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Spring Semester 2013

Date / Time Speaker Title Location
14 February 2013
17:15-18:15 		Prof. Dr. Mark Podolskij
University of Heidelberg
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Talks in Financial and Insurance Mathematics

Title A test for the rank of the volatility process: the random perturbation approach
Speaker, Affiliation Prof. Dr. Mark Podolskij, University of Heidelberg
Date, Time 14 February 2013, 17:15-18:15
Location HG G 43
Abstract In this paper we present a test for the maximal rank of the matrix-valued volatility process in the continuous Ito semimartingale framework. Our idea is based upon a random perturbation of the original high frequency observations of an Ito semimartingale, which opens the way for rank testing. We develop the complete limit theory for the test statistic and apply it to various null and alternative hypotheses. Finally, we demonstrate a homoscedasticity test for the rank process. (joint work with Jean Jacod)
A test for the rank of the volatility process: the random perturbation approachread_more
HG G 43
21 February 2013
17:15-18:00 		Dr. Amel Bentata
UZH
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Talks in Financial and Insurance Mathematics

Title Short time asymptotics for semimartingales and an application for short maturity index options in a multivariate jump-diffusion model
Speaker, Affiliation Dr. Amel Bentata, UZH
Date, Time 21 February 2013, 17:15-18:00
Location HG G 43
Abstract We extend and unify the short-time asymptotics of the marginal laws of a stochastic process to the more general case when ξ is a d-dimensional discontinuous semimartingale with jumps. We compute the leading term in the asymptotics in terms of the local characteristics of the semimartingale. In contrast to previous derivations, our approach is purely based on Ito calculus, and makes no use of the Markov property or independence of increments. We derive in particular the asymptotic behavior of call options with short maturity in a semimartingale model: whereas the behavior of out-of-the-money options is found to be linear in time, the short time asymptotics of at-the-money options is shown to depend on the fine structure of the semimartingale. Our multidimensional setting allows to treat examples which are not accessible using previous results (e.g the index process). We propose an analytical approximation for short maturity index options, generalizing the approach by Avellaneda & al 03 to the multivariate jump-diffusion case.
Short time asymptotics for semimartingales and an application for short maturity index options in a multivariate jump-diffusion modelread_more
HG G 43
* 21 February 2013
18:00-18:45 		Dr. Leif Doering
UZH
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Talks in Financial and Insurance Mathematics

Title On Jump SDEs with singular coefficients
Speaker, Affiliation Dr. Leif Doering, UZH
Date, Time 21 February 2013, 18:00-18:45
Location HG G 43
Abstract In his famous articles from the 50s of the last century Feller classified all Markov processes corresponding to second order differential operators with possibly singular coefficients. We briefly discuss what can be expected if the Laplace operator is replaced by a non-local operator and than discuss in detail a natural example that occurs in the theory of self-similar processes.
On Jump SDEs with singular coefficientsread_more
HG G 43
28 February 2013
17:15-18:15 		Prof. Dr. Jan Dolinsky
Hebrew University
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Talks in Financial and Insurance Mathematics

Title Robust Hedging with Proportional Transaction Costs.
Speaker, Affiliation Prof. Dr. Jan Dolinsky, Hebrew University
Date, Time 28 February 2013, 17:15-18:15
Location HG G 43
Abstract Duality for robust hedging with proportional transaction costs of path dependent European options is obtained in a discrete time financial market with one risky asset. Investor's portfolio consists of a dynamically traded stock and a static position in vanilla options which can be exercised at maturity. Only stock trading is subject to proportional transaction costs. The main theorem is duality between hedging and a Monge-Kantorovich type optimization problem. In this dual transport problem the optimization is over all the probability measures which satisfy an approximate martingale condition related to consistent price systems in addition to the usual marginal constraints. Joint work with Mete Soner.
Robust Hedging with Proportional Transaction Costs.read_more
HG G 43
14 March 2013
17:15-18:15 		Prof. Dr. Bruno Bouchard
CEREMADE, CREST
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Talks in Financial and Insurance Mathematics

Title BSDEs with weak terminal condition
Speaker, Affiliation Prof. Dr. Bruno Bouchard, CEREMADE, CREST
Date, Time 14 March 2013, 17:15-18:15
Location HG G 43
Abstract We introduce a new class of Backward Stochastic Differential Equations in which the $T$-terminal value $Y_{T}$ of the solution $(Y,Z)$ is not fixed as a random variable, but only satisfies a weak constraint of the form $E[\Psi(Y_{T})]\ge m$, for some (possibly random) non-decreasing map $\Psi$ and some threshold $m$. We name them BSDEs with weak terminal condition and obtain a representation of the minimal time $t$-values $Y_{t}$ such that (Y,Z) is a supersolution of the BSDE with weak terminal condition. It provides a non-Markovian BSDE formulation of the PDE characterization obtained for Markovian stochastic target problems under controlled loss in Bouchard, Elie and Touzi. We then study the main properties of this minimal value. In particular, we analyze its continuity and convexity with respect to the $m$-parameter appearing in the weak terminal condition, and show how it can be related to a dual optimal control problem in Meyer form. These last properties generalize to a non Markovian framework previous results on quantile hedging and hedging under loss constraints obtained in F\"ollmer and Leukert, and in Bouchard, Elie and Touzi. Finally, we observe a surprisingly strong connection between BSDEs with weak terminal condition and 2nd order BSDEs in the quasi linear case.
BSDEs with weak terminal conditionread_more
HG G 43
* 21 March 2013
17:00-18:00 		Prof. Dr. Marcel Nutz
Columbia University
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Talks in Financial and Insurance Mathematics

Title Arbitrage and Duality in Nondominated Discrete-Time Models
Speaker, Affiliation Prof. Dr. Marcel Nutz, Columbia University
Date, Time 21 March 2013, 17:00-18:00
Location HG G 43
Abstract We study a nondominated model of a discrete-time financial market where stocks are traded dynamically and options are available for static hedging. In a general measure-theoretic setup, we show that absence of arbitrage in a quasi-sure sense is equivalent to the existence of a family of martingale measures with certain properties. In the arbitrage-free case, we show that optimal superhedging strategies exist for general contingent claims, and that the minimal superhedging price is given by the supremum over the martingale measures. (Joint work with Bruno Bouchard.)
Arbitrage and Duality in Nondominated Discrete-Time Modelsread_more
HG G 43
* 26 March 2013
15:15-17:00 		Dr. Christa Cuchiero
Universität Wien
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Talks in Financial and Insurance Mathematics

Title Fourier Transform Methods for Pathwise Covariance Estimation in the Presence of jumps
Speaker, Affiliation Dr. Christa Cuchiero, Universität Wien
Date, Time 26 March 2013, 15:15-17:00
Location HG G 19.1
Abstract With a view to calibrating multivariate stochastic covariance models, we provide a nonparametric method to estimate the trajectory of the instantaneous covariance process from observations of a d-dimensional logarithmic price process. We work under the mild structural assumption of It^o- semimartingales allowing in particular for a general jump structure. Our approach combines instantaneous covariance estimation based on Fourier methods, as proposed by Malliavin and Mancino [5, 6], with jump robust estimators for integrated covariance estimation [1, 2, 3, 4, 7]. We study in particular asymptotic properties and provide a central limit theorem, showing that in comparison to classical (local) estimators of the instantaneous covariance the asymptotic estimator variance of this Fourier estimator is smaller by a factor 2/3. The procedure is robust enough to allow for an iteration and we can therefore show theoretically and empirically how to estimate the integrated realized covariance of the instantaneous stochastic covariance process itself. In view of robust calibration in nance, this can then be used to determine quantities of multivariate models which remain invariant under equivalent measure changes, such as volatility of volatility, from time series observations. The talk is based on joint work with Josef Teichmann.
Fourier Transform Methods for Pathwise Covariance Estimation in the Presence of jumpsread_more
HG G 19.1
28 March 2013
17:15-18:15
Details

Talks in Financial and Insurance Mathematics

Title No Talk - ETH Closes Early
Speaker, Affiliation
Date, Time 28 March 2013, 17:15-18:15
Location
No Talk - ETH Closes Early
4 April 2013
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Talks in Financial and Insurance Mathematics

Title No Talk - Easter Holiday
Speaker, Affiliation
Date, Time 4 April 2013,
Location
No Talk - Easter Holiday
11 April 2013
17:15-18:15 		Dr. Alessandro Gnoatto
Ludwig Maximilian University (LMU) of Munich Mathematics Institute
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Talks in Financial and Insurance Mathematics

Title Coherent foreign exchange market models
Speaker, Affiliation Dr. Alessandro Gnoatto, Ludwig Maximilian University (LMU) of Munich Mathematics Institute
Date, Time 11 April 2013, 17:15-18:15
Location HG G 43
Abstract The first part of the talk provides an introduction to the valuation problem of foreign exchange (FX) options and focuses on the particular features of FX rates as opposed to other asset classes. More specifically, we concentrate on the foreign-domestic parity, which provides a no-arbitrage relationship between call options on the e.g. EURUSD exchange rate and puts on USDEUR. This no arbitrage requirement implies a set of restrictions on the parameters of the model under different pricing measures. We generalize the results in (Del Baño Rollin, 2008) to the class of exponential Lévy processes and show that these models price call and puts coherently, i.e. in line with the foreign domestic parity. We then extend the result to the class of affine stochastic volatility models. The foreign-domestic parity is however, only a first requirement that an FX market model should satisfy, since arbitrary products or ratios of FX rates are still FX rates. In the second part of the talk, we use the idea of coherency in order to build multi-factor stochastic volatility models which are coherent w.r.t triangles of currencies, while being able to provide a satisfactory fit to market data. Literature: De Col, A., Gnoatto, A. Grasselli, M.(2012) Smiles all around: FX joint calibration in a multi-Heston model Gnoatto, A., (2013) Coherent foreign exchange market models. Gnoatto, A. and Grasselli, M. (2013) An analytic multi-currency model with stochastic volatiltiy and stochastic interest.
Coherent foreign exchange market modelsread_more
HG G 43
18 April 2013
17:15-18:15 		Dr. Bastian Pentenrieder
Amplitude Capital
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Talks in Financial and Insurance Mathematics

Title HFT: one acronym - many flavors
Speaker, Affiliation Dr. Bastian Pentenrieder, Amplitude Capital
Date, Time 18 April 2013, 17:15-18:15
Location HG G 43
Abstract The talk tries to cast some light onto the diverse field of high-frequency trading (HFT). Its introductory part presents the concept of the central limit orderbook by means of a little toy simulation; different order types and the matching of orders at the exchange will be explained. In particular, I will highlight the problem of slippage and its implications for any form of active trading. The main part of the presentation then gives an overview over some common HFT strategies such as market-making, pure/statistical arbitrage and trend-following. At the end of the talk, I want to use the opportunity and give you an idea of my work as a researcher with a hedge fund.
HFT: one acronym - many flavorsread_more
HG G 43
* 18 April 2013
18:15-19:15 		Prof. Dr. Marco Frittelli
University of Milano
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Talks in Financial and Insurance Mathematics

Title Title T.B.A.
Speaker, Affiliation Prof. Dr. Marco Frittelli, University of Milano
Date, Time 18 April 2013, 18:15-19:15
Location HG G 43
Title T.B.A. (CANCELLED)
HG G 43
25 April 2013
17:15-18:15 		Prof. Dr. Hao Xing
London School of Economics (LSE)
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Talks in Financial and Insurance Mathematics

Title Large time behavior of solutions to HJB equations and multivariate portfolio turnpikes
Speaker, Affiliation Prof. Dr. Hao Xing, London School of Economics (LSE)
Date, Time 25 April 2013, 17:15-18:15
Location HG G 43
Abstract We study the large time limiting behavior of solutions to a Cauchy problem for semilinear parabolic equations with quadratic nonlinearity in gradients. The spatial domain for the equation can either be R^n or the space of positive definite matrice. When a Lyapunov function exists, as time tends to infinity, the solution (and its gradient) to the Cauchy problem converges to a solution (and its gradient) of the associated ergodic problem. Applications to long term portfolio choice problems and their turnpike properties will be discussed. When the investment opportunities are driven by a multivariate factor process with the state space R^n or the space of positive definite matrice, the convergence of solutions implies the optimal investment strategy for the power utility agent converges to its long run optimal analogue, when the investment horizon tends to infinity. This is a joint work with Scott Robertson.
Large time behavior of solutions to HJB equations and multivariate portfolio turnpikesread_more
HG G 43
2 May 2013
17:15-18:15 		Prof. Dr. Christoph Frei
ETH Zurich, Switzerland
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Talks in Financial and Insurance Mathematics

Title Optimal Execution of a VWAP Order: a Stochastic Control Approach
Speaker, Affiliation Prof. Dr. Christoph Frei, ETH Zurich, Switzerland
Date, Time 2 May 2013, 17:15-18:15
Location HG G 43
Abstract We consider the optimal liquidation of a position of stock (long or short) where trading has a temporary market impact on the price. The aim is to minimize both the mean and variance of the order slippage with respect to a benchmark given by the market VWAP (volume weighted average price). In this setting, we introduce a new model for the relative volume curve which allows simultaneously for accurate data fit, economic justification and mathematical tractability. Tackling the resulting optimization problem using a stochastic control approach, we derive and solve the corresponding Hamilton-Jacobi-Bellman equation to give an explicit characterization of the optimal trading rate and liquidation trajectory. The talk is based on joint work with Nicholas Westray (Deutsche Bank AG).
Optimal Execution of a VWAP Order: a Stochastic Control Approachread_more
HG G 43
9 May 2013
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Talks in Financial and Insurance Mathematics

Title ETH Closed - Ascension Day
Speaker, Affiliation
Date, Time 9 May 2013,
Location
ETH Closed - Ascension Day
16 May 2013
17:15-18:15 		Prof. Dr. Archil Gulisashvili
Ohio University
Details

Talks in Financial and Insurance Mathematics

Title Asymptotic behavior of distribution densities of sums of log-normal random variables with applications to risk management and finance
Speaker, Affiliation Prof. Dr. Archil Gulisashvili, Ohio University
Date, Time 16 May 2013, 17:15-18:15
Location HG G 43
Abstract This is a joint work with P. Tankov. The talk concerns asymptotic approximations of distribution functions and distribution densities of sums of correlated log-normal random variables. We obtain sharp asymptotic formulas with relative error estimates for such densities in the case where the value of the independent variable is small. Applications to risk management and finance will be discussed. For example, for a log-normal portfolio, we characterize the asymptotic behavior of the Value at Risk. We will also discuss certain results concerning stress testing of log-normal portfolios. Applications to finance will be represented by asymptotic formulas characterizing the left-wing behavior of the implied volatility for basket options associated with the multidimensional Black-Scholes model.
Asymptotic behavior of distribution densities of sums of log-normal random variables with applications to risk management and financeread_more
HG G 43
23 May 2013
17:15-18:15 		Prof. Dr. Pierre Collin-Dufresne
EPF Lausanne
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Talks in Financial and Insurance Mathematics

Title Insider Trading, Stochastic Liquidity and Equilibrium Prices
Speaker, Affiliation Prof. Dr. Pierre Collin-Dufresne, EPF Lausanne
Date, Time 23 May 2013, 17:15-18:15
Location HG G 43
Abstract We extend Kyle’s (1985) model of insider trading to the case where liquidity provided by noise traders follows a general stochastic process. Even though the level of noise trading volatility is observable, in equilibrium, measured price impact is stochastic. If noise trading volatility is mean-reverting, then the equilibrium price follows a multivariate ‘stochastic bridge’ process, which displays stochastic volatility. This is because insiders choose to optimally wait to trade more aggressively when noise trading activity is higher. In equilibrium, market makers anticipate this, and adjust prices accordingly. More private information is revealed when volatility is higher. In time series, insiders trade more aggressively, when measured price impact is lower. Therefore, execution costs to uninformed traders can be higher when price impact is lower.
Insider Trading, Stochastic Liquidity and Equilibrium Pricesread_more
HG G 43
* 28 May 2013
15:15-17:00 		Dr. Richard Martin
Longwood Credit Partners LLP, Imperial College London, and University College London
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Talks in Financial and Insurance Mathematics

Title Optimal Trading under Proportional Transaction Costs
Speaker, Affiliation Dr. Richard Martin, Longwood Credit Partners LLP, Imperial College London, and University College London
Date, Time 28 May 2013, 15:15-17:00
Location HG G 19.1
Abstract Proportional transaction costs present difficult theoretical problems in trading algorithm design, on account of their lack of analytical tractability. The author derives a solution of DT-NT-DT form for an arbitrary model in which the the traded asset has diffusive dynamics described by one or more stochastic risk factors. The width of the NT zone is found to be, as expected, proportional to the cube root of the transaction cost. It is also proportional to the 2/3 power of the volatility of the target position, thereby causing a faster trading strategy to be buffered more than a slower one. The displacement of the middle of the buffer from the costfree position is found to be proportional to the square of the width, and hence to the 2/3 power of the transaction cost; the proportionality constant depends on the expected short-term change in position.
Optimal Trading under Proportional Transaction Costsread_more
HG G 19.1
30 May 2013
17:15-18:15 		Dr. Valeria Bignozzi
ETH Zurich, Switzerland
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Talks in Financial and Insurance Mathematics

Title Dynamic risk measurement and expectiles
Speaker, Affiliation Dr. Valeria Bignozzi, ETH Zurich, Switzerland
Date, Time 30 May 2013, 17:15-18:15
Location HG G 43
Abstract There is a growing interest in risk measures that can be used to calculate solvency capital requirements for financial institutions in a dynamic framework. The present study discusses a mild notion of time-consistency between risk measurements of the same financial position at different time points in the future, called sequential consistency (Roorda & Schumacher, 2007). Such consistency is meaningful from both the investor’s and the regulator’s point of view, as it requires that current capital allocations reflect the acceptability or unacceptability of the position in future times. Sufficient conditions are provided for conditional coherent risk measures, in order that the requirements of acceptance-, rejection- and sequential consistency are satisfied. It is shown that these conditions are often violated for standard methods of updating. A method is consequently proposed for constructing a sequentially consistent risk measure, which entails the modification of the set of probability measures used to obtain the risk assessment at an initial time. This is demonstrated for the coherent entropic risk measure and for the class of Choquet risk measures, which generalizes the well-known TVaR. Finally we introduce a dynamic version of the expectiles. These are coherent risk measures that emerge as a valid alternative to TVaR and that are receiving major attention in the recent academic literature. We present preliminary results on their dynamic properties.
Dynamic risk measurement and expectilesread_more
HG G 43
20 June 2013
17:15-18:15 		Prof. Dr. Sergey Levendorskii
University of Leicester
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Talks in Financial and Insurance Mathematics

Title Efficient Fourier and Laplace transforms and Wiener-Hopf factorization in applications to option pricing and calibration, or Computational Finance as a branch of Complex Analysis
Speaker, Affiliation Prof. Dr. Sergey Levendorskii, University of Leicester
Date, Time 20 June 2013, 17:15-18:15
Location HG G 43
Abstract We construct efficient methods of approximate Laplace and Fourier inversion and calculation of the Wiener-Hopf factors for wide classes of L\'evy processes with exponentially decaying L\'evy densities and affine jump-diffusions. As applications, we consider pricing European options in L\'evy and Heston model, and pricing options with lookback and barrier features and CDS in L\'evy models. In all cases, we use appropriate conformal changes of variables, which allow us to apply the simplified trapezoid rule with moderate or even small number of terms. In the case of options with barrier features, we apply the Gaver-Stehfest method as well, and design an algorithm which is very convenient for parallel computations. For barrier options and CDS of long maturity, we derive fast asymptotic formulas, which are very accurate even fairly close to the barrier. The same technique is applicable for calculation of pdf's of the supremum and infimum processes, joint pdf of a L\'evy process and its extremum or its supremum and infimum, hence, for Monte Carlo simulations.
Efficient Fourier and Laplace transforms and Wiener-Hopf factorization in applications to option pricing and calibration, or Computational Finance as a branch of Complex Analysisread_more
HG G 43
4 July 2013
17:15-18:15 		Prof. Dr. Eckhard Platen
University of Technology Sydney
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Talks in Financial and Insurance Mathematics

Title The Affine Nature of Aggregate Wealth Dynamics
Speaker, Affiliation Prof. Dr. Eckhard Platen, University of Technology Sydney
Date, Time 4 July 2013, 17:15-18:15
Location HG G 43
Abstract The presentation derives a parsimonious two-component affine diffusion model for a world stock index to capture the dynamics of aggregate wealth. The observable state variables of the model are the normalized index and the inverse of the stochastic market activity, both modelled as square root processes. The square root process in market activity time for the normalized aggregate wealth emerges from the affine nature of aggregate wealth dynamics, which will be derived under basic assumptions and does not contain any parameters that have to be estimated. The proposed model employs only three well interpretable structural parameters, which determine the market activity dynamics, and three initial parameters. It is driven by the continuous, nondiversifiable uncertainty of the market and no other source of uncertainty. The model, to be valid over long time periods, needs to be formulated in a general financial modelling framework beyond the classical no-arbitrage paradigm. It reproduces a list of major stylized empirical facts, including Student-t distributed log-returns and typical volatility properties. Robust methods for fitting and simulating this model are demonstrated. The model can be applied in various areas where long term real world index dynamics are relevant, including actuarial studies, as well as, derivative pricing and hedging.
The Affine Nature of Aggregate Wealth Dynamicsread_more
HG G 43

Notes: events marked with an asterisk (*) indicate that the time and/or location are different from the usual time and/or location.

Organisers: Winslow Strong

Archive: AS 24 SS 24 AS 23 SS 23 AS 22 SS 22 AS 21 SS 21 SS 20 AS 19 SS 19 AS 18 SS 18 AS 17 SS 17 AS 16 SS 16 AS 15 SS 15 AS 14 SS 14 AS 13 SS 13 AS 12 SS 12 AS 11 SS 11 AS 10 SS 10 AS 09

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