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We present an approximation scheme for the treatment of strongly correlated electrons in arbitrary crystal lattices. The approach extends the well-known dynamical mean-field theory to include nonlocal two-site correlations of arbitrary spatial extent. We extract the nonlocal correlation functions from two-impurity Anderson models where the impurity-impurity distance defines the spatial extent of the correlations included. Translational invariance is fully respected by our approach since correlation functions of any two-impurity cluster are periodically embedded to k space via a Fourier transform. As a first application, we study the two-dimensional Hubbard model on a simple-cubic lattice. We demonstrate how pseudogap formation in the many-body resonance at the Fermi level results from the inclusion of nonlocal correlations. A comparison of the spectral function with the dynamical-cluster approximation shows qualitative agreement of high- as well as low-energy features.