Events/Masterclasses/Masterclass3
Contents |
Thalesian Masterclass — Dr Patrick S. Hagan, Head, Quantitative Analytics, Chief Investment Office, JP Morgan — Managing Smile Risk and Exotics
Format
Two three hour lectures over two consecutive days.
Schedule
There are a limited number of places on this course, so we strongly urge you to register on Meetup.com as soon as you can. The two days are complementary: the first is a lecture covering the fundamentals of volatility models for managing smile risk. The second day covers the practical issues of IR modeling and how they are used to manage risk on exotics books.
Day 1: Lecture
Managing smile risk
Starting with Black's model, we analyse the local volatility, stochastic volatility, and finally Levy-flight based models, exploring how each succeeding model gives better management of the risks inherent in our vanilla interest rate books.
Date and Time
6:00 p.m. — 9:00 p.m. on Wednesday, 3rd November, 2010.
Day 2: Lecture
Managing exotics
We look at the risks inherent to exotic rates books and the types of interest rate models available to manage them. We then examine how the IR models are used in practice: selection of the set of calibration instruments, calibration of the IR model and pricing of the exotics. We then look at how this procedure generates the risks and hedges of the exotic deals, which leads to improved methods for selecting effective models and calibration methods. Finally we look at risk migration methods (adjusters), and how they can be used to provide more effective hedges.
Date and Time
6:00 p.m. — 9:00 p.m. on Thursday, 4th November, 2010.
Cost
199 GBP.
Meetup.com
You can register for this event and pay online on Meetup.com: http://www.meetup.com/thalesians/calendar/14666429
Venue
MWB Canary Wharf, Level 33, 25 Canada Square, E14 5LQ, London, UK.
Speaker
Patrick Hagan is Head of Quantitative Analytics and Chief Investment Office at JP Morgan. He has made several fundamental contributions to mathematical finance, particularly in the area of interest rate derivatives modelling, where he pioneered the SABR volatility model - now the de-facto approach for including stochastic volatility within the LIBOR market model. Patrick Hagan received his Ph.D and B.S in Applied Mathematics from Caltech. Over the years he has worked at Bloomberg and several banks designing trading systems for fixed income, credit, and foreign exchange derivatives, as well as developing the component models, calibration methods, and numerical algorithms. Before entering finance he was Deputy Director of the CNLS and a member of the Computer Research and Applications group at Los Alamos National Laboratory. He has also worked at Exxon Science Laboratories, and has taught at Caltech, Stanford, the Institute for Mathematics and its Applications, and NYU.
Prerequisites
We will assume that the audience has a solid grasp of basic stochastic calculus and mathematical finance and is aware of the essential principles of interest rate modeling and the complex issues arising in the practical application of financial derivative pricing theory.
Objectives
Attendees of the two-day tutorial should expect to accomplish the following:
- Learn about the different types of volatility models used in interest rate derivative modeling
- Understand the implications of each volatility modelling approach on the management of smile risk
- Discover how to, at least roughly, build a pricing/hedging/risk management system
- Gain insight into how to calibrate interest rate models with exotic instruments
- Understand how exotic instrument risk and hedging enable the selection of improved models and calibration procedures
- Find out about risk migration methods and how they improve hedging
Bibliography
- Patrick S. Hagan, Deep Kumar, Andrew S. Lesniewski and Diana E. Woodward, Managing Smile Risk, Wilmott Magazine, Feb 2002, http://www.wilmott.com/pdfs/021118_smile.pdf
- Patrick S. Hagan, Adjusters: Turning Good Prices into Great Prices, August 2002, http://www.wilmott.com/pdfs/030813_hagan.pdf
Resources
- NYU course notes on interest rate and credit models: http://www.math.nyu.edu/~alberts/spring07/index.html
- Venue details: http://meetingvenues.mwbex.com/meeting-room/CanaryWharf.html
