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IMA Workshop 7
Risk Management and Model Specifications Issues in Finance
April 12-16, 2004


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
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
NAMEDEPARTMENTAFFILIATION
Vilen AbramovDepartment of Mathematics Kent State University
Scot AdamsInstitute for Mathematics and its Applications University of Minnesota, Twin Cities
Inkyung AhnDepartment of Mathematics Korea University
Samuel Albert BRAM
Greg AndersonSchool of Mathematics University of Minnesota, Twin Cities
Douglas ArnoldInstitute for Mathematics and its Applications University of Minnesota, Twin Cities
Donald AronsonInstitute for Mathematics and its Applications University of Minnesota, Twin Cities
Marco AvellanedaCourant Institute of Mathematical Sciences New York University
Gerard AwanouInstitute for Mathematics and its Applications University of Minnesota, Twin Cities
Hee-Jeong BaekDepartment of Mathematics Seoul National University
Karen BallInstitute for Mathematics and its Applications University of Minnesota, Twin Cities
Antar BandyopadhyayInstitute for Mathematics and its Applications University of Minnesota, Twin Cities
Peter BankDepartment of Mathematics Humboldt-Universität
David BatesDepartment of Finance The University of Iowa
Maury BramsonSchool of Mathematics University of Minnesota, Twin Cities
Olga BrezhnevaInstitute for Mathematics and its Applications University of Minnesota, Twin Cities
Rene CarmonaOperations Research and Financial Engineering Princeton University
James Carson RisQuant Energy
Yangho ChoiDepartment of Applied Mathematics and Computer Science The University of Iowa
Pin ChungInvestment and Risk Management Chung ALM
Rama ContCentre de Mathématiques Appliquées École Polytechnique
Alexandre d'AspremontDepartment of Management Science and Engineering Stanford University
John DodsonRisk Management Department American Express
Raphael DouadyCourant Institute of Mathematical Sciences New York University
Nicole El KarouiLaboratoire de Probabilites et Modeles aleatoires École Polytechnique
David Fan University of Minnesota, Twin Cities
Hans FoellmerInstitut für Mathematik Humboldt-Universität
Jean-Pierre FouqueDepartment of Mathematics North Carolina State University
Shmuel FriedlandDepartment of Mathematics, Statistics, and Computer Science University of Illinois, Chicago
Craig FriedmanRisk Solutions-Quantitative Analytics New York University
Tim GaroniInstitute for Mathematics and its Applications University of Minnesota, Twin Cities
Helyette Geman ESSEC
Peter GlynnDepartment of Management Science and Engineering Stanford University
Yevgeny GoncharovDepartment of Mathematics University of Michigan
Victor GoodmanDepartment of Mathematics Indiana University
Anne GundelInstitute for Mathematics Humboldt-Universität
Haiming GuoDepartment of Mathematics University of Maryland
Chuan-Hsiang HanInstitute for Mathematics and its Applications University of Minnesota, Twin Cities
David HeathDepartment of Mathematical Sciences Carnegie Mellon University
Truman Hornet University of Minnesota, Twin Cities
Victor IsakovDepartment of Mathematics & Statistics Wichita State University
Naresh JainSchool of Mathematics University of Minnesota, Twin Cities
Lili JuInstitute for Mathematics and its Applications University of Minnesota, Twin Cities
Byeong-Kook KangRisk Management Department Samsung Securities Co.
Mohammad KhanDepartment of Mathematics Kent State University
Alan KingThomas J. Watson Research Center IBM
Hyejin KuDepartment of Mathematics & Statistics York University
Thomas KurtzDepartment of Mathematics University of Wisconsin, Madison
Hun KwonDepartment of Mathematics The University of Iowa
Bernard LapeyreCERMICS École Nationale des Ponts-et-Chaussées
Pawel LasieckiDepartment of Statistics University of California, Berkeley
Jeong LeeDepartment of Mathematics Seoul National University
Kiseop LeeDepartment of Mathematics University of Louisville
Wei LiDepartment of Finance The University of Iowa
Rodrigo LievanoDepartment of FMIS University of Minnesota
Juyoung LimDepartment of Mathematics University of Texas, Austin
Richard McGeheeSchool of Mathematics University of Minnesota, Twin Cities
Oana MocioalcaDepartment of Mathematics Purdue University
Hamid MohtadiDepartment of Applied Economics University of Minnesota, Twin Cities
Haewon NamInstitute of Mathematics and Statistics University of Minnesota, Twin Cities
Gary Nan TieInvestment Department The St. Paul Companies
Amir NiknejadDepartment of Mathematics University of Illinois, Chicago
Jerome PanseraDepartment of Mathematics The University of Iowa
Thomas PetersDepartment of Computer Science University of Connecticut
Huyen PhamLaboratoire de Probabilités et Modèles Aléatoires Université de Paris VII (Denis Diderot)
Lea PopovicInstitute for Mathematics and its Applications University of Minnesota, Twin Cities
Francesco RapisardaProduct and Business Development Group Banca IMI
Grzegorz RempalaDepartment of Mathematics University of Louisville
Fadil SantosaInstitute for Mathematics and its Applications University of Minnesota, Twin Cities
Yalcin SarolDepartment of Mathematics Purdue University
Arnd ScheelSchool of Mathematics University of Minnesota, Twin Cities
Rituparna SenDepartment of Statistics University of Chicago
Mihai SirbuDepartment of Mathematical Sciences Carnegie Mellon University
Seongjoo SongDepartment of Statistics Purdue University
Srdjan StojanovicDepartment of Mathematical Sciences University of Cincinnati
Michael StutzerDepartment of Finance University of Colorado
Peter TankovCentre de Mathématiques Appliquées École Polytechnique
Ryosuke WadaDepartment of Economics Otaru University of Commerce
Hong WangDepartment of Civil Engineering University of Minnesota, Twin Cities
Hui WangDivision of Applied Mathematics Brown University
Lihe WangDepartment of Mathematics The University of Iowa
Xiaodi WangDepartment of Mathematics Western Connecticut State University
Ananda WeerasingheDepartment of Mathematics Iowa State University
Lixin WuSchool of Mathematics Claremont Graduate University
Fan YangDepartment of Statistics University of Minnesota, Twin Cities
Hongtao YangDepartment of Mathematics University of Louisiana-Lafayette
Yuhong YangDepartment of Statistics Iowa State University
Yuhua YuDepartment of Mathematics Purdue University
Thaleia ZariphopoulouDepartment of Mathematics University of Texas, Austin
Ofer ZeitouniSchool of Mathematics University of Minnesota, Twin Cities
Yong ZengDepartment of Mathematics & Statistics University of Missouri
Tao ZhangDepartment of Mathematics Purdue University
Jun ZhaoInstitute of Mathematics and its Application University of Minnesota, Twin Cities
Gady ZoharFaculty of IE and Management Technion-Israel Institute of Technology

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