2025 London Mathematical Finance Seminar Series
Winter 2025 (Jan-Mar) @ LSE
Please note: the seminars all take place at 5-7pm
Date:
Thursday,
January 23, 2025
Time: 5pm
Location: PAN.G.01 (Ground Floor of Pankhurst House), LSE
Speaker: David Prömel (University of Mannheim)
Title: A pathwise stability analysis of optimal portfolios
Abstract:
Classical approaches to optimal portfolio selection problems are based on probabilistic models for the asset returns or prices. However, by now it is well observed that the performance of optimal portfolios is highly sensitive to model misspecifications. To account for various type of model risk, robust and model-free approaches have gained increasing importance in portfolio theory.
In this talk, we develop a pathwise framework and methodology to analyze the stability of well-known 'optimal' portfolios in local volatility models under model uncertainty. In particular, we study the pathwise stability of the classical log-optimal portfolio with respect to the model parameters and investigate the pathwise error created by trading with respect to a time-discretized version of the log-optimal portfolio.
The talk is based on joint works with Andrew Allan, Anna Kwossek and Chong Liu.
Date: Thursday, January 23, 2025
Time: 6pm
Location: PAN.G.01 (Ground Floor of Pankhurst House), LSE
Speaker: Nazem Khan (University of Oxford)
Title: Chain or Channel? Payment Optimization with Heterogeneous Flow
Abstract: Compared with existing payment systems, Bitcoin’s throughput is low. Designed to address Bitcoin’s scalability challenge, the Lightning Network is a protocol allowing two parties to secure bitcoin payments and escrow holdings between them. Payment-channel networks such as the Lightning Network enable off-chain payments secured by the channels' balances as alternatives to on-chain transactions. This paper solves the optimal channel management problem for two agents who pay each other arbitrarily distributed amounts. Agents optimally choose the channel's size and whether to make each payment on-chain or on-channel, depending on their current balance. This work, in collaboration with Paolo Guasoni, characterizes optimal channels and payment policies, describing an algorithm to obtain them, given payments' frequency and distribution.
Date: Thursday, February 6, 2025
Time: 5pm
Location: PAN.G.01 (Ground Floor of Pankhurst House), LSE
Speaker: Salvatore Federico (University of Bologna)
Title: Mean-Field Games for Optimal Investment: From Market Dynamics to Climate Challenges
Abstract: This talk is divided into two parts, each focusing on the application of Mean-Field Games (MFG) methodology to optimal investment problems in distinct contexts. In the first part, we establish the existence and uniqueness of equilibrium in a mean-field game of optimal investment for a representative firm interacting with a mass of identical firms. The analysis covers both finite and infinite time horizons, where the equilibrium price is characterized as a nonlinear function of the firm's optimally controlled production capacity. The second part investigates investment decisions in "brown" production under the impact of climate change. Firms face stochastic capital evolution and seek to maximize discounted profits while accounting for damages caused by aggregate greenhouse gas emissions. We will present the proof of existence and uniqueness of equilibrium and explore how firms' investment strategies adapt based on environmental dynamics. Both parts illustrate the usefulness of the MFG framework in addressing complex, large-scale decision-making problems in economics and sustainability. The talk is based on joint works with R. Aid (Paris Dauphine), A. Calvia (Politecnico di Milano), G. Ferrari (Bielefeld University), F. Gozzi (LUISS University, Rome), N. Rodosthenous (UCL).
Date: Thursday, February 6, 2025
Time: 6pm
Location: PAN.G.01 (Ground Floor of Pankhurst House), LSE
Speaker: Peter Bank (TU Berlin)
Title: How much should we care what others know? Jump signals in
optimal investment under relative performance concerns
Abstract: We investigate equilibria in continuous-time optimal
investment problems where investors receive idiosyncratic signals about
impending price shocks and interact through relative performance
concerns. We use Meyer-sigma-fields to introduce signal-driven
strategies and describe investor behavior in both a multi-agent and a
mean-field game setting. Existence of equilibria in both cases is proven
under suitable conditions on the investors' types, including the
frequency and realiability of their signal processes. Numerical
experiments allow us to investigate properties of these equilibria from
a financial-economic perspective and help us answer the question how
much investors care about what is known by their peers. This is joint
work with Gemma Sedrakjan.
Date: Thursday, February 20, 2025
Time: 5pm
Location: PAN.G.01 (Ground Floor of Pankhurst House), LSE
Speaker: Celine Esser (Liège University)
Title: Regularity of Weighted tensorized fractional Brownian textures
Abstract: In this presentation, we introduce a new model of textures, obtained as realizations of a new class of fractional Brownian fields. These fields are obtained by a relaxation of the tensor-product structure that appears in the definition of fractional Brownian sheets. We study statistical properties such as self-similarity, stationarity of rectangular increments and regularity properties. Additionally, we introduce natural functional spaces associated with these processes and propose a wavelet characterization of these spaces.
Date: Thursday, February 20, 2025
Time: 6pm
Location: PAN.G.01 (Ground Floor of Pankhurst House), LSE
Speaker: Patrick Cheridito (ETH Zurich)
Title: Sentiment-Based Asset Pricing
Abstract: We propose a continuous-time equilibrium model featuring a representative agent influenced by stochastically fluctuating sentiments which dynamically respond to past price movements and experience jumps that occur more frequently the more sentiments are disconnected from underlying fundamentals. Our analysis suggests that in equilibrium, sentiments affect prices even though they have no direct impact on the asset’s fundamentals. Empirically, the equilibrium risk premia and risk-free rate respond to measurable shifts in sentiments in the direction predicted by the model.
Date: Thursday, March 6, 2025
Time: 5pm
Location: PAN.G.01 (Ground Floor of Pankhurst House), LSE
Speaker: Ulrich Horst (Humboldt University of Berlin)
Title: Path-Dependent Fractional Volterra Equations, Convergence of Heavy-Tailed Hawkes Processes and the Microstructure of Rough Volatility
Abstract: We consider microstructure foundations for rough volatility models driven by Poisson random measures. In our model the volatility is driven by self-exciting arrivals of market orders as well as self-exciting arrivals of limit orders and cancellations. The impact of market order on future order arrivals is captured by a Hawkes kernel with power law decay, and is hence persistent. The impact of limit orders on future order arrivals is temporary, yet possibly long-lived. After suitable scaling the volatility process converges to a fractional Heston model driven by an additional Poisson random measure. The random measure generates occasional spikes in the volatility process and substantially increases volatility smiles. Our results are based on novel existence and uniqueness of solutions results for stochastic path-dependent Volterra equations driven by Poisson random measures and novel C-tightness results for of càdlàg processes. The talk is based is based on joint work with Wei Xu and Rouyi Zhang.
Date: Thursday, March 6, 2025
Time: 6pm
Location: PAN.G.01 (Ground Floor of Pankhurst House), LSE
Speaker: Martin Larsson (Carnegie Mellon University)
Title: Rank-based models with listings and delistings: theory and calibration
Abstract: Rank-based models for equity markets are reduced-form models where the return dynamics of each asset depend on its rank in the investment universe. These models have been studied extensively over the past 25 years, and are able to reproduce certain stylized macroscopic properties of equity markets, most notably the stability of the distribution of capital. Rank-based models generate this stability through a high-growth small-cap “Atlas stock”. However, in recent empirical work, Campbell and Wong (2024) study a very different driver of stability: listings and delistings of stocks. In the present work, we develop and calibrate rank-based models with listings and delistings. We find that an “Atlas stock” is not necessary to generate stability. We also identify and remove certain severe biases in standard estimates of rank switching (“collision”) rates. We find that our corrected estimates are remarkably consistent with the relationship between volatilities, local correlations, collision rates, and particle densities predicted by a very simple “local model” of the dynamics near any particular rank. This is joint work with David Itkin and Licheng Zhang.
Date: Thursday, March 20, 2025
Time: 5pm
Location: PAN.G.01 (Ground Floor of Pankhurst House), LSE
Speaker: Claudio Fontana (University of Padova)
Title: Data-driven Heath-Jarrow-Morton models
Abstract: We develop a data-driven formulation of Heath-Jarrow-Morton models in the context of interest rate modeling. We consider models driven by a linear functional of the yield curve, such as a family of representative forward rates, possibly augmented by a set of economic factors. The volatility is parameterized by a neural network, the parameters of which are learned by calibration to market yield curves. This results in a data-driven arbitrage-free model for the generation of yield curves. Our setup allows for the possibility of scheduled jumps, which can arise from to monetary policy decisions. We illustrate our deep learning procedure by reconstructing and forecasting the Euro area yield curves. The talk is based on joint work with Christa Cuchiero (University of Vienna) and Alessandro Gnoatto (University of Verona).
Date: Thursday, March 20, 2025
Time: 6pm
Location: PAN.G.01 (Ground Floor of Pankhurst House), LSE
Speaker: Jan Kallsen (Kiel University)
Title: Should I invest in the market portfolio? - A parametric approach
Abstract: This study suggests a parsimonious stationary diffusion model for the dynamics of stock prices relative to the entire market. Its aim is to contribute to the question how to choose the relative weights in a diversified portfolio and, in particular, whether the market portfolio behaves close to optimally in terms of the long-term growth rate. Specifically, we introduce the elasticity bias as a measure of the market portfolio's suboptimality. We heavily rely on the observed long-term stability of the capital distribution curve, which also served as a starting point for the Stochastic Portfolio Theory in the sense of Fernholz.
