Registration and coffee

Welcome address

ACADEMIC ADDRESS: A mixture model for exotics

• Why use a mixture of models?
• A mixture of models is not a model
• A local vol model with mixture marginals
• Beyond local volatility
• A fully dynamic mixture model

Steven Shreve, Orion Hoch Professor of Mathematics, CARNEGIE MELLON UNIVERSITY

ACADEMIC ADDRESS: Pricing and hedging structured products to acceptable risk levels

• Principles for structured product pricing and risk management
• Defining acceptable risks
• Indices of acceptability
• Applications to option markets
• Required Sharpe ratios for hedge funds
• Daily cash flow contracting
• Gap risk pricing
• Forward starts and basket option pricing

Dilip Madan, Professor of Mathematical Finance, Department of Finance, Robert H. Smith School of Business, UNIVERSITY OF MARYLAND (Winner of Risk Magazine’s Quant of the Year, 2008)

Morning break and an opportunity to network

STREAM ONE: New modelling and pricing of
derivatives

STREAM TWO: Risk management strategies and key quantitative techniques

Chairman’s opening remarks

Chairman’s opening remarks

Pricing and hedging options with continuous time limits of GARCH processes

• Micro-econometric foundations of option pricing

• Problems with strong GARCH limit

• Limit of weak GARCH and its advantages over other models

• Markov switching GARCH diffusion

• Model implementation: Applications to pricing and hedging

Carol Alexander, Professor of Financial Risk Management and Director of Research, ICMA CENTRE

On the information content of option prices

• Extracting the information content of simple option positions for exotic option pricing
• Implications for the pricing and hedging of path-dependent options
• Implications for structuring and market design

Peter Carr, Head of Quantitative Financial Research, BLOOMBERG

Bermudan swaptions

• Numerical integration approach for Gaussian HJM
• Improved exercise boundary in Monte-Carlo pricing
• Extension to other multiple exercise dates products

Marc Henrard, Head of Interest Rate Modelling, DEXIA BANK

Information derivatives

• Quantifying information content of financial time-series
• Liquidity-adjusted volatility trading; information swaps
• Correlation vs. information trading
• Single-name information trading

Andrei Soklakov, Strategist, Equity Exotics and Hybrids,
GOLDMAN SACHS

Volatility surfaces

• Smile dynamics and the limitations of smile models
• Derivation of Levy flight models
• Truncated Levy flights and the implied volatility surface
• Hedging efficiency relative to smile models
• Exotic prices compared to standard models

Patrick S. Hagan, Chief Investment Officer, JP MORGAN

Optimal portfolio liquidation in illiquid markets

• How can one model the price impact of orders?
• What does “optimal” liquidation mean?
• Qualitative and quantitative properties of optimal strategies
• Competing players: Stealth vs. sunshine trading

Alexander Schied, Associate Professor, Operations Research
and Information Engineering, CORNELL UNIVERSITY

Lunch and an opportunity to network

New developments in volatility and variance products pricing and the link to forward volatility

• Review of pricing and hedging of simple variance products
• Variance swap dynamics and pricing of options on variance and variance indeces
• Modelling approaches for linking variance and forward vol products
• More exotic single- and multi-asset structures and strategies with variance convexity

Christoph Burgard, Global Head of Equities, Credit, Credit-Counterparty and Emerging Markets Quantitative Analytics, BARCLAYS CAPITAL

A new coherent formalism for liquidity risk

• “Liquidity policy”: A missing ingredient of portfolio theory
• Definition of “portfolio value” under a chosen “liquidity policy”
• Properties of the “value” function: Formalization of the “granularity effect”
• Modelling of general illiquid markets
• Coherent measures of risk and liquidity risk
• Convexity and superadditivity of “coherent portfolio risk measures”
• Case studies

Carlo Acerbi, Head of Financial Engineering, ABAXBANK

• Analysing semianalytical derivative pricing formula
• Direct integration approach:The Attari formula
• Stability assessment: Uniform FFT, Fractional FFT and non uniform FFT
• Accuracy choices:Optimal quadrature strip
• Empirical analysis

Marcello Minenna, Head of the Quantitative Analysis Unit,
CONSOB

A study of sellers of senior tranched credit protection

• Lessons from the credit crisis
• Rating agency aspects
• The impact of liquidity on pricing
• Leveraged super senior structures
• Counterparty risk, credit derivative product companies and monolines

Jon Gregory, Former Global Head of Credit Derivatives Research, BARCLAYS CAPITAL

Afternoon break and an opportunity to network

A new class of Levy process models with almost perfect calibration to both barrier and vanilla FX options

• The problem and existing solutions
• Calibration to DNT (or other types of barrier) options
• How to calibrate to vanilla options separately
• Demonstration of model flexibility with examples

John Crosby, Global Head of Quantitative Analytics
and Research, LLOYDS FINANCIAL MARKETS; visiting
Professor of Quantitative Finance, GLASGOW UNIVERSITY

Counterparty risk with stochastic intensity hybrid models

• Risk-neutral evaluation of counterparty risk
• Modelling assumptions for interest-rate payoffs
• Interest-rate / credit-spread correlation
• Pricing examples and discussion
• Conclusions

Andrea Pallavicini, Head of Financial Engineering, BANCA LEONARDO

Recent developments in the modelling of CDOs

• Gaussian Base correlation vs Levy Base correlation
• Implementations details of the Levy Base correlation
• framework
• Alternative Levy models
• Hedging and trading strategies under Levy Base correlation framework
• Modelling LCDS and LCDX using Levy processes

Wim Schoutens, Research Professor and Independent Consultant, CATHOLIC UNIVERSITY OF LEUVEN

Hedging correlation risk

• Dynamic hedging of structured credit product
• Spread dynamics that are consistent with the Gaussian copula
• An alternative measure of realised correlation
• Summer 07 credit crunch vs. May 05 correlation crisis: Relative value using breakeven correlation

Jean-David Fermanian, Senior Quantitative Analyst, Fixed Income Research Team, BNP PARIBAS

Credit volatility - options and beyond

• CDS options, and Black’s formula
• Credit index options
  
  • payoff specificities
  • back to Black
  • models without smile?
• Trading strategies involving index options
• New products on credit volatility

Jerome Brun, Head of Quantitative Credit Research, SOCIETE GENERALE

Managing risk in equity dispersion trades

• Standard dispersion trades
• Focus on OBBOs
• OBBO break-even correlations: What can they teach us?
• Hedging with correlation skew
• Conclusions

Alexis Collomb, Independent Consultant

Smoking adjoints: Fast Monte Carlo greeks, part II

• Review of adjoint formulation
• Ideas of automatic differentiation
• Barriers and American options
• “Vibrato” Monte Carlo for discontinuous payoffs

Michael Giles, Professor of Scientific Computing, Mathematical Institute, OXFORD UNIVERSITY (Co-winner of Risk Magazine's Quant of the Year, 2007)

CHAMPAGNE ROUNDTABLES
A chance to discuss the latest issues of volatility, credit, commodity, interest rate, structured product and liquidity with leading
experts over a glass of champagne

Steven Shreve, Dilip Madan, Patrick S. Hagan, Wim Schoutens, Jon Gregory, Alexander Schied, Carol Alexander, John Crosby.

Chairman’s closing remarks

Cocktail reception

End of day one