Nomura Seminar
|
Fri, 01/05/2009 14:15 |
Elyes Jouini (Paris) |
Nomura Seminar  |
DH 1st floor SR |
| Can investors with irrational beliefs be neglected as long as they are rational on average ? Does unbiased disagreement lead to trades that cancel out with no consequences on prices, as implicitly assumed by the traditional models ? We show in this paper that there is an important impact of unbiased disagreement on the behavior of financial markets, even though the pricing formulas are "on average" (over the states of the world) unchanged. In particular we obtain time varying, mean reverting and countercyclical (instead of constant in the standard model) market prices of risk, mean reverting and procyclical (instead of constant) risk free rates, decreasing (instead of flat) yield curves in the long run, possibly higher returns and higher risk premia in the long run (instead of a flat structure), momentum in stock returns in the short run, more variance on the state price density, time and state varying (instead of constant) risk sharing rules, as well as more important and procyclical trading volumes. These features seem consistent with the actual (or desirable) behavior of financial markets and only result from the introduction of unbiased disagreement. | |||
|
Fri, 08/05/2009 14:15 |
Jean-Paul Decamps (Toulouse) |
Nomura Seminar |
DH 1st floor SR |
| We focus on structural models in corporate finance with roll-over debt structure and endogenous default triggered by limited liability equity-holders. We point out imprecisions and misstatements in the literature and provide a rationale for the endogenous default policy. | |||
|
Tue, 12/05/2009 15:45 |
Eckhard Platen (UTS) |
Nomura Seminar |
Oxford-Man Institute |
|
Fri, 22/05/2009 14:15 |
Paolo Guasoni (Boston University) |
Nomura Seminar |
DH 1st floor SR |
| Hedge fund managers receive a large fraction of their funds' gains, in addition to the small fraction of funds' assets typical of mutual funds. The additional fee is paid only when the fund exceeds its previous maximum - the high-water mark. The most common scheme is 20 percent of the fund profits + 2 percent of assets. To understand the incentives implied by these fees, we solve the portfolio choice problem of a manager with Constant Relative Risk Aversion and a Long Horizon, who maximizes the utility from future fees. With constant investment opportunities, and in the absence of fixed fees, the optimal portfolio is constant. It coincides with the portfolio of an investor with a different risk aversion, which depends on the manager's risk aversion and on the size of the fees. This portfolio is also related to that of an investor facing drawdown constraints. The combination of both fees leads to a more complex solution. The model involves a stochastic differential equation involving the running maximum of the solution, which is related to perturbed Brownian Motions. The solution of the control problem employs a verification theorem which relies on asymptotic properties of positive local martingales. Joint work with Jan Obloj. | |||
|
Fri, 29/05/2009 14:15 |
Martin Schweizer (ETH) |
Nomura Seminar |
Oxford-Man Institute |
| One of the popular approaches to valuing options in incomplete financial markets is exponential utility indifference valuation. The value process for the corresponding stochastic control problem can often be described by a backward stochastic differential equation (BSDE). This is very useful for proving theoretical properties, but actually solving these equations is difficult. With the goal of obtaining more information, we therefore study BSDE transformations that allow us to derive upper and/or lower bounds, in terms of solutions of other BSDEs, that can be computed more explicitly. These ideas and techniques also are of independent interest for BSDE theory. This is joint work with Christoph Frei and Semyon Malamud. | |||
|
Fri, 12/06/2009 14:15 |
Mike Teranchi (Cambridge) |
Nomura Seminar |
DH 1st floor SR |
| We consider the classical problem of forming portfolios of vanilla options in order to hedge more exotic derivatives. In particular, we focus on a model in which the agent can trade a stock and a family of variance swaps written on that stock. The market is only approximately complete in the sense that any submarket consisting of the stock and the variance swaps of a finite set of maturities is incomplete, yet every bounded claim is in the closure of the set of attainable claims. Taking a Hilbert space approach, we give a characterization of hedging portfolios for a certain class of contingent claims. (Joint work with Francois Berrier) | |||
|
Wed, 17/06/2009 12:00 |
Peter Carr (Bloomberg - Quantitative Financial Research) |
Nomura Seminar |
Oxford-Man Institute |
| In some options markets (eg. commodities), options are listed with only a single maturity for each underlying. In others, (eg. equities, currencies), options are listed with multiple maturities. In this paper, we assume that the risk-neutral process for the underlying futures price is a pure jump Markov martingale and that European option prices are given at a continuum of strikes and at one or more maturities. We show how to construct a time-homogeneous process which meets a single smile and a piecewise time-homogeneous process, which can meet multiple smiles. We also show that our construction leads to partial differential difference equations (PDDE's), which permit both explicit calibration and fast numerical valuation | |||
|
Fri, 19/06/2009 14:15 |
Hong Liu, with Min Dai and Peifan Li. (Washington U St Louis) |
Nomura Seminar |
DH 1st floor SR |
| Constantinides (1986) finds that transaction cost has only a second order effect on liquidity premia. In this paper, we show that simply incorporating the well-established time-varying return dynamics across trading and nontrading periods generates a first order effect that is much greater than that found by the existing literature and comparable to empirical evidence. Surprisingly, the higher liquidity premium is Not from higher trading frequency, but mainly from the substantially suboptimal (relative to the no transaction case) trading strategy chosen to control transaction costs. In addition, we show that adopting strategies prescribed by standard models that assume a continuously open market and constant return dynamics can result in significant utility loss. Furthermore, our model predicts that trading volume is greater at market close and market open than the rest of trading times. | |||
