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IMA
Public Lecture
Stephen Ross, Behavioral
Finance  The Closed End Fund Puzzle,
March 30, 2004
Talks(A/V)
Talks(Audio)
Slides:
html
pdf
ps
ppt
Topics covered: This tutorial recounts the state of the art in asset pricing theory and modeling. In many cases, models can be crucial for decisionmaking and the allocation of financial resources. Investment banks, often the most efficient users of capital, manage their trading portfolios using simulation models calibrated to hundreds of traded instruments. These models are used to price illiquid instruments as well as to manage the exposure of the firms to market and credit risk. The result is a more efficient use of economic capital and, hopefully, a more transparent relation between financial institutions and regulators. Leading theoreticians and practitioners will lecture on the models used in the main asset classes.
Speakers:
Blaise G. Morton
EBF Funds
blaise.morton@ebf.com
Glenn J. Satty
Telluride Asset Management
gsatty@tridecap.com
Srdjan D. Stojanovic
Department of Mathematical Sciences
University of Cincinnati
http://math.uc.edu/~srdjan/
Carlos Fabian Tolmasky
University of Minnesota
tolmasky@math.umn.edu
Syllabus:
Options
Pricing, Portfolio Hedging, and Data Analysis
Lecturer: Srdjan D. Stojanovic
1. Classical methods in options pricing and hedging. European options. Traditional derivation of the BlackScholes PDE. MonteCarlo verification of the derivation. BlackScholes formula and extensions for time dependent data. Effect of continuous and instantaneous dividends. Numerical extensions for price dependent data. American options, optimal stopping, and (obstacle) free boundary problems. Numerical solutions.
2. Options data analysis. Options data. Elementary implied volatility. Derivation of the Dupire PDE and integraldifferential equations. Non elementary methods for implied volatility, and other parameter estimation problems in complete markets: optimal control of Dupire PDEs, integral differential equations, and obstacle problems.
3. Optimal portfolio hedging. Merton's classical optimal portfolio theory for (linear) LogNormal markets. Portfolio hedging formula under appreciation rate uncertainty for linear nonMarkovian markets. Portfolio hedging for multifactor nonlinear Markovian markets. HamiltonJacobiBellman and MongeAmpère PDEs in optimal portfolio hedging. Portfolio hedging for multi factor nonlinear Markovian markets under general affine constraints on the portfolio.
4. State of the art in options pricing and hedging. Stochastic volatility models. Market price of volatility risk. The general problem of option pricing in incomplete Markovian markets. Complete solution of the general option pricing problem in incomplete Markovian markets via optimal portfolio theory, and MongeAmpère PDEs. Unique fair prices. Nonunique fair prices: pricespread. BlackScholes and optimal options hedging in general incomplete markets.
Preprints:
StojanovicPreprintPortfolioFormula.pdf
StojanovicPreprintStochasticVolatility.pdf
StojanovicPreprintHypoellipticBlackScholes.pdf
Practical
Aspects of Risk, Utility, and Derivative Valuation
Lecturer: Glenn J. Satty
1. Utility and Behavior: practical examples of why rational people behave differently whether or not they have the same information, and how utility and behavior impact financial markets and pricing of financial instruments.
2. Fundamental Intuition behind Derivative Pricing: reducing the BlackScholes equation and its solution to a "trading intuitive" form, in order to understand how traders and risk controllers use the equations and formulae in their daily work.
3. Relationship between Γ and Θ: how a market maker risk manages a position in real time. In this section we discuss ways a market maker makes money on both short and long term positions. If time permits we will also discuss classical portfolio insurance and its effect on the market.
4. Topics on Demand: according to the group we can discuss other issues, including different dynamics in different markets, actual vs theoretical distributions, exotic options, or other topics of interest. If time permits we may have a mock trading session.
Derivatives
in Commodity Markets
Lecturer: Carlos Fabian Tolmasky
1. Generalities. Consumption and nonconsumption commodities. Storage. Arbitrage relationships. Convenience yield. Contango, backwardation. Seasonality. Futures and Swaps. Mechanics: exchange traded contracts, overthecounter contracts. Basis risk. Hedging. Example: Metallgesellschaft.
2. Description of some market structures and participants: metals, grains, energy (petroleum, natural gas, electricity), weather.
3. More on Swaps. Vanilla Options on futures. Spread options: craks, crush and timespread options. Asian options and options on swaps.
4. Term structure models. One factor models. Stochastic convenience yield. Gibson and Schwartz model. Statistics of various futures and volatility curves. Multicurve markets, intra and inter curve correlations.
5. Petroleum market revisited: the market as a description of a refinery and its economics.
Slides: Commod.pdf
Quantitative
Methods for Pricing FixedIncome Securities
Lecturer: Blaise G. Morton
(based on notes by Blaise Morton and Thomas Spiegel)
1. Introduction to Bonds and the FixedIncome Markets. What is the market structure and who are the players. Basic models of Treasury Yield curves. Practical and philosophical issues with continuous yield curves. Back to reality with treasury, swap and agency dealer screens, quoting conventions. Treasury curve modeling techniques and basic analyses such as duration, convexity and the convexity bias. Understanding the shape of the treasury curve (following Ilmanen). A formula for expected bond return
2. InterestRate Swaps and the LIBOR Curve. Basic models. Building the LIBOR (rate) curve. Money market, interestrate swaps and Eurodollar futures. The convexity bias in Eurodollar Futures (following Burghardt). The repo market  Basic trades and determining fair value. Definitions of spread trading and fixedincome arbitrage.
3. Stochastic Models and Derivatives Pricing. Black's model applied to pricing interestrate caps, floors. Binomial trees for pricing callable bonds using the optionadjusted spread (OAS). PDE pricing models based on stochastic differential equations, example: the first convertible bond model of Brennan and Schwartz. Market Models, example: swaption pricing.




MONDAY,
MARCH 29
All talks are in Lecture Hall EE/CS 3180 unless otherwise noted. 


8:30  Coffee and Registration  Reception Room EE/CS 3176 

9:15  Douglas N. Arnold and Scot Adams  Welcome and Introduction  
Srdjan
D. Stojanovic
(University of Cincinnati) Preprints: 

9:3010:15  Part 1  
10:1510:30  Break  Reception Room EE/CS 3176  
10:3011:15  Part 2  
11:151:30  Lunch break  
1:302:15  Part 3  
2:152:30  Break  Reception Room EE/CS 3176  
2:303:15  Part 4  
TUESDAY,
MARCH 30 All talks are in Lecture Hall EE/CS 3180 unless otherwise noted. 

9:00  Coffee  Reception Room EE/CS 3176  
Glenn
J. Satty
(Telluride Asset Management) Practical Aspects of Risk, Utility, and Derivative Valuation 

9:3010:15  Part 1  
10:1510:30  Break  Reception Room EE/CS 3176  
10:3011:15  Part 2  
11:151:30  Lunch break  
1:302:15  Part 3  
2:152:30  Break  Reception Room EE/CS 3176  
2:303:15  Part 4  
IMA
Public Lecture March 30, 2004 , Room 100 Smith Hall 

5:006:30 pm  Reception  Lind Hall 400  
7:00
pm Room 100 Smith Hall 
Stephen
A. Ross Massachusetts Institute of Technology 
Behavioral Finance  The Closed End Fund Puzzle 

WEDNESDAY,
MARCH 31 All talks are in Lecture Hall EE/CS 3180 unless otherwise noted. 

9:00  Coffee  Reception Room EE/CS 3176  
Carlos
Fabian Tolmasky (University of Minnesota) Slides: Commod.pdf 

9:3010:15  Part 1  
10:1510:30  Break  Reception Room EE/CS 3176  
10:3011:15  Part 2  
11:151:30  Lunch break  
1:302:15  Part 3  
2:152:30  Break  Reception Room EE/CS 3176  
2:303:15  Part 4  
THURSDAY,
APRIL
1 All talks are in Lecture Hall EE/CS 3180 unless otherwise noted. 

9:00  Coffee  Reception Room EE/CS 3176  
Blaise
G. Morton (EBF Funds) Quantitative Methods for Pricing FixedIncome Securities 

9:3010:15  Part 1  
10:1510:30  Break  Reception Room EE/CS 3176  
10:3011:15  Part 2  
11:151:30  Lunch break  
1:302:15  Part 3  
2:152:30  Break  Reception Room EE/CS 3176  
2:303:15  Part 4  
FRIDAY,
APRIL
2 All talks are in Lecture Hall EE/CS 3180 unless otherwise noted. 

9:00  Coffee  Reception Room EE/CS 3176  
Blaise
G. Morton (EBF Funds) Quantitative Methods for Pricing FixedIncome Securities 

9:3010:15  Part 5  
10:1510:30  Break  Reception Room EE/CS 3176  
10:3011:15  Part 6  
IMA/MCIM
Industrial Problems Seminar April 2, 2004 , EE/CS 3180 

1:252:15  Richard
Derrig (President, OPAL Consulting LLC, Visiting Scholar, Wharton School, University of Pennsylvania) 
Mathematical Models for Insurance Fraud Detection Paper: Fraud Classification Using Principal Component Analysis of RIDITs (pdf) 
NAME  DEPARTMENT  AFFILIATION 

Vilen Abramov  Department of Mathematics  Kent State University 
Scot Adams  Institute for Mathematics and its Applications  University of Minnesota, Twin Cities 
Inkyung Ahn  Department of Mathematics  Korea University 
Hengjie Ai  University of Minnesota, Twin Cities  
Greg Anderson  School of Mathematics  University of Minnesota, Twin Cities 
Valentin Andreev  Department of Mathematics  Lamar University 
Douglas Arnold  Institute for Mathematics and its Applications  University of Minnesota, Twin Cities 
Donald Aronson  Institute for Mathematics and its Applications  University of Minnesota, Twin Cities 
Sezai Ata  School of Mathematics  University of Minnesota, Twin Cities 
Gerard Awanou  Institute for Mathematics and its Applications  University of Minnesota, Twin Cities 
HeeJeong Baek  Department of Mathematics  Seoul National University 
Karen Ball  Institute for Mathematics and its Applications  University of Minnesota, Twin Cities 
Antar Bandyopadhyay  Institute for Mathematics and its Applications  University of Minnesota, Twin Cities 
Peter Bank  Department of Mathematics  HumboldtUniversität 
Camelia Bejan  Department of Economics  University of Minnesota, Twin Cities 
Slava Belyaev  ITEP  
Florin Bidian  Department of Economics  University of Minnesota, Twin Cities 
Hunt Blatz  Quantitative Group  Advantus Capital Management 
Maury Bramson  School of Mathematics  University of Minnesota, Twin Cities 
Olga Brezhneva  Institute for Mathematics and its Applications  University of Minnesota, Twin Cities 
James Carson  RisQuant Energy  
Jamylle Carter  University of Minnesota, Twin Cities  
Zhiwei Chen  Department of Mathematics  University of Maryland 
Dong Chung  Sogang University  
Pin Chung  Investment and Risk Management  Chung ALM 
Palahela (Daya) Dayananda  Department of Mathematics  University of St. Thomas 
Richard Derrig  Opal Intelligent Solutions  
Gregory Duane  University of Minnesota, Twin Cities  
Yang Fan  University of Minnesota, Twin Cities  
Narryn Fisher  Department of Mathematics  University of Maryland 
Louis Forti  Department of Energy Risk Trading  CHS, Inc. 
Liliane Forzani  University of Minnesota, Twin Cities  
Shmuel Friedland  Department of Mathematics, Statistics, and Computer Science  University of Illinois, Chicago 
Tim Garoni  Institute for Mathematics and its Applications  University of Minnesota, Twin Cities 
Urmi GhoshDastidar  Department of Mathematics  City University of New York 
Victor Goodman  Department of Mathematics  Indiana University 
Elliot Gootman  Department of Mathematics  University of Georgia 
Lawrence Gray  School of Mathematics  University of Minnesota, Twin Cities 
Matthew Gray  Allianz Life Insurance Company Of North America  
Marshall Hampton  Department of Mathematics & Statistics  University of Minnesota, Twin Cities 
ChuanHsiang Han  Institute for Mathematics and its Applications  University of Minnesota, Twin Cities 
Silvia Iorgova  International Capital Markets Department  International Monetary Fund 
Naresh Jain  School of Mathematics  University of Minnesota, Twin Cities 
Abu Jalal  Department of Finance  University of Minnesota, Twin Cities 
Dhandapani Kannan  Department of Mathematics  University of Georgia 
John Kemper  Department of Mathematics  University of St. Thomas 
Mohammad Khan  Department of Mathematics  Kent State University 
Andy Kim  Department of Applied Economics  University of Minnesota, Twin Cities 
Bong Ko  Department of Mathematics Education  Cheju National University 
Thomas Kurtz  Department of Mathematics  University of Wisconsin, Madison 
Chang Lee  School of Mathematics  University of Minnesota, Twin Cities 
Jeong Lee  Department of Mathematics  Seoul National University 
Rodrigo Lievano  Department of FMIS  University of Minnesota 
Mingyan Lin  School of Mathematics  University of Minnesota, Twin Cities 
Xiaoji Lin  Department of Finance  University of Minnesota, Twin Cities 
Dennis Lui  Wells Capital Management  Wells Fargo 
Huaqiang Ma  Department of Mathematics  University of Maryland 
Andy Mack  Quantitative Finance Department  Telluride Asset Management 
Hantao Mai  Department of Mathematics  University of Maryland 
Richard McGehee  School of Mathematics  University of Minnesota, Twin Cities 
Andreas Michlmayr  Patpatia & Associates  
Oana Mocioalca  Department of Mathematics  Purdue University 
Hamid Mohtadi  Department of Applied Economics  University of Minnesota, Twin Cities 
Blaise Morton  EBF & Associates  
Gary Nan Tie  Investment Department  The St. Paul Companies 
J. Michael Neal  Department of Statistics  University of Minnesota, Twin Cities 
Amir Niknejad  Department of Mathematics  University of Illinois, Chicago 
Glenn Pederson  Department of Applied Economics  University of Minnesota, Twin Cities 
Thomas Peters  Department of Computer Science  University of Connecticut 
Lea Popovic  Institute for Mathematics and its Applications  University of Minnesota, Twin Cities 
H. Pradhan  Department of Finance and Economics  XLRI Jamshedpur 
Huiyan Qiu  Department of Finance  University of Minnesota, Twin Cities 
Grzegorz Rempala  Department of Mathematics  University of Louisville 
Stephen Ross  Sloan School of Management  Massachusetts Institute of Technology 
Fadil Santosa  Institute for Mathematics and its Applications  University of Minnesota, Twin Cities 
Glenn Satty  Telluride Asset Management  
Arnd Scheel  School of Mathematics  University of Minnesota, Twin Cities 
Jamie Seguino  Corporate Economics  Ford Motor Company 
A. Silva  Department of Physics  University of Maryland 
Mihai Sirbu  Department of Mathematical Sciences  Carnegie Mellon University 
Srdjan Stojanovic  Department of Mathematical Sciences  University of Cincinnati 
Marcelo Takami  Department of Research  Central Bank of Brazil 
Peter Tankov  École Polytechnique  
Carlos Tolmasky  Department of Mathematics  Cargill, Inc. 
Pradyumna Upadrashta  Department of Scientific Computation  University of Minnesota, Twin Cities 
Hong Wang  Department of Civil Engineering  University of Minnesota, Twin Cities 
Jing Wang  Institute for Mathematics and its Applications  University of Minnesota, Twin Cities 
Xiaodi Wang  Department of Mathematics  Western Connecticut State University 
Yuhong Yang  Department of Statistics  Iowa State University 
Ofer Zeitouni  School of Mathematics  University of Minnesota, Twin Cities 
Bing Zhang  Department of Mathematics  University of Maryland 
Tao Zhang  Department of Mathematics  Purdue University 
Yuming Zhang  Department of Mathematics  University of Maryland 
Jun Zhao  Institute of Mathematics and its Application  University of Minnesota, Twin Cities 