Thursday, May 13

Mathematical Methods in Applied Finance

3:45 PM-5:45 PM
Room: Atlanta 3

Portfolio management is one of the major issues in modern investment banking, and includes the pricing of the financial instruments in these portfolios. The pricing of derivative securities has given rise to much mathematical interest since the celebrated Black-Scholes paper was published in 1973. The speakers will present two numerical approaches within the Black-Scholes framework. They will discuss fast Monte Carlo method to price rainbow options (such as options on baskets) with many underlying securities (up to several 100) and the use of finite elements. The latter has not been applied widely to financial problems since finite difference methods still dominate. The most critical input to all option pricing models is the volatility of the underlying security. The speakers will present some new ideas how to estimate and forecast volatility for bonds.

Organizer: Jürgen Topper
Arthur Andersen Riskmanagement Consulting, and University of Hanover, Germany

3:45-4:10 On the Mean-Reversion Properties of Interest Rates: A Study of the German Bond Market
Ulrich Leuchtmann, Lichtenstein Global Trust Asset Management, and University of Bielefeld, Germany
4:15-4:40 Parallel Portfolio Selection
Jens Luessem and Christoph Hundack, University of Bonn, Germany
4:45-5:10 Fast Monte Carlo Pricing of Basket Options
Paolo Pellizzari, University of Venice, Italy
5:15-5:40 Finite Element Modeling of Exotic Options
Jürgen Topper, Organizer

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LMH, 1/19/99, MMD, 1/26/99