Modelling of financial instruments with Levy processes: theory, implementation and robustness
Project Member(s): Novikov, A.
Start year: 2003
Summary: Many alternatives to deal with inadequacies of the seminal Black/Scholes option pricing model have been proposed, but none has achieved widespread acceptance. This problem will be addressed by deriving rigorous model selection and comparison criteria focusing on practical requirements of managing financial risks in a complex global marketplace, including potential model misspecification. To this end models will be embedded in a large and flexible class, the Levy process framework, which nests stochastic processes mirroring key features of market data. Required analytical and computational methods will be developed for robust pricing of contingent claims, interest rate modelling and risk management applications. ''
Keywords: Mathematical finance Option pricing Risk management Robustness Computational modelling Term structure
FOR Codes: Finance, Stochastic Analysis and Modelling, Finance and investment services, Mathematical sciences, Expanding Knowledge in the Mathematical Sciences