Probability and Statistics in Complex Systems: Genomics, Networks, and Financial Engineering, September 1, 2003 - June 30, 2004

Organizers:

Marco Avellaneda
Courant Institute of Mathematical Sciences
New York University
avellane@cims.nyu.edu
http://www.math.nyu.edu/faculty/avellane/

and

Rama CONT
Centre de Mathématiques Appliquées
École Polytechnique
Rama.Cont@polytechnique.fr
http://www.cmap.polytechnique.fr/~rama/

Some of the most interesting themes in quantitative finance and econometrics have to do with model specification in the broadest sense, including the statistical analysis of market data from multi-asset, multi-currency markets with a high number of state variables but also indirect identification of models from option prices ("model calibration"). The statistical analysis of the distribution of returns often requires advanced techniques, such as nonlinear regression (ARCH/GARCH), nonstationary modeling of time series (to take into account seasonal effects), neural networks and data-mining. In addition to the statistical analysis of multivariate returns, quantitative modeling is also concerned with derivatives and relative-value analysis, which require working with so-called "risk-adjusted" probability distributions. In fact, prices observed at any given time contain "forward looking" information about future cash flows in the form of market prices of traded options.

This means that the models that are used to price and hedge derivatives must be determined partially from econometric information and partially by solving "inverse problems" (in the sense of going from prices to parameters) that reflect current market prices. Inverse problems in asset-pricing theory comprise diverse questions in finance, such as the construction of smooth forward rate curves from interest rate futures, swaps and bond price data, the calculation of "volatility surfaces" from observation of option prices and more generally implying parameters of more complex models from observed option prices. These inverse problems are ill-posed, i.e., exhibit sensitive dependence to input data. This workshop will be centered on robust techniques and algorithms for solving such problems in different market contexts (e.g., fixed income/capital markets derivatives, credit derivatives, commodities market models, etc.), their theoretical foundations, their economic interpretation and the interplay of model identification problems with risk management issues.

Mathematical Areas of Relevance:

• Stochastic differential equations

• Markov Processes

• Ill-posed inverse problems and regularization methods

• Linear and nonlinear Partial Differential Equations

• Optimization: dynamic programming, duality techniques, semidefinite programming

• Duality methods in optimization

• Mathematics of information theory

• Parametric and nonparametric statistics

• Numerical methods and their implementation

WORKSHOP SCHEDULE
Monday Tuesday Wednesday Thursday Friday
MONDAY, APRIL 12 All talks are in Lecture Hall EE/CS 3-180 unless otherwise noted.
8:30	Coffee and Registration	Reception Room EE/CS 3-176
9:15	Douglas N. Arnold, Scot Adams, and Organizers	Welcome and Introduction
9:30	Marco Avellaneda New York University	A Market-Induced Mechanism for Stock Pinning on Option Expiration Dates Slides:   PinningSlides.pdf Paper:   qf3601.pdf
10:20	Discussion
10:30	Coffee Break	Reception Room EE/CS 3-176
11:00	Alexandre d'Aspremont University of California, Berkeley	A Moment Approach to the Static Arbitrage Problem on Baskets Slides:   pdf
11:50	Discussion
12:00	Lunch Break
1:30	Thaleia Zariphopoulou University of Texas at Austin	Optimal Investments in Markets with Stochastic Opportunity Sets Slides:   zariphopoulou1.pdf zariphopoulou2.pdf
2:20	Discussion
2:30	Coffee Break	Reception Room EE/CS 3-176
3:00	SECOND CHANCES, i.e., speakers of the day respond to further questions, suggestions, re-frame their main points, look toward future directions.
3:30	Group Photos here
3:40	IMA Tea and more (with POSTER SESSION) 400 Lind Hall Raphael Douady Riskdata Demonstration of Riskdata's Fund Risk Profiling tool FOFiX® Yevgeny Goncharov University of Michigan, Ann Arbor New Approaches to Valuation of CMO's Chuan-Hsiang (Sean) Han IMA Reduction of Asian Options Slides:   pdf Kiseop Lee University of Louisville and Seongjoo Song Purdue University Insider's Hedging in a Jump Diffusion Model Slides:   pdf    ps Wei Li The University of Iowa On Performance Chasing, Mutual Fund Tournaments, and Managerial Incentives Paper:   pdf Rituparna Sen University of Chicago Modeling the Stock Price Process as a Continuous-time Discrete Jump Process Slides:   pdf    ps Yong Zeng University of Missouri at Kansas City A General Equilibrium Model of the Term Structure of Interest Rates under Regime-switching Risk Slides:   pdf    ps Gady Zohar Technion - Israel Institute of Technology Excess yields in bond hedging
TUESDAY, APRIL 13 All talks are in Lecture Hall EE/CS 3-180 unless otherwise noted.
9:00	Coffee	Reception Room EE/CS 3-176
9:30	Hans Föllmer Humboldt Universität zu Berlin	Convex Risk Measures and Robust Optimization Problems Slides:   pdf
10:20	Discussion
10:30	Coffee Break	Reception Room EE/CS 3-176
11:00	Victor Isakov Wichita State University	The Inverse Option Pricing Problem Lecture:   pdf    ps
11:50	Discussion
12:00	Lunch Break
1:30	Rama CONT Ecole Polytechnique, France	Recovering Pricing Models from Option Prices: A Statistical Approach to an Ill-Posed Inverse Problem Paper:   pdf
2:20	Discussion
2:30	Coffee Break	Reception Room EE/CS 3-176
3:00	Raphael Douady Riskdata	Hedge Fund Performance and Risk Profile Analysis: Non-Linear Statistics and Risk Factor Identification
3:50	Discussion
4:00	Coffee Break	Reception Room EE/CS 3-176
4:30	SECOND CHANCES, i.e., speakers of the day respond to further questions, suggestions, re-frame their main points, look toward future directions.
WEDNESDAY, APRIL 14 All talks are in Lecture Hall EE/CS 3-180 unless otherwise noted.
9:00	Coffee	Reception Room EE/CS 3-176
9:30	Nicole EL KAROUI Centre de Mathématiques Appliquées Ecole Polytechnique	Max Plus Decomposition of Supermartingale with Application to Portfolio Insurance Slides:   IMA2004.pdf    IMARisk04_3.pdf Paper:   pdf
10:20	Discussion
10:30	Coffee Break	Reception Room EE/CS 3-176
11:00	Craig Alan Friedman Standard and Poor's and New York University's Courant Institute of Mathematical Sciences	A Financial Approach to Machine Learning with Applications to Credit Risk Slides:   html   pdf    ps    ppt
11:50	Discussion
12:00	Lunch Break
1:30	Michael Stutzer Leeds School of Business	Ockham's Razor Critique of Investor Objective Functions: Neither Samuelson nor Rabin and Thaler Are Right Slides:   pdf
2:20	Discussion
2:30	Coffee Break	Reception Room EE/CS 3-176
3:00	SECOND CHANCES, i.e., speakers of the day respond to further questions, suggestions, re-frame their main points, look toward future directions.
THURSDAY, APRIL 15 All talks are in Lecture Hall EE/CS 3-180 unless otherwise noted.
9:00	Coffee	Reception Room EE/CS 3-176
9:30	Peter Tankov Ecole Polytechnique, France	Non-Parametric Calibration of Jump-Diffusion Option-Pricing Models Slides:   pdf    ps Paper:   pdf
10:20	Discussion
10:30	Coffee Break	Reception Room EE/CS 3-176
11:00	Jean-Pierre Fouque North Carolina State University	Multiscale Stochastic Volatility Slides:   pdf
11:50	Discussion
12:00	Lunch Break
1:30	Hélyette Geman University Paris Dauphine & ESSEC	Pure Jump Lévy Processes for Asset Price Modelling Articles:  Pure Jump Lévy Processes for Asset Price Modelling.pdf Stochastic Volatility for Lévy Processes.pdf
2:20	Discussion
2:30	Coffee Break	Reception Room EE/CS 3-176
3:00	SECOND CHANCES, i.e., speakers of the day respond to further questions, suggestions, re-frame their main points, look toward future directions.
3:30	walk along the Mississippi, weather permitting
6:00	Workshop Dinner	BONA Vietnamese Restaurant 802 Washington Ave S.E. Minneapolis
FRIDAY, APRIL 16 All talks are in Lecture Hall EE/CS 3-180 unless otherwise noted.
9:00	Coffee	Reception Room EE/CS 3-176
9:30	Francesco Rapisarda Banca IMI	Smiles and Baskets: Multidimensional Dynamics for Basket Options Slides:   pdf Papers:   MultivariateSmile.pdf    UncertainVolModel.pdf
10:20	Discussion
10:30	Coffee Break	Reception Room EE/CS 3-176
11:00	David S. Bates University of Iowa and NBER	Maximum Likelihood Estimation of Latent Affine Processes Slides:   pdf Paper:   pdf
11:50	Discussion
12:00	Lunch Break
1:30	Peter W. Glynn Stanford University	Parameter Estimation Methods for Discretely Observed Markov Processes Slides:   pdf
2:20	Discussion and Second Chances, i.e., speakers of the day respond to further questions, suggestions, re-frame their main points, look toward future directions.
3:00	Coffee and End of Workshop	Reception Room EE/CS 3-176

LIST OF CONFIRMED PARTICIPANTS

NAME	DEPARTMENT	AFFILIATION
Vilen Abramov	Department of Mathematics	Kent State University
Scot Adams	Institute for Mathematics and its Applications	University of Minnesota
Inkyung Ahn	Department of Mathematics	Korea University
Samuel Albert		BRAM
Greg Anderson	School of Mathematics	University of Minnesota
Douglas Arnold	Institute for Mathematics and its Applications	University of Minnesota
Donald Aronson	Institute for Mathematics and its Applications	University of Minnesota
Marco Avellaneda	Courant Institute of Mathematical Sciences	New York University
Gerard Awanou	Institute for Mathematics and its Applications	University of Minnesota
Hee-Jeong Baek	Department of Mathematics	Seoul National University
Karen Ball	Institute for Mathematics and its Applications	University of Minnesota
Antar Bandyopadhyay	Institute for Mathematics and its Applications	University of Minnesota
Peter Bank	Department of Mathematics	Humboldt-Universität
David Bates	Department of Finance	University of Iowa
Maury Bramson	School of Mathematics	University of Minnesota
Olga Brezhneva	Institute for Mathematics and its Applications	University of Minnesota
Rene Carmona	Operations Research and Financial Engineering	Princeton University
James Carson		RisQuant Energy
Yangho Choi	Department of Applied Mathematics and Computer Science	University of Iowa
Pin Chung	Investment and Risk Management	Chung ALM
Rama Cont	Centre de Mathématiques Appliquées	École Polytechnique
Alexandre d'Aspremont	Department of Management Science and Engineering	Stanford University
John Dodson	Risk Management Department	American Express
Raphael Douady	Courant Institute of Mathematical Sciences	New York University
Nicole El Karoui	Laboratoire de Probabilites et Modeles aleatoires	École Polytechnique
David Fan		University of Minnesota
Hans Foellmer	Institut für Mathematik	Humboldt-Universität
Jean-Pierre Fouque	Department of Mathematics	North Carolina State University
Shmuel Friedland	Department of Mathematics, Statistics, and Computer Science	University of Illinois at Chicago
Craig Friedman	Risk Solutions-Quantitative Analytics	New York University
Tim Garoni	Institute for Mathematics and its Applications	University of Minnesota
Helyette Geman		ESSEC
Peter Glynn	Department of Management Science and Engineering	Stanford University
Yevgeny Goncharov	Department of Mathematics	University of Michigan
Victor Goodman	Department of Mathematics	Indiana University
Anne Gundel	Institute for Mathematics	Humboldt-Universität
Haiming Guo	Department of Mathematics	University of Maryland
Chuan-Hsiang Han	Institute for Mathematics and its Applications	University of Minnesota
David Heath	Department of Mathematical Sciences	Carnegie Mellon University
Truman Hornet		University of Minnesota
Victor Isakov	Department of Mathematics & Statistics	Wichita State University
Naresh Jain	School of Mathematics	University of Minnesota
Lili Ju	Institute for Mathematics and its Applications	University of Minnesota
Byeong-Kook Kang	Risk Management Department	Samsung Securities Co.
Mohammad Khan	Department of Mathematics	Kent State University
Alan King	Thomas J. Watson Research Center	IBM
Hyejin Ku	Department of Mathematics & Statistics	York University
Thomas Kurtz	Department of Mathematics	University of Wisconsin-Madison
Hun Kwon	Department of Mathematics	University of Iowa
Bernard Lapeyre	CERMICS	École Nationale des Ponts-et-Chaussées
Pawel Lasiecki	Department of Statistics	University of California, Berkeley
Jeong Lee	Department of Mathematics	Seoul National University
Kiseop Lee	Department of Mathematics	University of Louisville
Wei Li	Department of Finance	University of Iowa
Rodrigo Lievano	Department of FMIS	University of Minnesota
Juyoung Lim	Department of Mathematics	University of Texas at Austin
Richard McGehee	School of Mathematics	University of Minnesota
Oana Mocioalca	Department of Mathematics	Purdue University
Hamid Mohtadi	Department of Applied Economics	University of Minnesota
Haewon Nam	Institute of Mathematics and Statistics	University of Minnesota
Gary Nan Tie	Investment Department	The St. Paul Companies
Amir Niknejad	Department of Mathematics	University of Illinois at Chicago
Jerome Pansera	Department of Mathematics	University of Iowa
Thomas Peters	Department of Computer Science	University of Connecticut
Huyen Pham	Laboratoire de Probabilités et Modèles Aléatoires	Université de Paris VII (Denis Diderot)
Lea Popovic	Institute for Mathematics and its Applications	University of Minnesota
Francesco Rapisarda	Product and Business Development Group	Banca IMI
Grzegorz Rempala	Department of Mathematics	University of Louisville
Fadil Santosa	Institute for Mathematics and its Applications	University of Minnesota
Yalcin Sarol	Department of Mathematics	Purdue University
Arnd Scheel	School of Mathematics	University of Minnesota
Rituparna Sen	Department of Statistics	University of Chicago
Mihai Sirbu	Department of Mathematical Sciences	Carnegie Mellon University
Seongjoo Song	Department of Statistics	Purdue University
Srdjan Stojanovic	Department of Mathematical Sciences	University of Cincinnati
Michael Stutzer	Department of Finance	University of Colorado
Peter Tankov	Centre de Mathématiques Appliquées	École Polytechnique
Ryosuke Wada	Department of Economics	Otaru University of Commerce
Hong Wang	Department of Civil Engineering	University of Minnesota
Hui Wang	Division of Applied Mathematics	Brown University
Lihe Wang	Department of Mathematics	University of Iowa
Xiaodi Wang	Department of Mathematics	Western Connecticut State University
Ananda Weerasinghe	Department of Mathematics	Iowa State University
Lixin Wu	School of Mathematics	Claremont Graduate University
Fan Yang	Department of Statistics	University of Minnesota
Hongtao Yang	Department of Mathematics	University of Louisiana-Lafayette
Yuhong Yang	Department of Statistics	Iowa State University
Yuhua Yu	Department of Mathematics	Purdue University
Thaleia Zariphopoulou	Department of Mathematics	University of Texas at Austin
Ofer Zeitouni	School of Mathematics	University of Minnesota
Yong Zeng	Department of Mathematics & Statistics	University of Missouri
Tao Zhang	Department of Mathematics	Purdue University
Jun Zhao	Institute of Mathematics and its Application	University of Minnesota
Gady Zohar	Faculty of IE and Management	Technion-Israel Institute of Technology