Mathematical and Computational Finance Seminar

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Past events in this series
Tomorrow
16:00
to
17:30
Kim Weston
Abstract

In this talk, I will present an incomplete equilibrium model to determine the price of an annuity.  A finite number of agents receive stochastic income streams and choose between consumption and investment in the traded annuity.  The novelty of this model is its ability to handle running consumption and general income streams.  In particular, the model incorporates mean reverting income, which is empirically relevant but historically too intractable in equilibrium.  The model is set in a Brownian framework, and equilibrium is characterized and proven to exist using a system of fully coupled quadratic BSDEs.  This work is joint with Gordan Zitkovic.

  • Mathematical and Computational Finance Seminar
4 December 2018
16:00
to
17:30
Anne Balter
Abstract

Authors:

Anne Balter and Antoon Pelsser

Models can be wrong and recognising their limitations is important in financial and economic decision making under uncertainty. Robust strategies, which are least sensitive to perturbations of the underlying model, take uncertainty into account. Interpreting

the explicit set of alternative models surrounding the baseline model has been difficult so far. We specify alternative models by a stochastic change of probability measure and derive a quantitative bound on the uncertainty set. We find an explicit ex ante relation

between the choice parameter k, which is the radius of the uncertainty set, and the Type I and II error probabilities on the statistical test that is hypothetically performed to investigate whether the model specification could be rejected at the future test horizon.

The hypothetical test is constructed to obtain all alternative models that cannot be distinguished from the baseline model with sufficient power. Moreover, we also link the ambiguity bound, which is now a function of interpretable variables, to numerical

values on several divergence measures. Finally, we illustrate the methodology on a robust investment problem and identify how the robustness multiplier can be numerically interpreted by ascribing meaning to the amount of ambiguity.

  • Mathematical and Computational Finance Seminar
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