Financial Engineering Workshop - Lech Grzelak (Rabobank and Utrecht University)

Lech Grzelak is a front office Sr. Quantitative Analyst at Rabobank and a Assistant Professor at Utrecht University. He will be giving a seminar titled "On Randomization of Affine Diffusion Processes with Application to Pricing of Options on VIX and S&P 500" on Wednesday 16th November 2022 from 18:00 - 19:00.

Abstract
The class of Affine (Jump) Diffusion (AD) has, due to its closed form characteristic function (ChF), gained tremendous popularity among practitioners and researchers. However, there is clear evidence that a linearity constraint is insufficient for precise and consistent option pricing. Any non-affine model must pass the strict requirement of quick calibration -- which is often challenging. We focus here on Randomized AD (RAnD) models, i.e., we allow for exogenous stochasticity of the model parameters. Randomization of a pricing model occurs outside the affine model and, therefore, forms a generalization that relaxes the affinity constraints. The method is generic and can apply to any model parameter. It relies on the existence of moments of the so-called randomizer- a random variable for the stochastic parameter. The RAnD model allows flexibility while benefiting from fast calibration and well-established, large-step Monte Carlo simulation, often available for AD processes. The article will discuss theoretical and practical aspects of the RAnD method, like derivations of the corresponding ChF, simulation, and computations of sensitivities. We will also illustrate the advantages of the randomized stochastic volatility models in the consistent pricing of options on the S&P 500 and VIX

Bio
Lech A. Grzelak is a front office Sr. Quantitative Analyst at the Financial Engineering team at Rabobank in the Netherlands. At the same time, he holds an assistant professor position at Utrecht University, where he teaches a course on Computational Finance and Financial Engineering. Lech received his PhD in Numerical Analysis at the Delft University of Technology in 2011. His key areas of research are computational finance, numerical analysis, scientific computing and high-performance computing methods. His recent work has focused on efficient numerical methods for stochastic and local volatility models, cross-asset hybrid models and xVA. Lech is the editor of the Journal of Computational Finance and the Journal of Applied Mathematics and Computation. In addition, Lech has published several research articles on quantitative finance in multiple prime journals.

The Financial Engineering Workshop will take place in-person and online via Zoom.

To access the link to the online seminar, please register the day before the seminar, otherwise you will not be given access.

Faculty Events | Website | View More Events

Contact the organizers