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Seminar: Winter 2006

Stanford Financial Mathematics Seminar Schedule

Date Speaker Affiliation Talk Title
(click to see Abstract)
Comments
1/13 Peter Carr Head of Quantitative Financial Research, Bloomberg LP, New York Hedging Credit Derivatives in Intensity Based Models

paper pdf

slides pdf

1/20

David Li --

CANCELLED

Credit Derivatives Group, Barclays Capital, New York   NOTE: this seminar is cancelled, will reschedule
1/27 Yacine Ait-Sahalia Bendheim Center for Finance, Princeton University Portfolio Choice with a Large Number of Assets: Jumps and Diversification

speaker's webpage
2/03 Maher Aoun and Alyce Campbell

Calypso Technology, Inc.

San Francisco

From Models to Desktops  
2/10 Terry Tse Deutsche Bank, New York Credit Markets in 2005 slides pdf
2/17

Jayaram Muthuswamy

Dept of Finance, Griffith University,
Australia
Non-synchronicity in asset prices and incorrect rejections of market efficiency  
2/24 Alessia Falsarone Citigroup Investment Research Fundamental Reality vs. Market Perception ­ Modeling US Equities  
3/03 David Li Credit Derivatives Group, Barclays Capital, New York Implied Loss Distribution, Term Structure of Skew and Dynamic Modeling of Credit Portfolio

Stanford-Tsukuba Joint Workshop on Financial Engineering and Systems Management March 2-3, 2006

slides pdf

paper pdf

Note location change:

Redwood Hall (Room G19), Panama Street

3/03 David Lando Copenhagen Business School Decomposing Swap Spreads

slides pdf

Note location change:

Redwood Hall (Room G19), Panama Street

3/10 Takaki Hayashi Columbia University High-frequency data and covariance estimation subject to nonsynchronicity
3/17 Yakov Kanter Morgan Stanley Modeling Mortgage Backed Securities


Portfolio Choice with a Large Number of Assets: Jumps and Diversification

Yacine Ait-Sahalia (Bendheim Center for Finance, Princeton University)

We analyze the portfolio selection problem of an investor facing both Brownian and jump risks. By decomposing the two types of risks on a well-chosen basis, we provide a new methodology for determining the optimal solution in closed form, up to a constant. We show that the optimal solution is for the investor to focus on controlling his exposure to the jump risk, while exploiting differences in the asset returns diffusive characteristics in the orthogonal space. We then examine the solution to the portfolio problem as the number of assets available to the investor increases, and study the asymptotic distribution of the investor's wealth and optimal portfolio.

(joint with Julio Cacho-Diaz and Tom Hurd)
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From Models to Desktops

Maher Aoun and Alyce Campbell (Calypso Technology, Inc.)

The talk gives an overview of capital markets technology and sheds light on the mathematical models' lifecycle from the quant's computer to the trader's desk.
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Credit Markets in 2005

Terry Tse (Deutsche Bank, New York)

In this presentation we will review some of the most important events that drove credit markets in 2005. In particular, we will investigate the crisis in the US auto companies and their subsequent impact on the credit default swap market. We will discuss the mechanics and peculiar dynamics of the credit default swaps contracts in the context of these events. Live trading examples will be presented. Finally, we will also touch on the impact of macro-economic issues such as the yield curve and oil prices.
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Non-synchronicity in asset prices and incorrect rejections of market efficiency

Jayaram Muthuswamy (Dept of Finance, Griffith University, Australia)

Weak-form tests of market efficiency using portfolio returns have often invoked an "expected returns are constant" equilibrium model because insignificant sample autocorrelatinos then legitimately imply weak-form market efficiency. In this paper, the problem of price non-synchronicity is re-examined in the context of its strong potential to come directly as a wedge between theoretical efficiency, and its real
world testability. The basic argument here is that full information reflectively of prices is paradoxically impossible to achieve if the asset has not had the opportunity to trade at the instant of measurement of its price - and to therefore fully reflect available information in the first instance. Using a simple model to represent price non-synchronicity in a portfolio, it is shown that the conventionally perceived upper bound for spurious first order autocorrelation under the null hypothesis of a random walk for individual asset prices, is far too conservative. In addition, time variation in expected returns further exacerbates the successful
execution of tests of the Efficient Markets Hypothesis: if expected returns change through time, sample autocorrelations can deviate significantly from zero and the markets still be pronounced efficient.
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Fundamental Reality vs. Market Perception ­ Modeling US Equities

Alessia Falsarone (Citigroup Investment Research)

We introduce a traditional top-down vs. bottoms-up approach to modern relative value investing with respect to global equity instruments (both straight and equity-linked). In particular we overlay fundamental, multi-factor driven calls to pure volatility pair trades under a synchronized pricing scenario. Next, we discuss the impact of phase-locking events, modern prospect theory, and “half-life” of a strategy in portfolio and individual equity selection models. Most importantly, we analyze the key determinants of effective modeling for equity strategists vis-à-vis externalities introduced by a changeover in financial metrics, comparability parameters and other disruptions of near-term factor stability.
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Implied Loss Distribution, Term Structure of Skew and Dynamic Modeling of Credit Portfolio

David Li (Credit Derivatives Group, Barclays Capital, New York)

This seminar will be part of the Stanford-Tsukuba workshop on Thursday and
Friday March 2-3.
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Decomposing Swap Spreads

David Lando (Copenhagen Business School)


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High-frequency data and covariance estimation subject to nonsynchronicity

Takaki Hayashi (Columbia University)

We consider the problem of estimating the (integrated) covariance/correlation of two diffusion price processes when they are observed only at discrete times in a nonsynchronous manner. The popular approach in the literature, the realized covariance/correlation estimator, which is based on (regularly spaced) synchronous data, is problematic because the choice of regular interval size and data interpolation scheme may lead to unreliable estimation. We first introduce our approach (proposed in Hayashi and Yoshida 2005) -- an alternative estimation procedure which is free of any `synchronization' processing of the original data. We show why and how the procedure works well. We then present advances of the theory, accompanied by some examples.

(Joint work with N. Yoshida.)
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Modeling Mortgage Backed Securities

Yakov Kanter (Morgan Stanley)

After a brief introduction to MBS, I will talk about the problems facing MBS modelers on the Street today.

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