NYC / Columbia

RSVP here: http://www.cfe.columbia.edu/misc-pages/RSVP-NYQF.html

The Center for Financial Engineering at Columbia University is pleased to invite you to the forthcoming New York Quantitative Finance Seminar

http://www.cfe.columbia.edu/seminars/NY_Quantitative_Finance/

on Thursday, March 27, 2008, 5.30 PM-7:00 PM, for a presentation by Jim Gatheral, Merrill Lynch and Courant Institute

'Developments in Volatility Derivatives Pricing'

http://www.cfe.columbia.edu/seminars/NY_Quantitative_Finance/

Over the last two years, we have seen increased trading in both options on VIX and options on variance swaps. Also, there has been increased interest in modeling volatility with more than just one factor (Lorenzo Bergomi's two-factor model for example); rather than model instantaneous or implied volatility, the current tendency is to model variance swaps (or curves). Hans Buehler has derived consistency conditions on variance curve models in general, concentrating on the so-called Double Heston model in numerical examples. Bergomi's model on the other hand has (double) lognormal dynamics.In this talk, we place the Double Heston and Double Lognormal models in their historical context, explain Buehler's consistency condition and explore implications for the pricing of VIX options. We see that market pricing of VIX options excludes Heston dynamics but is roughly consistent with lognormal dynamics. Finally, we extract time series of the two volatility factors from historical option prices and compare statistical and risk-neutral parameters, finding that many of the unrealistic features of one-factor stochastic volatility models are eliminated.

VENUE: Park Avenue Plaza, 55 East 52nd Street, 11th floor.
An ID will be needed to access the auditorium (lower level).

A cocktail will be served after the seminar.

About the speaker: Jim Gatheral is a Managing Director at Merrill Lynch and an Adjunct Professor at the Courant Institute of Mathematical Sciences, NYU. Dr Gatheral obtained a Ph.D. in theoretical physics from Cambridge University in 1983. A veteran of derivatives markets, Dr Gatheral has been involved in all of the major derivative product areas as bookrunner, risk manager and quantitative analyst in London, Tokyo and New York. Between 1996 and 2005, Dr Gatheral led the Equity Quantitative Analytics Group at Merrill Lynch. His current research focus is on volatility modeling and modeling equity market microstructure for algorithmic trading. Dr Gatheral is a frequent speaker at both practitioner and academic conferences around the world. His recent bestselling book, 'The Volatility Surface: A Practitioner's Guide' has become a standard reference for practitioners, academics and students alike

The New York Quantitative Finance Seminar is a forum for discussion of new results and insights coming from quantitative modeling in finance and risk management, for the New York quantitative finance community.

The New York Quantitative Finance Seminar is organized by Center for Financial Engineering, Columbia University and NYU Courant Institute of Mathematical Sciences and sponsored by
Blackrock, JP Morgan, Standard and Poor's, Finance Concepts, Europlace Institute of Finance