A theoretical treatment is given which establishes dual-mode balanced-homodyne detection as a practical and well characterized technique for measuring optical field correlations, photon-number correlations, or the full quantum state of a pair of optical modes. The definition of modes used includes temporal wave packets, Gaussian or other beam profiles, or two-frequency fields. The proposed method allows the measurement of two-time correlations on sub-picosecond scales, the disentangling of the statistics of signal light in two spatially overlapping modes, and the measurement of field correlations, such as squeezing, over 100 THz bandwidths. We show how to estimate from the data the statistical errors on the measured correlations and the density matrix arising from finite data sets, and the errors introduced by using finite numbers of phases and relative amplitudes of the two local oscillator fields.
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