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.

Term Structure Dynamics in Theory and Reality

This paper is a critical survey of models designed for pricing fixed income securities and their associated term structures of market yields. Our primary focus is on the interplay between the theoretical specification of dynamic term structure models and their empirical fit to historical changes in the shapes of yield curves. We begin by overviewing the dynamic term structure models that have been fit to treasury or swap yield curves and in which the risk factors follow diffusions, jump-diffusion, or have \switching regimes." Then the goodness-of- ts of these models are assessed relative to their abilities to: (i) match linear projections of changes in yields onto the slope of the yield curve; (ii) match the persistence of conditional volatilities, and the shapes of term structures of unconditional volatilities, of yields; and (iii) to reliably price caps, swaptions, and other fixed-income derivatives. For the case of defaultable securities we explore the relative fits to historical yield spreads

Term Structure Dynamics in Theory and Reality

This paper is a critical survey of models designed for pricing fixed income securities and their associated term structures of market yields. Our primary focus is on the interplay between the theoretical specification of dynamic term structure models and their empirical fit to historical changes in the shapes of yield curves. We begin by over viewing the dynamic term structure models that have been fit to treasury or swap yield curves and in which the risk factors follow diffusions, jump-diffusion, or have \switching regimes." Then the goodness-of- ts of these models are assessed relative to their abilities to: (i) match linear projections of changes in yields onto the slope of the yield curve; (ii) match the persistence of conditional volatilities, and the shapes of term structures of unconditional volatilities, of yields; and (iii) to reliably price caps, swaptions, and other fixed-income derivatives. For the case of defaultable securities we explore the relative ts to historical yield spreads

Term Structure Dynamics in Theory and Reality

This paper is a critical survey of models designed for pricing fixed income securities and their associated term structures of market yields. Our primary focus is on the interplay between the theoretical specification of dynamic term structure models and their empirical fit to historical changes in the shapes of yield curves. We begin by over viewing the dynamic term structure models that have been fit to treasury or swap yield curves and in which the risk factors follow diffusions, jump-diffusion, or have \switching regimes." Then the goodness-of- ts of these models are assessed relative to their abilities to: (i) match linear projections of changes in yields onto the slope of the yield curve; (ii) match the persistence of conditional volatilities, and the shapes of term structures of unconditional volatilities, of yields; and (iii) to reliably price caps, swaptions, and other fixed-income derivatives. For the case of defaultable securities we explore the relative ts to historical yield spreads

Pricing and Inference with Mixtures of Conditionally Normal Processes.

We consider the problems of derivative pricing and inference when the stochastic discount factor has an exponential-affine form and the geometric return of the underlying asset has a dynamics characterized by a mixture of conditionally Normal processes. We consider both the static case in which the underlying process is a white noise distributed as a mixture of Gaussian distributions (including extreme risks and jump diffusions) and the dynamic case in which the underlying process is conditionally distributed as a mixture of Gaussian laws. Semi-parametric, non parametric and Switching Regime situations are also considered. In all cases, the risk-neutral processes and explicit pricing formulas are obtained.Derivative Pricing ; Stochastic Discount Factor ; Implied Volatility, Mixture of Normal Distributions ; Mixture of Conditionally Normal Processes ; Nonparametric Kernel Estimation ; Mixed-Normal GARCH Processes ; Switching Regime Models.

Valuation and Risk Measurement of Guaranteed Annuity Options under Stochastic Environment

This thesis develops stochastic modelling frameworks for the accurate pricing and risk management of complex insurance products with option-embedded features. We propose stochastic models for the evolution of the two main risk factors, the interest rate and mortality rate, which could also have a correlation structure. For the valuation problem, a general framework is put forward where correlated interest and mortality rates are modelled as affine-diffusion processes. A new concept of endowment-risk-adjusted measure is introduced to facilitate the calculation of the GAO value. As a natural offshoot of addressing GAO valuation, we derive the convex-order upper and lower bounds of GAO values by employing the comonotonicity theory. As an alternative to affine structure, we construct a more flexible modelling framework that incorporate regime-switching dynamics of interest and mortality rates governed by a continuous-time Markov chain. The corresponding endowment-risk-adjusted measures are constructed and employed to obtain more efficient GAO pricing formulae. An extension of the previous modelling set-up is further developed by integrating the affine structure and regime-switching feature. Both interest and mortality risk factors follow correlated affine structure whilst their volatilities are modulated by a Markov chain process. The change of probability measure technique is again utilised to generate pricing expressions capable of significantly cutting down computing times. Finally, the risk management aspect of GAO is investigated by evaluating various risk measurement metrics. The bootstrap technique is used to quantify standard error for the estimates of risk measures under a stochastic modelling framework in which death is the only decrement

Efficient Option Risk Measurement With Reduced Model Risk

Options require risk measurement that is also computationally efficient as it is important to derivatives risk management. There are currently few methods that are specifically adapted for efficient option risk measurement. Moreover, current methods rely on series approximations and incur significant model risks, which inhibit their applicability for risk management. In this paper we propose a new approach to computationally efficient option risk measurement, using the idea of a replicating portfolio and coherent risk measurement. We find our approach to option risk measurement provides fast computation by practically eliminating nonlinear computational operations. We reduce model risk by eliminating calibration and implementation risks by using mostly observable data, we remove internal model risk for complex option portfolios by not admitting arbitrage opportunities, we are also able to incorporate liquidity or model misspecification risks. Additionally, our method enables tractable and convex optimisation of portfolios containing multiple options. We conduct numerical experiments to test our new approach and they validate it over a range of option pricing parameters

Recent Developments in Financial and Insurance Mathematics and the Interplay with the Industry

The workshop brought together leading experts from all over the world to exchange and discuss the latest developments in mathematical finance and actuarial mathematics. Researchers from the industry had the opportunity to circulate their problems among mathematicians. The participants gained from a fruitful interaction between mathematical methods and practitioner’s problems as well as from the interaction between finance and actuarial mathematics