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.

Essays on modeling, hedging and pricing of insurance and financial products

Cette thèse est composée de trois articles abordant différentes problématiques en relation avec la modélisation, la couverture et la tarification des risques d’assurance et financiers. “A general class of distortion operators for pricing contingent claims with applications to CAT bonds” est un projet présentant une méthode générale pour dériver des opérateurs de distorsion compatibles avec la valorisation sans arbitrage. Ce travail offre également une nouvelle classe simple d’opérateurs de distorsion afin d’expliquer les primes observées dans le marché des obligations catastrophes. “Local hedging of variable annuities in the presence of basis risk” est un travail dans lequel une méthode de couverture des rentes variables en présence de risque de base est développée. La méthode de couverture proposée bénéficie d’une exposition plus élevée au risque de marché et d’une diversification temporelle du risque pour obtenir un rendement excédentaire et faciliter l’accumulation de capital. “Option pricing under regime-switching models : Novel approaches removing path-dependence” est un projet dans lequel diverses mesures neutres au risque sont construites pour les modèles à changement de régime de manière à générer des processus de prix d’option qui ne présentent pas de dépendance au chemin, en plus de satisfaire d’autres propriétés jugées intuitives et souhaitables.This thesis is composed of three papers addressing different issues in relation to the modeling, hedging and pricing of insurance and financial risks. “A general class of distortion operators for pricing contingent claims with applications to CAT bonds” is a project presenting a general method for deriving probability distortion operators consistent with arbitrage-free pricing. This work also offers a simple novel class of distortions operators for explaining catastrophe (CAT) bond spreads. “Local hedging of variable annuities in the presence of basis risk” is a work in which a method to hedge variable annuities in the presence of basis risk is developed. The proposed hedging scheme benefits from a higher exposure to equity risk and from time diversification of risk to earn excess return and facilitate the accumulation of capital. “Option pricing under regime-switching models: Novel approaches removing path-dependence” is a project in which various risk-neutral measures for hidden regime-switching models are constructed in such a way that they generate option price processes which do not exhibit path-dependence in addition to satisfy other properties deemed intuitive and desirable

Continuous time portfolio choice under monotone mean-variance preferences : stochastic factor case

We consider an incomplete market with a nontradable stochastic factor and a continuous time investment problem with an optimality criterion based on monotone mean-variance preferences. We formulate it as a stochastic differential game problem and use Hamilton-Jacobi-Bellman-Isaacs equations to find an optimal investment strategy and the value function. What is more, we show that our solution is also optimal for the classical Markowitz problem and every optimal solution for the classical Markowitz problem is optimal also for the monotone mean-variance preferences. These results are interesting because the original Markowitz functional is not monotone, and it was observed that in the case of a static one-period optimization problem the solutions for those two functionals are different. In addition, we determine explicit Markowitz strategies in the square root factor models.Comment: Major revision, the same model but the main result is strenghtened, the square root factor model added (Heston model

Stochastic optimal control and regime switching : applications in economics

Economic decisions under uncertainty generally involve a change of stochastic regime. This thesis examines the formal conditions for optimizing such decisions and looks at applications to exchange rate intervention, physical investment and consumption behaviour. Many of these economic regime switchings can be mathematically formulated as stopping problems. Global optimality is achieved by applying Hamilton-Jacobi-Bellman equations in each regime, together with the joining conditions at the switching boundaries. Chapter 1 establishes the framework for optimisation and provides various boundary conditions for different switching cases. Chapter 2 applies optimal stopping techniques to derive optimal “time-consistent” exchange rate target zones in the presence of proportional/lump sum intervention costs. It further shows that such discretionary equilibria can be improved upon by a credible commitment to an exchange rate mechanism (such as ERM). Chapter 3 characterises the irreversible oil investment decision in the North Sea as an optimal regime switching problem. In the absence of Petroleum Revenue Tax (PRT), it shows how the optimal development decision will be deferred when real oil prices follow a geometric Brownian motion. In chapter 4, an intertemporal partial equilibrium model of investment is used to assess the effects of stochastic capital depreciation on optimal investment behaviour, in a context where a sales constraint effectively decomposes the problem into two distinct regimes. The presence of the uncertainty about depreciation reduces firm’s demand for investment; and increasing the variability of capital depreciation further reduces investment. The uncertainty also makes investment “smoother” than that under certainty. Finally, chapter 5 and 6 deal with optimal consumption/portfolio decisions in a two-asset model with shortselling and borrowing restrictions imposed. Chapter 5 formulates a regime switching problem due to the presence of the borrowing constraint and specifies the corresponding boundary conditions. Chapter 6 characterises optimal solutions to various combinations of parameters for constant relative and constant absolute risk aversion utility functions. In many cases, if labour income is fully diversifiable, the borrowing constraint only binds when the wealth level falls below a threshold, and risk taking behaviour at the low level of wealth is associated with a convex portion of the indirect utility function (value function). In such regime-switch cases, the introduction of the borrowing constraint makes consumption more volatile relative to income. It also generates the precautionary motive for saving

Econometric Analysis of Financial Derivatives

__Abstract__ One of the fastest growing areas in empirical finance, and also one of the least rigorously analyzed, especially from a financial econometrics perspective, is the econometric analysis of financial derivatives, which are typically complicated and difficult to analyze. The purpose of this special issue of the journal on “Econometric Analysis of Financial Derivatives” is to highlight several areas of research by leading academics in which novel econometric, financial econometric, mathematical finance and empirical finance methods have contributed significantly to the econometric analysis of financial derivatives, including market-based estimation of stochastic volatility models, the fine structure of equity-index option dynamics, leverage and feedback effects in multifactor Wishart stochastic volatility for option pricing, option pricing with non-Gaussian scaling and infinite-state switching volatility, stock return and cash flow predictability: the role of volatility risk, the long and the short of the risk-return trade-off, What’s beneath the surface? option pricing with multifrequency latent states, bootstrap score tests for fractional integration in heteroskedastic ARFIMA models, with an application to price dynamics in commodity spot and futures markets, a stochastic dominance approach to financial risk management strategies, empirical evidence on the importance of aggregation, asymmetry, and jumps for volatility prediction, non-linear dynamic model of the variance risk premium, pricing with finite dimensional dependence, quanto option pricing in the presence of fat tails and asymmetric dependence, smile from the past: a general option pricing framework with multiple volatility and leverage components, COMFORT: A common market factor non-Gaussian returns model, divided governments and futures prices, and model-based pricing for financial derivative