UIC Computational Finance Seminar - Fall 2000

Tuesday, November 28 Time: 4:30-5:30 Room: 706 SEO

Professor Tomasz R. Bielecki

Northeastern Illinois University

Title: Modeling the Defaultable Term Structure of Interest Rates: Intensity Based Approach

Abstract:

The talk surveys a recent approach to modeling of the term structure of corporate bonds: an approach due to Bielecki/Rutkowski which extends the classical HJM model to the case of defaultable term structure. We shall start off with some general results regarding modeling of arbitrage prices of defaultable contingent claims. These results, partially due Duffie et al., postulate internal consistency of the model (that is, they postulate existence of an equivalent martingale measure). In Bielecki/Rutkowski approach appropriate sufficient consistency conditions are formulated that lead to arbitrage free pricing of corporate bonds and to arbitrage free pricing of related credit derivatives. These conditions will be presented, and the Bielecki/Rutkowski approach will be interpreted from the perspective of the general results mentioned above. An important role played by conditioning filtrations in the intensity-based approaches will be stressed out.

Thursday, December 7 Time: 3-4pm Room: 706 SEO

Professor Arun Bagchi

University of Twente

The Netherlands

Title: Stochastic Volatility, Nonlinear Filtering and Option Pricing

Abstract:

We consider the estimation problem of stochastic volatility in the Hull-White model describing the evolution of stock prices. We consider the market stock price data as the observation in a filtering problem to estimate online the stochastic volatility. We first show that it is not possible to formulate this estimation problem directly, and the indirect problem we formulate has to have a robust form to be meaningful in practical applications. We use this robust filtering algorithm to determine the option price in this framework.

For more information and directions, contact Charles Tier - tier@uic.edu