Prof. Gatto Nero:
Pricing risky options

Dec 1998 CATS festival oration


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Content:

The old paradigm of contentment: single non-interacting linear cow.




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Paradigm of Perplexity:






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Sources of Perplexity: Physics, the Deep Frontier


Theorist preparing to re-enter Earth orbit. (Photo S. Rugh)




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Sources of Perplexity: Quantized Cats

(Gunilla Feigenbaum)




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Sources of Perplexity: Econophysics

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Computational Finance
CF99
January 7 - 8 (Conference)

Tutorials (January 6)
stephen.gif (8826 bytes) 10:45 - 12:45 Forecasting Volatility

Prof. Stephen Figlewski, Finance Department, Stern School of Business, New York University

The tutorial will describe the different forecasting approaches and present a critical discussion of the tactics, strategy, and underlying philosophy behind them.

  • Modeling philosophy: What do we actually mean by volatility? How should we think about the general problem of forecasting it?
  • Forecasting volatility from historical data: If the real world consisted of lognormal diffusions with constant volatility parameters, or even if volatilities were time-varying but followed constant volatility processes, appropriate statistical estimation techniques would be unambiguous. But the real world is more random and less predictable than that. So what works best in practice: The classical unconditional volatility estimator? Generalized Autoregressive Conditional Heteroskedasticity (GARCH)? Or maybe a tweaked classical model based on "Optimized Unconditional Conditional Heteroskedasticity" (OUCH)?


1:45 - 3:45 Neuro-Dynamic Programming and Reinforcement Learning for Finance

Prof. Benjamin Van Roy, Engineering Economic Systems Department, Stanford University

In principle, a wide variety of financial decision problems - ranging from dynamic asset allocation to hedging to transaction cost optimization - can be formulated in terms of stochastic control and solved by the algorithms of dynamic programming. Unfortunately, due to the curse of dimensionality, the associated computational requirements become intractable in most practical contexts.



http://www.stern.nyu.edu/CF99/




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Sources of Perplexity: what does Huber want?






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Sources of Perplexity: Biological Physics

Greg Huber discovers that icky, squishy, wet, and non-integrable aliens have occupied his bathroom.





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Sources of Perplexity: Mysterious Exponents

Huber (Kultur) exponent




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Sources of Perplexity: The Art and Science of Frog Tales



``... and on the log-log plot the multifractal multiscaling multiaffine multidata fall on the straight line with slope .87013456.... give or take .00000002, exactly!!! It is the most important result since Galilei!!!!''

[Vachtang: ``... at least they lie on the plane'']








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Why is it that Professors have no Sense of Humor?

P. Dimon , Phys.Rev. Letts. (1969-98):

  1. surgically removed when they get tenure
  2. cerebral cortical breakdown from attending too many conferences
  3. congenital defect
  4. they have stopped to many neutrinos*




* if you did not get the one about neutrinos, you are very DENSE too.




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Sources of Perplexity: Our Science Politicos




The Hansen-Olesen-Andersen-Pedersen-Christensen-Nielsen-Hansen hierarchical model.




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So what is that makes CATS lives worth living?




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Sources of Perplexity: Life at Edge of Intellect

The stimulating intellectual climate of CATS.




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Sources of Perplexity: Our Future

Lo studente Paolo: ``But Professore Civitanovic said I should rotate my head 480 deg.!''




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Sources of Perplexity: Our Nordic Culture

Kai: ``It's a little known fact that Vikings attacked wearing towels''




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Sources of Perplexity: Administrative Support






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Darwinian Natural Selection of Postdocs: Martin ``Don'' Howard

Martin: ``The life of a postdoc is not for the weak.''




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Sources of Perplexity: Dead Friends Society

Michael Steen Hansen



Hidetoshi Nishioka



Dieter Wintgen



Giovanni Paladin

``... nevertheless ...''
        ``... morrrrrrreoverrrrr...''
                  ``...blah..blah..blah..''
                         ``vuh....''.




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13 March 1999 - predrag@nbi.dk