Entrance hall of the ICMS

Further Developments in Quantitative Finance

Jul 09, 2007 - Jul 13, 2007

ICMS, 14 India Street, Edinburgh

Organisers

Name Institution
Cairns, Andrew Heriot-Watt University
Frittelli, Marco Università degli Studi di Milano
Hobson, David University of Warwick
Monoyios, Michael University of Oxford
Schweizer, Martin ETH Zurich

Short Report

Much of the research presented fell naturally into broad themes, such as illiquid markets, transaction costs (TC), incomplete information, credit risk, and analysis of risk preferences such as forward utilities and risk measures. Talks on the same theme were often grouped together. Many delegates commented that they liked this format.

There were talks on other areas, such as problems related to optimal stopping, and on modelling the observed implied volatility surface of market option prices.

The common theme was the extension of classical, perfect models of financial markets to incorporate one or more realistic and important market imperfections. The practical importance of such research is that it is essential to understanding how market failures can arise, and how to deal with the resulting risks. The recent turmoil in financial markets has arisen due to defaults on home loans in the United States (and is thus an instance of credit risk), and has resulted in lack of liquidity in interbank lending markets. The practical importance of the research therefore cannot be overstated.

The mathematical challenges involve techniques of functional and stochastic analysis, new techniques of stochastic control such as backward stochastic differential equations (BSDEs), and techniques of singular control, impulse control, and numerical and asymptotic analysis of partial differential equations (PDEs), often in high dimensions.

It is difficult to pick a single highlight, but the research on transaction costs, by Jan Kallsen, and on the dynamics of risk preferences, by Thaleia Zariphopoulou, generated a great deal of discussion and potential for future collaboration.

Participants list and links to available presentations are further down this page.

Download the pdf file of the full report

Original Details

The aims of the meeting are to build on the successes of the recent Developments in Quantitative Finance (DQF) programme at the Isaac Newton Institute for Mathematical Sciences (INIMS), Cambridge, by inviting some of the participants of that programme to reconvene, to further the advances and achievements of that programme and to describe more recent progress.

There has been a major expansion in the number of researchers working in the field of Financial Mathematics over recent years, and a further objective is to provide a forum for UK academics who are early in their career to listen to the most recent research and to present their work to an audience of senior researchers.

The outcomes of the meeting are expected to be progress in understanding the applications of the above mathematical techniques (robust control, partial differential equations, backward stochastic differential equations, martingale methods, convex duality techniques) to the management of new types of risk associated with the increasingly sophisticated products being offered by financial institutions, as well as to the computational challenges of valuing new products dependent on a large number of correlated assets. The interaction between distinguished senior academics and younger UK-based researchers will be a major stimulus to the UK Financial Mathematics community.

Arrangements

Participation
Participation is by invitation only. The workshop will begin with registration and coffee on Monday 9 July and finish on Friday 13 July 2007.

Venue
The workshop will take place at the head-quarters of ICMS, 14 India Street, Edinburgh. This house is the birthplace of James Clerk Maxwell and is situated in the historic New Town of Edinburgh, near the city centre.
The ICMS travel pages contain advice on how to travel to Edinburgh. For local information the finding ICMS page shows the location of ICMS and contains useful maps of the city centre.

The seminar room at ICMS has whiteboards, 2 overhead projectors, a data projector and laptop.

Wireless access is available throughout the ICMS building. There are also several public PCs which may be used at any time for internet access and to check email.

Accommodation
For those who have asked ICMS to arrange accommodation, we have booked rooms in The Holiday Inn Edinburgh, which is conveniently located for the airport and is only about a 10 minute bus journey and a short walk from ICMS. For information about travel to the Holiday Inn, Corstorphine Road, Edinburgh please click here.

Alternatively, participants are free to make their own arrangements and claim back the cost, with receipts, up to a maximum of £70.00 per night bed and breakfast. A list of Edinburgh accommodation of various sorts and prices is available here. Sections 1-3 are particularly relevant.

Registration

Registration will take place between 09.00 and 09.50 on Monday 9 July, with refreshments provided. The talks will start at 10.00.

Meals and Refreshments
Morning and afternoon refreshments together with a buffet lunch will be provided throughout the workshop.

There will be an informal wine reception after the close of lectures on Monday 9 July evening.

An evening meal will be provided in a Nargile Turkish Restaurant on Tuesday 10 July. The workshop dinner will take place at First Coast Restaurant on the evening of Thursday 12 July.

On arrival you will be given a ‘welcome pack’ which contains a list of local restaurants and eating places.

Excursions

Following the talks on Wednesday 11 July, participants are invited to attend a one-hour tour at the Whisky Heritage Centre on Edinburgh's Royal Mile. Further information is available here . There is no cost to participants for this tour, which includes a whisky tasting and souvenir gift.

Financial Arrangements

Unless otherwise specified in your invitation letter, the workshop grant will cover the cost of your hotel accommodation, lunch each day, the informal wine reception and evening meals on 2 nights (see ‘Meals and Refreshments’ section above).

We wish to thank participants who have agreed to cover some or all of their own travel. For others, we are able to reimburse the travel costs estimated on your registration form and specified by email.

Reimbursement will take place after the workshop. At Registration you will be given an expenses claim form. Please note that a receipt is required for each item claimed. E-tickets for travel will be accepted if the name and amount paid is clearly shown.

Under the terms of our EPSRC funding we are required to charge a 30.00 GBP registration fee to cover costs not admissible under the grant. The fee will be payable on arrival at the workshop payment may be by cash, sterling cheque or credit/debit card.

Programme

Monday 9 July
09.00 - 09.50Registration
09.50 - 10.00Welcome
10.00 - 10.45Dmitry Kramkov (Carnegie Mellon University)
A model for a large investor who trades at utility indifference prices of market makers Presentation
10.45 - 11.15Coffee/Tea
11.15 - 12.00Huyên Pham (Université Paris 7 Diderot)
Impulse control problems on finite horizon with execution delay Presentation
12.00 - 12.45Dirk Becherer (Imperial College London)
Optimal asset liquidation in illiquid markets with finite resiliency
12.45 - 14.15Lunch
14.15 - 15.00Chris Rogers (University of Cambridge)
Illiquidity revisited Presentation
15.00 - 15.45Mark Owen (Heriot-Watt University)
Utility-based approaches to asset pricing Presentation
15.45 - 16.15Coffee/Tea
16.15 - 17.00Martin Schweizer (ETH Zurich)
Implied volatilities (preliminary title) Presentation
17.00 - 17.45Jan Obloj (Imperial College London)
Using options to complete markets with stochastic volatility and jumps Presentation
18.00 - 19.00
Wine reception at ICMS, 14 India Street

Tuesday 10 July
09.30 - 10.15Xin Guo (University of California, Berkeley)
Connecting singular and switching controls with applications to (ir)reversible investment Presentation
10.15 - 11.00Peter Friz (University of Cambridge)
On the Black-Scholes implied volatility at extreme strike Presentation
11.00 - 11.30Coffee/Tea
11.30 - 12.15Mihail Zervos (London School of Economics)
Itô semi-diffusion processes
12.15 - 13.00Tim Johnson (Heriot-Watt University)
The optimal timing of investment decisions Presentation
13.00 - 14.30Lunch
14.30 - 15.15Tomas Björk (Stockholm School of Economics)
Optimal investments under partial information
15.15 - 16.00Michael Monoyios (University of Oxford)
To be confirmed Presentation
16.00 - 16.30Coffee/Tea
16.30 - 17.15Tom Hurd (McMaster University)
Credit risk models based on time changed Brownian motion Presentation
17.15 - 18.00Arne Lokka (King’s College London)
Pricing and hedging of credit derivatives
19.00 Informal group supper at Nargile Turkish Restaurant, 73 Hanover Street

Wednesday 11 July
09.30 - 10.15Matheus R Grasselli (McMaster University)
Combining real options and games in incomplete markets Presentation
10.15 - 11.00Michael Tehranchi (University of Cambridge)
A characterisation of dynamic forward utilities Presentation
11.00 - 11.30Coffee/Tea
11.30 - 12.15Jan Kallsen (Technische Universität München)
Mean-variance hedging for jump processes Presentation
12.15 - 13.00Anke Wiese (Heriot-Watt University)
Mean-variance hedging in stochastic volatility models driven by Lévy processes Presentation
13.00 - 14.30Lunch
14.30 - 15.15Andrew Lim (University of California, Berkeley)
Robust decision making with relative entropy Presentation
15.15 - 16.00Alex Cox (University of Bath)
Robust hedging of options based on the local time Presentation (NB - large file)
16.00 - 16.30Coffee/Tea
17.15 - 18.30
Optional tour of the Scotch Whisky Heritage Centre

Thursday 12 July

09.30 - 10.15Hans Föllmer (Humboldt Universität Berlin)
On the dynamics of convex risk measures
10.15 - 11.00Giacomo Scandolo (University of Firenze)
Robustness and sensitivity analysis of risk measurement procedures Presentation
11.00 - 11.30Coffee/Tea
11.30 - 12.15Walter Schachermayer (Technische Universität Wien)
Consistent price systems and face-lifting pricing under transaction costs
12.15 - 13.00Miklós Rásonyi (Hungarian Academy of Sciences/Vienna University of Technology)
The fundamental theorem of asset pricing for continuous processes under small transaction costs
13.00 - 14.30Lunch
14.30 - 15.15Stefan Ankirchner (Humboldt Universität Berlin)
Smoothness of indifference prices and quadratic BSDEs Presentation
15.15 - 16.00Mihai Sîrbu (Columbia University)
Asymptotic analysis of utility-based hedging strategies for small number of contingent claims
16.00 - 16.30
Coffee/Tea
16.30 - 17.15Vicky Henderson (University of Warwick)
Investment timing, incomplete markets & corporate control Presentation
19.00Workshop Dinner at First Coast Restaurant, 99-101 Dalry Road, Edinburgh

Friday 13 July
09.30 - 10.15Thaleia Zariphopoulou (University of Texas at Austin)
Forward performance processes and their optimal allocations Presentation
10.15 - 11.00Gordan Zitkovic (University of Texas at Austin)
Market equilibria and the stability of demand Presentation
11.00 - 11.30Coffee/Tea
11.30 - 12.15Martijn Pistorius (King's College London)
On a simple model for ruin of two insurance companies Presentation
12.15 - 13.00 Harry Zheng (Imperial College London)
A counterexample of subdifferential valued optimal wealth Presentation
13.00 - 14.30Lunch
14.30 - 15.15David Hobson (University of Warwick)
Utility maximisation, discretionary stopping and asset sales Presentation
15.15 - 15.45
Coffee/Tea

Presentations:

Presentation Details
Ankirchner, Stefan
Smoothness of indifference prices and quadratic BSDEs
View Abstract Down
Becherer, Dirk
Optimal asset liquidation in illiquid markets with finite resiliency
View Abstract Down
Björk, Tomas
Optimal investments under partial information
View Abstract Down
Cox, Alex
Robust hedging of options based on the local time
View Abstract Down
Föllmer, Hans
On the dynamics of convex risk measures
View Abstract Down
Friz, Peter
On the Black-Scholes implied volatility at extreme strike
View Abstract Down
Grasselli, Matheus R
Combining real options and games in incomplete markets
View Abstract Down
Guo, Xin
Connecting singular and switching controls: with applications to (ir)reversible investment
View Abstract Down
Henderson, Vicky
Investment timing, incomplete markets and corporate control
View Abstract Down
Hobson, David
Utility maximisation, discretionary stopping and asset sales
View Abstract Down
Hurd, Tom R
Credit risk models based on time changed Brownian motion
View Abstract Down
Johnson, Timothy C
The optimal timing of investment decisions
View Abstract Down
Kallsen, Jan
Mean-variance hedging for jump processes
View Abstract Down
Kramkov, Dmitry
A model for a large investor who trades at utility indifference prices of market traders
View Abstract Down
Lim, Andrew
A new duality result for robust and risk-sensitive control
View Abstract Down
Lokka, Arne
Pricing and hedging of credit derivatives
View Abstract Down
Monoyios, Michael
Optimal hedging under partial information
View Abstract Down
Obloj, Jan
Using options to complete markets with stochastic volatility and jumps
View Abstract Down
Owen, Mark P
Utility-based approaches to asset pricing
View Abstract Down
Pham, Huyên
Hedging and optimal investment with execution delay
Pistorius, Martijn
On a simple model for ruin of two insurance companies
View Abstract Down
Rásonyi, Miklós
The fundamental theorem of asset pricing for continuous processes under small transaction costs (joint work with P. Guasoni and W. Schachermayer)
View Abstract Down
Rogers, Chris
Illiquidity revisited
View Abstract Down
Scandolo, Giacomo
Robustness and sensitivity analysis of risk measurement procedures
View Abstract Down
Schachermayer, Walter
Consistent price systems and face-lifting pricing under transaction costs
View Abstract Down
Schweizer, Martin
Implied volatilities: where and why not to use them
View Abstract Down
Sîrbu, Mihai
Asymptotic analysis of utility-based hedging strategies for small number of contingent claims
View Abstract Down
Tehranchi, Michael
A characterization of dynamic forward utilities
View Abstract Down
Wiese, Anke
Mean-variance hedging in stochastic volatility models driven by Lévy processes
View Abstract Down
Zariphopoulou, Thaleia
Forward performance processes and their optimal allocations
View Abstract Down
Zervos, Mihail
Itô semi-diffusion processes
View Abstract Down
Zheng, Harry
A counterexample of subdifferential valued optimal wealth
View Abstract Down
Zitkovic, Gordan
Market equilibria and the stability of demand
View Abstract Down

Participants

Name Institution
Ankirchner, Stefan Humboldt Unversität Berlin
Bank, Peter Columbia University
Becherer, Dirk Imperial College London
Björk, Tomas Stockholm School of Economics
Cairns, Andrew Heriot-Watt University
Cox, Alex University of Bath
Drapeau, Samuel University of Berlin
Föllmer, Hans Humboldt Universität Berlin
Frittelli, Marco Università degli Studi di Milano
Friz, Peter University of Cambridge
Grasselli, Matheus R McMaster University
Guo, Xin University of California, Berkeley
Henderson, Vicky Warwick Business School
Hobson, David University of Warwick
Hurd, Tom R McMaster University
Johnson, Timothy C Heriot-Watt University
Kallsen, Jan Technische Universität München
Kramkov, Dmitry Carnegie Mellon University
Lim, Andrew University of California, Berkeley
Lokka, Arne King's College London
Monoyios, Michael University of Oxford
Obloj, Jan Imperial College London
Owen, Mark P Heriot-Watt University
Pham, Huyên Université Paris 7 Diderot
Pistorius, Martijn King's College London
Rásonyi, Miklós Hungarian Academy of Sciences/Vienna University of Technology
Rogers, Chris University of Cambridge
Scandolo, Giacomo University of Firenze
Schachermayer, Walter Vienna University of Technology
Schweizer, Martin ETH Zurich
Sîrbu, Mihai Columbia University
Tehranchi, Michael University of Cambridge
Wiese, Anke Heriot-Watt University
Zariphopoulou, Thaleia University of Texas at Austin
Zervos, Mihail London School of Economics
Zheng, Harry Imperial College London
Zitkovic, Gordan University of Texas at Austin