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May 02, 06 09:58 AM |
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 Fractals, Finance and Fat Tails New
Approaches to Derivatives Pricing and Risk Management July 6 -
7, 2006 • Le Meridien Piccadilly, London, UK
www.iqpc.co.uk/GB-2700/W500a
Ask for your
10% wilmott.com Discount!
DAY ONE
9:00
Chairman’s welcome and opening speech Michael Weber, Global Head
of Hybrid Products, Rabo Securities Mike has been trading or
managing traders since 1989. His background is in physics, with a
PhD in theoretical physics from the University of California.
9:15 Fractals and Finance: Practical or just theoretical?
Markets are an example of what the physicists call a "complex
system'' with its associated chaos and fractal behaviour. This talk
will discuss the evolution of the mathematics behind fractals, the
rise in the use of fractals and some of the implications of looking
at finance in this way.
What Have We Learned?
Are Fractals Useful or Just Pretty Pictures?
Statistical Implications of Fractals
Misuses of Fractals
Future Research Edgar Peters, Chief Investment Officer,
PanAgora Asset Management Ed is the premier author on the
subject of chaos theory as it relates to the financial markets. As
CIO for PanAgora Asset Management, Inc., he manages over $45 billion
in assets, and conducts extensive research into the theory and
applications of chaos theory and fractals. He is the author of
“Chaos and Order in the Capital Markets”.
10:15 Fractals and
Martingales There are many ways to model uncertainty but
orthodox finance modelling does not tolerate arbitrage, which
drastically reduces the choice. I examine what alternative
modellings can bring us.
How to model uncertainty?
Modelling issues: infinite variance, infinite quadratic
variation
Is fractional BM arbitrageable?
Describing the effects or understanding the causes? Bruno
Dupire, Bloomberg NY Bruno joined Bloomberg in New York in 2004
to develop advanced analytics. He is best known for his work on
volatility modelling, including the Local Volatility Model (1993),
simplest extension of the Black-Scholes-Merton model to fit all
option prices, and subsequent results on stochastic volatility and
volatility derivatives. He is a Fellow and Adjunct Professor at NYU.
He was included in December 2002 in the Risk magazine "Hall of Fame"
of the 50 most influential people in the history of derivatives. He
is the recipient of the 2005 "Cutting edge research" Wilmott award
and has been voted in 2006 the most important derivatives
practitioner of the past 5 years in the Global Derivatives industry
survey.
11:15 Continuous cascade models for asset return
fluctuations This presentation will provide an overview of some
continuous cascade processes recently introduced to model asset
return fluctuations.
Demonstration that these models account in a very parsimonious
manner for most of “stylized facts” of financial time series
(volatility clustering, intermittency, fat tail distributions...)
Review of the log-normal multi-fractal random walk
Discussion of its main mathematical properties and notably its
appealing stability properties as respect to time aggregation
Understand the parameters by which this model is fully
determined Emmanuel Bacry, CNRS Research Fellow Assistant
Professor in Applied Mathematics, Ecole Polytechnique
Specialised in "multi-fractals" and wavelets, Emmanuel is
involved in harmonic analysis, stochastic process and statistic
estimators. His research is linked to financial applied mathematics,
predictive problems (for example the "cracks"), and provides
elements to precisely determine risk. Dr. Bacry has regularly
consulted several financial institutions such as Deutsche Bank, and
Société Générale.
12:15 Networking Lunch
14:00 Case
Study: Using continuous cascade models for risk estimation and
forecasting The aim of this presentation is to illustrate how
MRW cascade models introduced by E. Bacry, can be used to estimate
and predict risk associated with return fluctuations.
How volatility and Value at Risk predictors can be built using
these models
How models can be adapted to multi-horizon and multi-scale
forecasting from intra-day to monthly time scales
Emphasis on estimation problems related to the long-memory
nature of volatility
Using the framework of random cascade processes to show that
many usual risk measures (volatility measures, return distribution
fat tail exponents) converge to their expected theoretical values
only for (unreachable) very large sample sizes
Why finer and finer (intra-day) time scales do not reduce
estimation bias
Comparing theoretical results and numerical simulations to
empirical estimations Jean-François Muzy, CNRS Research Fellow
Assistant Professor, Universite de Corse Cumulating in depth
knowledge of physics, mathematics (probabilities and statistics) and
computer science, Jean-François has done research on time series
analysis, including such diverse fields as music, biology, geology,
finance; using broad arrays of tools, from chaos theory to wavelets
to econometrics. He has also been a consultant to several financial
institutions.
15:00 Multi-fractal volatility modelling
A first approach: the 1997 Multi-fractal Model of Asset Returns
Fat tails, long memory and moment-scaling
An econometric model: Markov-Switching Multi-frequency (MSM)
Estimation and forecasting Laurent Calvet, Deloitte
Professor of Finance, HEC Paris Laurent has recently joined HEC
from Harvard University, where he was the John L. Loeb Associate
Professor of Economics. His research interests include asset pricing
and volatility modelling. Laurent's recent works have been published
in Journal of Econometrics, Journal of Economic Theory, Journal of
Financial and Quantitative Analysis, Journal of Mathematical
Economics, Review of Economics and Statistics and Journal of
Monetary Economics.
16:00 Empirical evaluation of
multi-fractal models
GMM and maximum likelihood
Short- and long-run forecasts
Volatility co-movement
Value-at-risk Adlai Fisher, Professor of Finance, University
of British Columbia Adlai’s research interests include Corporate
Decisions and Asset Prices, Empirical Finance / Financial
Econometrics, Volatility Modelling, Derivatives, Mergers and
Acquisitions. Adlai’s recent works have been published in the
Journal of Finance, Review of Economics and Statistics and the
Journal of Financial Econometrics
17:00 Chairman’s closing
remarks
17:15 Networking Drinks Reception
DAY TWO
9:00 Chairman’s welcome Michael Weber, Global Head of
Hybrid Products, Rabo Securities
9:15 Heterogeneous markets
and fractal behaviours - empirical evidence and modelling This
talk will discuss empirical properties of (high-frequency) data in
finance. These properties are reproduced by the EMA-HARCH model; a
discrete-time model with long-range dependence. The results of the
calibration reveal the heterogeneous and fractal nature of financial
markets, where different traders have very different views and act
differently. The following aspects are discussed - both as empirical
phenomena and parts of the model:
Distributions with heavy tails
Clusters and lead-lag structure of volatilities of different
time resolutions
The role of heterogeneous time frames and the fractal structure
of markets Ulrich Mueller, Senior ALM Consultant, Converium
Ulrich studied physics and fluid dynamics at the Swiss Federal
Institute of Technology where his prize-winning Ph. D. thesis led to
a patented thermo-acoustic heat-pump. Afterwards, he moved to
industrial risk assessment and finance. His research work led to
numerous publications in scientific journals. In 2002, Ulrich joined
the re-insurer Converium. He developed the company's Asset-Liability
Management (ALM) model including a comprehensive Economic Scenario
Generator.
10:15 Pricing options via generalized
Black-Scholes and Martingales It is suggested that there are two
separate methods for pricing options under a no arbitrage condition:
the generalized Black-Scholes partial differential equation (PDE)
following from the price stochastic differential equation (SDE)
combined with the condition for a risk neutral portfolio, and the
explicit construction of a Martingale based on the corresponding
price SDE. This talk will point out that:
Why option prices necessarily diverge if returns distributions
with fat tails are used
Demonstrate that options are correctly priced when the
exponential distribution is used, and that that distribution is
empirically observed for small to moderate returns Joe McCauley,
Physics Department, University of Houston Joe McCauley is a
Professor of Physics. He was Lars Onsager's last graduate student.
Professor McCauley has written numerous books on Chaos Theory and
Fractals. His main research fields are economics and finance
(econophysics), nonlinear dynamics, and statistical physics.
11:15 Non-Gaussian option pricing and multi-timescale models
of volatility A multi-scale model of volatility assumes that the
volatility is governed by the observed past price changes on
different time scales.
Obtaining a model that captures most stylized facts of financial
time series
Reproducing the time asymmetry of financial time series: past
large-scale volatility influence future small scale volatility
Choosing parameters
Empirical observations
Generalizing the models to account for jumps, skewness and
multi-asset correlations Lisa Borland, Senior Research
Scientist, Evnine-Vaughan Associates, Inc Physicist Lisa Borland
uses her scientific background to tackle problems in the world of
finance. Currently, Lisa is at Evnine-Vaughan Associates Inc., a
San-Francisco based hedge fund. Her main focus lies in the research
and development of new trading strategies.
12:15 Networking
Lunch
14:00 Case Study: Fat tails in structured credit
derivatives Modelling the fat tails associated with portfolio
credit derivatives (especially CDO’s) is a central aspect of
analysing risk and return. The technique that will be demonstrated
is not fractals, but rather copula models that link the marginal
probability of defaults of the assets in the portfolio to arrive at
the joint probability distribution.
Copula modelling approaches to account for tail dependency in
portfolio credit derivatives
May 2005 - when models failed - how to overlay supply and demand
dynamics into risk neutral models
Value flows in the CDO market - a principal component analysis
to identify trade opportunities
Correlation strategies - what are the most common strategies
used by leveraged investors?
Latest modelling developments - from forward base correlation to
HJM-type approaches Lorenzo Isla, Head of European Structured
Credit Derivatives Research, Barclays Capital Lorenzo Isla is
responsible for the CDO / structured credit research and
quantitative strategy at Barclays Capital in London. Prior to his
current role he was a lecturer at Harvard University and worked for
Panagora Asset Management, the Boston based hedge fund.
15:00 Markov Processes, Hurst Exponents, and non-linear
diffusion equations with application to finance This talk will
show by explicit closed form calculations that a Hurst exponent
H≠1/2, without extra conditions, does not imply long time
correlations like those found in fractional Brownian motion.
The construction of scaling solutions
Does the process of scaling Markov with the Hurst exponent have
non-stationary increments?
Why the usual simple argument that H≠1/2 implies correlations
fail for Markov processes with scaling solutions Gemunu H.
Gunaratne, Professor, Physics Department, University of Houston
Gemunu is a Professor and Associate Chairman of Physics. His
research interests include Pattern Formation, Vibrational Assessment
of Bone and Random Walks with Variable Step Sizes. He has written
extensively on the use of fractals and chaos in the financial
markets.
16:00 Panel Session: The future of fractals in
finance Will the SV process that reproduces all the stylised
facts of real markets, such as power law fat tails, vol clustering,
realistic vol of vol, etc, be implemented across the financial
markets?
Multi-time scale models vs. the multi-fractal approach: Which
one wins?
What will the potential market impact of this implementation be?
Panellists include speakers from the programme
17:00
Chairman’s closing remarks and end of conference
www.iqpc.co.uk/GB-2700/W500a
------------------------- James
Fahy Administrator
Edited: Thu May 18, 06
at 09:00 AM by Administrator
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