Title: Modelling of stochastic correlation and its application to the Heston model

Keynote Speaker: Long Teng

Abstract:

It is well known that the correlation between financial products or financial institutions, e.g. plays an essential role in pricing and evaluation of financial derivatives. Using simply a constant or deterministic correlation may lead to correlation risk, since market observations give evidence that correlation is not a deterministic quantity, and behaves even stochastically and unpredictably. In this talk we present a new approach to model the correlation as a stochastic process. As an application example, we extend the Heston stochastic volatility model by imposing the stochastic correlation process. By approximating nonaffine terms, we find the characteristic function in a closed-form which can be used for pricing purposes. Our numerical results and experiment on calibration to market data validate that incorporating stochastic correlations improves the performance of the Heston model.

Introduction to the Speaker:

Dr. Long Teng is currently an assistant professor of the Institute of Mathematical Modelling, Analysis and Computational Mathematics at the University of Wuppertal since 2017. He received his Ph.D. in mathematics from the University of Wuppertal in 2015. Prior to becoming an assistant professor, he held postdoctoral position in the work group of Applied Mathematics and Numerical Analysis at the University of Wuppertal. His research areas include (numerical) analysis with applications in stochastic and computational finance.

Inviter:

Zhao Weidong Professor in the School of Mathematics

Time:

15:30-17:30 on October 15 (Thursday)

Location:

Zoom Conference, ID: 973 7375 2506 Password: 20201015Z

https://uni-wuppertal.zoom.us/j/97373752506?pwd=S2JCTUU4NTFZRHZYV1dXTndkNGQzQT09

Sponsored by: School of Mathematics, Shandong University