The History of the Quantitative Methods in Finance Conference Series. 1992-2007

This report charts the history of the Quantitative Methods in Finance (QMF) conference from its beginning in 1993 to the 15th conference in 2007. It lists alphabetically the 1037 speakers who presented at all 15 conferences and the titles of their papers.

Filtering and forecasting commodity futures prices under an HMM framework

We propose a model for the evolution of arbitrage-free futures prices under a regime-switching framework. The estimation of model parameters is carried out using the hidden Markov filtering algorithms. Comprehensive numerical experiments on real financial market data are provided to illustrate the effectiveness of our algorithm. In particular, the model is calibrated with data from heating oil futures and its forecasting performance as well as statistical validity is investigated. The proposed model is parsimonious, self-calibrating and can be very useful in predicting futures prices. © 2013 Elsevier B.V

Pricing Options on Commodity Futures: The Role of Weather and Storage

Options on agricultural futures are popular financial instruments used for agricultural price risk management and to speculate on future price movements. Poor performance of Black’s classical option pricing model has stimulated many researchers to introduce pricing models that are more consistent with observed option premiums. However, most models are motivated solely from the standpoint of the time series properties of futures prices and need for improvements in forecasting and hedging performance. In this paper we propose a novel arbitrage pricing model motivated from the economic theory of optimal storage, and consistent with implications of plant physiology on the importance of weather stress. We introduce a pricing model for options on futures based on a Generalized Lambda Distribution (GLD) that allows greater flexibility in higher moments of the expected terminal distribution of futures price. We use times and sales data for corn futures and options for the period 1995-2009 to estimate the implied skewness parameter separately for each trading day. An economic explanation is then presented for inter-year variations in implied skewness based on the theory of storage. After controlling for changes in planned acreage, we find a statistically significant negative relationship between ending stocks-to-use and implied skewness, as predicted by the theory of storage. Furthermore, intra-year dynamics of implied skewness reflect the fact that resolution of uncertainty in corn supply is resolved between late June and middle of October, i.e. during corn growth phases that encompass corn silking through grain maturity. Impacts of storage and weather on the distribution of terminal futures price jointly explain upward sloping implied volatility curves.arbitrage pricing model, options on futures, generalized lambda distribution, theory of storage, skewness, Agribusiness, Agricultural Finance, Crop Production/Industries, Financial Economics, Research Methods/ Statistical Methods, Risk and Uncertainty, G13, Q11, Q14,

Market price of risk implied by Asian-style electricity options

In this paper we propose a jump diffusion type model which recovers the main characteristics of electricity spot price dynamics, including seasonality, mean reversion, and spiky behavior. Calibration of the market price of risk allows for pricing of Asian-type options written on the spot electricity price traded at Nord Pool. The usefulness of the approach is confirmed by out-of-sample tests.Power market, Electricity price modeling, Asian option, Market price of risk, Derivatives pricing

Do Individual Index Futures Investors Destabilize the Underlying Spot Market?

This paper investigates the impact of introducing index futures trading on the volatility of the underlying stock market. We exploit a unique institutional setting in which presumably uninformed individuals are the dominant trader type in the futures markets. This enables us to investigate the destabilization hypothesis more accurately than previous studies do and to provide evidence for or against the in uence of individuals trading in index futures on spot market volatility. To overcome econometric shortcomings of the existing literature we employ a Markov-switching-GARCH approach to endogenously identify distinct volatility regimes. Our empirical evidence for Poland surprisingly suggests that the introduction of index futures trading does not destabilize the spot market. This nding is robust across 3 stock market indices and is corroborated by further analysis of a control group.Individual Investors, Uninformed Trading, Stock Index Futures, Emerging Capital Markets, Stock Market Volatility, Markov-Switching-GARCH Model

Mean reversion in stock index futures markets: a nonlinear analysis

Several stylized theoretical models of futures basis behavior under nonzero transactions costs predict nonlinear mean reversion of the futures basis towards its equilibrium value. Nonlinearly mean-reverting models are employed to characterize the basis of the SandP 500 and the FTSE 100 indices over the post-1987 crash period, capturing empirically these theoretical predictions and examining the view that the degree of mean reversion in the basis is a function of the size of the deviation from equilibrium. The estimated half lives of basis shocks, obtained using Monte Carlo integration methods, suggest that for smaller shocks to the basis level the basis displays substantial persistence, while for larger shocks the basis exhibits highly nonlinear mean reversion towards its equilibrium value. © 2002 Wiley Periodicals, Inc

Option Formulas for Mean-Reverting Power Prices with Spikes

Electricity prices are known to be very volatile and subject tofrequent jumps due to system breakdown, demand shocks, and inelasticsupply. Appropriate pricing, portfolio, and risk management modelsshould incorporate these spikes. We develop a framework to priceEuropean-style options that are consistent with the possibility ofmarket spikes. The pricing framework is based on a regime jump modelthat disentangles mean-reversion from the spikes. In the model thespikes are truly time-specific events and therefore independent fromthe mean-reverting price process. This closely resembles thecharacteristics of electricity prices, as we show with Dutch APX spotprice data in the period January 2001 till June 2002. Thanks to theindependence of the two price processes in the model, we breakderivative prices down in a mean-reverting value and a spike value. Weuse this result to show how the model can be made consistent withforward prices in the market and present closed-form formulas forEuropean-style options.mean reversion;electricity price modelling;energy markets;option pricing;power spikes