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A study of pricing and hedging under model uncertainty

   Department of Mathematics

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  Dr Ronnie Loeffen, Dr Huy Chau  No more applications being accepted  Competition Funded PhD Project (UK Students Only)

About the Project

Classical finance models reply on a probabilistic framework where the laws of risky assets are known. However, this assumption is restrictive in practical applications, and it has become clear that model uncertainty, i.e., the risk of using wrong models, cannot be ignored. In practice, such model failures will usually lead to huge losses. For instance, in 1998, Nat West Capital Markets announced a $50 million loss because of a mispriced portfolio on interest rate options.

Recently, dealing with model uncertainty is an active research area of mathematical finance, because the ability to achieve more reliable tools with respect to model errors. In this project, the student will

1)   Develop mathematical tools for the problems of finding robust prices and robust hedging strategies in more realistic settings, for example, where stocks are paying dividends or traded under constraints.

2)   Develop numerical methods to solve these problems.

Funding Notes

Applicants should have a strong background in mathematics, especially in probability theory, stochastic calculus, martingale theory, with at least a 2.1 Honours degree.
This is a 3.5 year funded PhD studentship covering fees at the home rate and annual stipend (£15,609 in 2021-22)
This research project is one of a number of projects available in the Department of Mathematics. There are more projects than funding available and this project is in competition for funding with other available projects. Usually the projects that receive the best applicants will be awarded the funding.
Self-funded overseas students are also welcome to apply for this project.
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