyclic models entail two completely different strategies for making the Universe homogeneous and flat and for generating density perturbations, each strategy resting on the respective assumptions about the beginning of the Universe.

For Inflation, there is little time before primordial nucleosynthesis to fix conditions on large scales. An ultra-rapid period of accelerated expansion is called for. The cyclic model assumes that time continues before the bang, so there is plenty of time to set the large-scale conditions of the Universe prior to the bang. Hence, it fits quite naturally to invoke long periods of ultra-slow accelerated expansion and contraction lasting trillions of years during which the homogeneity, flatness, and density perturbations are established. For comparison, inflationary fluctuations are amplified and frozen in on a timescale of $`10^{35}`$ seconds, a length scale of $`10^{25}`$ centimetres. Whereas fluctuations are generated fractions of a second before the big bang, when their length scale is thousands of kilometres.

> Inflation requires two periods of acceleration with two different energy components, whereas the cyclic model requires only one.

For inflation, we must introduce a hypothetical period of accelerated expansion driven by an inflaton field and potential with certain properties. One must add a second component to explain the observed acceleration today. Although one can imagine both accelerations being due to the same field, there seems to be nothing to recommend it: the time and energy scales are so different that there is no natural link. By contrast, the cyclic model requires only one period of accelerated expansion, the one that is actually observed. Some corollaries are:

> Dark energy is not predicted or explained by Inflation, but is a required component in the Cyclic Model.

> The future is not predicted by Inflation, but it is predicted in the Cyclic Model.

More generally, it is obvious that Inflation is a theory of the very early Universe, without explanation of the beginning or future of the universe. By contrast, the cyclic model offers a complete history. Knowledge of the present is also knowledge of the past and future. Consequently, it is not surprising that the cyclic model is more constrained. For example, the amplitude of long-wavelength gravitational waves is constrained to be exponentially tiny in the cyclic model whereas there is freedom to adjust the amplitude in Inflation. Nevertheless, all current observational constraints are satisfied by both models.

That the cyclic model is able to accomplish more with less suggests that it is economical. However, economy is not a reliable way to judge between the two scenarios. The critical issues are bith theoretical – the nature of the bang – and experimental - searching for long-wavelength gravitational waves.

## 6 Contraction and Generation of Perturbations

The cyclic model introduces several novel features into cosmology. In this introduction, we will focus on the two most important: the new mechanism for generating a scale invariant spectrum of density perturbations and the bounce from crunch to bang.

An important discovery by Khoury et al. in our development of the ekpyrotic model was a new mechanism for generating a scale-invariant spectrum of density perturbations using a phase of slow contraction rather than rapid inflation. The fact that both approaches work is shocking, at first, because they seem so different. Gravity is the strong, overwhelming influence during inflation, but it is essentially irrelevant during slow contraction.

Actually, there is a simple heuristic argument to explain the result. During slow contraction, gravity can be ignored in the equation of motion for the scalar field $`\varphi `$. Its integral form is simply:

$$\dot{\varphi }=\sqrt{2V}.$$
(1)
For Inflation, the idealized model is a perfectly flat potential. For cyclic models, the analog is a pure, decreasing exponential potential,

$$V=V_0\mathrm{exp}(\sqrt{3(1+w)}\varphi ),$$
(2)
where this form is taken to be an approximation to the steeply falling part of the potential after the plateau. The solution to the full equations of motion in a gravitational background for an exponential potential is well-known. There is a scaling solution in which the field energy is that of an ideal fluid with equation of state $`w`$, in units where $`8\pi G=1`$. Note that the same potential form can be used for inflation if $`V`$ is negative and $`w1`$. In cyclic models, we need $`V_0`$ positive and $`w1`$.

The equation of motion can then be integrated to provide a relation between the time and the curvature of the potential:

$$t=\sqrt{\frac{2}{V^{\prime \prime }}},$$
(3)
where the time has been defined to be negative and to approach $`t=0`$ as the contraction reaches the big crunch. The equation of motion for the $`k`$-th fluctuation mode, $`\delta \varphi _k`$ is, then:

$$\delta \ddot{\varphi }_k+(k^2+V^{\prime \prime })\delta \varphi _k=0$$
(4)
the last term of which can be re-expressed in terms of the time using the solution to the equation of motion:

$$\delta \ddot{\varphi }_k+\left(k^2\frac{2}{t^2}\right)\delta \varphi _k=0.$$
(5)
Those familiar with inflationary perturbations will recognize the last equation as being precisely what is obtained in inflation for a flat potential. The critical factor is the numerator of the second term, which is two for a precisely scale-invariant spectrum. The factor of $`2/t^2`$ for inflation comes from the gravitational expansion term, which is proportional to $`a^{\prime \prime }/a=2/\tau ^2`$ where $`a`$ is the scale factor and the prime represents the derivative with respect to conformal time $`\tau `$. The magical result is that scale invariance can be obtained either when gravity is strong and expansion is nearly de Sitter, or when contraction is negligible and the potential is exponentially decreasing.

However, there is an important difference. In inflation, the scale-invariant perturbations are generated because the gravitational factor $`a^{\prime \prime }/a`$ is much greater than the mass of the inflaton $`V^{\prime \prime }`$. A corollary is that the same equation applies to any field whose mass is much less than $`a^{\prime \prime }/a`$. That is, all light degrees of freedom obtain scale-invariant fluctuations. For most degrees of freedom, these fluctuations are irrelevant because they either smooth out after re-thermalization, or never dominate or never leave a measurable imprint. Notable exceptions are the two massless tensor modes. The gravitational waves produced in inflation may not dominate the density of the Universe, but they decouple immediately after reheating and maintain a distinctive signature. Although the current generation of gravitational wave detectors is not sensitive enough, future detectors may detect directly the stochastic fluctuations created by inflation. Alternatively, the tensor fluctuations leave a distinctive signature in the cosmic microwave background polarization, which also may be detectable. The discovery of long-wavelength gravitational waves would be important proof for inflation because these long-wavelength gravitational waves are not produced in the cyclic or ekpyrotic models. For cyclic models, the critical factor of $`2/t^2`$ is provided by the potential, so only fields which have the exponential potential obtain scale-invariant fluctuations. The components of the metric are massless and potential-less, so, to lowest order, there are no long-wavelength gravitational waves produced. (When gravitational back-reaction is included, one finds a blue spectrum which includes long-wavelength modes, but whose amplitude is $`10^{25}`$ smaller than inflation – effectively invisible.)

Hence, a valuable lesson has been learned. Gravitational waves provide a litmus test for determining the conditions under which the primordial perturbations were created, during fast expansion or slow contraction.

Another difference, even harder to detect, is the higher order non-gaussian contributions to the primordial spectrum. In both models, one can compute the non-gaussian corrections to the leading order gaussian fluctuations. The inflationary contribution is very small, down by more than $`10^5`$ relative to the leading order. Cyclic perturbation spectra are super-gaussian: the non-gaussian contribution due to higher order terms is exponentially suppressed.

## 7 Contraction, Crunch and Bounce

If the Universe is contracting when the perturbations are created, it will continue to contract until the Friedmann-Robertson-Walker scale factor, $`a(t)`$, hits zero and the Universe undergoes a crunch. The proposal is that the crunch leads to a bounce and renewed expansion.

One of the lessons learned from the study of the ekpyrotic model is that the crunch may be much milder than expected. The big crunch discussed in earlier attempts at oscillatory models was one in which the density and temperature diverge, leading to divergent curvature and uncontrolled behavior. For example, the action might be:

$$S=d^4xa^4\left(\frac{1}{2}+\frac{1}{2}(\varphi )^2V(\varphi )+\rho _R\right)$$
(6)
where $`8\pi G=1`$, $``$ is the Ricci scalar and $`\rho _R`$ is the radiation density. We have also set $`\sqrt{g}=a^4`$, using the conformal Friedmann-Robertson-Walker metric. Solving the equation of motions, one finds $`\rho _Ra^4`$, which is divergent at the crunch.

However, the crunch can be mollified if the scalar field $`\varphi `$ has appropriate couplings to matter, as in:

$$S=d^4xa^4\left(\frac{1}{2}+\frac{1}{2}(\varphi )^2V(\varphi )+\beta ^4(\varphi )\rho _R\right).$$
(7)
If the coupling function $`\beta (\varphi )`$ has the property that $`a\beta cnst.`$ as $`a0`$, then the radiation density approaches a constant at the crunch because the solution to the equation of motion is modified to be $`\rho _R(a\beta )^4`$. The increase in density due to contraction is compensated by the effect of the scalar field, which acts as a modification of gravity. By this simple mechanism, some of the serious concerns are obviated. The density and curvature can be finite, at this classical level. The spatial singularity has properties akin to time-like conical singularities which have been resolved and tamed in string theory. Our speculation is that the cosmic singularity can be tamed, also, even after the inclusion of quantum fluctuations. Efforts are underway to evaluate this speculation rigorously.

Effectively, this approach argues that the effect of the contraction of the scale factor on the density curvature is compensated by the effect of the scalar field, which acts as a modification of gravity.

## 8 A New Toolkit for the Cosmologist

We have emphasized that the cyclic scenario can be understood for the most part, in terms of ordinary field theory. Many of its basic ingredients, such as scalar fields and potentials, also appear in inflationary cosmology. The cyclic model could have been proposed at the same time as inflation, in which case it would have been interesting to see which proposal would have emerged as the more appealing idea. As it is, the cyclic model has arrived twenty years late, after cosmologists have become attached to the inflationary paradigm, so there can be no fair measure.

The cyclic model was probably delayed because of the number of novel concepts that had to be incorporated. Although each idea is rather simple, having the whole collection together at once opens the door to new cosmological possibilities. They form a new toolkit of ideas that enable the cyclic model and may inspire further alternative cosmologies. For this reason, we summarize them here:

* Negative potential energy can be used to trigger a period of collapse in a flat universe. (Previous oscillatory models assumed a closed universe.)
* Negative potentials can lead to viable cosmologies.

(Many thought that the field would roll down the potential, get stuck at the bottom, and collapse into an anti-deSitter phase. Instead, the collapse causes the kinetic energy of the scalar field to blue shift and accelerate out of the potential well. This result has important implications for model-building. For example, supergravity models have been summarily rejected in the past because the vacuum state had negative potential energy, but now we have learned that some of the models can lead to viable cosmologies.)
* A period of dark energy domination can simultaneously resolve the entropy problem of cyclic models, and the homogeneity and flatness problems of the standard big bang model.
* Scale-invariant spectra can be generated during a slow contraction phase in which $`w`$ for the scalar field is much greater than unity, as explained in Section 4.
* Scalar field couplings to matter and radiation can be chosen so that the (classical) density and temperature remain finite at collapse.
* Density fluctuations created in a collapsing phase can result in growing mode perturbations after a bounce.
* Dark energy can make the cyclic solution a dynamical attractor so that the solution that is stable under perturbations.

## 9 Strings and Branes

Thus far, the discussion of strings and branes has been avoided. However, string theory and M-theory have been an inspiration because they provide a natural setting and a particularly appealing geometric realization of the cyclic scenario. This connection is important, giving the model quantum consistency at a deep level and connecting our scenario to the leading approach to fundamental physics.

According to $`M`$-theory, the Universe consists of a four dimensional ‘bulk’ space bounded by two three-dimensional domain walls, one with positive and the other with negative tension. The branes are free to move along the extra spatial dimension, so that they may approach and collide. (The fundamental theory is formulated in 10 spatial dimensions, but six of the dimensions are compactified on a Calabi-Yau manifold, which for our purposes can be treated as fixed and irrelevant). Gravity acts throughout the five dimensional space-time, but particles of our visible Universe are constrained to move along one of the branes, sometimes called the ‘visible brane.’ Particles on the other brane interact only through gravity with matter on the visible brane and hence behave like dark matter.

Now we can “name names.” The scalar field $`\varphi `$ responsible for the cyclic scenario is, here, naturally identified with the radion field that determines the distance between branes. It is a required component of the M-theory picture. The potential $`V(\varphi )`$ is the inter-brane potential caused non-perturbative virtual exchange of membranes between the boundaries. The interbrane force is what causes the branes to repeatedly collide and bounce. The particular form of the interbrane force is not known, but a plausible form for the interbrane potential is:

$$V(\varphi )=V_0(1e^{c\varphi })F(\varphi )$$
(8)
where $`F(\varphi )`$ is chosen so that the potential falls to a substantially negative value and than rapidly approaches zero as $`\varphi \mathrm{}`$. At large separation (corresponding to large, positive $`\varphi `$), the force between the branes should become small, consistent with the flat plateau shown in Fig. 1(b). Collision corresponds to $`\varphi \mathrm{}`$. But the string coupling $`g_se^{\gamma \varphi }`$, with $`\gamma >0`$, so $`g_s`$ approaches zero in this limit. Non-perturbative effects vanish faster than any power of $`g_s`$, for example as $`e^{1/g_s^2}`$ or $`e^{1/g_s}`$, accounting for the prefactor $`F(\varphi )`$.

The coupling to matter-radiation, $`\beta (\varphi )`$, that mollifies the crunch (see Section 5) also has a natural interpretation in the brane picture. Particles reside on the branes, which are embedded in an extra dimension whose size and warp are determined by $`\beta `$. The effective scale factor on the branes is $`\widehat{a}=a\beta (\varphi )`$, not $`a`$, and $`\widehat{a}`$ is finite at the big crunch/big bang. The function $`\beta (\varphi )`$ is, in general, different for the two branes (due to the warp factor) and for different reductions of M-theory. However, the behavior $`\beta (\varphi )\mathrm{e}^{\varphi /\sqrt{6}}`$ as $`\varphi \mathrm{}`$ is universal, since at small brane separations the warp factor becomes irrelevant and one obtains the standard Kaluza-Klein result. This universal form satisfies the desired condition that $`a\beta const.`$ as $`a0`$.

Most importantly, the brane-world provides a natural resolution of the cosmic singularity. From the brane-world perspective, the singularity is far milder than in conventional cosmology. In fact, one might say the big crunch is an illusion, since the scale factors on the branes ($`\widehat{a}`$) are perfectly finite there. That is why the matter and radiation densities, and the Riemannian curvature on the branes, are finite. The only respect in which the big crunch is singular is that the one extra dimension separating the two branes momentarily disappears. That is, the apparent singularity of the 4d theory, $`a0`$, corresponds to the collapse of the extra dimension only. Our regular three dimensions remain infinite.

Our scenario is built on the hypothesis that the branes separate after collision, so the extra dimension immediately reappears. Consequently, the scale factor bounces and begins to expand. This process cannot be completely smooth, since the disappearance of the extra dimension is non-adiabatic and leads to particle production. Preliminary calculations of this effect are encouraging, since they indicate a finite density of particles is produced. In this picture, the brane collision can be viewed as a simple, partially inelastic collision. Ultimately, a well-controlled string-theoretic calculation should determine the efficiency of particle production from first principles.

in this picture, an observer on a brane would experience periods when the brane is expanding (during the radiation, matter, and dark energy dominated epochs), and periods when the stretching of the brane would nearly halt. instead, the branes approach one another. The observer would perceive that the separation between distance objects on the brane is no long increasing, nor is it decreasing either. This is the stagnation discussed earlier. Rather, the action is occuring in the extra dimension. Once the collision between branes takes place and the universe is dominated once again by radiation, the expansion of the universe begins again.

On length scales larger than the separation between branes, the higher dimensional brane-world description can be reduced to an effective four-dimensional field theory. This is why, for the most part, the cyclic scenario could be described without reference to stringy physics and higher dimensions. Nevertheless, the brane-world picture proves to be a useful geometrical picture, and string theory is probably essential for determining what happens at the crunch.

## 10 In the Beginning

With the introduction of the cyclic model, the stage is set for a scientific debate comparing two distinct conceptual frameworks, one based on the supposition that space and time have a beginning and the other based on the notion that time and space continue and the bang is merely a transitional stage from one cycle to the next. Conceptually, the two models are poles apart. Observationally, both match all current observations in exquisite detail.

To decide between the two models requires advances in both theory and experiment. Theory, particularly string theory, can shed light on the nature of the singularity. As a candidate for a quantum theory of gravity, addressing the singularity is its raison d’etre. The fact that the singularity in question is mathematically equivalent to a collision between branes with finite energy density in a non-singular region of 5d space-time strongly suggests to these authors that time does not come to a halt at the crunch. Intuitively it seems that the branes must bounce (or equivalently, pass through one another), re-opening the extra dimension, corresponding to reversal from contraction to expansion. However, establishing this is the critical challenge for string theory and must be shown rigorously. String theory can also inform us whether the brane interaction can be of the requisite form for the model.

The ultimate arbiter will be Nature. Specifically, measurements of the stochastic gravitational background is the decisive way to distinguish the two scenarios. Another generic prediction of the cyclic model regards the ratio of the pressure to the energy density of the dark energy that is causing the current cosmic acceleration. In the cyclic picture, the dark energy is due to the scalar field $`\varphi `$ which has been fixed during the radiation and matter era, but is beginning to roll downhill as the Universe becomes dark energy dominated and the expansion begins to accelerate. For a static field, the ratio of pressure to energy density is -1, but this ratio increases as the field begins to roll. Hence, measurements of the ratio today and perhaps its time-variation are further consistency checks of the cyclic picture. In the interim, it appears that we now have two disparate possibilities: a Universe with a definite beginning and a Universe that is made and remade forever.

## 11 Acknowledgements

We would like to acknowledge our valued collaborators Justin Khoury, Burt Ovrut and Nathan Seiberg. The work was supported in part by US Department of Energy grant DE-FG02-91ER40671.


format: text

text:
# Fixed-delay Interferometry for Doppler Extra-solar Planet Detection

## 1 Introduction

Interferometer techniques based on variable optical delays have already been proposed for high precision RV measurements (Connes 1985; Fradsen et al. 1993; Douglas 1997), the most recent of which is Holographic Heterodyning Spectroscopy (HHS). To our knowledge, none of these techniques has yet achieved RV precision on a par with cross-dispersed echelle spectroscopy ($``$ 3 m/s)(Butler et al. 1996). The fundamental limitation of interferometric techniques is the narrow band pass (e.g. $``$ 30 Å) compared to the broadband operation of the echelle ($``$ 1000 Å), which provides $``$ 6 times higher Doppler error than the echelles at the same spectral resolution.

The narrow band limitation can be overcome by a new kind of interferometer approach based on a fixed optical delay and a post-disperser. Fixed-delay interferometers with narrow band passes have been used in high precision RV measurements in solar astrophysics since 1980’s (Title & Ramsey 1980; Harvey et al. 1995; Kozhevatov e al. 1995; 1996). The best RV precision of $``$ 3 m/s has been reported with solar observations (Kozhevatov e al. 1995; 1996). Recent laboratory work with a wide angle Michelson interferometer with a fixed delay and a medium resolution grating post-disperser appears to offer $``$ 1 m/s RV precision, similar to the echelle spectroscopy (Erskine & Ge 2000). The first light of a prototype instrument based on this concept at the Hobby-Eberly 9 m and Palomar 5 m telescopes in 2001 demonstrates that $``$ 8 m/s RV precision has been achieved with stellar observations (Ge et al. 2001; van Eyken et al. 2001; Ge et al. 2002). Here we present the theoretical principle behind this new RV technique, its performance comparison with the cross-dispersed echelle technique and its new capability for all sky RV surveys for extra-solar planets.

## 2 Principle of Fixed-delay Interferometry

This new approach is illustrated in Figure 1. The circular incoming beam from a telescope is converted to a rectangular one by cylindrical optics, split into two beams with equal amplitude and fed to an interferometer with a fixed optical delay in one of the arms to form fringes in stellar absorption lines. The uncorrelated fringes over a broadband (white fringes) are separated by a post-disperser and recorded on a 2-D detector array with fringes sampled on the slit spatial direction and the spectrum sampled in the dispersion direction. This post-disperser can be any dispersing device (e.g. grating, prism, grism, Fabry-Perot interferometer). The fringe period in the slit spatial direction is proportional to wavelength. Therefore, fringes over a bandwidth similar to, or larger than, that of the echelles can be properly sampled and measured on a suitable detector array (e.g. CCD), which can help reduce RV measurement noise due to photon statistics.

In this interferometer, high contrast interference fringes are formed when the optical path difference is within the coherence length (Goodman 1984). Parallel fringes are created when the faces of the two interferometer mirrors are slightly tilted with respect to each other. The interference order, $`m`$, is determined by

$$m\lambda =d,$$
(1)
where $`d`$ is the total optical delay, and $`\lambda `$ is the operating wavelength. Once the delay is fixed, Doppler RV motion will shift the fringes to different orders. The corresponding Doppler velocity shift, $`\mathrm{\Delta }v`$, is

$$\mathrm{\Delta }v=\frac{c\lambda }{d}\mathrm{\Delta }m.$$
(2)
The Doppler analysis is performed on the$`\mathrm{`}\mathrm{`}`$normalized” fringe (i.e., divided by the continuum), which can be represented as a function of velocity

$$I=1+\gamma _isin(2\pi \frac{v}{c\lambda /d}+\varphi _0),$$
(3)
where $`\gamma _i`$ is the fringe visibility, and $`\varphi _0`$ is the phase value for the first pixel of the fringe. Along the fringe, the average uncertainty in the velocity from one pixel is

$$\sigma _p=<\frac{ϵ_I}{dI/dv}>\frac{c\lambda }{4d\gamma _i(S/N)},$$
(4)
where $`ϵ_I`$ is the uncertainty in the residual intensity at the pixel, for a normalized spectrum, $`ϵ_I=1/(S/N)`$, where $`(S/N)`$ is the signal-to-noise ratio at the pixel, and the average slope over one side of the fringe (half period) of the sinusoidal interferometer response

$$<\frac{dI}{dv}>=\frac{4d\gamma _i}{c\lambda }$$
(5)
is used. If an interference fringe is sampled by $`N_{pix}`$ pixels, then the total intrinsic Doppler error under photon noise limits is

$$\sigma _{f,i}\frac{c\lambda }{4d\gamma _i\sqrt{F_i}},$$
(6)
where $`(S/N)=\sqrt{N_{ph}}`$ is applied, $`N_{ph}`$ is the number of photons received by each pixel, and $`F_i=N_{pix}N_{ph}`$ is the total photon number collected by each fringe. It is clear that the Doppler precision in the interferometer approach is determined by delay, visibility, and total photons collected in each fringe. If we simply assume that each stellar intrinsic absorption line is a Gaussian shape with a FWHM of $`\mathrm{\Delta }\lambda _i`$ and a depth of $`D_i`$ ($`0D_i1`$), then the visibility as a function of optical delay can be derived (Goodman et al. 1984) as

$$\gamma _i=D_ie^{3.56\frac{d^2}{l_c^2}},$$
(7)
where $`l_c=\lambda ^2/\mathrm{\Delta }\lambda _i`$ is the coherence length of the interferometer beam. A simple derivation shows that $`(d\gamma _i)`$ reaches a maximum value of $`0.23D_il_c`$, when $`d=0.37l_c`$ as shown in Figure 2. Therefore, the minimum intrinsic Doppler error per fringe is

$$\sigma _{f,i}\frac{1.1c\lambda }{D_il_c\sqrt{F_i}},$$
(8)
This formula indicates that the intrinsic Doppler error for each fringe decreases with increasing coherence length of the light, the flux per fringe and also with increasing absorption line depth. If multiple fringes ($`N_i`$) over a broadband are used for Doppler RV measurements, then the total Doppler error is

$$\sigma _{f,i,t}\frac{1}{\sqrt{N_i}}\frac{1.1c\lambda }{D_il_c\sqrt{F_i}},$$
(9)
assuming line depths, widths, and $`F_i`$ are the same for all fringes. For the multiple fringe measurements, the intrinsic line profiles are convolved with the response of the post-disperser, which affects RV precision. Assuming that the post-disperser response profile is approximately a Gaussian function with a FWHM of $`\mathrm{\Delta }\lambda _g`$, the FWHM of the observed line is $`\mathrm{\Delta }\lambda _o\mathrm{\Delta }\lambda _g`$ if $`\mathrm{\Delta }\lambda _g>>\mathrm{\Delta }\lambda _i`$. The observed absorption line depth is

$$D_o\frac{\mathrm{\Delta }\lambda _i}{\mathrm{\Delta }\lambda _o}D_i.$$
(10)
The observed flux within each fringe (or absorption line) is increased to

$$F_o\frac{\mathrm{\Delta }\lambda _o}{\mathrm{\Delta }\lambda _i}F_i.$$
(11)
The total measured Doppler error per fringe becomes

$$\sigma _{f,o}\sqrt{\frac{\mathrm{\Delta }\lambda _o}{\mathrm{\Delta }\lambda _i}}\sigma _{f,i}.$$
(12)
The Doppler sensitivity for each fringe is decreased due to the use of the post-disperser. However, if the detector dimension in the dispersion direction and the sampling of each resolution element are fixed, then the total number of absorption lines covered by the array, $`N_o`$, increases to

$$N_o\frac{\mathrm{\Delta }\lambda _o}{\mathrm{\Delta }\lambda _i}N_i,$$
(13)
if the absorption line density is approximately constant over the wavelength coverage. Therefore, the total Doppler error

$$\sigma _{f,o,t}\frac{1}{\sqrt{N_o}}\frac{1.1c\lambda }{D_ol_c\sqrt{F_o}}\sigma _{f,i,t}.$$
(14)
is independent of the resolution of the post-disperser, which is significantly different from the echelle approach and offers new possibilities for Doppler planet searches.

In the cross-dispersed echelle spectroscopy, a total measured Doppler error (photon noise error) for a stellar absorption line with an intrinsic FWHM, $`\mathrm{\Delta }\lambda _i`$, and depth, $`D_i`$, at a spectral resolution of $`\mathrm{\Delta }\lambda _o`$ is described as

$$\sigma _{e,o}(\frac{\mathrm{\Delta }\lambda _o}{\mathrm{\Delta }\lambda _i})^{3/2}\frac{c\mathrm{\Delta }\lambda _i}{D_i\lambda \sqrt{F_i}}=(\frac{\mathrm{\Delta }\lambda _o}{\mathrm{\Delta }\lambda _i})^{3/2}\sigma _{e,i},$$
(15)
where $`\mathrm{\Delta }\lambda _o=\sqrt{\mathrm{\Delta }\lambda _e^2+\mathrm{\Delta }\lambda _i^2}`$, $`\mathrm{\Delta }\lambda _e`$ is the FWMH of the echelle response. For a fixed bandwidth of the echelle, e.g., $``$ 1000 Å determined by the bandwidth of iodine absorption in the Visible for calibrations (Butler et al. 1996), the total measured echelle error is

$$\sigma _{e,o,t}(\frac{\mathrm{\Delta }\lambda _o}{\mathrm{\Delta }\lambda _i})^{3/2}\sqrt{\frac{N_i}{N_e}}\sigma _{e,i,t}(\frac{\mathrm{\Delta }\lambda _o}{\mathrm{\Delta }\lambda _i})^{3/2}\sqrt{\frac{N_i}{N_e}}\sigma _{f,o,t},$$
(16)
where the total number of stellar lines covered in this band, $`N_e`$, is fixed. This indicates that the Doppler error in the echelle approach strongly depends on the echelle resolving power. At typical echelle resolution such as $`R`$ 60,000 (e.g. Suntzeff et al. 1994; Vogt et al. 1994; D’Odorico et al. 2000), the Doppler error is $``$ 1.3 times higher than that in the interferometer approach for the same wavelength coverage and photon flux. Therefore, in order to approach the highest possible Doppler precision, approximately the same as that in the interferometer approach, limited only by the stellar intrinsic line profiles, the spectral resolving power must be much higher than the stellar intrinsic line width, i.e. $`\mathrm{\Delta }\lambda _e<<\mathrm{\Delta }\lambda _i`$.

## 3 Discussions

The independence of Doppler sensitivity with the post-disperser resolving power in the interferometer approach potentially allows about two to three orders of magnitude improvement in RV survey speed for planets over echelle techniques. The use of low resolution but high efficiency post-dispersers can significantly boost the overall detection efficiency and allow single dispersion order operations for potential multiple object observations. The current echelle instruments are limited to a few percent total detection efficiency, or less; this includes telescope transmission, slit loss, spectrograph and detection loss, due to use of very high resolution echelle and complicated camera optics (Vogt et al. 1994; Suntzeff et al 1996; D’Odorico et al. 2000). An interferometer coupled with a low resolution dispersing instrument potentially offers perhaps $``$ 30% detection efficiency, 5-10 times higher than the echelle, thus allowing to extend RV survey depth to fainter objects with fixed size telescope. This high efficiency can be achieved because both of the interferometer and low resolution spectrograph can be optimized for high transmission111For instance, a Michelson type interferometer with corner cube mirrors can feed both interferometer outputs to the detector at $``$ 90% efficiency (Traub 2002). A low resolution spectrograph using a volume phase grating can potentially reach $``$ 70% transmission (Barden et al. 2000). Together with the telescope transmission ($``$ 80%), fiber-feed transmission ($``$ 70%) and detector quantum efficiency ($``$ 90%), the total detection efficiency can reach $``$ 30%. Details about the total transmission budget will be discussed in a follow-up paper (Ge et al, 2002). The potential operation of the instrument in a multi-object mode allows simultaneous observations of hundreds of objects in a single exposure with broadband coverage on a large 2-D detector array. Full sky coverage of an RV survey for planets becomes possible with a wide field telescope.

In addition, the simple response function potentially offers lower systematic errors than those echelle approaches. Currently, the systematic errors associated with the echelle instrument response account for about 2 m/s Doppler error largely due to the de-convolution of observed stellar spectra to create star templates (Butler et al. 1996; Valenti 2000). Since this process is not required in this interferometer approach, the systematic error can be well below 2 m/s. Hence, Doppler precision of sub m/s is potentially reachable through increasing photons collected by each fringe and increasing wavelength coverage. We have achieved $``$ 8 m/s Doppler precision with star light at the HET with an approximately $``$ 140 Å wavelength coverage, a $`R=6700`$ post-disperser and a S/N $``$ 100 per pixel. This error is consistent with photon-noise limit222The reason that we were not able to reach higher precision is that the calibration error from using iodine reference is $``$ 7 m/s, dominating the total measurement error. At $`R`$ 6700, mean fringe visibility for iodine absorption lines are too low ($``$ 2.5%) compared to that for stellar absorption lines ($``$ 7%). In the future, a calibration source with much higher fringe visibility will replace the iodine for achieving sub m/s. Details on new calibration techniques will be reported in the follow-up paper (Ge et al. 2002).

Another exciting possibility with this interferometer technique is to extend RV surveys for planets in wavelengths other than the visible, previously not covered by echelle surveys. Since the interferometer response is simple and stable, there is no need for calibrating instrument response as for the echelle. Instrument wavelength calibrations (or instrument zero velocity drift measurements) can be conducted with reference sources with a lower line density than the iodine used in the echelle. Therefore, this instrument can be easily adapted to other wavelengths for maximizing the photon flux, and number of stellar absorption lines for precision Doppler RV measurements. The candidate stars for this potential survey include late M, L, and T dwarfs, early type B, A stars and white dwarfs. Late M, L and T dwarfs have peak fluxes in the near-IR. For instance, the late M dwarfs have peak flux in the near-IR, at least a factor 10 higher than at the visible (Kirkpatrick et al. 1993; 1999) and since a number of molecular absorption lines are concentrated in this wavelength region, observing time can be significantly reduced if the IR spectra can be used for RV measurements. A and B main sequence stars have very broad intrinsic absorption lines dominated by the Balmer series due to rapid rotation. White dwarfs have very broad intrinsic absorption lines due to pressure broadening. Typical rotation velocity for normal A and B type stars is about 150 km/s, $``$ 30 times faster than a typical late type star (Gray 1992; Dravins 1987). Due to the broader intrinsic line profile, the intrinsic Doppler error for these stars increases by $``$ 6 times compared to the late type stars. However, with deep Balmer absorption lines over large wavelength coverage of most of the Balmer lines and high signal-to-noise ratio data, it is possible to achieve $``$ a few m/s Doppler precision for detecting planets around these stars for the first time.

###### Acknowledgements.

The author is grateful to David Erskine, Julian van Eyken, Suvrath Mahadevan, Larry Ramsey, Don Schneider, Steinn Sigurdsson, Web Traub, Ron Reynolds, Fred Roesler, Stuart Shaklan, Harvey Moseley, Bruce Woodgate, Roger Angel, Mike Shao, Chas Beichman, Ed Jenkins & Jim Gunn for stimulating discussions on this new instrument concept.

Figure Captions

Figure 1. – Principle of a fixed-delay interferometer and a post-disperser. The fringe data was taken with a prototype instrument, called Exoplanet Tracker (ET) and a 1kx1k CCD array, developed at Penn State(Ge et al. 2001; van Eyken et al. 2001). The stellar interference fringes, formed by a Michelson type interferometer with $``$ 7 mm optical delay, lie in the horizontal direction and are sampled by $``$ 60 pixels. The fringes over different wavelengths are separated by a first order diffraction grating with a resolving power of R $``$ 6,000, a factor of ten times lower than typical echelle spectrographs and recorded in the vertical direction of the CCD.

Figure 2. – Product of delay and fringe visibility vs. delay in the interferometer for a gaussian shaped profile. The maximum for $`d\gamma =0.23D_il_c`$ is at $`d=0.37l_c`$. The optimal value for delay depends on shape of the stellar line profile.


text:
# Price Drops, Fluctuations, and Correlation in a Multi-Agent Model of Stock Markets

## 1 Introduction

In the recent years physicists have shown increasing interest in examining the statistical properties of real market financial data  and they have contributed to the extraction of the most important characteristics which are referred to as ”stylized facts” . Such stylized facts include fat tailed distribution and short time correlations for the logarithmic returns, volatility clustering, gain-loss asymmetry, etc.

To deepen our understanding of financial markets building models is essential. One approach is constructing purely mathematical models (e.g., ARCH and GARCH processes which are well known to and widely used by economists ). Another way which is more appealing for statistical physicists is that of the so-called multi-agent models. These are based on interacting agents using different strategies corresponding to real market behavior. The simplest of these models are probably the so-called ”minority games” (e.g., the ”El Farol bar” model ). Such rather abstract models are appropriate to capture main mechanisms but a detailed correspondence to economics is hard to find. An example for more complicated models based on both economical and physical approaches is that introduced by Lux and Marchesi . In this model a relatively large number of parameters enables to incorporate several aspects of real financial processes.

It is well known that prices on financial markets (particularly on stock markets) tend to fluctuate in a broad range. It has for long been a major goal of economists to understand the cause of these fluctuations, rises, and drops . Experts seem to be puzzled by the fact that sometimes price changes can be easily traced back to well defined external effects like news about political events, announcements of dramatic economic data etc., while in many cases there is no apparent reason for the major fluctuations.

In statistical physics we distinguish between statistical fluctuations and changes due to external perturbations. If time reversal symmetry (or detailed balance) holds for the system like at thermal equilibrium, the famous fluctuation-dissipation theorem implies that spontaneous fluctuations and the response to small perturbations decay in the same way. Of course, the condition of detailed balance does not hold for financial markets. Even statitionarity can be questioned and the time reversal symmetry is broken, e.g., agents want to maximize profit and tend to switch to winning strategies.

The goal of our study is to compare fluctuations and response to external effects on financial markets. In order to have a clear cut situation we investigate the the Lux-Marchesi model. The ability of the model to reproduce important stylized facts together with the relative robustness of this property when changing the parameters induced us to compare the fluctuations and response (to fundamental price changes) within this framework. We sincerely hope that our major results hold for real market data as well.

## 2 Simulation of the Lux-Marchesi model

Let us start with summarizing the basic features of the Lux-Marchesi single asset – multi agent model. One of the main assumptions is that there exists a fundamental price $`p_f`$ of stocks (the value of the company and its prospective future growth) around which the real price fluctuates. In this model the agents are let to choose among the three following strategies: optimists (who buy whatever happens), pessimists (who sell), and fundamentalist (who sell if the market price is above the fundamental price and vice versa). Optimists and pessimists together are called chartists according to the usual terminology.

The number of all agents is $`N=500`$, of which the number of fundamentalists is $`n_f`$, that of optimists $`n_+`$, $`n_{}`$ for pessimists, and $`n_c=n_++n_{}`$ for chartists. The opinion index: $`x=\frac{n_+n_{}}{n_c}`$ measures to what extent optimistic strategy dominates among the chartists. The aggregate excess demand of the agents for the stocks is computed as following:

$$ED=(n_+n_{})t_c+n_f\gamma (p_fp)$$

| parameter | description |
| --- | --- |
| $`N`$ | number of all agents |
| $`\nu _1`$ | frequency of revaluation of opinion |
| $`\nu _2`$ | frequency of transition between fund. and chart. |
| $`\beta `$ | weight of demand |
| $`T_c=Nt_c`$ | trade volume of chartists |
| $`T_f=N\gamma `$ | trade volume of fundamentalists |
| $`\alpha _1`$ | strength of herding effect |
| $`\alpha _2`$ | importance of price trend for chartists |
| $`\alpha _3`$ | importance of profit difference in transition |
| $`s`$ | discount factor of fundamentalist profit |
| $`\sigma `$ | standard deviation of $`\mu `$ |
| $`R`$ | average real return of other investments |
| $`r`$ | nominal divident of the asset |
| $`dt`$ | time increment in one simulation step |
| $`dt^{}`$ | time increment (fast price change) |
| $`\mathrm{\Delta }t`$ | length of followed price trend |

Tab. 1: The description of the parameters of the Lux-Marchesi model

If the excess demand plus a small Gaussian noise term $`\mu `$ is positive the market-maker may increase the price by $`0.01`$ with the probability $`\pi _p`$; if it is negative, the price is adjusted downwards with the probability $`\pi _p`$, where these probabilities are:

$$\pi _p=max[0,\beta (ED+\mu )]$$

$$\pi _p=min[0,\beta (ED+\mu )]$$

The dynamics of the model is governed by the rule that agents may switch between the strategies if prospective payoffs are better using another strategy: the bigger the difference between the payoffs the higher the probability that the agent switches to the better strategy (transition probabilities are an exponential function of the profit difference). The transition probabilities between any two groups of traders are the following (where + stands for optimists, - for pessimists, and f for fundamentalists: thus e.g. $`\pi _+`$ is the transition probability of an optimist to pessimist during one time unit):

optimist – pessimist:

$$\pi _+=\nu _1\left(\frac{n_c}{N}exp(U_1)\right)$$

$$\pi _+=\nu _1\left(\frac{n_c}{N}exp(U_1)\right)$$

where

$$U_1=\alpha _1x+\alpha _2\frac{\dot{p}}{\nu _1}$$

optimist – fundamentalist:

$$\pi _{+f}=\nu _2\left(\frac{n_+}{N}exp(U_{2,1})\right)$$

$$\pi _{f+}=\nu _2\left(\frac{n_f}{N}exp(U_{2,1})\right)$$

where

$$U_{2,1}=\alpha _3\left(\left(r+\frac{\dot{p}}{\nu _2}\right)/pRs\left|\frac{p_fp}{p}\right|\right)$$

pessimist – fundamentalist:

$$\pi _f=\nu _2\left(\frac{n_{}}{N}exp(U_{2,2})\right)$$

$$\pi _f=\nu _2\left(\frac{n_f}{N}exp(U_{2,2})\right)$$

where

$$U_{2,2}=\alpha _3\left(R\left(r+\frac{\dot{p}}{\nu _2}\right)/ps\left|\frac{p_fp}{p}\right|\right)$$

The model uses many parameters, some of them of economic origin, some of them determining the size and reaction speed of the market (Tab. 1). The past price trend is $`\dot{p}(t)=\frac{p(t)p(t+\mathrm{\Delta }t)}{\mathrm{\Delta }t}`$. In the simulation the price and the number of agents in each group of traders is updated after a small time interval $`dt`$, if the price change was rapid in the past couple of simulation steps the elementary time step is reduced to $`dt^{}`$.

In our simulation we used the parameter sets given in the original article of Lux and Marchesi (Tab. 2), if no other indication is given parameter set IV was used for the simulation.

| par. set: | I | II | III | IV |
| --- | --- | --- | --- | --- |
| $`N`$ | 500 | 500 | 500 | 500 |
| $`\nu _1`$ | 3 | 4 | 0.5 | 2 |
| $`\nu _2`$ | 2 | 1 | 0.5 | 0.6 |
| $`\beta `$ | 6 | 4 | 2 | 4 |
| $`T_c`$ | 10 | 7.5 | 10 | 5 |
| $`T_f`$ | 5 | 5 | 10 | 5 |
| $`\alpha _1`$ | 0.6 | 0.9 | 0.75 | 0.8 |
| $`\alpha _2`$ | 0.2 | 0.25 | 0.25 | 0.2 |
| $`\alpha _3`$ | 0.5 | 1 | 0.75 | 1 |
| $`p_f`$ | 10 | 10 | 10 | 10 |
| $`r`$ | 0.004 | 0.004 | 0.004 | 0.004 |
| $`R`$ | 0.0004 | 0.0004 | 0.0004 | 0.0004 |
| $`s`$ | 0.75 | 0.75 | 0.8 | 0.75 |
| $`\sigma `$ | 0.05 | 0.1 | 0.1 | 0.05 |
| $`dt`$ | 0.01 | 0.01 | 0.01 | 0.01 |
| $`dt^{}`$ | 0.002 | 0.002 | 0.002 | 0.002 |

Tab. 2: Values of the parameters in the four different parameter sets

During our work we found that in the Lux-Marchesi model the autocorrelation of volatility shows exponential decay instead of a power-law time dependence in contradiction to the general view on real market data . The power-law decay is usually attributed to some kind of scale-invariance (regarding time) in financial markets (Fig. 1) implying that real markets are in a critical state, which we could not find in the Lux-Marchesi model even though we tried varying the parameters in a broad range. Nevertheless, the phenomenon of volatility clustering is described by the model resulting in large characteristic times of the autocorrelation function which show that the model captures important aspects of the market. Some other problems regarding the thermodynamic limit (TDL) of the model were pointed out earlier . We think that these are irrelevant from our point of view since real markets (and our simulations) are far from the TDL and the time scale of the mentioned effect is bigger then that of studied fluctuations and response.

## 3 Spontaneous price fluctuations

The dynamics of the model implies that there are continuous fluctuations around the fundamental price. We examined the decay of these fluctuations using the following simple method: when the price rose to $`p=p_f+\mathrm{\Delta }p=10.0+\mathrm{\Delta }p`$ we defined this as a fluctuation and observed the average decay for many runs. Hence we did not try to determine whether the price really sank after reaching $`p=p_f+\mathrm{\Delta }p`$ assuming that (at least at bigger fluctuations) the probability of further rise is much smaller than that of further decline.

We observed exponential decay for the price fluctuations using all parameter sets in accordance with the well known fast decay of the correlation function. Detailed simulations were undertaken for parameter set IV (Fig. 2a). Furthermore, in case of relatively large fluctuations we observed that the opinion index and the fraction of chartists significantly differed from their average values and exponential decay was observed for both quantities. The characteristic time of the decay of the price decreased with the size of fluctuation and was in the order of magnitude of 1 time unit (up to fluctuations of 4 ) (Fig. 2b). The opinion index decayed with approximately the same characteristic time. On the other hand the fraction of chartists (which is closely related to volatility) decayed much slower with characteristic times in the order of magnitude of 100 time units.

An interesting question is what causes fluctuations. In our simulations we tried to find an answer by computing the average opinion index and the average fraction of chartists that caused a fluctuation as the function of the size of the fluctuation. We found that small fluctuations are caused merely by the lack of balance inside the chartist community (Fig. 3a) while larger fluctuations are likely to occur only if the fraction of chartists to all agents rises as well (Fig. 3b) resulting in a higher market volatility ). In other words the fluctuation in the agents’ behaviors results in high volatility, i.e. in a nervous market which occasionally leads to major deviations from the fundamental price. However, in such cases the attractive force of the fundamental price does not show up abruptly, since the re-stabilization of the equilibrium price has to be accompanied by a gradual restoration of the balance between chartists and fundamentalists.

## 4 Response to external effects

It is well known that financial markets are exposed to many external effects from the outside world. This means that the changes in prices are only partly due to the inherent market mechanisms (fluctuations around ”equilibrium”), changes can also be caused by news from the outside world (e.g. financial reports; bankruptcy; death of important personalities; outbreak of war; terror attacks, etc.). The analysis of real market data from the point of view of external news is a highly non-trivial task. On the one hand, it is difficult to set an independent level of ”importance” of news in our age of information explosion; furthermore, the effects of different news may overlap. On the other hand, the reaction of the market to the news is also hard to tell. The situation is much simpler in an artificial market like the Lux-Marchesi model where we can immediately change the fundamental value of a company or asset (which would be in reality a consequence of the external event).

In our simulation we changed the fundamental price from $`p_f=10.0+\mathrm{\Delta }p`$ to $`p_f=10.0`$ and examined the average of many runs as a function of time that has passed since the event. In the computer program we solved the averaging by raising the fundamental price by $`p`$ for 100 time steps and then decreasing it to the original value, after another 100 time units we raised it again etc. This means we used a rectangular function ($`\mathrm{\Theta }`$-like function) to perturb the system and recorded the average response (Fig. 5a). What we saw in case of $`p>0`$ is an abrupt drop in market price (the speed of which was only limited by the minimum time step of the model) followed by an overshoot. Economists and traders have long known that a correction exists after a very fast price change(Fig. 4). A sad example for this was the reaction of the European stock markets to the terror attack on New York on the 11th September. The prices dropped fast that day (generally losses over 10 % were recorded) but the next day there was already an upward moving trend (a correction after the overreaction of the events).

We used two different parameter sets (II and IV) to check whether the occurrence overshoot or its shape depend on the parameters and saw that it is a rather robust effect. A detailed survey of the phenomenon was undertaken using parameter set IV. We saw that the speed of the drop in price was only limited by the model (this means a maximum of 0.05 price drop in 0.01 time steps).

Another interesting result is that (in case of a price drop) the location of the price minimum in time is independent of the price drop $`\mathrm{\Delta }p`$ for a wide range of $`\mathrm{\Delta }p`$ (for parameter set IV the price minimum is located at approximately $`t=0.42\pm 0.02`$ time units up to price drops of 10%). This means that on average one can predict when the minimum of the price occurs (if one knows the parameters of the market) irrespective of how big the fundamental price change $`\mathrm{\Delta }p`$ is.

Let us define the magnitude $`M`$ of the overshoot as the difference of the price minimum and the new equilibrium price (which equals the fundamental price after the event). $`M`$ shows linear dependence on the fundamental price change $`\mathrm{\Delta }p`$ in a wide range of $`\mathrm{\Delta }p`$-s (up to a 10% abrupt fundamental price change, which is already huge on market scales) (Fig. 5b).

When examining the cause of overshoots within the model, the explanation is at hand: during the sudden drop of the price the proportion of pessimists rises sharply within the chartists. On the other hand, the fraction of chartists among all dealers does not change. This means that the overshoot is caused only by the movements inside the chartist ”community”. When the price first reaches the new equilibrium state, the fraction of pessimists is still very high which implies the further drop of price, resulting in the overshoot. Furthermore the opinion index decays to zero (after a sharp drop immediately after the event) exponentially.

## 5 Discussion

The main result of the presented simulations is that in the Lux-Marchesi model of financial markets fluctuations and response to external perturbations (events) decay in a significantly different manner. Spontaneous fluctuations decay with a relatively long characteristic time while the response to external events is practically immediate and followed by an overshoot. The absence of the validity of the Onsager hypothesis for this model (and for financial markets in general) is not at all surprising since the continuous competition for profit (better payoffs) works so as to undermine the detailed balance and time reversal symmetry. The violation of the time reversal symmetry has further consequences as well, like the assymetry of the time dependant cross correlations between different stocks .

The investigation of the opinion index and the fraction of chartists in case of fluctuations and responses showed that the decay mechanisms are indeed different: large spontaneous deviations from the equilibrium price occur in highly volatile markets which are accompanied by an increase of the ratio of chartists (pessimists and optimists) as compared to fundamentalists. The reaction of the market to an external change of the fundamental price is mainly governed by the shift in the ratio of the optimists and pessimists inside the group of chartists. The consequence of the latter is a well defined and rather robust overshoot in the price. The characteristic time is short and the size of the overshoot is small indicating that the market tries to adjust to the new situation effectively, however, at the same time, the phenomenon itself shows the limitations of this efficiency.

We have demonstrated that it is worth and possible to investigate the effect of external perturbations and spontaneous fluctuations separately in a model market. It would be most interesting to try to identify the origins of deviations from average behavior on real market data. Clearly, several difficulties have to be faced when trying to distinguish between the two mentioned mechanisms: The motivation of the agents is hidden, changes are not necessarily such abrupt as in the model, insider information may influence the pattern , effects of different news overlap, large fluctuations cover the overall behavior, etc. Nevertheless, we believe that our study gives a hint how to approach this problem.

Thanks are due to Thomas Lux for correspondence. Furthermore we kindly thank László Kullmann for his advice and János Török for his help concerning the computer simulations and other computer related problems. Support of OTKA T029985 is also acknowledged.