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IAQF-Thalesians Seminar (New York) — Dr. Andrey Itkin — Modeling stochastic skew of FX options using SLV models with stochastic spot/vol correlation and correlated jumps

Andrey Itkin

Andrey Itkin


Agenda

Wednesday, November 15, 2017:


Venue

NYU Kimmel Center, Room 914, Kimmel Center, 60 Washington Square South, NY 10012, NY


Registration


Abstract

House price appreciation (HPA) volatility has a term structure across time and geographic space. The HPA exhibits high short term positive correlation as well as a significant negative correlation over 5-7 years. The HPA term structure volatility model proposed here has the following advantages: 1) analytically tractable 2) parsimonious with only 3 parameters 3) model is time continuous instead of discrete as many econometric models use quarterly time step. 4) model provides a vigorous framework for pricing of credit sensitive MBS securities.

Apply this model to Economical Risk Capital (ERC) for mortgages and real estate, we show it provides a countercyclical capital framework. Currently many financial institutions and regulatory agencies use a worst HPA history, hence an “unconditional distribution” framework for capital and stress tests purpose. The countercyclical framework we proposed is superior to the “unconditional distribution” framework in terms accurate risk modeling, adequate and responsive capital model, macroeconomic and policy consideration.


Speaker

Dr. Andrey Itkin is an Adjunct Professor at NYU, Department of Risk and Financial Engineering and Director, Senior Research Associate at Bank of America. He received his PhD in physics of liquids, gases and plasma, and degree of Doctor of Science in computational molecular physics. During his academic carrier he published few books and multiple papers on chemical and theoretical physics and astrophysics, and later on computational and mathematical finance. Andrey occupied various research and managerial positions in financial industry and also is a member of multiple professional associations in finance and physics.


IAQF-Thalesians Seminars

The IAQF-Thalesians Seminar Series is a joint effort on the part of the IAQF (formerly IAFE) and the Thalesians. The goal of the series is to provide a forum for the exchange of new ideas and results related to the field of quantitative finance. This goal is accomplished by hosting seminars where leading practitioners and academics present new work, and following the seminars with a reception to facilitate further interaction and discussion. The seminar series is limited to IAQF and Thalesians members only.

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