Dr. Jesper Andreasen, Danske Markets
Jesper Andreasen heads the Quantitative Research Department at Danske Bank in Copenhagen.
Prior to this, Jesper has held positions in the quantitative research departments of Bank of America,
Nordea, and General Re Financial Products. Jesper’s research interest include: term structure modeling,
volatility smiles, and numerical methods. In 2001 Jesper received Risk Magazine’s Quant of the Year award.
Jesper holds a PhD in Mathematical Finance from Aarhus University, Denmark.
Abstract
Stochastic Local Volatility
The talk is split in two parts. In the first part we show how non-standard application of the
fully implicit finite difference method can be used to device an efficient algorithm for interpolation
and extrapolation of a discrete set of option price quotes into an arbitrage free full continuous
surface of option prices. In the second part of the talk, we consider a stochastic local volatility
model and present a novel numerical solution scheme that achieves full discrete consistency between
calibration, finite difference solution and Monte-Carlo simulation. The method is based on an ADI
finite difference discretisation of the model. The talk will be spiced up with numerical examples.
Dr. Andreas Binder, MathConsult
Andreas Binder received his Ph.D. in Applied Mathematics (University of Linz) in 1991. After some
academic years (Oxford, Linz), he joined MathConsult in 1996 as CEO. He is also managing director
of the Industrial Mathematics Competence Center (IMCC) and member of the advisory board of the
Austrian Mathematical Society. His book “Einführung in die Finanzmathematik” (co-authored with Hansjörg
Albrecher and Philipp Mayer) appeared in Birkhäuser Verlag in 2009.
Abstract
Efficient calibration of advanced volatility models on the GPU
The calibration of advanced volatility models like Heston’s model often leads to optimisation
problems for which local algorithms do not converge. We present an efficient hybrid global/local
algorithm and compare its results to those of global optimization. An implementation on NVIDIA GPUs
is presented and turns out to deliver very fast results for various advanced volatility models.
This is a joint work with Johannes Fürst, Christian Kletzmayr and Michael Aichinger.
Dr. Christoph Burgard, Barclays Capital
Christoph Burgard, Global Head of Equity, EM and Credit-Counterparty Derivatives Modelling,
BARCLAYS CAPITAL Christoph Burgard is a Managing Director and Global Head of Equity, EM and
Credit-Counterparty Derivatives Modelling at Barclays Capital. After obtaining a PhD in particle
physics from Hamburg University he was a fellow at CERN and DESY before joining Barclays Capital in 1999.
Abstract
Bilateral Counterparty Risk and Funding for Derivatives: How to take into account ones own risk of default
* Modelling framework for combining bilateral counterparty risk and funding costs
* How ones own credit impacts hedging strategies for derivatives
* Asset/liability modelling for new derivatives business
* Should old business impact new business?
* How to organize derivatives desks interface with credit-counterparty desks and funding or treasury units.
Dr. Iain Clark, Standard Bank
Iain Clark is Head of FX and Commodities Quantitative Analysis at Standard Bank, London. He holds a Ph.D in applied mathematics and has been a front office quant for 12 years, having previously worked at JP Morgan, BNP Paribas, Lehman Brothers and Dresdner Kleinwort. He is the author of Foreign Exchange Option Pricing: A Practitioner’s Guide, Wiley Finance, 2010.
Abstract
Numerical Methods for Strongly Path Dependent Options
In FX options, the use of PDEs and Monte Carlo for flow exotics is well known and reasonably standard in the industry, in which case the path dependent features can be modelled by suitable choice of boundary conditions. For more complex products, such as lookback and Asian options, the path dependency cannot be deal with purely by the boundary conditions. In this talk I describe some of the numerical methods that can be employed by using an auxiliary state variable. The technique leads itself nicely to geometric interpretation, and is well adapted to practical implementation.
This is a joint presentation with
Lorenz Schneider
Eric Gaudillat, Murex
Eric is a telecommunication engineering graduate from the Télécom Bretagne School and a finance graduate
at HEC School. He joined Murex 6 years ago after working for Risk Control at SGAM Alternative Investments.
He is currently a consultant for the foreign exchange derivatives practise. He participated in the validation
of the Tremor model and in research on the dynamics of the volatility surface of several financial assets.
Abstract
Tremor Model
Tremor is a local/stochastic volatility hybrid (LSV) model pricing exotic options with the smile and
yielding market-consistent prices. Many models (including other LSVs) fit the smile curve but only a
model that closely approximates the market’s smile dynamics can return market-consistent exotic prices.
Tremor’s smile dynamic takes into account the dependency of the ATM volatility, the risk reversals
(skewness) and butterflies (kurtosis) to changes in the spot (dV/dS, dRR/dS, dFly/dS) and in the case
of dRR/dS and dFly/dS this is for both quoted (25 and 10) delta points. Tremor’s calibrated parameters
form smooth term structures (volatility of calibrated parameters per tenor has historically been a problem
for LSV models) and over time. These market consistent volatility surface dynamics lead to market consistent
greeks meaning hedging exotic and vanilla options is significantly more efficient. Murex will present the
model in detail and show a comparison between model prices & implied smile dynamics and market prices &
observed smile dynamics in a shared presentation with Uwe Wystup. Uwe will present the results of an
independent validation that he is performing of Tremor.
This is a joint presentation with
Sebastien Kayrouz and
Prof. Dr. Uwe Wystup.
Mauricio I. González Evans, BCC Group
Mauricio González Evans is founder and managing director of BCC Group International. He is an expert
in high speed messaging, market data software development and Excel integration technologies. He has
been developing software for the technical and investment banking sector for over 30 years. Working
with quantitative analysts of different Banks Mauricio came up with the idea do deploy Excel calculations
to an HPC Cluster and sending the results back to the original Workbook which resulted in a product called CALCNODE.
Abstract
Real-time Super-Computing on the Desktop using Excel: Deploying heavy (real-time) calculations in
Excel to an HPC Cluster without programming
By deploying calculations to an HPC Cluster without the need for programming the calculation power
of Excel on the desktop becomes virtually unlimited. A high-speed messaging hardware communicates
results from hundreds of simultaneously running processors back to the original cells of the virtually
unmodified Workbook. High volume testing of custom made financial libraries (XLLs) is possible by
deploying the libs to the Nodes. Market data can be fed into calculations in real-time. Results can
be communicated to hundreds of Excel users, the Web and other applications.
Dr. Christian Fenger, Danske Markets
Christian Fenger joined Quantitative Research at Danske Markets in 2005. He holds a MSc in physics from
University of Copenhagen and a PhD from Technical University of Denmark.
Abstract
Super Surface
With the start of the financial crisis in July 2007 the subject of yield curves changed fundamentally.
Previously one curve would do the job of pricing the large range of swap products. Now - with larger
credit spreads caused by the crisis and the ever decreasing bid/offer spreads - a multiple of curves
has become necessary. We have implemented the Super Surface which is an exact pricing model of swaps,
including interest rate, overnight interest rate, FX, cross currency, and basis. The Super Surface
spans a surface by interpolating between curves of different credit lenght and using a single discount
curve. With multiple currencies several surfaces are used to price the swaps. We describe implementation
details and show real surface examples.
Lukas Henatsch, IBM
Lukas Henatsch is a Managing Consultant at IBM Global Business Services and joined IBM’s Capital
Markets team in 2007. His business expertise is focused on derivatives trading, pricing of financial
products and market risk. In the past five years, Lukas was part of various strategic integration
programs in the trading and market risk area for investment banks in the UK and Germany. He studied
business and management studies in Germany and in the US and graduated in Finance- and Assetmanagement.
Abstract
Stress testing and scenario analysis in the aftermath of the financial crisis
The financial crisis has highlighted the weaknesses in stress testing practices used prior
to the collapse of 2008 as stress testing was performed by many banks based solely on sensitivity
analysis and isolated stress testing for single risk factors ignoring often complex scenario
analysis. After a brief introduction to the topic, the talk focuses on the experiences with stress
testing after the financial crisis, the new regulatory requirements, the design and definition of
stress scenarios for market risk and it will be illustrated how multivariate (simultaneous) stress
scenarios can be applied to a credit portfolio. The talk will close with showing a sample
implementation of a stress testing framework into an existing market risk infrastructure and with
an outlook discussing briefly trends and developments, including reverse stress testing.
Dr. Yuri Ivanov, d-fine
Yuri Ivanov is currently Senior Consultant at d-fine. He joined d-fine at 2005. His consulting
activity is focused on modeling and risk measurement of structured financial instruments and
especially commodity products. Yuri holds an MSc in Physics from Moscow Institute of Physics and
Technology, an MSc in Quantitative Finance from Frankfurt School of Finance and Management and
a PhD in Physics from the University of Bochum.
Abstract
Valuation of commodity derivatives
Recently, the commodity industry begun increasingly using of structured derivatives such
as swing options, real asset options or barrier reverse convertibles. As a consequence,
many banks now wish to start or extend their commodity derivative business. A common approach
to valuate these products is to apply Black-Scholes like models with some adjustments.
However, neglecting the special features of the various commodity asset classes can be
very dangerous. The talk discusses different valuation methods for derivatives with various
commodity asset classes as an underlying from a practical point of view.
Prof. Monique Jeanblanc, University of Evry
Monique Jeanblanc holds the position of Professor at Evry University since 1992. She is an
academic fellow of the Institute Europlace of Finance and her recent research was supported
by the Chair in Credit Risk funded by the French Banking Federation. She is working in the
areas of credit risk, enlargement of filtrations, and portfolio optimization. In addition to
numerous journal papers and book chapters, she has published three monographs {\it Financial
Markets in Continuous Time, Valuation and Equilibrium} co-authored by Rose-Anne Dana, published
by Springer-Verlag in 2003, {\it Credit Risk Modelling} co-authored by Tomasz R. Bielecki and
Marek Rutkowski, published by Osaka University in 2009 and {\it Mathematical Methods for
Financial Markets} co-authored by Marc Yor and Marc Chesney, published by Springer-Verlag in 2009.
Abstract
Dynamic Copula Approach
In this talk we shall present briefly a general approach of dynamic copula, and we
shall study some concrete examples, allowing closed form computations
Sebastien Kayrouz, Murex
Sebastien joined Murex ten years ago in Paris and moved to NY in early 2006. He is currently
in charge of the foreign exchange derivatives practice at Murex. He is a telecommunication
engineering graduate from Beirut’s Saint Joseph School of Engineering. Before joining Murex,
Seba developed algorithms for power control in third generation networks. These algorithms
are currently in use by telecommunication operators around the world. At Murex, he discovered
his passion for options and derivatives and was involved in many development projects, in
particular the validation and market testing of the Tremor model.
Abstract
Tremor Model
Tremor is a local/stochastic volatility hybrid (LSV) model pricing exotic options with the
smile and yielding market-consistent prices. Many models (including other LSVs) fit the smile
curve but only a model that closely approximates the market’s smile dynamics can return
market-consistent exotic prices. Tremor’s smile dynamic takes into account the dependency of the
ATM volatility, the risk reversals (skewness) and butterflies (kurtosis) to changes in the spot
(dV/dS, dRR/dS, dFly/dS) and in the case of dRR/dS and dFly/dS this is for both quoted (25 and 10)
delta points. Tremor’s calibrated parameters form smooth term structures (volatility of calibrated
parameters per tenor has historically been a problem for LSV models) and over time. These market
consistent volatility surface dynamics lead to market consistent greeks meaning hedging exotic and
vanilla options is significantly more efficient. Murex will present the model in detail and show a
comparison between model prices & implied smile dynamics and market prices & observed smile dynamics
in a shared presentation with Uwe Wystup. Uwe will present the results of an independent validation
that he is performing of Tremor.
This is a joint presentation with
Eric Gaudillat and
Prof. Dr. Uwe Wystup.
Dr. Jörg Kienitz, Deutsche PostBank
Joerg Kienitz is the head of Quantitative Analysis at Deutsche Postbank AG. He is primarily
involved in the development and implementation of models for pricing structured products,
derivatives and asset allocation. He authored a number of quantitative finance papers and his
book on Monte Carlo frameworks has been published in 2009 with Wiley. He is member of the editorial
board of International Review of Applied Financial Issues and Economics. Joerg holds a Ph.D.
in stochastic analysis and probability theory.
Abstract
Pricing and Modelling CMS Spread Options
We consider the pricing of Constant Maturity Spread options. To this end we analyze and review
several approaches to the problem and use different representations for applying copula pricing
techniques. We study the effect of choosing different dependence models on the spreads’ smile.
Finally, we propose a multi-factor SABR model and show how it can be calibrated to market data,
how it accommodates to model the smile and how it compares to copula based models.
Bullet Points:
- CMS Spreads
- CMS Spread Smiles
- Dependence Modelling
- Copula based Modelling
- SABR and Multi SABR
Dr. Thomas Kokholm, Aarhus School of Business
Thomas Kokholm holds a position as assistant professor at Aarhus School of Business (ASB),
Aarhus University, Denmark. Currently, he is visiting Columbia University, New York. Thomas
obtained his MSc in Mathematical Finance from Aarhus University and received his PhD from ASB
in 2010. His research interests lie within credit risk and stochastic volatility modeling.
Abstract
A Joint Dynamic Model for VIX and Index Options
We propose a flexible modeling framework for the joint dynamics of an index and a set of
forward variance swap rates written on this index. Our model reproduces various empirically
observed properties of variance swap dynamics and enables volatility derivatives and options
on the underlying index to be priced consistently, while allowing for jumps in volatility and
returns. An affine specification using Lévy processes as building blocks leads to analytically
tractable pricing formulas for volatility derivatives, such as VIX options, as well as efficient
numerical methods for pricing of European options on the underlying asset. The model has the
convenient feature of decoupling the vanilla skews from spot/volatility correlations and allowing
for different conditional correlations in large and small spot/volatility moves. We show that our
model can simultaneously fit prices of European options on S&P; 500 across strikes and maturities
as well as options on the VIX volatility index. The calibration of the model is done in two steps,
first by matching VIX option prices and then by matching prices of options on the underlying.
Prof. Ralf Korn, TU Kaiserslautern
Ralf Korn is Professor for Financial Mathematics at the Dept. of Mathematics of TU Kaiserslautern.
He joined the Department in 1999 as a C3-Professor and is W3-Professor since 2007 (rejected three
calls to the Universities of Düsseldorf, Stuttgart and Ulm). He is also leading the Financial Mathematics
group of Fraunhofer ITWM in Kaiserslautern and the State Research Center (CM)² (see cmcm.uni-kl.de).
His academic record contains approximately 60 refereed papers in international journals and5 books.
His main areas of interest are continuous-time portfolio optimization, stochastic control, numerical
methods for option pricing. Currently, he is one of three owners of the European Institute for Quality
Assurance of Financial Methods EI-QFM.
Abstract
Recent Advances in Binomial Tree Methods in Option Pricing
We consider a new method to consistently price multi-asset options via multi-dimensional trees.
It is based on an orthogonal transformation of the stock price and is numerically efficient when
combined with extrapolation methods. Further we show how the rate of convergence of one-dimensional
binomial trees can be improved via choosing an optimal additional drift process. The results of both
topics are based on joint papers with Stefanie Müller.
Dr. Torsten Langner, Microsoft
Torsten Langner is a technical solution professional HPC in the Microsoft Incubation Team of Microsoft
Germany. He is an expert in high speed computing in presales for Germany. One of the core competence
of Torsten is to supervise projects in the financial and automotive sectors. Prior to joing Microsoft,
he was a consultant to the board of PostBank Systems in Bonn. Torsten obtained his doctoral degree from
the University of Cologne.
Abstract
High Productivity First - 4 Simple Ways to develop Mathematical Applications in Financial Environments
Windows® HPC Server 2008 R2 is the third version of Microsoft’s solution for high performance
computing (HPC). Built on Windows Server® 2008 R2 64-bit technology, Windows HPC Server 2008 R2
introduces a new way to develop parallel applications in financial environments. In this session
we will demonstrate how to develop parallel Excel 2010 applications using UDFs and VBA, how to develop
and debug parallel .NET applications and how to easily off-burst workload to the cloud.
Dr. Donie O'Brien, Commerzbank
Donie has recently joined Commerzbank’s eFX Quantitative Analysis team. He previously held the position
of Quantitative Trading Analyst for William Hill Bookmakers, in which he built mathematical models to
predict various sporting outcomes to automate the pricing and trading of their sporting odds. He obtained
a BSc in Mathematical Science from University College Dublin and a PhD in Mathematical Physics from Trinity
College Dublin.
Abstract
Similarities between modelling sporting events and financial markets
Much effort is currently being put into Algorithmic Trading, with extensive mathematical systems
exploiting pricing inefficiencies for profit via statistical and latency arbitrage etc. Electronic
Market Making firms require detailed risk management systems to protect themselves from consistent
losses attributed to such methods. Interestingly this phenomenon is not unique to finance, very similar
issues arise in the bookmaking industry. This talk presents various mathematical and statistical
modelling techniques used to calculate the probabilities of various sporting outcomes, how these
calculations are used by bookmakers to set their odds, and highlights how remarkably similar issues
arise in financial markets. Finally some suggestions on how to meet these challenges are discussed.
Dr. Natalie Packham, Frankfurt School of Finance & Management
Natalie is Assistant Professor (Juniorprofessorin) for Quantitative Finance at Frankfurt School of Finance & Management.
She holds Master degrees in Computer Science and Finance, and a PhD in Finance. Natalie has several years of industry
experience as a senior software engineer at Dresdner Kleinwort, where she wrote parts of the inhouse trading systems.
Abstract
Correlation under stress in normal variance mixture models
We investigate correlations of asset returns in stress scenarios where a common risk factor is truncated.
Our analysis is performed in the class of normal variance mixture (NVM) models, which encompasses many
distributions commonly used in financial modelling. For the special cases of jointly normally and
t-distributed asset returns we derive closed formulas for the correlation under stress. For the NVM distribution,
we calculate the asymptotic limit of the correlation under stress, which depends on whether the variables are in
the maximum domain of attraction of the Frechet or Gumbel distribution. It turns out that correlations in
heavy-tailed NVM models are less sensitive to stress than in medium- or light-tailed models. Our analysis sheds
light on the suitability of this model class to serve as a quantitative framework for stress testing,
and as such provides important information for risk and capital management in financial institutions,
where NVM models are frequently used for assessing capital adequacy.
It is joint work with Michael Kalkbrener of Deutsche Bank.
Prof. Andrea Pascucci, University of Bologna
Andrea Pascucci is Professor of Mathematics at the University of Bologna where he is director of a master
program in Quantitative Finance. His research interests include second order parabolic partial differential
equations and stochastic differential equations with applications to finance (pricing of European, American
and Asian options). He is the author of numerous publications in this area and of three books published by
Springer (one co-authored by Wolfgang J. Runggaldier).
Abstract
Analytical Approximation of the SABR Model with Jumps
It is widely recognized that perturbation theory is a very powerful and effective tool in option pricing.
In this talk we show how to adapt singular perturbation methods to derive closed-form approximate pricing
formulas in some stochastic volatility jump-diffusion model. We also briefly discuss the case of some
path-dependent option. This is a joint work with Paolo Foschi and Stefano Pagliarani.
Dr. Kay Pilz, E.ON Energy Trading
Kay Frederik Pilz is a Senior Quantitative Analyst for gas, oil and coal at E.ON Energy Trading. Prior to his
current position, he worked as a Senior Research Associate at the University of Technology in Sydney, Australia,
on a research project on hybrid commodity and interest rate modelling, as well as on exotic option pricing in
stochastic volatility models. As a Quantitative Analyst at Sal. Oppenheim, a German Investment Bank in Frankfurt,
Kay developed and implemented pricing and hedging functionalities for exotic derivatives on equities, precious
metals and energy commodities. He graduated in Mathematics from the University of Frankfurt and holds a PhD in
Mathematical Statistics from the University of Bochum.
Abstract
A Hybrid Commodity and Interest Rate Market Model
A market model that jointly models commodity forwards and forward interest rates will be presented in this
talk. On basis of the LIBOR Market Model (LMM) we utilize its multi-currency extension to build a hybrid
model for both asset classes. The domestic fixed income market will be interpreted in the usual way for the
LMM, i.e. with a given bond market paying in a certain currency (say USD), whereas the foreign market will
be associated with a commodity market (e.g. crude oil), with the physical commodity as its currency, and
the “convenience yield” as its rate of interest.
After introducing the hybrid model the talk focuses on its calibration to common instruments of the
interest forward rate and commodity forward markets. Since for many commodities liquid market prices are
only available for options on commodity futures, rather than forwards, we take the difference between forward
and futures prices into account. Further, we construct a procedure to achieve a consistent fit of the model to
market data for interest options, commodity options and historically estimated correlations between interest
rates and commodity prices.
The applicability of the model will be demonstrated by presenting an elaborated calibration to the USD
interest market and to the WTI crude oil futures market in detail. Furthermore, the calibrated model will be
applied to calendar spread option pricing.
Joint paper: K.F. Pilz and E. Schlögl
Prof. Lorenz Schneider, EMLYON Business School
Lorenz Schneider is Assistant Professor in Finance at EMLYON Business School in Lyon, France. He holds a Ph.D.
in mathematics from University Paris VI and worked for Dresdner Kleinwort in London as a quantitative analyst
for six years modelling credit, hybrid and commodity derivatives. Current research interests include implying
asset price distributions from option data using maximum entropy techniques.
Abstract
Numerical Methods for Strongly Path Dependent Options
In FX options, the use of PDEs and Monte Carlo for flow exotics is well known and reasonably standard
in the industry, in which case the path dependent features can be modelled by suitable choice of boundary
conditions. For more complex products, such as lookback and Asian options, the path dependency cannot be
deal with purely by the boundary conditions. In this talk I describe some of the numerical methods that
can be employed by using an auxiliary state variable. The technique leads itself nicely to geometric
interpretation, and is well adapted to practical implementation.
Prof. Gabriel Turinici, Université Paris Dauphine and Thomson Reuters
Gabriel Turnici is Professor of Mathematics at Université Paris Dauphine and chairman of the Mathematics and
Computer Science Department. He is also the head of the "Quantification of Financial Risk" branch of the
"Statistical and Financial Engineering" Master and head of the "Financial Risk Management" certification
at the same university. He is a former student of the "Ecole Normale Supérieure" (Ulm, Paris) and received
his PhD. and Habilitation from the Paris 6 (Pierre et Marie Curie) University; he published over 50 research
papers in the general area of numerical analysis, finance, physics and medicine. His interests lie in the
numerical methods for optimization, control and direct simulations for stochastic or deterministic models.
His interests in finance are in the area of calibration, pricing and hedging of options on one hand and
liquidity modeling (insider trading, replication, estimation mismatches) on the other hand.
Abstract
Liquidity sources: hedging and biased estimates
In this talk we will discuss two factors that contribute to provide market liquidity: first the possibility
to price a product through replication (with application to illiquid currency options and exploiting local
volatility calibration techniques) and secondly the liquidity that results from mismatches of agent's
expectations. We will illustrate both situations with recent work.
Dr. Nick Webber, Warwick Business School
Nick Webber is a Reader in Finance at Warwick Business School. He has authored books in interest rate
modelling (with Jessica James) and in implementing derivatives valuation systems. His research interests
lie in computational methods for financial models, including lattice and simulation methods.
Abstract
The Valuation of Non-linear Barrier Options by Simulation
The accurate and fast valuation of barrier options with non-linear barriers is a difficult computational
problem, even with amenable processes like GBM. We propose a simulation method based on iterated stopping
times. Numerical results are presented and comparisons made with other methods. We find that the method
converges rapidly, with low bias, for a range of barrier types.
The paper is joint work with Pokpong Chirayukool.
Karsten Weber, UniCredit Bank
Karsten Weber joined the Financial Engineering Equities, Commodities and Funds department of Unicredit Group
in 2005, where he has been working in the area of Structured Derivatives, mainly on the equity side. He
studied Economathematics at the University of Ulm, Germany, and obtained an MSc in Mathematical Finance
from the University of Southern California.
Abstract
Pinning Down the Forward-Skew
In the equity markets the stationary forward-skew assumption has become widespread – a trader’s expectation
of the future implied volatility skew for a certain constant maturity is given by today’s implied volatility
skew for this maturity. This can be seen in the liquid market for locally capped and floored Cliquets and has
led to such products being booked and risk managed in dedicated “forward-skew models”. At the same time the
calibration of models used for other exotic options requires fitting the liquid hedging instruments found on
the spot-start implied volatility surface. Using numerical examples we will explore possible ways to incorporate
the forward-skew information of the Cliquet market into popular exotic option pricing models, thereby improving
their suitability for pricing forward-skew dependent products.
Dr. Ralf Werner, Munich University of Applied Science
Ralf Werner is currently a partner and member of the Scientific Advisory Board of DEVnet AG, as well as full
professor for mathematical modelling at the Munich University of Applied Science. Both his consultancy activities
as well as his teaching & research focus is on mathematical finance and operations research. Ralf holds a diploma
and a PhD in mathematics from the Friedrich Alexander Universität Erlangen-Nürnberg and has published several
papers in theoretical and applied journals. Previous to moving back to academia, he was heading the global Risk
Methods & Valuation department at Deutsche Pfandbriefbank where he was in charge of risk methodology, financial
engineering and economic capital modelling. Before joining Deutsche Pfandbriefbank, he was responsible for market
risk methodology at Allianz SE. Additionally, he has held positions as financial engineer for credit risk topics
and as consultant for investment strategies & asset liability management at risklab germany, as well as prop
trader (Xetra, Eurex) for SchmidtBank Nürnberg.
Abstract
Model-Free Bounds on Bilateral CVA
In the last years, counterparty default risk has experienced an increased interest both by academics as well
as practitioners. This was especially motivated by the market turbulences and the financial crises over the
past years which have highlighted the importance of counterparty default risk for uncollateralized derivatives.
In our talk we focus on the pricing of derivatives subject to such counterparty risk. After a succinct
introduction to the topic, a brief review of state-of-the-art methods for the calculation of bilateral
counterparty value adjustments is presented. Due to some weaknesses of these models, a novel method for
the determination of model-free tight lower and upper bounds on these adjustments is presented. It will be
shown in detail how these bounds can be easily and efficiently calculated by the solution of a corresponding
linear optimization problem. It will be illustrated how usual discretization methods like Monte Carlo methods
allow to reduce the calculation of bounds to an ordinary finite dimensional transportation problem, whereas a
continuous time approach will lead to a general mass transportation problem. The talk will be closed with several
applications of these model-free bounds, like stress-testing and estimation of model reserves.
Prof. Dr. Uwe Wystup, MathFinance
Dr. Uwe Wystup is Founder and Managing Director of MathFinance AG, specializing in consulting,
software production, product valuation and litigation services for Foreign Exchanges and Equity
Derivatives products. Previously, Uwe worked for seven years as trading floor quant, FX structurer
and Global Structured Risk Managerat Sal. Oppenheim and Commerzbank, where he was responsible for
developing and implementing FX derivatives models and also for generating tailor-made structures
for the bank’s clients, internal and external consulting for all FX Options matters. Uwe publishes
regularly in academic journals, wrote two books on Foreign Exchange Options. He is a member of the
Council at Fintegral Consulting AG, Senior Advisor at QuantZ Capital Management LLC, New York, and also a member
of Asset Management Advisory Committee of the federal Foundation “Remembrance, Responsibility and Future.”
Abstract
Tremor Model
Tremor is a local/stochastic volatility hybrid (LSV) model pricing exotic options with
the smile and yielding market-consistent prices. Many models (including other LSVs) fit
the smile curve but only a model that closely approximates the market’s smile dynamics can
return market-consistent exotic prices. Tremor’s smile dynamic takes into account the
dependency of the ATM volatility, the risk reversals (skewness) and butterflies (kurtosis)
to changes in the spot (dV/dS, dRR/dS, dFly/dS) and in the case of dRR/dS and dFly/dS this
is for both quoted (25 and 10) delta points. Tremor’s calibrated parameters form smooth term
structures (volatility of calibrated parameters per tenor has historically been a problem for
LSV models) and over time. These market consistent volatility surface dynamics lead to market
consistent greeks meaning hedging exotic and vanilla options is significantly more efficient.
Murex will present the model in detail and show a comparison between model prices & implied
smile dynamics and market prices & observed smile dynamics in a shared presentation with Uwe
Wystup. Uwe will present the results of an independent validation that he is performing of
Tremor.
This is a joint presentation with
Eric Gaudillat and
Sebastien Kayrouz.