Robust finance: data-driven approach to pricing, hedging and risk management

Wed, 18/09/2019 - 12:30pm

Jan Obloj, University of Oxford


Commonwealth Bank, Level 19, Darling Park Tower 1, 201 Sussex Street, Sydney NSW 2000


How do we quantify the impact of making assumptions? How do we value information (data)? How do we capture the interplay between risk (described by a familiar model) and uncertainty (about the model itself)? In this talk I introduce the robust paradigm which strives to answer such questions. The framework is designed to interpolate between model-independent and model-specific settings and to allow to address and quantify the model risk. I explain briefly how classical fundamental notions and theorems in quantitative finance extend to the robust setting. I then focus on simple concrete examples. I use vanilla option prices, together with agent-prescribed bounds on key market characteristics, to drive the interval of no-arbitrage prices and the associated hedging strategies. The setting can be seen as a constrained variant of the classical optimal transportation problem and comes with a natural pricing-hedging duality. I discuss numerical methods based on discretisation and LP implementation but subsequently focus on a deep NN optimisation. Finally, I look at ways to coherently combine option prices data with past time series data, leading to a dynamic robust risk estimation. I explain how such non-parametric statistical estimators of key quantities (e.g., superhedging prices, 10-days V@R) superimposed with option prices can be treated as information signals.


Jan Obloj is a Professor of Mathematics and a member of the Mathematical and Computational Finance Group at the Mathematical Institute, Fellow of St John's College, University of Oxford and a member of the Oxford-Man Institute of Quantitative Finance. Before coming to Oxford he was a Marie Curie Post-Doctoral Fellow at Imperial College London. He holds a Ph.D. degree in Mathematics from University Paris VI and Warsaw University.

Sponsored by Commonwealth Bank

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