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Financial Engineering Workshop - Justin Lars Kirkby (Intercontinental Exchange)
Online Event
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Abstract:
We propose a novel Monte Carlo simulation method for two-dimensional stochastic differential equation (SDE) systems based on approximation through continuous-time Markov chains (CTMCs). Specifically, we propose an efficient simulation framework for asset prices under general stochastic local volatility (SLV) models arising in finance, which includes the Heston and the stochastic alpha beta rho (SABR) models as special cases.
Our simulation algorithm is constructed based on approximating the latent stochastic variance process by a CTMC. Compared with time-discretization schemes, our method exhibits several advantages, including flexible boundary condition treatment, weak continuity conditions imposed on coefficients, and a second order convergence rate in the spatial grids of the approximating CTMC under suitable regularity conditions. Replacing the stochastic variance process with a discrete-state approximation greatly simplifies the direct sampling of the integrated variance, thus enabling a highly efficient simulation scheme.
Bio:
Justin Lars Kirkby is a Quant researcher and developer across multiple asset classes. He works for Intercontinental Exchange as a Manager of Quantitative research, where he develops derivatives pricing and risk management systems. He is the owner of Algomation Quants LLC, a quant consulting firm that specializes in financial technology, and he is a partner with Geodesic Solutions LLC. He received his PhD in Operations Research from Georgia Institute of Technology and continues to conduct research in quantitative finance and statistics.
The Financial Engineering Workshop will take place online via Zoom.
To access the link to the online seminar, please register before 2pm on the day of the seminar otherwise you will not be given access.
Where
Online Event
Online Event