Thu, 21 Jan 2010
13:00
13:00
DH 1st floor SR
Behavioral Optimal Liquidation --A Simple Model for Break Even and Disposition Effect
Yifei Zhong
(MCFG)
Abstract
TBA
TBA
We investigate calibrating financial models using a rigorous Bayesian framework. Non-parametric approaches in particular are studied and the local volatility model is used as an example. By incorporating calibration error into our method we design optimal hedges that minimise expected loss statistics based on different Bayesian loss functions determined by an agent's preferences. Comparisons made with the standard hedge strategies show the Bayesian hedges to outperform traditional methods.