Financial Engineering Seminar
January 26, 2007 (Fri)
Time: 4:05pm
Place: CSE E107
We consider contingent claims pricing model with continuous distributions and continuous time. By formulating such problems as stochastic optimization problems and resorting to stochastic optimization and variational convergence techniques, one can obtain constructive procedures in situations that go much beyond the classical Black-Scholes framework. In the process, one derives some important properties such as no-arbitrage, hedging, equilibrium equation, etc. However, the main focus will be on a new approach to estimate the distributions of prices from historical price data and will report on its implications for stock trading, including numerical experimentation.