Hedging in Field Theory Models of the Term Structure

We use path integrals to calculate hedge parameters and efficacy of hedging in a quantum field theory generalization of the Heath, Jarrow and Morton (HJM) term structure model which parsimoniously describes the evolution of imperfectly correlated forward rates. We also calculate, within the model specification, the effectiveness of hedging over finite periods of time. We use empirical estimates for the parameters of the model to show that a low dimensional hedge portfolio is quite effective.Comment: 18 figures, Invited Talk, International Econophysics Conference, Bali, 28-31 August 200

Abstracts

S Søren Asmussen (Lund) Simulation algorithms for insurance risk models with heavy tails Joint work with Klemens Binswanger, Zurich, and Bjarne Højgaard, Aalborg Rare events of particular interest in insurance risk are the ruin probability and the probability that the sum of the claims within a fixed period exceeds some large value. If the claims are light-- tailed, it is well understood how to perform the rare events simulation in an efficient way. We present the state of the area for heavy tails. On the positive side, two efficient algorithms are presented, one involving order statistics and a conditional Monte Carlo idea, the other importance sampling. On the negative, it is shown that the established procedure for finding a good algorithm in the light--tailed case, to simulate using an asymptotic description of the conditional distribution given the rare event, does not work for heavy tails. Tomas Bjork (Stockholm) Some control theoretic aspects of interest rate theory Using ..

ON THE USE OF NUMERAIRES IN OPTION PRICING On the Use of Numeraires in Option Pricing

Abstract In this paper we discuss the significant computational simplification that occurs when option pricing is approached through the change of numeraire technique. The original impetus was a paper (Hoang, Powell, Shi 1999) on endowment options recently published in this journal; in the present paper we extend these results to the case of stochastic interest rates. We also discuss four additional option pricing problems within the framework of a change of numeraire: • Pricing savings plans which incorporate a choice of linkage. • Pricing convertible bonds. • Pricing employee stock ownership plans • Pricing options where the strike price is in a currency different from the stock price

Australian Inland Mission Old Timers Homes, Birdsville, with the roof damaged, Queensland, ca. 1969 [transparency] /

Location identified from sign in image.; Mould spots.; Part of The Reverend Andrew Leslie McKay collection of photographs relating to Inland Australia, 1950-1976.; This location also appears in PIC/9193/624, 637, 638 and 639.; Also available in an electronic version via the internet at: http://nla.gov.au/nla.pic-vn4181545; Collection donated by Mrs Lyn McKay, widow of Reverend Les McKay, through their daughter Dr. Judith McKay