Annual Report 2005 - Fields Institute - University of Toronto

Kuznetsov, he models each firm using a Markov chain, with
the dependence between firms arising from a stochastic
time change. This gives a parsimonious but flexible model
in which computations can be carried out rapidly and
efficiently.
Robert Almgren, who administers the Computational
Finance program at the University of Toronto, gave the
seminar in March. In many cases, only imprecise information
is available about the expected performance of firms.
Almgren showed how to build optimal portfolios based
only on qualitative information about the ranking of firms
relative to each other. He presented data, showing striking
improvements in performance of such algorithms over
naive portfolio selection strategies.
Finishing the year was Didier Sornette, Professor of Geophysics
at UCLA, and bestselling author of the book Why
Stock Markets Crash. He spoke about extreme financial
risks, the topic of his forthcoming book with Y. Malevergne.
While the distribution of individual returns for
stocks or commodities is well understood, the dependencies
between several such stocks or commodities are not. In particular,
traditional modeling using Gaussian copulas often
breaks down when price movements are extreme. Sornette
discussed when such models are appropriate, and some
alternatives that can replace traditional models when the
latter break down. He drew interesting parallels between
financial problems, and recent successes in the modeling
and prediction of earthquakes and extreme meteorological
events.
The seminar is sponsored by the Fields Institute and by
MITACS. It meets the last Wednesday evening of each
month, combining one or two talks with informal discussion
and a small reception.
Speakers:
Robert Almgren (Toronto)
Optimal portfolios from ordering information
David Hobson (Bath)
Local martingales and option prices
Tom Hurd (McMaster)
Fast CDO pricing in an affine Markov chain model of credit
risk
Mark Kamstra (Schulich School of Business, York)
Investing confidence in the Ex Ante Equity Premium: a new
methodology and a narrower range of estimates
C o m m e r c i a l / I n d u s t r i a l M a t h e m a t i c s
Stanley R. Pliska (Illinois at Chicago)
Optimal mortgage refinancing with endogenous mortgage
rates: an intensity based, equilibrium approach
Luis A. Seco (Risklab & Toronto)
Pricing default correlation products within a structural
framework
Didier Sornette (UCLA)
Extreme financial risks
Industrial Optimization Seminars
November 2004 – May 2005
Held at the Fields Institute
Organizers: Natalia Alexandrov (NASA), Andrew R. Conn
(IBM Watson), Ron Dembo (0footprint), John E. Dennis
(Rice), Stefan Karisch (Carmen Systems), Barbara Lee
Keyfitz (Fields), Tamás Terlaky, (McMaster, Chair) and
Margaret H. Wright (NYU)
The Fields Industrial Optimization Seminar series has
completed its first year. The series offers two one-hour long
seminars at 5pm on the first Tuesday of each month by
leading experts on a topic in optimization; the first speaker
is a theoretical/algorithmic expert from a university or a
research lab, while the second speaker will come from engineering,
the private or government sectors, and will present
the needs and uses of theoretical/algorithmic achievements
in engineering practice or industry. This approach brings to
the fore the power and importance of mathematical optimization
methods that enable engineers and practitioners
to solve industrial problems efficiently.
The organizers’ aim is to facilitate communication, collaboration
and synergy between the mathematical, engineering
and industrial optimization communities, and to trigger
the use and development of novel optimization methods.
Optimization Seminar organizers and participants
Fields Institute 2005 ANNUAL REPORT 111