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# Fluctuations and Landau-Devonshire expansion for Barium Titanate

## Abstract

The experimentally observed temperature dependence of the quartic coefficients in the Landau-Devonshire expansion for BaTiO3 is naturally accounted for within a proper fluctuation model. It is explained, in particular, why one of the quartic coefficients varies with temperature above $`T_c`$ while the second is constant. The tetragonal phase in BaTiO3 is argued to exist essentially due to the thermal fluctuations, while the true Landau-Devonshire expansion with temperature-independent coefficients favours the rhombohedral ferroelectric phase. Certain conclusions concerning the temperature dependence of the sextic Landau-Devonshire coefficients are also made.

The phase diagram of the barium titanate contains three lines of phase transitions and its structure is known to be properly reproduced by the phenomenological Landau-Devonshire theory . It is accepted within the phenomenological approach that all the coefficients in the Landau free energy expansion should be either constant or weak functions of temperature, pressure, etc., apart from the quadratic term that changes sign crossing the second-order transition line or the low-temperature spinodal. For the barium titanate, however, the matching with the theory of the experimentally observed temperature dependences of the nonlinear dielectric susceptibility and spontaneous polarization forces one to allow for the strong temperature dependence of some higher-order coefficients . Being in conflict with the spirit of the Landau theory itself, rapid temperature variation of the quartic and sextic coefficients is also quite unexpected from the microscopic point of view. Indeed, the barium titanate is a displacive ferroelectric with weak anharmonicity that can only results in rather slow temperature dependence of the macroscopic parameters . Moreover, there is an extra point showing how unsatisfactory the real situation is: because of the fast temperature variation of the certain coefficient, the six-order Landau-Devonshire expansion for BaTiO3 with updraded coefficients  turns out to loose its global stability at $`T`$ = 443 K, i. e. at the temperature that exceeds the cubic-tetragonal transition point $`T_c`$ by only 50 K.

In this Letter, we will show that the temperature dependence of the quartic Landau-Devonshire coefficients, experimentally observed in a paraelectric phase of BaTiO3, can be attributed to the thermal fluctuations of polarization and naturally accounted for within a proper fluctuation model. It will be explained, in particular, why in experiments one of the quartic coefficients demonstrates well-pronounced variation with temperature while the second is temperature independent. The conjecture will be put forward concerning the structure of the true Landau-Devonshire form for BaTiO3 with the constant (temperature independent) coefficients, and the first-order fluctuation corrections to the sextic Landau-Devonshire coefficients for $`T>T_c`$ will be found.

Barium titanate is a displacive ferroelectric undergoing the first-order ferroelectric phase transitions, with the six-order anharmonicity and electrostriction playing an essential role in forming its phase diagram. The electrostriction is known to convert the second-order transition, appropriate to the clamped crystal, into the first-order one. Strong dipole-dipole interaction affects the vibrational spectrum of BaTiO3, resulting in a big gap between transversal (soft) and longitudinal polarization modes. These main features are properly described by the effective Hamiltonian that is the natural generalization of the Landau-Devonshire free-energy expansion:

$`H`$ $`=`$ $`{\displaystyle \frac{1}{2}}{\displaystyle \underset{q}{}}[({\displaystyle \frac{TT_0}{Cϵ_0}}+s^2q^2)\delta _{\alpha \beta }+\mathrm{\Delta }^2n_\alpha n_\beta ]\varphi _{\alpha q}\varphi _{\beta q}^{}+{\displaystyle \frac{1}{2}}{\displaystyle }d^3x[c_{11}(u_{11}^2+u_{22}^2+u_{33}^2)`$ (1)
$`+`$ $`2c_{12}(u_{22}u_{33}+u_{33}u_{11}+u_{11}u_{22})+c_{44}(u_{12}^2+u_{23}^2+u_{31}^2)]+H_{int}+H_{str},`$ (2)
$`H_{int}`$ $`=`$ $`{\displaystyle }d^3x[\beta _1(\varphi _1^4+\varphi _2^4+\varphi _3^4)+2\beta _2(\varphi _1^2\varphi _2^2+\varphi _2^2\varphi _3^2+\varphi _3^2\varphi _1^2)+\gamma _1(\varphi _1^6+\varphi _2^6+\varphi _3^6)`$ (3)
$`+`$ $`3\gamma _2(\varphi _1^4\varphi _2^2+\varphi _1^2\varphi _2^4+\varphi _2^4\varphi _3^2+\varphi _2^2\varphi _3^4+\varphi _3^4\varphi _1^2+\varphi _3^2\varphi _1^4)+6\gamma _3\varphi _1^2\varphi _2^2\varphi _3^2],`$ (4)
$`H_{str}`$ $`=`$ $`{\displaystyle }d^3x\{q_{11}(u_{11}\varphi _1^2+u_{22}\varphi _2^2+u_{33}\varphi _3^2)+q_{12}[u_{11}(\varphi _2^2+\varphi _3^2)+u_{22}(\varphi _3^2+\varphi _1^2)`$ (5)
$`+`$ $`u_{33}(\varphi _1^2+\varphi _2^2)]+q_{44}(u_{23}\varphi _2\varphi _3+u_{31}\varphi _1\varphi _3+u_{12}\varphi _2\varphi _1)\}.`$ (6)
Here $`\varphi _\alpha `$ and $`u_{\alpha \beta }`$ are the Cartesian components of the fluctuating polarization and strain, $`\varphi _{\alpha q}`$ stands for the Fourier transform of $`\varphi _\alpha (x)`$, $`n_\alpha =\frac{q_\alpha }{q}`$, $`C`$ is the Curie constant, $`\mathrm{\Delta }^2ϵ_0^1sa^1`$ is the dipole gap in the fluctuation spectrum, $`a`$ being a lattice constant. Contrary to the original Landau-Devonshire expansion, the Hamiltonian (1-3) accounts for the inhomogeneous fluctuations of the polarization and elastic strains making it possible to explore the fluctuation effects in BaTiO3.

Dealing with the first-order phase transition, we are in a position to study the fluctuation effects in the region where thermal fluctuations of the order parameter are weak. Hence, in what follows we limit ourselves by the calculation of the first-order fluctuation corrections to the quantities of interest. The quantities to be found are the full four-leg and six-leg vertices, reducing, under zero external momenta, to the effective (”dressed”) quartic $`B_i`$ and sextic $`\mathrm{\Gamma }_i`$ coefficients, entering the Landau-Devonshire expansion. Among five Feynman diagrams representing the lowest-order non-trivial terms in the perturbative expansions of the vertices mentioned, only two one-loop graphs give contributions that rapidly, as $`(TT_0)^{1/2}`$, grow up approaching the transition point. These graphs have an obvious structure and may be calculated in a standart way using the propagator

$$G_{\alpha \beta }(q)=\frac{k_BT(\delta _{\alpha \beta }n_\alpha n_\beta )}{(Cϵ_0)^1(TT_0)+s^2q^2},$$
(7)
with a longitudinal part fully neglected. The results for the quartic couplings $`B_1`$ and $`B_2`$ are found to be:

$`B_1`$ $`=`$ $`\beta _1{\displaystyle \frac{k_BT\sqrt{Cϵ_0}}{10\pi s^3\sqrt{TT_0}}}(24\beta _1^2+4\beta _1\beta _2+6\beta _2^2),`$ (8)
$`B_2`$ $`=`$ $`\beta _2{\displaystyle \frac{k_BT\sqrt{Cϵ_0}}{10\pi s^3\sqrt{TT_0}}}(3\beta _1^2+18\beta _1\beta _2+13\beta _2^2),`$ (9)
The polynomials in brackets are easily seen to coincide with those of the one-loop contributions to the renormalization-group $`\beta `$-functions of the cubic ferroelectric . It is not surprising since, in fact, the same integrals and tensor convolutions are evaluated in both cases. The fluctuation correction to $`B_1`$ given by the first equation (5) is consistent with the results of Vaks , who first evaluated this correction and showed that it is essential for the case of BaTiO3.

To proceed further, we have to estimate the ”bare” coupling constants $`\beta _1`$ and $`\beta _2`$ for BaTiO3 trusting upon the experimental data available. Aiming to extract the necessary information from experiments, one should realize that i) what is measured are not bare but dressed couplings with the fluctuation contributions included, and ii) in experiments, the Landau-Devonshire coefficients are measured for stress-free (not clamped) crystals. Hence, in order to estimate $`\beta _1`$ and $`\beta _2`$, we have first to express them via their analogs for free crystal, $`\beta _1^f`$ and $`\beta _2^f`$. This problem is solved by evaluation of the elastic strains caused by the non-zero uniform polarization and consequent renormalization of coefficients in the relevant Landau-Devonshire expansion . All the elastic and electrostrictive moduli are known for BaTiO3 , making corresponding calculations straightforward. The final result is as follows:

$$\beta _1=\beta _1^f+7.410^8Vm^5C^3,\beta _2=\beta _2^f2.310^8Vm^5C^3,$$
(10)
Since in the vicinity of $`T_c`$ the elastic and electrostrictive moduli weakly depend on temperature, similar relations should be valid for the fluctuation modified (dressed) quartic coefficients $`B_1`$, $`B_2`$, $`B_1^f`$, and $`B_2^f`$.

At the transition point ($`T_c`$ = 393 K), $`B_1^f=2.010^8Vm^5C^3`$, $`B_2^f=1.610^8Vm^5C^3`$  and, hence, $`B_1=5.410^8Vm^5C^3`$, $`B_2=0.710^8Vm^5C^3`$. It is easy to see that for $`B_1>B_2`$ the rhombohedral phase has lower free energy than the tetragonal one, provided the six-order form is isotropic, i. e. does not influence their competition. Hence, in the clamped crystal the quartic form of the Landau-Devonshire expansion strongly favours the phase transition into the rhombohedral phase. The same is true for higher temperatures $`T`$ = 415 K and $`T`$ = 423 K, where $`B_1^f=1.310^8Vm^5C^3`$ , $`B_1=6.110^8Vm^5C^3`$ and $`B_1^f=1.010^8Vm^5C^3`$ , $`B_1=6.410^8Vm^5C^3`$, respectively, with $`B_2^f`$ and $`B_2`$ kept unchanged.

Now we are ready to estimate to what extend the fluctuations can modify the behaviour of barium titanate in the vicinity of $`T_c`$. As is seen from Eqs.(8), the quartic Landau-Devonshire coefficients should vary with temperature in a similar way, provided the fluctuation corrections to them are of the same order of magnitude. Let us compare the magnitudes of the fluctuation terms $`B_2^{(1)}`$ and $`B_1^{(1)}`$ within the domain where parameters $`\beta _1`$ and $`\beta _2`$ have relevant values and signs. The quantity characterizing relative weights of $`B_2^{(1)}`$ and $`B_1^{(1)}`$ is their ratio, that can be found directly from Eqs. (8). The plot of the ratio $`R^{(1)}=\frac{B_2^{(1)}}{B_1^{(1)}}`$ as a function of $`r=\frac{\beta _1}{\beta _2}`$ is shown in Fig. 1. Analyzing this function, one can find, in particular, that $`\left|\frac{B_2^{(1)}}{B_1^{(1)}}\right|`$ does not exceed 0.1 if $`\frac{\beta _1}{\beta _2}`$ lies between $``$28 and $``$2.3.

Let us estimate further $`\frac{\beta _1}{\beta _2}`$ in BaTiO3. Since, according to experiments, $`B_1`$ varies with the temperature appreciably, an estimate for $`\beta _1`$ is expected to have somewhat limited accuracy. To keep the perturbation theory more or less meaningful, one should adopt that the fluctuation term $`B_1^{(1)}`$ is, at least, two times smaller than the value of $`B_1`$ at $`T=T_c`$. At the transition temperature $`B_1=5.410^8Vm^5C^3`$ and this coefficient was shown to increase when the temperature grows up. Hence, the limitation $`\beta _110^9Vm^5C^3`$ looks quite reasonable. Another quartic coefficient, $`B_2`$, does not depend on $`T`$ and the estimate $`\beta _2=B_2=0.710^8Vm^5C^3`$ may be considered as an accurate one. Since, in any case, $`\beta _1>B_1(T=393K)=5.410^8Vm^5C^3`$, we see that $`14<\frac{\beta _1}{\beta _2}<8`$ in barium titanate. It implies that, according to Fig. 1, $`B_2^{(1)}<0.08B_1^{(1)}`$, and the fluctuation correction $`B_2^{(1)}`$ is inevitably very small. This means that $`B_2`$ practically does not depend on $`T`$ and explanes why in BaTiO3 the Landau-Devonshire coefficient $`B_2^f`$ is insensitive to the temperature.

Apart from the smallness of $`B_2^{(1)}`$, the theory naturally accounts for the experimentally observed sign of the fluctuation contribution to $`B_1`$. Indeed, as seen from Eqs. (8), a sign of $`B_1^{(1)}`$ is completely controlled by the first term proportional to $`\beta _1^2`$: big number 24 provides a positiveness of the polynomial in brackets avoiding any possibility for the rest terms to compete with the first one under any values of $`\beta _1`$ and $`\beta _2`$. Hence, the theory definitely predicts that the fluctuation correction $`B_1^{(1)}`$ is negative and, therefore, approaching $`T_c`$ from above $`B_1`$ and $`B_1^f`$ should vary downward. This conclusion is in agreement with experiments .

As we have already seen, the experimental data available do not allow to fix the true, temperature independent value of the Landau-Devonshire coefficient $`\beta _1`$. However, there are obvious requirements that enable us to improve the crude estimate for $`\beta _1`$ presented above. The theory developed, based on the first-order perturbative calculations, is believed to account for the main features of the behaviour of BaTiO3. Hence, it should explain the variation of $`B_1^f(T)`$ by, at least, $`10^8Vm^5C^3`$  and remain valid, at worst, at the semiquantitative level. It is possible to meet both requirements only accepting that the true value of $`\beta _1`$ is appreciably bigger than $`6.410^8Vm^5C^3`$ and appreciably smaller than $`1.110^9Vm^5C^3`$, i. e. it lies somewhere between $`710^8Vm^5C^3`$ and $`10^9Vm^5C^3`$. As a result, the stress-free crystal should possess the Landau-Devonshire coefficient that obeys the inequalities $`0.410^8Vm^5C^3<\beta _1^f<2.610^8Vm^5C^3`$.

The upper part of this interval is of particular interest. The point is that, whenever $`\beta _1^f`$ exceeds $`1.610^8Vm^5C^3=\beta _2^f`$, the crystal with the fluctuations being ”switched off” would undergo a phase transition into the rhombohedral phase rather than into the tetragonal one. If this were true, i. e. the inequality $`\beta _1^f>\beta _2^f`$ took place, the tetragonal and orthorhombic phases in barium titanate would exist essentially due to the thermal fluctuations, while the rhombohedral phase would survive only at sufficiently low temperatures where the fluctuations are weak enough. Thus, the analysis based upon the effective Hamiltonian (1) turns out to support the conjecture about the fluctuation stabilization of the high-temperature ferroelectric phases in BaTiO3 formulated first within the microscopic theory .

This conjecture looks rather attractive. It is worthy to discuss it in more detail. It turns out that, apart from the results the of first-order calculations, there exist two extra arguments in favour of the scenario just described. The first is as follows. As we have already seen, the lowest-order correction to $`\beta _1^f`$ is considerable and, therefore, the higher-order fluctuation contributions can influence the results appreciably. The leading perturbative term shifting the first-order estimates is the second-order one and it has a sign opposite to that of $`B_1^{(1)}`$. One can show that account for the positive second-order fluctuation term in the course of fit of the experimental data  results in the shift of the estimated value of $`\beta _1^f`$ upward. Hence, within the refined theory the fluctuation origin of the tetragonal and orthorhombic phases in BaTiO3 would become more plausible.

The second argument deals with the fluctuation corrections to the six-order coefficients in the Landau-Devonshire expansion. Let us calculate them. Evaluating the six-leg one-loop diagram, we arrive to the following expressions for $`\mathrm{\Gamma }_i`$:

$`\mathrm{\Gamma }_1`$ $`=`$ $`\gamma _1f(T)(120\beta _1\gamma _1+6\beta _1\gamma _2+10\beta _2\gamma _1+18\beta _2\gamma _2),`$ (11)
$`\mathrm{\Gamma }_2`$ $`=`$ $`\gamma _2f(T)(5\beta _1\gamma _1+63\beta _1\gamma _2+2\beta _1\gamma _3+15\beta _2\gamma _1+63\beta _2\gamma _2+6\beta _2\gamma _3),`$ (12)
$`\mathrm{\Gamma }_3`$ $`=`$ $`\gamma _3f(T)(18\beta _1\gamma _2+24\beta _1\gamma _3+54\beta _2\gamma _2+58\beta _2\gamma _3),`$ (13)
where $`f(T)=k_BT\sqrt{Cϵ_0}\left(10\pi s^3\sqrt{TT_0}\right)^1`$.

Above formulas are written down for the physical case when the polarization vector has three Cartesian components. In fact, the fluctuation terms were calculated for the generic model with the n-vector order parameter. It was done in order to reserve an opportunity for independent check of the results obtained. Indeed, as is well known, the model with cubic anisotropy possesses the special symmetry property under $`n=2`$: if one turns the field $`(\varphi _1,\varphi _2)`$ by $`45^o`$ in its two-dimensional space, the coupling constants are transformed, but the structure of the Hamiltonian remains unchanged. This implies some exact symmetry relations between coupling constants , that interrelate dressed ($`B_i`$, $`\mathrm{\Gamma }_i`$) and bare ($`\beta _i`$, $`\gamma _i`$) couplings and can be used to approve (or disregard) the results of perturbative calculations in the arbitrary order. Having made such a check up, we found that the n-vector analog of Eqs.(11) do obey these symmetry relations when $`n=2`$.

To estimate the magnitudes of fluctuation corrections $`\mathrm{\Gamma }_i^{(1)}`$, the experimental information about $`\gamma _i`$ is necessary. The experiments, however, were carried out in the ordered (tetragonal) phase and yielded, in particular, strong dependence of $`\mathrm{\Gamma }_1`$ on temperature. This temperature dependence was already mentioned to be so dramatic that, being extrapolated to the paraelectric region, makes the Landau-Devonshire form unstable for $`T>T_c+50K`$. It is hardly believed therefore that the experimental data available can be used to extract more or less reliable estimates for $`\gamma _i`$.

In such a situation it is natural to analyze the general structure of the correction terms $`\mathrm{\Gamma }_i^{(1)}`$ in Eqs. (11), aiming to find some conclusions that are insensitive to the concrete values of $`\gamma _i`$. Let us proceed, accepting that $`\gamma _1\gamma _2\gamma _3`$. As we have already found, in barium titanate $`|\beta _2|<<|\beta _1|`$. It means that the magnitudes of $`\mathrm{\Gamma }_i^{(1)}`$ are determined, in fact, by the terms in Eqs. (11) containing $`\beta _1`$. The numerical coefficients before these terms are seen to be markedly different. The biggest one (120) stands in the expression for $`\mathrm{\Gamma }_1^{(1)}`$, making $`\mathrm{\Gamma }_1`$ stronger dependent on temperature than two other coefficients. Moreover, the structure of $`\mathrm{\Gamma }_1^{(1)}`$ fixes its sign. Since $`\beta _1>0`$, $`\mathrm{\Gamma }_1^{(1)}`$ is negative and the fluctuations diminish the Landau-Devonshire coefficient $`\mathrm{\Gamma }_1`$ provided $`\gamma _1>0`$. The positiveness of $`\gamma _1`$ is, in its turn, inevitable, because this coefficient is responsible for the global stability of the system outside the fluctuation region.

So, we see that approaching $`T_c`$ the coefficient $`\mathrm{\Gamma }_1`$ decreases more rapidly than $`\mathrm{\Gamma }_2`$ and $`\mathrm{\Gamma }_3`$. On the other hand, as one can see, the smaller $`\mathrm{\Gamma }_1`$, the more stable is the tetragonal phase. Hence, the fluctuations modify the six-order form in the Landau-Devonshire expansion in a way that favours the transition into the tetragonal phase. It confirms the conjecture about the fluctuation stabilization of the phases lying between the cubic and rhombohedral ones at the phase diagram of barium titanate.

To conclude, we have shown that the temperature dependence of the quartic Landau-Devonshire coefficients in a paraelectric phase of BaTiO3 can be explained as the fluctuation effect. The theory developed naturally accounts for a signs of the temperature variations of $`B_1`$ and makes it clear why the second coefficient, $`B_2`$, is temperature independent. The conjecture was formulated that the true Landau-Devonshire form for BaTiO3 with the temperature independent coefficients favours the transition from cubic into the rhombohedral phase, and it is the thermal fluctuations what stabilizes the tetragonal and orthorhombic phases and provides the space for them at the phase diagram.

The authors acknowledge the financial support of the Russian Foundation for Basic Research under Grant No. 01-02-17048 (A.I.S.), the Ministry of Education of Russian Federation under Grant No. E00-3.2-132 (A.I.S.), and the Swiss National Science Foundation (A.K.T.). A.I.S. has benefitted from the hospitality of the Laboratoire de Céramique, Ecole Polytechnique Fédéral de Lausanne, where this research was done.

CAPTION

Fig. 1. The ratio of the first-order fluctuation corrections $`R^{(1)}=\frac{B_2^{(1)}}{B_1^{(1)}}`$ as a function of the ratio of bare coupling constants $`r=\frac{\beta _1}{\beta _2}`$.


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# Tail Dependence of Factor Models 11footnote 1We acknowledge helpful discussions and exchanges with J.P. Laurent and V. Pisarenko. This work was partially supported by the James S. Mc Donnell Foundation 21st century scientist award/studying complex system.

## Introduction

The concept of extreme or “tail dependence” probes the reaction of a variable to the realization of another variable when this realization is of extreme amplitude and very low probability. The dependence, and especially the extreme dependence, between two assets or between an asset and any other exogeneous economic variable is an issue of major importance both for practioners and for academics. The determination of extreme dependences is crucial for financial and for insurance institutions involved in risk management. It is also fundamental for the establishment of a rational investment policy striving for the best diversification of the various sources of risk. In all these situations, the objective is to prevent or at least minimize the simultaneous occurrence of large losses across the different positions held in the portfolio.

From an academic perspective, taking into account the extreme dependence properties provide useful yardsticks and important constraints for the construction of models, which should not underestimate or overestimate risks. From the point of view of univariate statistics, extreme values theory provides the mathematical framework for the classification and quantification of very large risks. It has been used for instance to study the phenomenon of contagion (as an example, see \[Longin and Solnik (2001)\] for a study of contagion across international equity markets). This has been made possible by the existence of a “universal” behavior summarized by the Gnedenko-Pickands-Balkema-de Haan theorem which gives a natural limit law for peak-over-threshold values in the form of the Generalized Pareto Distribution \[Embrechts et al. (1997), pp 152-168\]. In constrast, no such result is yet available in the multivariate case. In such absence of theoretical guidelines, the alternative is therefore to impose some dependence structure in a rather ad hoc and arbitrary way. This was the stance taken for instance in \[Longin and Solnik (2001)\].

This approach, where the dependence structure is not determined from empirical facts or from an economic model, is not fully satisfying. As a remedy, we propose a new approach, which does not directly rely on multivariate extreme values theory, but rather derives the extreme dependence structure from the characteristics of a financial model of assets. Specifically, we use the general class of factor models, which is probably one of the most versatile and relevant one, and whose introduction in finance can be traced back at least to \[Ross (1976)\]. The factor models are now widely used in many branches of finance, including stock return models, interest rate models \[Vasicek (1977), Brennan and Schwarz (1978), Cox et al. (1985)\], credit risks models \[Carey (1998), Gorby (2000), Lucas et al. (2001)\], etc., and are found at the core of many theories and equilibrium models.

Here, we will focus our efforts on the characterization of the extreme dependence between stock returns and the market return. The role of the market return as a factor explaining the evolution of individual stock returns is supported both by theoretical models such as the Capital Asset Pricing Model \[Sharpe (1964), Lintner (1965), Mossin (1966)\] or the Arbitrage Pricing Theory \[Ross (1976)\] and by empirical studies \[Fama and Mc Beth (1973), Kandel and Staumbaugh (1987)\] among many others. It has even been shown in \[Roll (1988)\] that in certain dramatic circumstances, such as the October 1987 stock-market crash, the (global) market was the sole relevant factor needed to explain the stock market movements and the propagation of the crash across countries. Thus, the choice of factor models is a very natural starting point for studying extreme dependences from a general point of view. The main gain is that, without imposing any a priori ad hoc dependences other than the definition of the factor model, we shall be able to derive the general properties of extreme dependence between an asset and one of its factor and to empirically determine these properties by a simple estimation of the factor model parameters.

The plan of our presentation is as follows. Section 1 defines the concepts needed for the characterization and quantification of extreme dependences. In particular, we recall the definition of the coefficient of tail dependence, which captures in a single number the properties of extreme dependence between two random variables: the tail dependence is defined as the probability for a given random variable to be large assuming that another random variable is large, at the same probability level. We shall also need some basic notions on dependences between random variables using the mathematical concept of copulas. In order to provide some perspective on the following results, this section also contains the expression of some classical exemples of tail dependence coefficients for specific multivariate distributions.

Section 2 states our main result in the form of a general theorem allowing the calculation of the coefficient of tail dependence for any factor model with arbitrary distribution functions of the factors and of the idiosyncratic noise. We find that the factor must have sufficiently “wild” fluctuations (to be made precise below) in order for the tail dependence not to vanish. For normal distributions of the factor, the tail dependence is identically zero, while for regularly varying distributions (power laws), the tail dependence is in general non-zero.

Section 3 is devoted to the empirical estimation of the coefficients of tail dependence between individual stock returns and the market return. The tests are performed for daily stock returns. The estimated coefficients of tail dependence are found in good agreement with the fraction of historically realized extreme events that occur simultaneously with any of the ten largest losses of the market factor (these ten largest losses were not used to calibrate the tail dependence coefficient). We also find some evidence for comonotonicity in the crash of Oct. 1987, suggesting that this event is an “outlier,” providing additional support to a previous analysis of large and extreme drawdowns.

We summarize our results and conclude in section 4.

## 1 Intrinsic measure of casual and of extreme dependences

This section provides a brief informal summary of the mathematical concepts used in this paper to characterize the normal and extreme dependences between asset returns.

### 1.1 How to characterize uniquely the full dependence between two random variables?

The answer to this question is provided by the mathematical notion of “copulas,” initially introduced by \[Sklar (1959)\] 222The reader is refered to \[Joe (1997), Frees and Valdez (1998)\] or \[Nelsen (1998)\] for a detailed survey of the notion of copulas and a mathematically rigorous description of their properties., which allows one to study the dependence of random variables independently of the behavior of their marginal distributions. Our presentation focuses on two variables but is easily extended to the case of $`N`$ random variables, whatever $`N`$ may be. Sklar’s Theorem states that, given the joint distribution function $`F(,)`$ of two random variables $`X`$ and $`Y`$ with marginal distribution $`F_X()`$ and $`F_Y()`$ respectively, there exists a function $`C(,)`$ with range in $`[0,1]\times [0,1]`$ such that

$$F(x,y)=C(F_X(x),F_Y(y)),$$
(1)
for all $`(x,y)`$. This function $`C`$ is the copula of the two random variables $`X`$ and $`Y`$, and is unique if the random variables have continous marginal distributions. Moreover, the following result shows that copulas are intrinsic measures of dependence. If $`g_1(X),g_2(Y)`$ are strictly increasing on the ranges of $`X,Y`$, the random variables $`\stackrel{~}{X}=g_1(X),\stackrel{~}{Y}=g_2(Y)`$ have exactly the same copula $`C`$ \[Lindskog (1999)\]. The copula is thus invariant under strictly increasing transformation of the variables. This provides a powerful way of studying scale-invariant measures of associations. It is also a natural starting point for construction of multivariate distributions.

### 1.2 Tail dependence between two random variables

A standard measure of dependence between two random variables is provided by the correlation coefficient. However, it suffers from at least three deficiencies. First, as stressed by \[Embrechts et al. (1999)\], the correlation coefficient is an adequate measure of dependence only for elliptical distributions and for events of moderate sizes. Second, the correlation coefficient measures only the degree of linear dependence and does not account of any other nonlinear functional dependence between the random variables. Third, it agregates both the marginal behavior of each random variable and their dependence. For instance, a simple change in the marginals implies in general a change in the correlation coefficient, while the copula and, therefore the dependence, remains unchanged. Mathematically speaking, the correlation coefficient is said to lack the property of invariance under increasing changes of variables.

Since the copula is the unique and intrinsic measure of dependence, it is desirable to define measures of dependences which depend only on the copula. Such measures have in fact been known for a long time. Examples are provided by the concordance measures, among which the most famous are the Kendall’s tau and the Spearman’s rho (see \[Nelsen (1998)\] for a detailed exposition). In particular, the Spearman’s rho quantifies the degres of functional dependence between two random variables: it equals one (minus one) when and only when the first variable is an increasing (decreasing) function of the second variable. However, as for the correlation coefficient, these concordance measures do not provide a useful measure of the dependence for extreme events, since they are constructed over the whole distributions.

Another natural idea, widely used in the contagion literature, is to work with the conditional correlation coefficient, conditioned only on the largest events. But, as stressed by \[Boyer et al. (1997)\], such conditional correlation coefficient suffers from a bias: even for a constant unconditional correlation coefficient, the conditional correlation coefficient changes with the conditioning set. Therefore, changes in the conditional correlation do not provide a characteristic signature of a change in the true correlations. The conditional concordance measures suffer from the same problem.

In view of these deficiencies, it is natural to come back to a fundamental definition of dependence through the use of probabilities. We thus study the conditional probality that the first variable is large conditioned on the second variable being large too: $`\overline{F}(x|y)=\mathrm{Pr}\{X>x|Y>y\}`$, when $`x`$ and $`y`$ goes to infinity. Since the convergence of $`\overline{F}(x|y)`$ may depend on the manner with which $`x`$ and $`y`$ go to infinity (the convergence is not uniform), we need to specify the path taken by the variables to reach the infinity. Recalling that it would be preferable to have a measure which is independent of the marginal distributions of $`X`$ and $`Y`$, it is natural to reason in the quantile space. This leads to choose $`x=F_{X}^{}{}_{}{}^{1}(u)`$ and $`y=F_{Y}^{}{}_{}{}^{1}(u)`$ and replace the conditions $`x,y\mathrm{}`$ by $`u1`$. Doing so, we define the so-called coefficient of upper tail dependence \[Coles et al. (1999), Lindskog (1999), Embrechts et al. (2001)\]:

$$\lambda _+=\underset{u1^{}}{lim}\mathrm{Pr}\{X>F_{X}^{}{}_{}{}^{1}(u)|Y>F_{Y}^{}{}_{}{}^{1}(u)\}.$$
(2)
As required, this measure of dependence is independent of the marginals, since it can be expressed in term of the copula of $`X`$ and $`Y`$ as

$$\lambda _+=\underset{u1^{}}{lim}\frac{12u+C(u,u)}{1u}.$$
(3)
This representation shows that $`\lambda _+`$ is symmetric in $`X`$ and $`Y`$, as it should for a reasonable measure of dependence.

In a similar way, we define the coefficient of lower tail dependence as the probabilty that $`X`$ incurs a large loss assuming that $`Y`$ incurs a large loss at the same probability level

$$\lambda _{}=\underset{u0^+}{lim}\mathrm{Pr}\{X<F_{X}^{}{}_{}{}^{1}(u)|Y<F_{Y}^{}{}_{}{}^{1}(u)\}=\underset{u0^+}{lim}\frac{C(u,u)}{u}.$$
(4)
The values of the coefficients of tail dependence are known explicitely for a large number of different copulas. For instance, the Gaussian copula, which is the copula derived from de Gaussian multivariate distribution, has a zero coefficient of tail dependence. In contrast, the Gumbel’s copula used by \[Longin and Solnik (2001)\] in the study of the contagion between international equity markets, which is defined by

$$C_\theta (u,v)=\mathrm{exp}\left(\left[(\mathrm{ln}u)^\theta +(\mathrm{ln}v)^\theta \right]^{\frac{1}{\theta }}\right),\theta [0,1],$$
(5)
has an upper tail coefficient $`\lambda _+=22^\theta `$. For all $`\theta `$’s smaller than one, $`\lambda _+`$ is positive and the Gumbel’s copula is said to present tail dependence, while for $`\theta =1`$, the Gumbel copula is said to be asymptotically independent. One should however use this terminology with a grain of salt as “tail independence” (quantified by $`\lambda _+=0`$ or $`\lambda _{}=0`$) does not imply necessarily that large events occur independently (see \[Coles et al. (1999)\] for a precise discussion of this point).

## 2 Tail dependence of factor models

### 2.1 General result

We now state our main theoretical result. Let us consider two random variables $`X`$ and $`Y`$ of cumulative distribution functions $`F_X(X)`$ and $`F_Y(Y)`$, where $`X`$ represents the return of a single stock and $`Y`$ is the market return. Let us also introduce an idiosyncratic noise $`\epsilon `$, which is assumed independent of the market return $`Y`$. The factor model is defined by the following relationship between the individual stock return $`X`$, the market return $`Y`$ and the idiosyncratic noise $`\epsilon `$:

$$X=\beta Y+\epsilon .$$
(6)
$`\beta `$ is the usual coefficient introduced by the Capital Asset Pricing Model \[Sharpe (1964)\]. Let us stress that $`\epsilon `$ may embody other factors $`Y^{}`$, $`Y^{\prime \prime },\mathrm{}`$, as long as they remain independent of $`Y`$. Under such conditions and a few other technical assumptions detailed in the theorem established in appendix A, the coefficient of (upper) tail dependence between $`X`$ and $`Y`$ defined in (2) is obtained as

$$\lambda _+=_{\mathrm{max}\{1,\frac{l}{\beta }\}}^{\mathrm{}}𝑑xf(x),$$
(7)
where $`l`$ denotes the limit, when $`u1`$, of the ratio $`F_{X}^{}{}_{}{}^{1}(u)/F_{Y}^{}{}_{}{}^{1}(u)`$, and $`f(x)`$ is the limit, when $`t+\mathrm{}`$, of $`tP_Y(tx)/\overline{F}_Y(t)`$. $`P_Y`$ is the distribution density of $`Y`$ and $`\overline{F}_Y=1F_Y`$ is the complementary cumulative distribution function of $`Y`$. A similar expression obviously holds, mutatis mutandis, for the coefficient of lower tail dependence.

We now derive two direct consequences of this result (7) (see corollary 1 and 2 in appendix A), concerning rapidly varying and regularly varying factors.

### 2.2 Absence of tail dependence for rapidly varying factors

Let us assume that the factor $`Y`$ and the idiosyncratic noise $`\epsilon `$ are normally distributed (the second assumption is made for simplicity and will be relaxed below). As a consequence, the joint distribution of $`(X,Y)`$ is the bivariate Gaussian distribution. Refering to the results stated in section 1.2, we conclude that the copula of $`(X,Y`$) is the Gaussian copula whose coefficient of tail dependence is zero. In fact, it is easy to show that $`\lambda =0`$ for any distribution of $`\epsilon `$.

More generally, let us assume that the distribution of the factor $`Y`$ is rapidly varying, which describes the Gaussian, exponential and any distribution decaying faster than any power-law. Then, the coefficient of tail dependence is identically zero. This result holds for any arbitrary distribution of the idiosyncratic noise (see corollary 1 in apendix B.1).

This statement is somewhat counter-intuitive since one could expect a priori that the coefficient of tail dependence does not vanish as soon as the tail of the distribution of factor returns is fatter than the tail the distribution noise returns. However, this example indicates that this is not the case and, in order to get a non-vanishing tail-dependence, the fluctuations of the factor must be ’wild’ enough, which is not realized with rapidly varying distributions.

### 2.3 Coefficient of tail dependence for regularly varying factors

#### 2.3.1 Example of the factor model with Student distribution

In order to account for the power-law tail behavior observed for the distributions of assets returns it is logical to consider that the factor and the indiosyncratic noise also have power-law tailed distributions. As an illustration, we will assume that $`Y`$ and $`\epsilon `$ are distributed according to a Student’s distribution with the same number of degrees of freedom $`\nu `$ (and thus same tail exponent $`\nu `$). Let us denote by $`\sigma `$ the scale factor of the distribution of $`\epsilon `$ while the scale factor of the distribution of $`Y`$ is choosen equal to one333Such a choice is always possible via a rescaling of the coefficient $`\beta `$.. Applying the theorem previously established, we find that $`f(x)=\nu /x^{\nu +1}`$ and $`l=\beta \left[1+\left(\frac{\sigma }{\beta }\right)^\nu \right]^{1/\nu }`$, so that the coefficient of tail dependence is

$$\lambda _\pm =\frac{1}{1+\left(\frac{\sigma }{\beta }\right)^\nu },\text{and}\beta >0.$$
(8)
As expected, the tail dependence increases as $`\beta `$ increases and as $`\sigma `$ decreases. The dependence with respect to $`\nu `$ is less intuitive. In particular, let $`\nu `$ go to infinity. Then, $`\lambda 0`$ if $`\sigma >\beta `$ and $`\lambda 1`$ for $`\sigma <\beta `$. This is surprising as one could argue that, as $`\nu \mathrm{}`$, the Student distribution tends to the Gaussian law. As a consequence, one would expect the same coefficient of dependence $`\lambda _\pm =0`$ as for rapidly varying functions. The reason for the non-certain convergence of $`\lambda _\pm `$ to zero as $`\nu \mathrm{}`$ is rooted in a subtle non-commutativity (and non-uniform convergence) of the two limits $`\nu \mathrm{}`$ and $`u1`$. Indeed, when taking first the limit $`u1`$, the result $`\lambda 1`$ for $`\beta >\sigma `$ indicates that a sufficiently strong factor coefficient $`\beta `$ always ensures the validity of the power law regime, whatever the value of $`\nu `$. Correlatively, in this regime $`\beta >\sigma `$, $`\lambda _\pm `$ is an increasing function of $`\nu `$.

### 2.4 General result

We now provide the general result valid for any regularly varying distribution. Let the factor $`Y`$ follows a regularly varying distribution with tail index $`\alpha `$: in other words, the complementary cumulative distribution of $`Y`$ is such that $`\overline{F}_Y(y)=L(y)y^\alpha `$, where $`L(y)`$ is a slowly varying function, i.e:

$$\underset{t\mathrm{}}{lim}\frac{L(ty)}{L(t)}=1,y>0.$$
(9)
Corollary 2 in appendix B.2 shows that

$$\lambda =\frac{1}{\left[\mathrm{max}\{1,\frac{l}{\beta }\}\right]^\alpha },$$
(10)
where $`l`$ denotes the limit, when $`u1`$, of the ratio $`F_{X}^{}{}_{}{}^{1}(u)/F_{Y}^{}{}_{}{}^{1}(u)`$. In the case of particular interest when the distribution of $`\epsilon `$ is also regularly varying with tail index $`\alpha `$ and if, in addition, we have $`\overline{F}_Y(y)C_yy^\alpha `$ and $`\overline{F}_\epsilon (\epsilon )C_\epsilon \epsilon ^\alpha `$, for large $`y`$ and $`\epsilon `$, then the coefficient of tail dependence is a simple function of the ratio $`C_\epsilon /C_y`$ of the scale factors:

$$\lambda =\frac{1}{1+\beta ^\alpha \frac{C_\epsilon }{C_y}}.$$
(11)
When the tail indexes $`\alpha _Y`$ and $`\alpha _\epsilon `$ of the distribution of the factor and the residue are different, then $`\lambda =0`$ for $`\alpha _Y<\alpha _\epsilon `$ and $`\lambda =1`$ for $`\alpha _Y>\alpha _\epsilon `$.

Now that we have entirely characterized the tail dependence for the factor model, we will use these results to estimate empirically the tail dependence between different stock returns and the market return and test our prediction on historical events.

## 3 Empirical study

We now apply our theoretical results to the daily returns of a set of stocks traded on the New York Stock Exchange. In order to estimate the parameters of the factor model (6), the Standard and Poor’s $`500`$ index, which represents about 80% of the total market capitalization, is choosen to represent the common “market factor.”

We describe the set of selected stocks in the next sub-section. Next, we estimate the parameter $`\beta `$ in (6) and check the independence of the market returns and the residues. Then, applying the commonly used hypothesis according to which the tail of the distribution of assets return is a power law (see \[Longin (1996), Lux (1996), Pagan (1996), Gopikrishnan et al. (1998)\]), we estimate the tail index and the scale factor of these distributions, which allows us to calculate the coefficients of tail dependence between each asset return and the market return. Finally, we perform an analysis of the historical data to check the compatibility of our prediction on the fraction of realized large losses of the assets that occur simultaneously with the large losses of the market.

The results of our analysis are reported below in terms of the returns rather than in terms of the excess returns above the risk free interest rate, in apparent contradiction with the prescription of the CAPM. However, for daily returns, the difference between returns and excess returns is negligible. Indeed, we checked that neglecting the difference between the returns and the excess returns does not affect our results by re-running all the study described below in terms of the excess returns and found that the tail dependence did not change by more than $`0.1\%`$.

### 3.1 Description of the data

We study a set of twenty assets traded on the New York Stock Exchange. The criteria presiding over the selection of the assets (see column 1 of table 1) are that (1) they are among the stocks with the largest capitalizations, but (2) each of them should have a weight smaller than $`1\%`$ in the Standard and Poor’s $`500`$ index, so that the dependence studied here does not stem trivially from their overlap with the market factor (taken as the Standard and Poor’s $`500`$ index).

The time interval we have considered ranges from July 03, 1962 to December 29, 2000, corresponding to 9694 data points, and represents the largest set of daily data available from the Center for Research in Security Prices (CRSP) . This large time interval is important to let us collect as many large fluctuations of the returns as is possible in order to sample the extreme tail dependence. Moreover, in order to allow for a non-stationarity over the four decades of the study, to check the stability of our results and to test the stationnarity of the tail dependence over the time, we split this set into two subsets. The first one ranges from July 1962 to December 1979, a period with few very large return amplitudes, while the second one ranges from January 1980 to December 2000, a period which witnessed several very large price changes (see table 1) which shows the good stability of the standard deviation between the two sub-periods while the higher cumulants such as the excess kurtosis often increased dramatically in the second sub-period for most assets). The table 1 presents the main statistical properties of our set of stocks during the three time intervals. All assets exhibit an excess kurtosis significantly different from zero over the three time interval, which is inconsistent with the assumption of Gaussianly distributed returns. While the standard deviations remain stable over time, the excess kurtosis increases significantly from the first to the second period. This is in resonance with the financial community’s belief that stock price volatility has increased over time, a still controversial result \[Jones and Wilson, 1989\].

### 3.2 Calibration of the factor model

The determination of the parameters $`\beta `$ and of the residues $`\epsilon `$ entering in the definition of the factor model (6) is performed for each asset by regressing the stocks returns on the market return. The coefficient $`\beta `$ is thus given by the ordinary least square estimator, which is consistent as long as the residues are white noise and with zero mean and finite variance. The idiosyncratic noise $`\epsilon `$ is obtained by substracting $`\beta `$ times the market return to the stock return. Table 2 presents the results for the three periods we consider. For each period, we give the value of the estimated coefficient $`\beta `$ and the correlation coefficient between the market returns and the idiosyncratic noise. A Fisher’s test is shows that, at the $`95\%`$ confidence level, none af these correlation coefficients is significantly different from zero. This does not necessarily ensures the independence of the idiosyncratic noises with respect to the market return, but is nonetheless a positive result for the validity of the factor decomposition (6).

The coefficient $`\beta `$’s we obtain by regressing each asset returns on the Standard & Poor’s 500 returns are very close to within their uncertainties to the $`\beta `$’s given by the CRSP database, which are estimated by regressing the assets returns on the value-weighted market portfolio. Thus, the choice of the Standard and Poor’s 500 index to represent the whole market portfolio is reasonable.

### 3.3 Estimation of the tail indexes

Assuming that the distributions of stocks and market returns are asymptotically power laws \[Longin (1996), Lux (1996), Pagan (1996), Gopikrishnan et al. (1998)\], we now estimate the tail index of the distribution of each stock and their corresponding residue by the factor model, both for the positive and negative tails. Each tail index $`\alpha `$ is given by Hill’s etimator:

$$\widehat{\alpha }=\left[\frac{1}{k}\underset{j=1}{\overset{k}{}}\mathrm{log}x_{j,N}\mathrm{log}x_{k,N}\right]^1,$$
(12)
where $`x_{1,N}x_{2,N}\mathrm{}x_{N,N}`$ denotes the ordered statistics of the sample containing $`N`$ independent and identically distributed realizations of the variable $`X`$.

Hill’s estimator is asymptotically normally distributed with mean $`\alpha `$ and variance $`\alpha ^2/k`$. But, for finite $`k`$, it is known that the estimator is biased. As the range $`k`$ increases, the variance of the estimator decreases while its bias increases. The competition between these two effects implies that there is an optimal choice for $`k=k^{}`$ which minimizes the mean squared error of the estimator. To select this value $`k^{}`$, one can apply the \[Danielsson and de Vries (1997)\]’s algorithm which is an improvement over the \[Hall (1990)\]’s subsample bootstrap procedure. One can also prefer the more recent \[Danielsson et al. (2001)\]’s algorithm for the sake of parsimony. We have tested all three algorithms to determine the optimal $`k^{}`$. It turns out that the \[Danielsson et al. (2001)\]’s algorithm developped for high frequency data is not well adapted to samples containing less than 100,000 data points, as is the case here. Thus, we have focused on the two other algorithms. An accurate determination of $`k^{}`$ is rather difficult with any of them, but in every case, we found that the relevant range for the tail index estimation was between the $`1\%`$ and $`5\%`$ quantiles. Tables 3 and 4 give the estimated tail index for each asset and residues at the $`1\%`$, $`2.5\%`$ and $`5\%`$ quantile, for both the positive and the negative tails for the two time sub-intervals. The second time interval from January 1980 to December 2000 is characterized by values of the tail indexes that are homogeneous over the various quantiles and range between 3 and 4 for the negative tails and between 3 and 5 for the positive tails. There is slightly more dispersions in the first time interval from July 1962 to December 1979.

For each asset and their residue of the regression on the market factor, we tested whether the hypothesis, according to which the tail index measured for each asset and each residue is the same as the tail index of the Standard & Poor’s 500 index, can be rejected at the 95% confidence level, for a given quantile. The values which reject this hypothesis are indicated by a star in the tables 3 and 4. During the second time interval from January 1980 to December 2000, only four residues have a tail index significantly different from that of that Standard & Poor’s 500, and only in the negative tail. The situation is not as good during the first time interval, especially for the negative tail, for which not less 13 assets and 10 residues out of 20 have a tail index significantly different from the Standard & Poor’s 500 ones, for the 5% quantile.

To summarize, our tests confirm that the tail indexes of most stock return distributions range between three and four, even though no better precision can be given with good significance. Moreover, in most cases, we can assume that both the asset, the factor and the residue have the same tail index. We can also add that, as asserted by \[Loretan and Phillips (1994)\] or \[Longin (1996)\], we cannot reject the hypothesis that the tail index remains the same over time. Nevertheless, it seems that during the first period from July 1962 to December 1979, the tail indexes were sightly larger than during the second period from January 1980 to december 2000.

### 3.4 Determination of the coefficient of tail dependence

Using the just established empirical fact that we cannot reject the hypothesis that the assets, the market and the residues have the same tail index, we can use the theorem of Appendix A and its second corollary stated in section 2. This leads us to conclude that one cannot reject the hypothesis of a non-vanishing tail dependence between the assets and the market. In addition, the coefficient of tail dependence is given by equation (11). In order to determine its value, we need to estimate the scale factors for the different assets to derive their coefficient of tail dependence, according to the formula (11).

We proceed as follows. Consider a variable $`X`$ which asymptotically follows a power law distribution $`\mathrm{Pr}\{X>x\}Cx^\alpha `$. Given a rank ordered sample $`x_{1,N}x_{2,N}\mathrm{}x_{N,N}`$, the scale factor $`C`$ can be consistently estimated from the $`k`$ largest realizations by

$$\widehat{C}=\frac{k}{N}(x_{k,N})^\alpha .$$
(13)
In the tail, this estimator is independent of $`k`$. Thus, denoting by $`\widehat{C}_Y`$ and $`\widehat{C}_\epsilon `$ the scale factors of the factor $`Y`$ and of the noise $`\epsilon `$ defined in equation (6), the estimator of the coefficient of tail dependence is

$$\widehat{\lambda }=\frac{1}{1+\widehat{\beta }^\alpha \frac{\widehat{C}_Y}{\widehat{C}_\epsilon }}=\frac{1}{1+\left(\frac{\epsilon _{k,N}}{\widehat{\beta }y_{k,N}}\right)^\alpha }.$$
(14)
Since the tail indices $`\alpha `$ are impossible to determine with sufficient accuracy other than saying that the $`\alpha `$ probably fall in the interval $`34`$ as we have seen above, our strategy is to determine $`\widehat{\lambda }`$ using (14) for three different common values $`\alpha =3`$, $`3.5`$ and $`4`$. This procedure allows us to test for the sensitivity of the scale factor and therefore of the tail coefficient with respect to the uncertain value of the tail index.

Table 5 gives the values of the coefficients of lower tail dependence over the whole time interval from July 1962 to December 2000, under the assumption that the tail index $`\alpha `$ equals $`3`$. The coefficient of tail dependence is estimated over the first centile, the first quintile and the first decile to also test for any possible sensitivity on the tail asymptotics. For each of these quantiles, the mean values, their standard deviations and their minimum and maximum values are given. We first remark that the standard deviation of the tail dependence coefficient remains small compared with its average value and that the minimum and maximum values cluster closely around its mean value. This shows that the coefficient of tail dependence is well-estimated by its mean over a given quantile. Secondly, we find that these estimated coefficients of tail dependence exhibit a good stability over the varous quantiles. These two observations enable us to conclude that the average coefficient of tail dependence over the first centile is sufficient to provide a good estimate of the true coefficient of tail dependence.

Tables 6, 7 and 8 summarize the different values of the coefficient of tail dependence for both the positive and the negative tails, under the assumptions that the tail index $`\alpha `$ equals $`3`$, $`3.5`$ and $`4`$ respectively, over the three considered time intervals. Overall, we find that the coefficients of tail dependence are almost equal for both the negative and the positive tail and that they are not very sensitive to the value of the tail index in the interval considered. More precisely, during the first time interval from July 1962 to December 1979 (table 6), the tail dependence is symetric in both the upper and the lower tail. During the second time interval from January 1980 to December 2000 and over the whole time interval (tables 7 and 8), the coefficient of lower tail dependence is slightly but systematically larger than the upper one. Moreover, since these coefficients of tail dependence are all less than $`1/2`$, they decrease when the tail index $`\alpha `$ increases and the smaller the coefficient of tail dependence, the larger the decay.

During the first time interval, most of the coefficients of tail dependence range between 0.15 and 0.35 in both tails, while during the second time interval, almost all range between 0.10 and 0.25 in the lower tail and between 0.10 and 0.20 in the upper one. Thus, the tail dependence is smaller during the last period than during the first one. This result is interesting because it associates the smaller (respectively larger) tail dependence to the second (resp. first) period of larger (resp. smaller) volatility, as quantified for instance by the excess kurtosis.

### 3.5 Comparison with the historical extremes

Our determination of the coefficient of tail dependences provides predictions on the probability that future large moves of stocks may be simultaneous to large moves of the market. This begs for a check over the available historical period to determine whether our estimated coefficients of tail dependence are compatible with the realized historical extremes.

For this, we consider the ten largest losses of the Standard & Poor’s 500 index during the two time sub-intervals444We do not consider the whole time interval since the ten largest losses over the whole period coincide with the ten largest ones over the second time subinterval, which would bias the statistics towards the second time interval.. Since $`\lambda _{}`$ is by definition equal to the probability that a given asset incurs a large loss (say, one of its ten largest losses) conditional on the occurrence of one of the ten largest losses of the Standard & Poor’s 500 index, the probability, for this asset, to undergo $`n`$ of its ten largest losses simultaneously with any of the ten largest losses of the Standard & Poor’s 500 index is given by the binomial law with parameter $`\lambda _{}`$:

$$P_\lambda _{}(n)=\left(\genfrac{}{}{0pt}{}{10}{n}\right)\lambda _{}^{}{}_{}{}^{n}(1\lambda _{})^{(10n)}.$$
(15)
We stress that our consideration of only the ten largest drops ensures that the present test is not embodied in the determination of the tail dependence coefficient, which has been determined on a robust procedure over the 1%, 5% and 10% quantiles. We checked that removing these then largest drops does not modify the determination of $`\lambda _{}`$. Our present test can thus be considered as “out-of-sample,” in this sense.

Table 9 presents, for the two time sub-intervals, the number of extreme losses among the ten largest losses incured by a given asset which occured simultaneously with one of the ten largest losses of the standard & Poor’s 500 index. For each asset, we give the probability of occurence of such a realisation, according to (15). We notice that during the first time interval, only two assets are incompatible, at the 95% confidence level, with the value of $`\lambda _{}`$ previously determined: Du Pont (E.I.) de Nemours & Co. and Texaco Inc. In constrast, during the second time interval, four assets reject the value of $`\lambda _{}`$: Coca Cola Corp., Pepsico Inc., Pharmicia Corp. and Texas Instruments Inc.

These results are very encouraging. However, there is a noticeable systematic bias. Indeed, during the first time interval, 17 out of the 20 assets have a realized number of large losses lower than their expected number (according to the estimated $`\lambda _{}`$), while during the second time interval, 19 out of the 20 assets have a realized number of large losses larger than their expected one. Thus, it seems that during the first time interval the number of large losses is overestimated by $`\lambda _{}`$ while it is underestimated during the second time interval.

We propose to explain the underestimation of the number of large losses between January 1980 and December 2000 by a possible comonitonicity that occurred during the October 1987 crash. Indeed, on October 19, 1987, 12 out of the 20 considered assets incurred their most severe loss, which strongly suggests a comonotonic effect. Table 10 shows the same results as in table 9 but corrected by substracting this comonotonic effect to the number of large losses. The compatibility between the number of large losses and the estimated $`\lambda _{}`$ becomes significantly better since only Pepsico Inc. and Pharmicia Corp. are still rejected, and only 16 assets out of 20 are underestimated, representing a significant decrease of the bias.

Previous works have shown that, in period of crashes, the market conditions change, herding effects may become more important and almost dominant, so that the market enters an unusual regime, which can be characterized by outliers present in the distribution of drawdowns \[Johansen and Sornette (2002)\]. Our detection of an anomalous comonotonicity can thus be considered as an independent confirmation of the existence of this abnormal regime.

Obviously, the overestimation of the number of large losses during the first time interval can not be ascribe to the comonotonicity of very large events, which in fact only occurred once for the Coca-Cola Corp. This overestimation is probably linked with the low “volatility” of the market during this period, which can have two effects. The first one is to lead to a less accurate estimation of the scale factor of the power-law distribution of the assets. The second one is that a market with smaller volatility produices fewer large losses. As a consequence, the asymptotic regime for which the relation $`\mathrm{Pr}\{X<F_{X}^{}{}_{}{}^{1}(u)|Y<F_{Y}^{}{}_{}{}^{1}(u)\}\lambda _{}`$ holds may not be reached in the sample, and the number of recorded large losses remain lower than that asymptotically expected.

## 4 Concluding remarks

We have used the framework offered by factor models in order to derive a general theoretical expression for the coefficient of tail dependence between a random variable and any of its explanatory factor. The coefficient of tail dependence represents the probability that an asset incurs a large loss (say), assuming that the market has also undergone a large loss. We find that factors characterized by rapidly varying distributions, such as Normal or exponential distributions, always lead to a vanishing coefficient of tail dependence with other stocks. In constrast, factors with regularly varying distributions, such as power-law distributions, can exhibit tail dependence with other stocks, provided that the idiosyncratic noise distributions of the corresponding stocks are not fatter-tailed than the factor.

Applying this general result to individual daily stock returns, we have been able to estimate the coefficient of tail dependence between the returns of each stock and those of the market. This determination of the tail dependence relies only on the simple estimation of the parameters of the underlying factor model and on the tail parameters of the distribution of the factor and of the idiosyncratic noise of each stock. As a consequence, the two strong advantages of our approach are the following.

* The coefficients of tail dependence are estimated non-parametrically. Indeed, we never specify any explicit expression of the dependence structure, contrary to most previous works (see \[Longin and Solnik (2001), Malevergne and Sornette (2001)\] or \[Patton (2001)\] for instance);
* Our theoretical result enables us to estimate an extreme parameter, not accessible by a direct statistical inference. This is achieved by the measurement of parameters whose estimation involves a significant part of the data with sufficient statistics.

Having performed this estimation, we have checked the comptatibility of these estimated coefficients of tail dependence with the historically realized extreme losses observed in the empirical time series. A good agreement is found, notwithstanding a slight bias which leads to an overestimate of the occurence of large events during the period from July 1962 to December 1979 and to an underestimate during the time interval from January 1980 to December 2000.

This bias can be explained by the low volatility of the market during the first period and by a comonotonicity effect, due to the October 1987 crach, during the second period. Indeed, from july 1962 to December 1979, the volatility was so low that the distributions of returns have probably not sampled their tails sufficiently far the probability of large conditional losses to be represented by its asymptotic expression given by the coefficient of tail dependence. The situation is very different for the period from january 1980 to December 2000. On October 19, 1987, many assets incurred their largest loss ever. This is presumably the manifestation of an ‘abnormal’ regime probably due to herding effects and irrational behaviors and has been previously characterized as yielding signatures in the form of outliers in the distribution of drawdowns.

Finally, the observed lack of stationarity exhibited by the coefficient of tail dependence across the two time sub-intervals suggests the importance of going beyond a stationary view of tail dependence and of studying its dynamics. This question, which could be of great interest in the context of the contagion problem, is left for a future work.

Our study has focused on the dependence between different risks. In fact, our theorem can obviously be applied to extreme temporal dependences, when the variable follows an autoregressive process. This should provide an estimate of the probability that a large loss (respectively gain) is followed by another large loss (resp. gain) in the following period. Such information is very interesting in investment and hedging strategies.

## Appendix A Proof of the theorem

### A.1 Statement

We consider two random variables $`X`$ and $`Y`$, related by the relation

$$X=\beta Y+\epsilon ,$$
(16)
where $`\epsilon `$ is a random variable independent of $`Y`$ and $`\beta `$ a non-random positive coefficient.

Let $`P_Y`$ and $`F_Y`$ denote respectively the density with respect to the Lebesgue measure and the distribution function of the variable $`Y`$. Let $`F_X`$ denotes the distribution function of $`X`$ and $`F_\epsilon `$ the distribution function of $`\epsilon `$. We state the following theorem:

###### Theorem 1

Assuming that

* The variables $`Y`$ and $`\epsilon `$ have distribution functions with infinite support,
* For all $`x[1,\mathrm{})`$,

$$\underset{t\mathrm{}}{lim}\frac{tP_Y(tx)}{\overline{F_Y}(t)}=f(x),$$
(17)
* There are real numbers $`t_0>0`$, $`\delta >0`$ and $`A>0`$, such that for all $`tt_0`$ and all $`x1`$

$$\frac{\overline{F}_Y(tx)}{\overline{F}_Y(t)}\frac{A}{x^\delta },$$
(18)
* There is a constant $`l_+`$, such that

$$\underset{u1}{lim}\frac{F_{X}^{}{}_{}{}^{1}(u)}{F_{Y}^{}{}_{}{}^{1}(u)}=l,$$
(19)

then, the coefficient of (upper) tail dependence of $`(X,Y)`$ is given by

$$\lambda =_{\mathrm{max}\{1,\frac{l}{\beta }\}}^{\mathrm{}}𝑑xf(x).$$
(20)
### A.2 Proof

We first give a general expression for the probability for $`X`$ to be larger than $`F_X^1(u)`$ knowing that $`Y`$ is larger than $`F_Y^1(u)`$ :

###### Lemma 1

The probability that $`X`$ is larger than $`F_X^1(u)`$ knowing that $`Y`$ is larger than $`F_Y^1(u)`$ is given by :

$$\mathrm{Pr}\left[X>F_X^1(u)|Y>F_Y^1(u)\right]=\frac{F_Y^1(u)}{1u}_1^{\mathrm{}}𝑑xP_Y\left(F_Y^1(u)x\right)\overline{F}_\epsilon \left[F_{X}^{}{}_{}{}^{1}(u)\beta F_Y^1(u)x\right].$$
(21)
Proof :

$`\mathrm{Pr}\{X>F_{X}^{}{}_{}{}^{1}(u),Y>F_{Y}^{}{}_{}{}^{1}(u)\}`$ $`=`$ $`\mathrm{E}\left[1_{\{X>F_{X}^{}{}_{}{}^{1}(u)\}}1_{\{Y>F_{Y}^{}{}_{}{}^{1}(u)\}}\right]`$ (22)
$`=`$ $`\mathrm{E}\left[\mathrm{E}\left[1_{\{X>F_{X}^{}{}_{}{}^{1}(u)\}}1_{\{Y>F_{Y}^{}{}_{}{}^{1}(u)\}}|Y\right]\right]`$ (23)
$`=`$ $`\mathrm{E}\left[1_{\{Y>F_{Y}^{}{}_{}{}^{1}(u)\}}\mathrm{E}\left[1_{\{X>F_{X}^{}{}_{}{}^{1}(u)\}}|Y\right]\right]`$ (24)
$`=`$ $`\mathrm{E}\left[1_{\{Y>F_{Y}^{}{}_{}{}^{1}(u)\}}\mathrm{E}\left[1_{\{\epsilon >F_{X}^{}{}_{}{}^{1}(u)\beta Y\}}\right]\right]`$ (25)
$`=`$ $`\mathrm{E}\left[1_{\{Y>F_{Y}^{}{}_{}{}^{1}(u)\}}\overline{F}_\epsilon (F_{X}^{}{}_{}{}^{1}(u)\beta Y)\right]`$ (26)
Assuming that the variable $`Y`$ admits a density $`P_Y`$ with respect to the Lebesgue measure, this yields

$$\mathrm{Pr}\{X>F_{X}^{}{}_{}{}^{1}(u),Y>F_{Y}^{}{}_{}{}^{1}(u)\}=_{F_Y^1(u)}^{\mathrm{}}𝑑yP_Y(y)\overline{F}_\epsilon [F_{X}^{}{}_{}{}^{1}(u)\beta y].$$
(27)
Performing the change of variable $`x=F_{Y}^{}{}_{}{}^{1}(u)y`$, in the equation above, we obtain

$$\mathrm{Pr}\{X>F_{X}^{}{}_{}{}^{1}(u),Y>F_{Y}^{}{}_{}{}^{1}(u)\}=F_Y^1(u)_1^{\mathrm{}}𝑑xP_Y(F_Y^1(u)x)\overline{F}_\epsilon [F_{X}^{}{}_{}{}^{1}(u)\beta F_Y^1(u)x],$$
(28)
and, dividing by $`\overline{F_Y}\left(F_{Y}^{}{}_{}{}^{1}(u)\right)=1u`$, this concludes the proof. $`\mathrm{}`$

Let us now define the function

$$f_u(x)=\frac{F_Y^1(u)}{1u}P_Y(F_Y^1(u)x)\overline{F}_\epsilon [F_{X}^{}{}_{}{}^{1}(u)\beta F_Y^1(u)x].$$
(29)
We can state the following result

###### Lemma 2

Under assumption $`H1`$ and $`H3`$, for all $`x[1,\mathrm{})`$,

$$f_u(x)1_{\left\{x>\frac{l}{\beta }\right\}}f(x),$$
(30)
almost everywhere, as u goes to 1.

Proof: Let us apply the assumption $`H1`$. We have

$`\underset{u1}{lim}{\displaystyle \frac{F_Y^1(u)}{1u}}P_Y(F_Y^1(u)x)`$ $`=`$ $`\underset{t\mathrm{}}{lim}{\displaystyle \frac{tP_Y(tx)}{\overline{F_Y}(t)}},`$ (31)
$`=`$ $`f(x).`$ (32)
Applying now the assumption $`H3`$, we have

$`\underset{u1}{lim}F_{X}^{}{}_{}{}^{1}(u)\beta F_Y^1(u)x`$ $`=`$ $`\underset{u1}{lim}\beta F_Y^1(u)\left({\displaystyle \frac{F_{X}^{}{}_{}{}^{1}(u)}{\beta F_Y^1(u)}}x\right)`$ (33)
$`=`$ $`\{\begin{array}{cc}\mathrm{}& \text{if}x>\frac{l}{\beta },\\ \mathrm{}& \text{if}x<\frac{l}{\beta },\end{array}`$ (36)
which gives

$$\underset{u1}{lim}\overline{F}_\epsilon [F_{X}^{}{}_{}{}^{1}(u)\beta F_Y^1(u)x]=1_{\left\{x>\frac{l}{\beta }\right\}},$$
(38)
and finally

$`\underset{u1}{lim}f_u(x)`$ $`=`$ $`\underset{u1}{lim}{\displaystyle \frac{F_Y^1(u)}{1u}}P_Y(F_Y^1(u)x)\underset{u1}{lim}\overline{F}_\epsilon [F_{X}^{}{}_{}{}^{1}(u)\beta F_Y^1(u)x],`$ (39)
$`=`$ $`1_{\left\{x>\frac{l}{\beta }\right\}}f(x),`$ (40)
which concludes the proof. $`\mathrm{}`$

Let us now proove that there exists an integrable function $`g(x)`$ such that, for all $`tt_0`$ and all $`x1`$, we have $`f_t(x)g(x)`$. Indeed, let us write

$$\frac{tP_Y(tx)}{\overline{F}_Y(t)}=\frac{tP_Y(tx)}{\overline{F}_Y(tx)}\frac{\overline{F}_Y(tx)}{\overline{F}_Y(t)}.$$
(41)
For the leftmost factor in the right-hand-side of equation (41), we easily obtain

$$t,x1,\frac{tP_Y(tx)}{\overline{F}_Y(tx)}\frac{x^{}P_Y(x^{})}{\overline{F}_Y(x^{})}\frac{1}{x},$$
(42)
where $`x^{}`$ denotes the point where the function $`\frac{xP_Y(x)}{\overline{F}_Y(x)}`$ reaches its maximum. The rightmost factor in the right-hand-side of (41) is smaller than $`A/x^\delta `$ by assumption $`H2`$, so that

$$tt_0,x1,\frac{tP_Y(tx)}{\overline{F}_Y(t)}\frac{x^{}P_Y(x^{})}{\overline{F}_Y(x^{})}\frac{A}{x^{1+\delta }}.$$
(43)
Posing

$$g(x)=\frac{x^{}P_Y(x^{})}{\overline{F}_Y(x^{})}\frac{A}{x^{1+\delta }},$$
(44)
and recalling that, for all $`\epsilon `$, $`\overline{F}_\epsilon (\epsilon )1`$, we have found an integrable function such that for some $`u_00`$, we have

$$u[u_0,1),x1,f_u(x)g(x).$$
(45)
Thus, applying Lebesgue’s theorem of dominated convergence, we can assert that

$$\underset{u1}{lim}_1^{\mathrm{}}𝑑xf_u(x)=_1^{\mathrm{}}𝑑x1_{\left\{x>\frac{l}{\beta }\right\}}f(x).$$
(46)
Since

$`\underset{u1}{lim}{\displaystyle _1^{\mathrm{}}}𝑑xf_u(x)`$ $`=`$ $`\underset{u1}{lim}\mathrm{Pr}\left[X>F_X^1(u)|Y>F_Y^1(u)\right],`$ (47)
$`=`$ $`\lambda ,`$ (48)
the proof of theorem 1 is concluded. $`\mathrm{}`$

## Appendix B Proofs of the corollaries

### B.1 First corollary

###### Corollary 1

If the random variable $`Y`$ has a rapidly varying distribution function, then $`\lambda =0`$.

Proof : Let us write

$$\frac{tP_Y(tx)}{\overline{F_Y}(t)}=\frac{tP_Y(tx)}{\overline{F_Y}(tx)}\frac{\overline{F_Y}(tx)}{\overline{F_Y}(t)}.$$
(49)
For a rapidly varying function $`\overline{F}_Y`$, we have

$$x>1,\underset{t\mathrm{}}{lim}\frac{\overline{F}_Y(tx)}{\overline{F}_Y(t)}=0,$$
(50)
while the leftmost factor of the right-hand-side of equation (49) remains bounded as $`t`$ goes to infinity, so that

$$\underset{t\mathrm{}}{lim}\frac{tP_Y(tx)}{\overline{F_Y}(tx)}\frac{\overline{F_Y}(tx)}{\overline{F_Y}(t)}=f(x)=0.$$
(51)
Since $`f(x)=0`$, we can apply lemma 2 without the hypothesis $`H3`$, which concludes the proof. $`\mathrm{}`$

### B.2 Second corollary

###### Corollary 2

Let $`Y`$ be regularly varying with index $`(\alpha )`$, and assume that hypothesis $`H3`$ is satisfied. Then, the coefficient of (upper) tail dependence is

$$\lambda =\frac{1}{\left[\mathrm{max}\{1,\frac{l}{\beta }\}\right]^\alpha },$$
(52)
where $`l`$ denotes the limit, when $`u1`$, of the ratio $`F_{X}^{}{}_{}{}^{1}(u)/F_{Y}^{}{}_{}{}^{1}(u)`$.

Proof : Karamata’s theorem (see \[Embrechts et al. (1997), p 567\]) ensures that $`H1`$ is satisfied with $`f(x)=\frac{\alpha }{x^{\alpha +1}}`$, which is sufficient to proove the corollary. To go one step further, let us define

$`\overline{F}_y(y)`$ $`=`$ $`y^\alpha L_1(y),`$ (53)
$`\overline{F}_\epsilon (\epsilon )`$ $`=`$ $`\epsilon ^\alpha L_2(\epsilon ),`$ (54)
where $`L_1()`$ and $`L_2()`$ are slowly varying functions.

Using the proposition stated in \[Feller (1971), p 278\], we obtain, for the distribution of the variable $`X`$

$$\overline{F}_X(x)x^\alpha \left(\beta ^\alpha L_1\left(\frac{x}{\beta }\right)+L_2(x)\right),$$
(55)
for large $`x`$.

Assuming now, for simplicity, that $`L_1`$ (resp. $`L_2`$) goes to a constant $`C_1`$ (resp. $`C_2`$), this implies that $`H3`$ is satistified, since

$$l=\underset{u1}{lim}\frac{F_{X}^{}{}_{}{}^{1}(u)}{F_{Y}^{}{}_{}{}^{1}(u)}=\beta \left[1+\frac{C_2}{\beta ^\alpha C_1}\right]^{\frac{1}{\alpha }}.$$
(56)
This allows us to obtain the equations (8) and (11). $`\mathrm{}`$


text:
# 1 What to Quantize?

## 1 What to Quantize?

The central question of obtaining the theory of Quantum Gravity seems to be : what to “quantize”. A perturbative approach has been successfully attempted especially in the elegant work of B. DeWitt and is adequate if one learns to contend with the limitations of a nonrenormalizable theory. However the nonperturbative aspects of the theory would remain inaccessible. The formulation in terms of New Canonical Variables of Ashtekar may be taken to be the minimal consistent nonperturbative approach to Gravity. It is a formulation amenable to solution on loop spaces, originally pioneered by Mandelstam for QCD. Obtaining phenomenologically interesting solutions however remains an unsolved problem.

This has spurred a number of other approaches wherein one assumes certain ground states suggested by classical General Relativity as possible vacuua. By focusing on a few collective coordinates one attempts a quantization of these. Several approaches to Quantum Cosmology may be viewed in this light and seem to enjoy success, again when interpreted with caution. In the following we shall discuss such a procedure, formulated in ?,?, applicable to any of the several Black Hole solutions assumed to be a given ground state of the theory. This will be referred to as reduced phase space quantization, or Approach I.

A parallel approach to quantizing the collective coordinates of a Black Hole is due to Bekenstein et al ?. Unlike the canonical approach wherein the canonical variables generate all the dynamical variables relevant to a particular energy or length scale, in the algebraic approach one introduces each of the operators by hand, guided by phenomenological observables. Quantization then amounts to ascertaining all the commutation relations between the complete set of dynamical variables?. It is necessary in this approach that all the possible dynamical variables that are relevant at a particular energy scale are consistently identified. Cautious truncation is necessitated within the complete list of dynamical variables of a supposed complete theory. Finally, in lieu of knowledge of the dynamics governing the system, one relies on symmetries to propose a set of spectrum generating operators connecting the eigenstates of the observables. We shall refer to this as the algebraic approach or Approach II

Black Holes seem to present to us the happy situation where one may be reasonably confident that all the collective coordinates of the system are known. Equivalently, being highly symmetric solutions facilitate the task of the algebraic approach. This has to do with the well known “no hair” property of the Black Holes. The only spoiler to this seems to be the possibility that as one approaches the quantum domain there may be phenomena occuring near the horizon which, although inaccessible to the asymptotic observer, require additional dynamical variables. We shall see that our ignorance of this can however be encoded in appropriate operators $`\widehat{g}_{s_n}`$.

A classical Black Hole is characterised by a short list of observables, viz., electric and magnetic charge, angular momentum and the mass or equivalently the surface area of the horizon. It has been argued by various authors, using widely different approaches, that the spectra of above observables are discrete ?,?,?,?,?,?,?,?,?,?,?. In particular, the horizon area of a black hole has been shown to have a uniformly spaced spectrum. Although the spectrum found in ? is not strictly uniformly spaced, in the context of black hole entropy, as well as in a different regularisation scheme ?, the dominant contribution is equally spaced. In this talk we limit the discussion to show the equivalence of Approach I and Approach II for the case of Schwarzschild black hole. We propose a pair of primary operators $`P`$ and $`P^{}`$ together with a set of operators $`\widehat{g}_{s_n}`$ (see eqn. (16)) which can generate quantum algebras of both approaches consistently, thus implicitly mapping one model onto the other. While Approach II leaves open the value of the spectrum spacing, Approach I predicts the unit of spacing, as also a zero point value for the same. We argue that such a zero point remnant is to be expected in Approach II as well, and can be consistently included.

## 2 The Reduced Phase Space

It follows from the analysis of ?,? that the dynamics of static spherically symmetric configurations in any classical theory of gravity in $`d`$-spacetime dimensions is governed by an effective action of the form

$$I=𝑑t\left(P_M\dot{M}H(M)\right)$$
(1)
where $`M`$ is the mass and $`P_M`$ its conjugate momentum. The above action can be rigorously derived by assuming a generic gravity action (e.g. Einstein action, low energy string effective action or with or without cosmological constant), imposing spherical symmetry on it and doing a careful constraint analysis. However, intuitively it can be understood as follows: Birkhoff’s theorem for uncharged spherically symmetric solutions of gravity states that the mass $`M`$ is the only time-independent and coordinate invariant parameter of the solution. That is $`\dot{M}=0`$. The above effective action (with $`H`$ being independent of $`P_M`$) is necessary and sufficient to guarantee this time independence. The boundary conditions imposed are those of ?,?. $`P_M`$ has the interpretation of difference between the Schwarzschild times between left and right infinities ?,?,?.

Now to restrict ourselves to black holes (and simultaneously exclude all other spherically symmetric configurations). Also, as mentioned earlier, since the conjugate momentum $`P_M`$ playes the role of ‘time’, motivated by Euclidean quantum gravity ?, we assume that it is periodic with period which is inverse the Hawking temperature ($`T_H(M)`$). That is,

$$P_MP_M+\frac{\mathrm{}}{T_H(M)}.$$
(2)
This ensures that there is no conical singularity in the two dimensional euclidean section near the black hole horizon. However, note that the above identification implies that the physical phase space is a wedge cut out from the full $`(M,P_M)`$ plane, bounded by the $`M`$ axis and the line $`P_M=\mathrm{}/T_H(M)`$ ?,?. Thus, we make the following canonical transformation $`(M,P_M)(X,\mathrm{\Pi }_X)`$, which on the one hand ‘opens up’ the phase space, and on the other hand, naturally incorporates the periodicity (2) ?,?:

$`X`$ $`=`$ $`\sqrt{{\displaystyle \frac{A}{4\pi G_d}}}\mathrm{cos}\left(2\pi P_MT_H/\mathrm{}\right)`$ (3)
$`\mathrm{\Pi }_X`$ $`=`$ $`\sqrt{{\displaystyle \frac{A}{4\pi G_d}}}\mathrm{sin}\left(2\pi P_MT_H/\mathrm{}\right)`$ (4)
where $`A`$ is the black hole horizon area and $`G_d`$ the $`d`$-dimensional Newton’s constant. Note that both $`A`$ and $`T_H`$ are functions of $`M`$. It can be shown that the validity of the first law of black hole thermodynamics ensures that the above set of transformations is indeed canonical ?,?. Also note that fixing the periodicity of $`P_M`$ to be $`\mathrm{}/T_H(M)`$ uniquely fixes the prefactors in the right hand sides of (3) and (4). Squaring and adding (3) and (4), we get:

$$A=4\pi G_d\left(X^2+\mathrm{\Pi }_X^2\right).$$
(5)
The r.h.s. is nothing but the Hamiltonian of a simple harmonic oscillator defined on the $`(X,\mathrm{\Pi }_X)`$ phase space with mass $`\mu `$ and angular frequency $`\omega `$ given by $`\mu =1/\omega =1/8\pi G_d`$. Upon quantization, the ‘position’ and ‘momentum’ variables are replaced by the operators:

$$X\widehat{X},\mathrm{\Pi }_X\widehat{\mathrm{\Pi }}_X=i\mathrm{}\frac{}{X},$$
(6)
and the spectrum of the black hole area operator follows immediately. With $`\mathrm{}_{pl}`$ denoting the $`d`$-dimensional Planck length, and $`\overline{a}=8\pi \mathrm{}_{Pl}^{d2}`$,

$$A_n=\overline{a}(n+\frac{1}{2})n\overline{a}+a_{Pl}n=0,1,2,\mathrm{}$$
(7)
Thus $`\overline{a}`$ signifies the basic quantum of area, and $`a_{Pl}=\overline{a}/2`$ is its ‘zero-point’ value. Hawking radiation takes place when the black hole jumps from a higher to a lower area level, the difference in quanta being radiated away. The above spectrum shows that the black hole does not evaporate completely, but a Planck size remnant is left over at the end of the evaporation process. It may be noted that the periodic orbits in the phase space under consideration admit of an adiabatic invariant. As mentioned earlier, in the present example, the latter is in fact the horizon area of the black hole, just as it had been conjectured previously ?. This follows from the integral

$$\text{Adiabatic Invariant}=\mathrm{\Pi }_X𝑑X=\frac{A}{4G}.$$

## 3 Area as an Adiabatic Invariant

Now let us consider Approach II. It has been argued that for a non-extremal black hole the area is an adiabatic invariant, and the spectrum emerges from a proposed algebra of black hole observables?. In the present work we take the case of neutral black hole in zero angular momentum state. With slight modification of the notation of ? it is assumed that there exists an operator $`\widehat{}_{ns_n}`$ which creates a single black hole state from vacuum $`|0`$ with area $`a_n`$ in an internal quantum state $`s_n`$:

$`\widehat{}_{ns_n}|0`$ $`=`$ $`|n,s_n,`$ (8)
$`\widehat{A}|n,s_n`$ $`=`$ $`a_n|n,s_n`$ (9)
We make the caveat that $`s_n\{0,1,\mathrm{}m_n1\}`$ as in ? such that the degeneracy of states with same area eigenvalue $`a_n`$, obeys $`\mathrm{ln}m_na_n`$.

Bekenstein introduced a minimal set of linear operators satisfying the following requirements: (i) The commutator bracket between the operators must result in a linear combination of the operators in the set. In other words, the algebra of black hole operators must be linear and closed. (ii) The area operator must commute with generators of gauge transformations and rotations. This imposes the physical requirement of invariance of the horizon area under these transformations.

The set of linear operators for the neutral black holes will be area operator $`\widehat{A}`$, black hole creation operator $`\widehat{}_{ns_n}`$ and its adjoint operator $`\widehat{}_{ns_n}^{}`$ and identity operator $`\widehat{I}`$. Bekenstein assumes that the vacuum state $`|0`$ has zero area in the construction of the algebra. We shall denote Bekenstein’s area operator as $`\widehat{A^{}}`$ with eigenvalues $`a_n^{}`$ such that the vacuum area is $`a_0^{}=0`$. We will shortly see the relation between the operators $`\widehat{A}`$ and $`\widehat{A^{}}`$ and their respective eigenvalues $`a_n`$ and $`a_n^{}`$.

With these requirements, Bekenstein’s algebra for neutral black hole will be ?:

$`[\widehat{A^{}},\widehat{}_{ns_n}]`$ $`=`$ $`a_n^{}\widehat{}_{ns_n},`$ (10)
$`[\widehat{}_{ns_n},\widehat{}_{ms_m}]`$ $`=`$ $`ϵ_{nm}^k\widehat{}_{ks_k}(ϵ_{nm}^k0\mathrm{iff}a_n^{}+a_m^{}=a_k^{}),`$ (11)
$`[\widehat{A^{}},[\widehat{}_{ms_m}^{},\widehat{}_{ns_n}]]`$ $`=`$ $`(a_n^{}a_m^{})[\widehat{}_{ms_m}^{},\widehat{}_{ns_n}]\mathrm{if}a_n^{}>a_m^{},`$
$`=`$ $`0\mathrm{otherwise}`$ (12)
Eqn. (11) implies that the black hole state created by a commutator of two black hole creation operators ($`\widehat{}_{ns_n}`$, $`\widehat{}_{ms_m}`$) will be another single black hole state $`|k,s_k`$ provided its area satisfies $`a_k^{}=a_m^{}+a_n^{}`$. Though the relation

$$[\widehat{A^{}},\widehat{}_{ns_n}^{}]=a_n^{}\widehat{}_{ns_n}^{}$$

is used to obtain eqn. (12), the positive definite nature of area operator $`\widehat{A^{}}`$ requires the inequality condition $`a_n^{}>a_m^{}`$. Clearly, the spectrum of the above algebra $`\{a_n^{}\}`$ involves both addition and subtraction of area levels which is possible if and only if the area levels are equally spaced, i.e.,

$$a_n^{}=n\overline{b},n=0,1,2,\mathrm{}$$
(13)
where $`\overline{b}`$ is some positive constant with dimensions of area.

It is obvious that the neutral black hole algebra (10 \- 12) is unchanged under the shift of the area operator:

$$\widehat{A^{}}\widehat{A^{}}+\overline{c}\widehat{I}\widehat{A},$$
(14)
where $`\overline{c}`$ is an arbitrary constant. This relation between $`\widehat{A}`$ and $`\widehat{A^{}}`$ implies their respective eigenvalues to satisfy

$$a_n=a_n^{}+\overline{c}.$$
(15)
Equivalently, the vacuum state will have non-zero area $`a_0=c`$. The situation is similar to the problems of single particle Quantum Mechanics where nontrivial zero-point energy always exists except for a free particle. For the case of the Hydrogen atom this is due to quantizing only the relative coordinates but not the coordinates of the centre of mass. In the case of the black hole, the same is to be expected because we are not quantizing the trivial collective coordinates corresponding to its location. The $`\overline{c}`$ must therefore be nonzero, presumably equal to $`\overline{b}`$ upto a dimensionless constant of order unity. If we identify $`\overline{b}`$ with the unit $`\overline{a}`$ obtained systematically in Approach I, it is reasonable to also identify $`\overline{c}`$ with $`a_{Pl}=\overline{a}/2=4\pi \mathrm{}_p\mathrm{}^{d2}`$.

## 4 Conciliation

Our next step is to find a realisation of the operators in Approach II in terms of the fundamental degrees of freedom ($`M,\mathrm{\Pi }_M`$) in Approach I. We propose a representation of the algebra (10-12) with the following form for the black hole creation operator $`\widehat{}_{ns_n}`$ and area operator $`\widehat{A}`$:

$$\widehat{}_{ns_n}=(P^{})^n\widehat{g}_{s_n};\widehat{A}=(\widehat{P}^{}\widehat{P}+1/2)\overline{a},$$
(16)
where $`\widehat{P}^{}(\widehat{P})`$ raises (lowers) the area level $`n`$ to $`n+1`$ (respectively, $`n1`$). The operators $`\widehat{g}_{s_n}`$ are similar to the secret operators in ?. We postulate that these two sets of operators satisfy the following commutation relations:

$`[\widehat{P},\widehat{P}^{}]`$ $`=`$ $`1,`$ (17)
$`[\widehat{P},\widehat{g}_{s_m}]`$ $`=`$ $`[\widehat{P}^{},\widehat{g}_{s_m}]=0,`$ (18)
$`[\widehat{g}_{s_m},\widehat{g}_{s_n}]`$ $`=`$ $`ϵ_{mn}^k\widehat{g}_{s_k}\mathrm{where}ϵ_{mn}^k0\mathrm{iff}k=m+n.`$ (19)
Equation (19) ensures eqn. (11); however it should be remembered that the operators $`\widehat{g}_{s_n}`$ have a meaning only within the product form $`(\widehat{P}^{})^n\widehat{g}_{s_n}`$. Comparison with the reduced phase space approach (3-7) immediately gives us the form of $`\widehat{P}^{}`$ as

$$\widehat{P}^{}=\frac{1}{\sqrt{2\mathrm{}}}\left[\widehat{X}i\widehat{\mathrm{\Pi }}_X\right].$$
(20)
Note that the area operator (16) becomes identical to that in Approach I, namely Eq.(5). The identification (20) shows that the black hole creation operator $`\widehat{}_{ns_n}`$ can be expressed in terms of fundamental gravitational degrees of freedom $`(M,P_M)`$ via (3),(4) and (16) in the following way:

$$\widehat{}_{ns_n}=(\widehat{P}^{})^n\widehat{g}_{s_n};\widehat{P}^{}=\sqrt{\frac{\widehat{A}(M)}{8\pi G_d\mathrm{}}}\mathrm{exp}\left(i2\pi \widehat{P}_M\widehat{T}_H(M)\right).$$
(21)
We see that the secret operator $`\widehat{g}_{s_n}`$ in algebraic approach does not have a representation in terms of the fundamental gravitational degrees of freedom. This is consistent with the no hair theorem where asymptotic observer cannot detect the internal quantum state of the black hole.

## 5 Conclusion

We have shown that approaches I and II are equivalent in the zero angular momentum sector from the asymptotic observer viewpoint, and hence give rise to qualitatively similar spectra for the black hole area. In Approach II, in ref. ? the remnant (or zero-point) area was chosen to be zero. Relying on single particle Quantum Mechanics experience we advocate taking this to be non-zero; the presence of the same in no way alters any of the commutators (10) - (12). However note that the precise value of the remnant remains undetermined in this approach. In the reduced phase space approach on the other hand, the remnant is explicitly determined to be a multiple of the Planck area in the relevant dimension. Since the latter is the only natural length scale in quantum gravity, this seems satisfactory. But a fundamental conclusion it suggests is that the lowest energy state of the neutral black hole system is unique, like the Hydrogen atom ground state.

Also note that the discrete spectrum (7) means that Hawking radiation would consist of discrete spectrum lines, enveloped by the semi-classical Planckian distribution. As argued in ?,?,?, for Schwarzschild black holes of mass $`M`$, the gap is order $`1/M`$, which is comparable to the frequency at which the peak of the Planckian distribution takes place. Hence the spectrum would be far from being a continuum, and can potentially be tested if and when Hawking radiation becomes experimentally measurable. Note that this is quite distinct from the predictions of loop quantum gravity, where it was shown that the resulting Hawking spectrum is practically continuous ?. It would also be interesting to explore the implications of the Planck size remnant to the problem of information loss, since the presence of the former can considerably influence Hawking Radiation near the end stage of the black hole.

A further test of the correspondence elucidated in this article would be to apply it to non-spherically symmetric as well as charged black holes. Since both the approaches have dealt with electric charge, analyzing the area and charged spectrum of a charged black hole should be straightforward. However, it is to be borne in mind that at least for semi-classical configurations (those with large quantum numbers), the extremality bound has to be obeyed, at least approximately. Incorporating angular momentum might be somewhat tricky as the reduced phase space approach has not been explored beyond the realm of spherical symmetry. We hope to report on these and other related issues in the near future.

Acknowledgments

SD would like to thank A. Barvinsky and G. Kunstatter for numerous fruitful discussions and correspondences, and for collaboration, out which the reduced phase space approach emerged. The work of SD was supported in part by the Natural Sciences and Engineering Research Council of Canada. PR would like to thank the participants of Gravity workshop, Ooty where some of the issues got clarified. UAY wishes to thank the organisers of the IGQR-2001 conference for the hospitality and the participants for stimulating discussions. Finally, we record our thanks to the referees for their scrutiny which resulted in improvement over the original version.

References