The Frankfurt Workout in Computational Finance

Yesterday me an my colleague and co-author Andreas Binder had a Workout in Computational Finance seminar in Frankfurt, Germany. The seminar has been organised together with our German partners from Additive.

Four different topics have been covered:

Extreme Vasicek is not Enough - Mean reverting short-rate models. What are the pros and cons of trees, finite differences / elements, Monte Carlo techniques?  Lognormal or normal models? What about higher dimensions?

Model Calibration and Spurious Precision - A general framework for stable and robust parameter identification. Even with analytic inversion formulae, noise in the data can lead to results which are pure nonsense. Can we trust our parameters?

When Monte Carlo is the Only Choice - More than 3 dimensions or severe path-dependence? Monte Carlo techniques. Monte Carlo or Quasi Monte Carlo? How can the variance of the result be decreased? What about early exercise?

Risk Management Cascades - The requirements posed by regulators become more and more stringent. How can we calculate the different VaRs? Expected shortfall? In reasonable time? And how can we build a CVA system?

During the breaks (off topic: the snacks provided by Roomers are excellent) a lot of lively discussions  took place. I even managed to finish my sessions (almost) on time so that our German guests were able to watch and celebrate the win of their team against the team of the USA.

I hope the attendees of the seminar enjoyed it as much as Andreas and me have done.