Mon 23 March 2015

• Room 10 - Audimax

• 07:45

  Registration and Breakfast

• 08:45

  Opening Remark: Prof. Uwe Wystup

• Morning Chair

  Oliver Brockhaus

• 09:00

  Valuation in Illiquid Markets

  Valuation in Illiquid Markets

  After a long period with an abundance of liquidity in the markets, the 2007 – 2009 financial crisis illustrated in a dramatic way the fundamental importance of liquidity risk. In this situation many securities with an excellent rating could no longer be traded. What is the value of the instruments under these market conditions? The classical valuation theory which is based on the law of one price assumes implicitly that market participants can trade freely in both directions at the same price. In the absence of perfect liquidity the law of one price should be replaced by a two price theory where the terms of trade depend on the direction of the trade.

  We develop here a static as well as a continuous time theory for two price economies. The two prices are termed bid and ask or lower and upper price but they should not be confused with the vast literature relating bid-ask spreads to transaction costs or other frictions involved in modeling financial markets. The bid price arises as the infimum of test valuations given by certain market scenarios whereas the ask price is the supremum of such valuations. The two prices correspond to nonlinear expectation operators. The approach is made operational by using probability as well as measure distortions.

  Specific dynamic models which are driven by purely discontinuous Lévy processes are considered. The approach is illustrated to price financial contracts with extremely long maturities.

  This is a joint project with D. Madan, M. Pistorius, W. Schoutens and M. Yor.

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  Prof. Ernst Eberlein

  Freiburg University

  

  Prof. Ernst Eberlein, Freiburg University

  Ernst Eberlein is Professor emeritus of Stochastics and Mathematical Finance at the University of Freiburg. He is one of the founders of the Freiburg Center for Data Analysis and Modeling (FDM). He is also an elected member of the International Statistical Institute and for a period of ten years he was Executive Secretary of the Bachelier Finance Society, the international association of researchers and practitioners working in mathematical finance. Ernst Eberlein acted as one of the editors of Mathematical Finance and is on the editorial board of a number of other journals in mathematical finance. He is a frequent speaker at conferences on financial models and risk management. He is one of the pioneers of Levy models in finance. His current research interests and his consulting activities focus on realistic modeling of financial markets, risk management, as well as pricing of derivative products.

  
  

• 09:45

  Analyzing the Swiss National Bank’s Euro-Guarantee

  Analyzing the Swiss National Bank’s Euro-Guarantee

  In September 2011 the Swiss National Bank (SNB) announced that it would act in order to keep the Swiss franc-euro exchange rate (i.e. the no. Swiss francs that one euro buys you) above 1.2. In this talk I describe two methods for analyzing the effect of this guarantee. These methods enable us to estimate the market’s view of the credibility of the guarantee as well as where the exchange rate would be without the guarantee.

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  Prof. Rolf Poulsen

  Copenhagen University

  

  Prof. Rolf Poulsen, Copenhagen University

  Rolf Poulsen is a professor of Mathematical Finance at the Dept. of Math. Sciences at the University of Copenhagen. His primary research interest is quantitative methods for pricing and hedging of (and for the latter: with) of derivatives. Particular focus in on the Danish mortgage market, which he will talk about at length to all who will listen – and some who won’t.

  
  

• 10:30

  Tea Break

• 11:00

  Superhedging with Uncertain Volatility

  Superhedging with Uncertain Volatility

  A method is presented that allows to compute a volatility model that maximizes the price of an exotic option while fitting the observed market prices of plain vanilla options. The resulting volatility model is based on a non-Markovian extension of local volatility and can be calibrated via linear programming. This approach can be used to construct superhedges and assists in understanding the model risks inherent in exotic options. The feasibility of this method is showcased for barrier and forward-starting options.

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  Maximilian Mair

  UniCredit

  

  Maximilian Mair, UniCredit

  Maximilian Mair is working as an equity quantitative researcher in the Corporate and Investment Banking division of UniCredit. His research focuses on equity modeling and efficient pricing algorithms for exotic options. Maximilian holds a diploma in mathematics from the LMU University in Munich with emphasis on mathematical finance and numerical probability. He has been a speaker at a variety of conferences.

  
  

• 11:40

  Pricing and Hedging under Log-normal Stochastic Volatility Dynamics

  Pricing and Hedging under Log-normal Stochastic Volatility Dynamics

  We first present empirical investigation to validate the assumption of about the log-normal dynamics of implied and realized volatilities for stock indices. We then develop an accurate approximation of the moment generating function for mean-reverting log-normal stochastic volatility model. We apply this approximation for valuation of vanilla options and model estimation using maximum likelihood methods. For hedging under the log-normal dynamics, we introduce the concept of volatility beta and skew-beta, which serve as empirical adjustments for option delta. We show how to calibrate our model to make it consistent with any dynamics of the implied volatility under the statistical measure.

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  Dr. Artur Sepp

  Bank of America

  

  Dr. Artur Sepp, Bank of America

  Artur Sepp works for Global Risk Analytics at Bank of America Merrill Lynch focusing on enterprise-wide risk-return optimization. Prior to that, he worked as a quant for equity and credit derivatives trading at Merrill Lynch and Bear Stearns. Artur has a PhD in Probability and Statistics from the University of Tartu in Estonia and an MSc in Industrial Engineering from Northwestern University in Chicago. His research area is on volatility models, computational methods, and trading strategies. Artur has published several research articles on quantitative finance in leading journals.

  
  

• 12:20

  Lunch

• STRIKE Mini Symposium (Parallel Event) - Room 20

  See details!

• Afternoon Chair

  Uwe Wystup

• 13:40

  Welcoming Speech

  Welcoming Speech

  

  Dr. Bernadette Weyland

  Hessian Ministry of Finance

  

  Dr. Bernadette Weyland, Hessian Ministry of Finance

  
  

• 14:00

  Panel: EUR-CHF

  Panel: EUR-CHF

  

  Moderator: Prof. Christian Schmaltz

  Aarhus University

  

  Moderator: Prof. Christian Schmaltz, Aarhus University

  Christian works as Assistant Professor for Finance at Aarhus University (Denmark) and as consultant for risk management. He has more than 10 years of project experience for risk management in banks. Since 2013, he has been a visiting researcher at Deutsche Bundesbank studying the potential impact of a NSFR-requirement and the interactions of Basel III – ratios. Christian designed in his PhD thesis “Quantitative liquidity models in banks”. He frequently speaks at industry conferences on CRR – compliance, funds transfer pricing, and corporate planning. At Aarhus university he teaches ‘Portfolio Theory’, ‘International Corporate Finance’, ‘Bank Management’ and ‘Trading in Financial Markets’.

  
  

  

  Ulrich Leuchtmann

  Commerzbank

  

  Ulrich Leuchtmann, Commerzbank

  Ulrich Leuchtmann is Head of G10 FX Strategy at Commerzbank AG since August 2008. He joined Commerzbank in January 2008. From 1999 to 2007 he was working in different roles at Invesco Asset Management, i.a. as portfolio manager for global bond portfolios, as Head of FX Management and as Product Director Fixed Income / FX for Continental Europe. Prior to his career in the industry Ulrich was a research assistant at the Institute for Econometrics and Statistics at the University of Bielefeld and Managing Director of the German Statistical Society. He holds a Master’s degree (Diplom) in economics.

  
  

  

  Prof. Uwe Wystup

  MathFinance AG

  

  Prof. Uwe Wystup, MathFinance AG

  Uwe Wystup is managing director of www.mathfinance.com, a software and consulting company specializing in modeling and implementing derivatives. He has been working as Financial Engineer, Structurer and Consultant in FX Options Trading Teams of Citibank, UBS, Sal. Oppenheim and Commerzbank since 1992 and became an internationally known FX Options expert in both Academia and Practice.
  Uwe holds a PhD in mathematical finance from Carnegie Mellon University, serves as an honorary professor of Quantitative Finance at Frankfurt School of Finance & Management, professor of financial option price modeling at University of Antwerp and associate fellow at Warwick Business School.
  His first book Foreign Exchange Risk co-edited with Jürgen Hakala published in 2002, has become a market standard. His second book on FX Options and Structured Products appeared in 2006 as part of the Willey Finance Series. He has also published articles in Finance and Stochastics, the Journal of Derivatives, Review of Derivatives Research, Quantitative Finance, the Annals of Finance, Wilmott Magazine, Derivatives Week.

  
  

  

  Prof. Rolf Poulsen

  Copenhagen University

  

  Prof. Rolf Poulsen, Copenhagen University

  Rolf Poulsen is a professor of Mathematical Finance at the Dept. of Math. Sciences at the University of Copenhagen. His primary research interest is quantitative methods for pricing and hedging of (and for the latter: with) of derivatives. Particular focus in on the Danish mortgage market, which he will talk about at length to all who will listen – and some who won’t.

  
  

• 14:45

  Tea Break

• 15:15

  The Relationship between Scheduled Events and FX Implied Vol

  The Relationship between Scheduled Events and FX Implied Vol

  In this talk, we shall discuss the relationship between scheduled events and short dated implied volatility in currency markets. We shall also present some stylized results related to the currency volatility market. In particular, we shall discuss the behaviour of the volatility risk premium in FX, and the implications this has for FX vol traders.

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  Saeed Amen

  The Thalesians

  

  Saeed Amen, The Thalesians

  Saeed Amen is a Managing Director and a Co-founder at Thalesians Ltd. Saeed is currently publishing ground-breaking quant strategy notes at Thalesians Ltd., drawing upon nearly a decade of experience both creating and running systematic trading models successfully with real cash. Independently, he is also a systematic FX trader, running a proprietary trading book trading liquid G10 FX. He is also the author of the book, Trading Thalesians - What the ancient world can teach us about trading today (published on Palgrave Macmillan).

  Saeed started his career at Lehman Brothers. He worked on the FX desk developing systematic trading models for both G10 and EM and was part of the team who developed the MarQCuS suite of models. He was also responsible for a systematic FX prop trading book and conducted research around high frequency FX including economic events. Later he was at Nomura as an Executive Director in Quantitative Strategy, also in FX, developing their model infrastructure and also running systematic FX prop risk. He graduated from Imperial College with a first class honours master's degree in Mathematics and Computer Science.

  
  

• 16:00

  FX Option Performance

  FX Option Performance

  An examination of data on FX options from the early days of the markets reveals a number of surprising facts which can have a significant impact on the value of contracts and their efficacy as hedging or investment products.

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  Prof. Jessica James

  Commerzbank

  

  Prof. Jessica James, Commerzbank

  Jessica James is Head of the FX Quantitative Solutions team at Commerzbank in London. She joined Commerzbank from Citigroup where she held a number of FX roles, latterly as Global Head of the Quantitative Investor Solutions Group. Prior to this she was the Head of Risk Advisory and Currency Overlay Team for Bank One. Before her career in finance, James lectured in physics at Trinity College, Oxford.
  Her significant publications include the "Handbook of Foreign Exchange" (Wiley), "Interest Rate Modelling" (Wiley), and "Currency Management" (Risk books). She has been closely associated with the development of currency as an asset class, being one of the first to create overlay and currency alpha products.
  She is on the Board of the Journal of Quantitative Finance, and is a Visiting Professor both at UCL and at Cass Business School. She is a Fellow of the Institute of Physics and has been a member of their governing body and of their Industry and Business Board.

  
  

• 16:50

  Wrong Way Risk in Closed Form

  Wrong Way Risk in Closed Form

  Hybrid models correlating a default event with a financial asset have gained attention in the context of counterparty credit risk management. This talk focuses on equity derivatives with counterparty credit risk and discusses both structural and reduced form models for default.

  It is shown that, within a Gaussian context, closed form formulae are available for a range of products and default models. These formulae allow comparison of the impact of correlation within different models calibrated to the same market.

  

  Dr. Oliver Brockhaus

  MathFinance

  

  Dr. Oliver Brockhaus, MathFinance

  Oliver Brockhaus has 15 years of experience as quantitative analyst in the areas of equity and credit. Positions include Head of European Equity Quantitative Analytics at Royal Bank of Scotland, Head of Equity Financial Engineering at Commerzbank, Credit Quantitative Analyst at Calyon and Hypovereinsbank as well as Equity Quant at JP Morgan and Deutsche Bank. He joins MathFinance AG in March 2012.
  His interests include stochastic volatility, correlation as well as dividend models.
  Oliver holds a doctorate in mathematics from the University of Bonn and a diploma (DEA) in probability from the University P et M Curie in Paris. He is co-author of "Modelling and Hedging Equity Derivatives" and "Equity Derivatives and Market Risk Models", both published by Risk Books.

  
  

• 17:35

  Cocktail Reception

• 18:50

  City Walk

• 19:30

  Conference Dinner

  Megaron

Tue 24 March 2015

• Room 10 - Audimax

• 08:00

  Registration and Breakfast

• Morning Chair

  Ingo Beyna

• 09:00

  Better than Pre-commitment Mean-variance Portfolio Allocation Strategies: a Semi-self-financing Hamilton-Jacobi-Bellman Equation Approach

  Better than Pre-commitment Mean-variance Portfolio Allocation Strategies: a Semi-self-financing Hamilton-Jacobi-Bellman Equation Approach

  We present semi-self-financing mean-variance (MV) strategies which are superior to self-financing strategies for the pre-commitment optimal MV portfolio allocation problem. Our strategies are built upon a Hamilton-Jacobi-Bellman (HJB) equation approach for the solution of the portfolio allocation problem, and differ from self-financing strategies primarily in situations where the wealth of the portfolio exceeds a certain threshold. In such a situation, we extend the idea of the semi-self-financing approach originally developed in (Cui et al), Mathematical Finance 22 (2012) 346-378.

  Under an HJB framework, our strategies have a simple and intuitive derivation, and can be readily employed in a very general setting, namely continuous or discrete re-balancing, jump-diffusions with finite activity, and realistic portfolio constraints. Moreover, under our strategies, the MV portfolio optimization problem can be shown to be equivalent to maximizing the expectation of a well-behaved utility function of the portfolio wealth.

  Numerical results confirming the superiority of the efficient frontiers produced by our strategies are presented.

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  Prof. Peter Forsyth

  Waterloo University

  

  Prof. Peter Forsyth, Waterloo University

  After graduating in 1979, Peter Forsyth was a Senior Simulation Scientist at the Computer Modelling Group (CMG) in Calgary, where he developed petroleum reservoir simulation software. After leaving CMG, Peter was the founding President of software startup Dynamic Reservoir Systems (DRS), also in Calgary.

  In 1987, Peter joined the University of Waterloo, where he is now a Professor in the Cheriton School of Computer Science. Peter's current research focuses on Computational Finance, with particular focus on numerical methods for Hamilton Jacobi Bellman partial differential equations. He is a member of the Editorial Board of Applied Mathematical Finance and the Journal of Computational Finance. During 2008-2013, he was the Editor-in-Chief of JCF.

  Peter is currently a director of Aquanty, a software startup specializing in integrated modelling of three dimensional surface/subsurface water flows. Aquanty specializes in simulating the impact of industrial activity and climate change on water resources.

  
  

• 09:45

  Multi Curves – Multi Problems?

  Multi Curves – Multi Problems?

  The financial crisis led to new market practices especially in the field of fixed income instruments and, thus, in modeling such markets. It is now well known market practice to consider different yield curves for discounting and calculating forward rates. But the changes caused are more fundamental changes and we need to rethink the "best practice" for handling interest rate instruments and models.
  We consider the problems of volatility modeling, very small or even negative rates and new optionality in standard contracts. Furthermore, we propose solutions and modeling suggestions using real life examples.
  All this together with further regulatory changes and implications show that a careful model assessment is necessary and model validation practices had to be set up.

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  Dr. Jörg Kienitz

  Deloitte

  

  Dr. Jörg Kienitz, Deloitte

  Jörg Kienitz is Director, Assurance FSI at Deloitte Germany, where he is Co-heading the quantitative unit. Previously, he was Head of Quantitative Analytics at Deutsche Postbank AG where he was involved in developing and implementing models for pricing complex derivatives structures and for asset allocation.
  He also lectures at university level on advanced financial modeling and implementation. After teaching in the part time Master’s program at the University of Oxford he currently is associated to the University of Cape Town and teaches Computational Finance at the University of Wuppertal.
  Jörg is a speaker at a number of major financial conferences including Global Derivatives, WBS Fixed Income and MathFinance. He is the member of the editorial board of International Review of Applied Financial Issues and Economics and holds a Ph.D. in stochastic analysis from the University of Bielefeld.

  
  

• 10:30

  Tea Break

• 11:00

  Fast Computation of Risk Sensitivities using Adjoint PDEs

  Fast Computation of Risk Sensitivities using Adjoint PDEs

  We report our experience with the analysis and implementation of the continuous adjoint method for computing risk figures of options that can be priced with partial differential equations. The method is elegant, flexible, robust and can be implemented in legacy codes with minimal code modifications and in particular without using tools like automatic differentiation. Numerical results on production environment for FX options using a local stochastic volatility model show important speed improvements.

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  Dr. Marzio Sala

  UBS

  

  Dr. Marzio Sala, UBS

  Marzio Sala is working as an FX quantitative analyst at UBS Investment Bank. Marzio has a PhD in Applied Mathematics from the Ecole Polytechnique Fédérale de Lausanne and an MSc in Aerospace Engineering from the Politecnico di Milano. His research focuses on financial modeling and efficient pricing algorithms for FX options.

  
  

• 11:45

  Multi-curves Calibration through Undetermined Search Algorithm

  Multi-curves Calibration through Undetermined Search Algorithm

  We report our experience working on a new Underdetermined search engine for rate curve construction. The algorithm is a penalized least-squares approach based on Andersen's tension splines paper. Assuming a given penalty and a well-chosen curve knots distribution, it leads to an optimal trade-off between curve smoothness and calibration tolerance. We explain how Andersen's original approach was adapted to work in a multi- curves setting, and how additional practical features were added such as proper OIS meeting dates management, as well as ensuring coherent term structures across tenors - with smooth spreads - through curves ‘cross-coupling'. We then present some experiments with this engine compared to existing ‘root-finding’ calibration techniques and conclude finally with some of the pros and cons that we’ve come across.

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  Omar Reddam

  Murex

  

  Omar Reddam, Murex

  Omar joined Murex 4 years ago, where he held a role as an Interest Rates Derivatives consultant. He worked with numerous European and International banks, sparking his interest and expertise in this field. In addition to rate curves, Omar is now involved in a number of internal quantitative and technology R&D; projects, often leading to prototypes of potential new features. Omar holds an Applied mathematics and Financial engineering degree from École des Mines de Nancy, a French engineering school.

  
  

• 12:30

  Lunch

• Afternoon Chair

  Uwe Wystup

• 14:00

  Panel: Recent Advances in Model Risk

  Panel: Recent Advances in Model Risk

  

  Moderator: Dr. Jörg Behrens

  fintegral

  

  Moderator: Dr. Jörg Behrens, fintegral

  Jörg Behrens is founder and managing partner of Fintegral, a consulting firm with offices in Zurich, London and Frankfurt focussing on risk & capital management solutions for some of the world's leading banks and insurance firms. He was previously partner and Global Head of Risk Analytics for FS Risk Management at EY.

  
  

  

  Dr. Natalie Packham

  Frankfurt School of Finance & Management

  

  Dr. Natalie Packham, Frankfurt School of Finance & Management

  Natalie Packham is Assistant Professor of Quantitative Finance at Frankfurt School of Finance & Management. She holds Master degrees in Computer Science and in Finance and a PhD in Quantitative Finance. Natalie has several years of industry experience as a front-office software engineer at Dresdner Kleinwort Wasserstein. Her research interests include mathematical finance, quantitative risk management and computational finance. Natalie has published her research in leading journals such as Mathematical Finance and Review of Finance.

  
  

  

  Dr. Helmut Glemser

  Lloyds Banking Group

  

  Dr. Helmut Glemser, Lloyds Banking Group

  Dr Helmut Glemser is the director for market risk models and methodologies at Lloyds Banking Group in London. He is heading a team of 25 quants responsible for the market risk management and capital models (VaR, Stressed VaR etc.), for the counterparty credit exposure models (CVA/FVA as well as Potential Future Exposures) as well as for the pricing model validation process. Helmut has been at LBG for the last three years. Before that he has been in a variety of quantitative risk roles at UBS AG in Zurich and London including the responsibility for pricing model validation, the risk management of structured products and the oversight of the risk management activities around CVA and FVA. Helmut holds a PHD in insurance mathematics from the ETH in Zurich.

  
  

• 14:50

  Stationarity and Risk Premia in Power Markets

  Stationarity and Risk Premia in Power Markets

  Empirical and economical evidence argue in favour of a stochastic risk premium in power futures markets that can change sign from positive to negative along the axis of maturities. Moreover, there are evidence of stationary (or mean reverting) energy spot prices at the same time as the long end of the futures curve is stochastic. We discuss a possible class of market price of risk that can explain the risk premium as well as the theoretically contradicting fact that long-term behaviour of futures prices are not constant. We will also briefly discuss consequences for co-integration in commodity markets.

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  Prof. Fred Espen Benth

  Oslo University

  

  Prof. Fred Espen Benth, Oslo University

  Prof. Fred Espen Benth has for the last 15 years focused his research on the stochastics of energy markets. He has published more than 85 papers in scientific journals, as well as two books on modelling and pricing in energy and weather markets. Prof. Benth has led several intensive courses for the energy industry in Europe, as well as worked as a consultant for some of the major insurance and power companies in Norway. He is member of the editorial board of several scientific journals, including SIAM Journal of Financial Mathematics, Journal of Energy Markets and International Journal of Theoretical and Applied Finance. Currently Benth is co-organizer of a Center of Advanced Studies at the Academy of Sciences in Oslo called Stochastics for Environmental and Financial Economics.

  
  

• 15:20

  Tea Break

• 15:50

  Low Strike Extrapolation for SABR - Challenges for Pricing in Current Low Interest Rates Market Environment

  Low Strike Extrapolation for SABR - Challenges for Pricing in Current Low Interest Rates Market Environment

  In this presentation we analyse the modelling of rate options in a low interest rate market environment. In particular, the pricing of low, zero and negative strike vanilla options is considered. Modelling approaches available in the industry and literature are discussed. For the important special case of the widely used SABR formula we illustrate the shortcomings connected with the low strike wing of the smile.

  Moreover, a simple approach of low strike extrapolation will be presented. It is based on gluing the density function implied by the standard SABR formula to a suitable density function at low strikes in an arbitrage free manner. This approach yields a robust and transparent method to price low, zero and negative strike vanilla options.

  

  Dr. Sebastian Schlenkrich

  d-fine

  

  Dr. Sebastian Schlenkrich, d-fine

  Sebastian Schlenkrich is Manager in the Financial Engineering unit at d-fine, a leading consultancy company specialised in risk and finance. In this role he manages and delivers client projects on current valuation and risk management topics. Previously, in the Macro Valuation Methodologies Team at UBS Investment Bank, London he held global responsibilities for methodology and tool development of pricing model validation.

  A focus of his research and work are valuation methodologies for interest rate, FX and hybrid derivatives. Furthermore he works in the field of Algorithmic Differentiation and its application in finance.

  Sebastian holds a Ph.D. in Mathematics from Technische Universität Dresden and a MSc in Mathematical Finance from University of Oxford.

  
  

• 16:30

  Principal Components for Dummies

  Principal Components for Dummies

  I shall gently introduce you to principal components analysis with applications to yield curves and portfolios of equities. You will find out how to use out-of-sample testing to robustly determine how complex to make your model.

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  Dr. Steve Bell

  Research in Action

  

  Dr. Steve Bell, Research in Action

  Steve Bell has over 20 years of experience in mathematical and statistical modelling both in industry and finance. He started his career at ICI Paints, working on the colour matching of automotive paints, then moved to ABB to continue working on instrumentation. There he built a large inferential model using near infrared measurements on crude oils to determine their assay. The system was used by BP on its Forties pipeline to value the crude oil coming from the North Sea. In 2006 he moved into finance and worked for Winton Capital Management in Oxford as a senior scientist developing energy trading strategies. Steve now works freelance and is currently writing “Quantitative Finance for Dummies” for John Wiley. Steve holds a D.Phil in theoretical physics from the University of Oxford and is a fellow of the Royal Statistical Society.

  
  

• 17:10

  Closing Remark: Prof. Uwe Wystup