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Contributions published at Quantitative Finance (Erich Walter Farkas)

Contribution
Cora Drimus, Stochastic Volatility Modeling in Energy Markets, University of Zurich, Faculty of Economics, Business Administration and Information Technology, 2012. (Master's Thesis) null
Jarno Hartog, Value-at-Risk and Tail Value-at-Risk: A Comparison Study, ETH Zürich, Natural Sciences and Mathematics, 2012. (Bachelor's Thesis) null
Luca Dominedo, Pricing and Hedging Counterparty Credit Risk, University of Zurich, Faculty of Economics, Business Administration and Information Technology, 2012. (Master's Thesis) null
Dandan Zhao, Co-integration in energy markets, University of Zurich, Faculty of Economics, Business Administration and Information Technology, 2012. (Master's Thesis) null
Gabriel Grigore Drimus, Options on realized variance in Log-OU models, Applied Mathematical Finance, Vol. 19 (5), 2012. (Journal Article) We study the pricing of options on realized variance in a general class of Log-OU stochastic volatility models. The class includes several important models proposed in the literature. Having as common feature the log-normal law of instantaneous variance, the application of standard Fourier-Laplace transform methods is not feasible. We derive extensions of Asian pricing methods, to obtain bounds, in particular, a very tight lower bound for options on realized variance.
Gabriel Grigore Drimus, Options on realized variance by transform methods: A non-affine stochastic volatility model, Quantitative Finance, Vol. 12 (11), 2012. (Journal Article) In this paper we study the pricing and hedging of options on realized variance in the 3/2 non-affine stochastic volatility model by developing efficient transform-based pricing methods. This non-affine model gives prices of options on realized variance that allow upward-sloping implied volatility of variance smiles. Heston's model [Rev. Financial Stud., 1993, 6, 327–343], the benchmark affine stochastic volatility model, leads to downward-sloping volatility of variance smiles—in disagreement with variance markets in practice. Using control variates, we propose a robust method to express the Laplace transform of the variance call function in terms of the Laplace transform of the realized variance. The proposed method works in any model where the Laplace transform of realized variance is available in closed form. Additionally, we apply a new numerical Laplace inversion algorithm that gives fast and accurate prices for options on realized variance, simultaneously at a sequence of variance strikes. The method is also used to derive hedge ratios for options on variance with respect to variance swaps.
Andrea Söldi, Erich Walter Farkas, Vom Reiz, mit dem Geld zu jonglieren, In: Tagesanzeiger, 12 December 2011. (Media Coverage) null
Erich Walter Farkas, Andrea Söldi, Die Veränderungen in der Finanzwelt mitprägen, In: Tages-Anzeiger, p. 31, 12 December 2011. (Newspaper Article)
Christian Raemy, Prediction of derivatives prices using Greeks, University of Zurich, Faculty of Economics, Business Administration and Information Technology, 2011. (Master's Thesis) null
Petar Ilic, Performance attribution of convertible bond portfolio, University of Zurich, Faculty of Economics, Business Administration and Information Technology, 2011. (Master's Thesis) null
William Vettorato, Real rate swaptions: pricing and calibration, University of Zurich, Faculty of Economics, Business Administration and Information Technology, 2011. (Master's Thesis) null
Kinga Kaczmarek, Empirical analysis of fixed income products: the role of interest rates and spread duration in ALM, University of Zurich, Faculty of Economics, Business Administration and Information Technology, 2011. (Master's Thesis) null
Nico Achtsis, Optimal execution with temporary and permanent impact functions, University of Zurich, Faculty of Economics, Business Administration and Information Technology, 2011. (Master's Thesis) null
Anastasia Filimon, Hedge Fund Fraud prediction using classification algorithms, University of Zurich, Faculty of Economics, Business Administration and Information Technology, 2011. (Master's Thesis) null
Robert Huitema, Optimal Portfolio Execution using Market and Limit Orders, 2011. (Other Publication) null
Robert Huitema, Erich Walter Farkas, William Vettorato, Consistent Pricing of Real Rate Swaptions and Limited Price Indexation (LPI) Swaps in the Jarrow-Yildirim Model, 2011. (Other Publication) null
Robert Huitema, Nico Achtsis, Optimal Portfolio Execution with Temporary Price Impact, 2011. (Other Publication) null
Erich Walter Farkas, K. Kaczmarek, P. Middelkamp, Interest rate duration in the credit crisis, 2011. (Other Publication) null
Gabriel Grigore Drimus, Volatility-of-volatility : A simple model free motivation, In: SSRN, No. 1743495, 2011. (Working Paper) Our goal is to provide a simple, intuitive and model-free motivation for the importance of volatility-of-volatility in pricing certain kinds of exotic and structured products.
Gabriel Grigore Drimus, Closed-form convexity and cross-convexity adjustments for Heston prices, Quantitative Finance, Vol. 11 (8), 2011. (Journal Article) We present a new and general technique for obtaining closed-form expansions for prices of options in the Heston model, in terms of Black–Scholes prices and Black–Scholes Greeks up to arbitrary order. We then apply the technique to solve, in detail, the cases for the second-order and third-order expansions. In particular, such expansions show how the convexity in volatility, measured by the Black–Scholes volga, and the sensitivity of delta with respect to volatility, measured by the Black–Scholes vanna, impact option prices in the Heston model. The general method for obtaining the expansion rests on the construction of a set of new probability measures, equivalent to the original pricing measure, and which retain the affine structure of the Heston volatility diffusion. Finally, we extend the method to the pricing of forward-starting options in the Heston model.

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