RiO 2011

Forget the Thanksgiving Parade. The real tradition this time of the year is to attend the Research in Options conference in Rio. I already wrote about the origins and general features of this regular meeting, so it suffices to say that this year's event is a contender for the best one ever.

And I suspect that financial markets know that too, since the Bovespa index was up all through the conference. At least this is as good an explanation as any other for how markets are moving these days.

I'll post a few more pictures from the conference when they become available, but here is a small taste of the kind of trouble we were getting ourselves into:

Alex Lipton and Peter Carr in Toronto

We packed a lot of star power in the last instalment of the Quantitative Finance Seminars Series at Fields last week with Alex Lipton and Peter Carr speaking back-to-back, fresh from their appearances at the Global Derivatives Conference in Chicago.

As I always say, the only thing better than paying thousands of dollars to stay at fancy hotels and listen to some of the best quant minds worldwide is to bring them to your own city !

A week to remember

It took me an entire week to recover from the last one:

- from Tuesday to Friday we had Raghu Varadhan giving the Britton Lectures at McMaster. He spoke about large deviations, which sent me down memory lane, as this was the subject of the first research seminars I gave as a PhD student. One of these days I should read his notes on PDE for Finance.

- on Wednesday night I had the honour to speak at the Quantitative Finance Seminar Series at Fields alongside Bill Janeway, from whom I always learn a great deal.

- on Friday I attended the first day of a Risk Forum at Fields. Apart from the interesting talks and discussions I had a chance to meet the CEO of the new Global Risk Institute in Toronto, which looks like a promising venue for exploring out-of-the-box research ideas in financial mathematics.

It was good to relax for the past few days after that.

Mathematics in Finance at Kruger Park

Academics in general, but especially financial mathematicians, are known for holding conferences in exotic places, such as beach paradises or mountain tops, but nothing I have attended so far beats the sheer exuberance of the Mathematics in Finance conferences at Kruger Park in South Africa.

Starting in 2002, these meetings happen every 3 years and bring a large number of international and local participants to the heart of the African wilderness. The high quality talks taking place at the Berg-en-Dal compound have to compete for attention with all sorts of impressive animals surrounding it. 

And to cap it all, while most conferences have boring banquets with unbearable speeches over food of debatable quality, this one treated us to a bush brae - an African style barbecue in the middle of the bushes, complete with a ring of fire and armed rangers protecting us from the observing leopards.

Here is photographic evidence:

Commodities and Energy Finance in Rio

Everyone knows that Brazil is a major player in the commodities and energy markets, mostly - but not exclusively - because of Petrobras, its giant oil company. It should, therefore, not come as a surprise that there is a very active academic community in Brazil dedicated to research in these areas, as demonstrated in the this small but highly informative workshop that took place at IMPA last August. 

Besides giving a mini-course on game theory and real options, I played a small role behind the scenes by strengthening the links between EDF and IMPA and by extension Petrobras. Having worked on consulting projects for both companies, I can vouch for the vibrancy of their R&D teams, which can only benefit from talking to each other.

Springer Briefs on Quantitative Finance

Springer is launching a new series on quantitative finance as part of Springer Briefs - their new publishing paradigm for sweet and short books on current hot topics in several different areas.

The editorial board for the series, consisting of Nizar Touzi, Jaksa Cvitanic, Lorenzo Bergomi, Ralph Korn and yours truly, met for the first time in Paris in July to define the scope and guidelines for publication. Our strategy for now is to solicit titles from a wish list of authors that we think will help us set the tone and level for the series, with the hope that these will attract a steady stream of submissions in the future.

So if you have written or are thinking of writing a concise, high-quality, high-octane book on quantitative finance, do let us know !

How I did not meet Chris Sims

When I was in Princeton giving a talk earlier this year I was told by my colleagues at ORFE that I should try to meet Chris Sims, because he was probably the best person in their Economics department to give me advice and feedback on my quest to mathematize the Minsky model for financial instability. My friends also mentioned that Chris was a perennial top contender for the Nobel prize.

Since I have always been clueless about my relative importance in the world, I promptly e-mail him asking if he would be available to meet (I also wrote a similar message to Paul Krugman - more evidence of how clueless I really am). Much to my surprise, Sims e-mailed me back the next morning suggesting a time and place for us to meet.

Alas, inexplicably my mail server was down that day and I only received the message several hours after the suggested time, together with a second message from Chris saying that it looked like "we did not make a connection".

I remember thinking to myself that day that if he was ever awarded the Nobel prize I would curse the McMaster mail server forever for robbing me the opportunity to meet him !

Thank God for Thanksgiving

Apologies to the regular reader(s) who noticed the radio silence of the past few months. It turns out that coming back from a sabbatical is harder work than I thought ! But don't despair: I'll use the Thanksgiving long weekend to post about the following:

- the first meeting of the editorial board for a new series of books by Springer dedicated to quantitative finance;

- a very informative workshop on commodities and energy finance at IMPA (Rio de Janeiro) in August;

- a really nice conference in South Africa at the end of August;

- the start of a new season for the Fields Institute Quantitative Finance Seminar Series in September;

- a short and enjoyable workshop on optimization and risk management at Fields in October.

Stay tuned !

Understanding financial crises

At least that is the ambitious title of a project I'll be working on during the summer in connection with the Fields - Mitacs Undergraduate Research Program.

The immediate goal is simple: compile as much as possible of the dataset used in the book This time is different and extend it to include recent data up to 2011. Along the way we plan to gain a better understanding of the salient statistical features of financial crises and do our own analysis of the reliability of several early warning indicators proposed in the literature.

The fun part is that we could witness the mother of all crises right in the middle of the project if the US default on its debt.

Update: here is the video of the final presentation for the project delivered by the students.

California dreamin'

Ok, not so much dreaming as attending a very nice conference at USC earlier this week. The WCMFs started as a mainly local affair in 2007 in Stanford, but has grown steadily to become a recognizable event in the international scene.

For me the highlight of the conference was the opening talk by George Papanicolaou, who spoke about an elegant mean field approach to systemic risk. It was the first time I met him in person, and I was impressed by his extensive knowledge of economics, including some relatively obscure references that are not in the radar screen of most mathematicians.

Unfortunately I had to leave sunny California before the BSDE feast even started, but I'm sure it was equally enjoyable.

Macroeconomics in Santa Barbara

I'm visiting UCSB this week and talking about an agent-based model for the interbank market.

Apart from the excellent weather and general friendly atmosphere in town, I had the extra treat to share an office with Bernt Oksendal, who is also visiting and gave a talk yesterday. Curiously enough, Bernt was only the second most famous Norwegian in the room. I was slightly disappointed, but generally relieved (given the remarks I made about modern macroeconomic theory) by the fact that the most famous one didn't attend my talk today.

IJTAF - Foundations of Mathematical Finance

I just received a copy of the special issue of the International Journal of Theoretical and Applied Finance dedicated to our workshop on Foundations of Mathematical Finance, for which yours truly served as a guest editor together with Marco Frittelli.

The special issue on Computational Finance is already completed and should go into production soon. The third and final special issue that IJTAF agreed to publish in connection with the thematic program, on Derivative and Risk Management, will appear early next year.

Quantitative Finance Seminars - Season Finale

The last two talks in Quantitative Finance Seminar series for this academic year took place last Wednesday at the Fields Institute.

The first speaker with Xunyu Zhou (Oxford), who has been playing a key role in the field of behavioural finance in recent years. Specifically, while behavioural economists are busy finding and cataloguing all sorts of less than rational traits, XYZ (as he is affectively known) set himself the task of exploring the consequences of things like S-shaped utility functions and probability distortions in concrete problems in finance. Most importantly, he has devised methods for actually solving these non-standard optimization problems (most notably the quantile method), thereby turning what economists see as ugly pathologies into beautiful mathematics.

In the second talk, Patrick Cheridito (Princeton) proposed and analyzed a very general framework based on affine process where equity and credit risk problems can be treated in a unified manner, a hot topic that was central to one of the workshops held in our thematic program last year.

The seminar series will return in September for another year of high caliber talks. Stay tuned.

Algorithmic trading gone wrong

Much research effort, by academics and practitioners alike, has been devoted to algorithmic trading in recent years, and at least one person I know blames the 2008 crisis for this surge in emphasis. Talking about blame, it appears almost certain that algorithmic trading played an important role in the flash crash of 2010.

But this is by far the most amusing example of algorithmic pricing gone astray: the ask price of a single book reaching millions and millions of dollars on Amazon before anyone noticed.

Princeton visit

I have just ended a 5-day visit to Princeton as part of a bit of road trip through the American Northeast. Even during such a short stay, I could get a feeling for the intensity of the place: apart from my own seminar talk on Minsky and bubbles at ORFE, I attended two good quality talks in the graduate student workshop  at the Bendheim center, followed by Jim Ma's colloquium on BSDEs, then Carl Graham's seminar talk on opinion dynamics and finally a very stimulating talk by Andrew Lo back at Bendheim on the origins of behavior !

If you feel overwhelmed by all the links above, try to imagine being there...

Quantitative Finance Seminars - March edition

As usual on the last Wednesday of the month, we had two talks last week as part of the Quantitative Finance seminar series at Fields. The first talk was by Rafael Mendonza-Arriaga, who spoke about hybrid credit-equity models using time-changed Levy processes, a fruitful topic that attracted a lot of attention in one of the industrial academic forums that we had during the thematic program last year.

The second talk was by Alfred Lehar, who spoke about a general way to allocate capital requirements for systemic risk. His key message is that capital requirements themselves change the risk profile of a bank and its contribution to the overall risk in the system, so that whichever way one uses to measure systemic risk, the final allocation must be a fixed point of an iterative scheme.

Alfred then visited McMaster the next day where he gave a talk at the De Groote School of Business on the uses of market information for bank regulation.

Talking about Minsky moments in the UK

I just returned from a 10-day research visit to Imperial College, where I gave a talk about some preliminary work I have been doing on macroeconomics. While I was there I took a day off to visit Chris Rogers in Cambridge and reconnect with Bill Janeway, who was part of the organization of a memorable conference I attended at the Perimeter Institute a few years ago.

As it turns out, Bill knew Hyman Minsky personally, so I could get an insider view on his unique way of thinking about economic problems.

Seminar Series up and running again

I'm a little late posting this, but after a brief hiatus in December (Christmas) and January (organizers away in Oberwolfach), we re-started the Quantitative Finance Seminar Series again at the Fields Institute with a talk by Mike Ludkovski on February 23rd, who spoke about the optimal time for you to buy an option when your model price differs from the price observed in the market.

Since I arrived earlier at the Institute I could also attend one of the Distinguished Lectures delivered by Yakov Sinai, who was in Toronto for a special workshop celebrating his 75th birthday.

Oberwolfach

During more or less at the same period when the rich and powerful of the world were meeting in Davos this year, I had the privilege to attend another type of select meeting in nearby (for North American standards that is) Oberwolfach, at the ultra prestigious institute known to all mathematicians around the world.


It was my first time there and hopefully not the the last. It goes without saying that the place is ideal for mathematical work and communication between peers. Everything is design to contribute to what they call the "Oberwolfach atmosphere": the isolation from burdens of modern life, great meals, exceedingly good and low cost beer, wine and spirits, no locks at the doors, no internet in your room, a hand written book of abstracts, mid-conference hike towards the place where Black Forest cake was invented, and the list goes on and on.

There were simply too many high caliber talks for me to do justice in a short commentary like this, so I'll restrict myself to sharing a picture which, for me at least, perfectly encapsulates the experience:

Challenge: try to see how many financial mathematicians you can recognize in the official picture for the workshop.

Quantitative Finance article

The article that Tom Hurd and I wrote for Quantitative Finance describing the Fields thematic program appeared in press this month. Somewhere along the editorial process they managed to botch our title (try to spot the error), but I'm still very please with the end result, which can be read here.