• Mar 06 2012

    AIMS Journal Club Talk: Mr. Michael Kateregga (AIMS)

    Dear Friends, Dear Colleagues, Dear Students,

    Tuesday 06/03/2012, Mr. Michael Kateregga (AIMS) will give a talk in our Journal Club.

    Title: Perturbation Techniques to Correct Constant Volatility Models.

    Abstract:

    After the 1987 market crash, it became known that the volatility of asset returns was no longer constant but random. This was as a result of the observation of the smile in the market and a discrepancy between the Black-Scholes price and the market price.
    This led to a new breed of models which assumed volatility as a stochastic process to capture the observed features in the market such; the smile/skew, volatility clustering, mean-reversion, volatility time scales. Due to the difficulty in obtaining analytic solutions under these models, different methods such as semi-analytic and numerical techniques have been developed as a remedy to address the problem. We employ a semi-analytic approach of asymptotic expansion to derive a general corrected pricing formula of Black-Scholes exact solution and a parametrized model of the term structure of volatility. The resulting easy-to-calibrate models display compatibility with market data in terms of price dynamics as well as volatility smiles and skews and are stable in time which ranks them with a high predictive power.

    Time: 16:00

    Venue: AIMS Research Centre

    Please Visit AIMS journal club webpage for update

    http://users.aims.ac.za/~raouf/AIMS-JournalClub.html

    Regards,

    Raouf