A day to honor Emanuel Derman's accomplishments in the Quantitative Finance Field
The workshop is organized by:
A day to honor Emanuel Derman's accomplishments in the Quantitative Finance field will be held at Davis Auditorium at Columbia University on May 3rd, 2023.
Participating Researchers/Practitioners
Folly and Fantasy in Finance
Abstract:
Strategies for selecting probability measures respecting both the physical and risk-neutral probabilities are developed. An initial idea forces path-space equivalence. It is shown that this requires risk premia to go to zero for small moves. The data, on the contrary, supports singularities in risk premia near zero. A slight relaxation of equivalence then delivers control of Wasserstein distances between the proposed measure and the physical. Estimation results are presented for three models on ten underliers over 7 years.
Three Things You Might Not Know About Black-Scholes
Abstract:
This talk will discuss three little-known properties of the Black-Scholes model related to total positivity and relative convexity. The talk will also discuss the implications of these properties for the shape of implied volatility. The talk is based on joint work with Dan Pirjol.
Present at the creation: The common playing field of callable bonds and Black-Derman-Toy
Abstract:
Systematic modeling of callable bonds began in the mid-1980’s. The primary objectives in these efforts was reformulating the bond trader’s traditional metrics for decomposing rate risk, interpreting spread differentials across bonds, and identifying relative value across the maturity domain. The requirements traced out by these endpoints led to arbitrage-free one-factor models, which benefited from intuitional validation and straightforward implementation. A concurrent development was greater complexity in fixed-income portfolio management and liability-side hedging, raising the visibility of interest-rate derivatives and of that market’s connections to callables. The late-1980’s innovation of Fischer Black, Emanuel Derman, and William Toy (“BDT model”) addressed the limitations of the “first-generation” one-factor model with a direct reference to the price of plain-vanilla rate derivatives. The BDT model was an important early reference point for how to think about the multiple interacting parts of interest-rate models.
ChatGPT and Future of Derivatives Trading and Marketing
Abstract:
Abstract: After talking about “Stochastic Implied Trees” by Emanuel Derman and Iraj Kani and how it impacted what I had been doing and recounting some memories, then I will turn to AI and, in particular, Chat GPT. I discuss the potential of this technology and how it could change the nature of derivatives Trading and Marketing. It could destroy some functions and, simultaneously, be used as what in the military is called a “Force Multiplier” to increase the productivity of certain functions. I will also discuss business opportunities that this technology is creating and increasing the importance of data and models.
When Amateurs Could Be Giants: Emanuel Derman and the Legacy of the Quantitative Strategies Group at Goldman Sachs
Abstract:
The period from the late 1980s to the late 1990s saw a dramatic increase in the complexity and use of derivative securities in financial markets. This growth was made possible by innovations in derivative modeling, risk management and information technology. Under Emanuel Derman’s leadership, the Quantitative Strategies group at Goldman Sachs made important contributions in these areas, focusing on equity derivatives and volatility modeling. This talk will review some of the important contributions of the group and discuss their impact on the field over the last 20+ years. In doing so, we hope to convey that Emanuel’s legacy goes beyond the content of these contributions in two important ways. First, he has been, and continues to be, a role model for countless aspiring and practicing financial modelers. Second, the success of his group showed that is possible to carry out research within a financial institution that benefits the firm directly while contributing to the advancement of the field as a whole.
Skew-stickiness and rough volatility
Abstract:
Empirically, implied volatility moves proportionally to the implied volatility skew; the constant of proportionality, the skew-stickiness ratio (SSR), is roughly 3/2, independent of time to expiry. We express the asymptotic value of this ratio in terms of a diamond tree (the Bergomi-Guyon spot volatility autocorrelation functional). That the SSR is roughly constant, independent of time to expiry, implies that volatility is rough.
30 Years After
Abstract:
I will start by recollecting 30 years of interaction with Emanuel, from the days of Local Volatility to now. Then I will review several questions linked to the implied volatility surface: alternative ways to obtain local volatilities, methods to interpolate the implied volatility surface between market maturities, how to arbitrage certain moves of the surface.
From Wall Street to Academia
Abstract:
The question naturally arises: how would you transition from one to the other? I will talk about Emanuel from the time I got to know him through Wall Street to the last six years at Columbia, jointly running the Financial Engineering program. Transitioning from traditional to AI-based approaches in the field has been an incredible journey. Emanuel says, and I wholeheartedly agree: “Learning equations are not enough. One has to know where they come from, when to trust them, and how to modify them to take account of the world beyond theory.”
Registration
Due to limited space, registration is required.