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Enhancing Option Pricing Techniques via Machine Learning


Project Description

The University of Bath is inviting applications for the following PhD project based in the School of Management under the supervision of Dr Emmanouil Platanakis (https://researchportal.bath.ac.uk/en/persons/emmanouil-platanakis) and Professor David Newton (https://researchportal.bath.ac.uk/en/persons/david-newton).

THE PROJECT:

The QUAD method calculates option prices through numerically integrating the product of the payoff function and the transition probability density function. It is intrinsically orders of magnitude faster than the other main techniques in derivatives pricing (tree methods, finite difference and Monte Carlo) because it does not require massive calculation between key points in time (the mathematical boundary conditions). In our group, where the QUAD method was developed, we have shown how to implement the method in cases where there are no transition density functions and approximation functions are unavailable; for example, with the no-arbitrage SABR model for the underlying. The major advantage of QUAD over other methods is that not only is it exceptionally fast but also it is flexible, such that is can be applied across a wide range of financial options. Nevertheless, there remain cases which are tricky or even currently impossible to solve. Our aim is to crack these problems for two purposes: because they are academically stimulating for us to solve and especially because doing so would be practically useful in finance for e.g. London & NY as well as the expanding markets elsewhere, notably China. The research will likely include collaboration with colleagues at other universities, particularly Dr Haozhe Su (a former doctoral student with the group, now a lecturer at Nottingham Trent University’s Business School) and Professor Michael Tretyakov (at Nottingham University’s School of Mathematical Sciences).

APPLICATIONS:

Applicants for a studentship must have obtained, or be about to obtain, a First or Upper Second Class UK Honours degree, or the equivalent qualifications gained outside the UK, in a relevant discipline.

Formal applications should be made via the University of Bath’s online application form: https://samis.bath.ac.uk/urd/sits.urd/run/siw_ipp_lgn.login?process=siw_ipp_app&code1=RDUMN-FP01&code2=0014

Please ensure that you quote the supervisor’s name and project title in the ‘Your research interests’ section.

More information about applying for a PhD at Bath may be found here:
http://www.bath.ac.uk/guides/how-to-apply-for-doctoral-study/

Anticipated start date: 28 September 2020.

Funding Notes

Candidates applying for this project will be considered for a University studentship, which will cover UK/EU tuition fees, a training support grant of £1,000 per annum and a tax-free maintenance allowance at the UKRI Doctoral Stipend rate (£15,009 in 2019-20) for a period of up to 4 years. Limited funding opportunities for outstanding Overseas candidates may be available. Some School of Management studentships require recipients to contribute annually up to a maximum of 133 hours of seminar-based teaching and assessment in years 2, 3 and 4 of study (students will not be expected to give lectures).

References

Andricopoulos, A., Widdicks, M., Duck, P.W. and Newton, D. P. (2003). Universal Option Variation Using Quadrature, Journal of Financial Economics, Vol.67 (3), pp.447-471 and Corrigendum, Journal of Financial Economics 73, 603 (2004).
Andricopoulos, A., Widdicks, M., Newton, D. P. and Duck, P.W. (2007). Extending Quadrature Methods to Value Multi-Asset and Complex Path Dependent Options, Journal of Financial Economics, Vol.83(2), pp. 471-499.
Chen, D., Harkonen, H. and Newton, D. P. (2014). Advancing the Universality of Quadrature Methods to Any Underlying Process for Option Pricing, Journal of Financial Economics, 114 (3), 600-612.
Su, H., Chen, D. and Newton, D. P. (2017). Option Pricing via QUAD: From Plain Vanilla to Heston with Jumps, Journal of Derivatives, Vol. 24, No. 3: pp. 9-27.
Su, H. and Newton, D. P. (2019). Widening the Range of Underlyings for Derivatives Pricing with QUAD by using Finite Difference to Calculate Transition Densities - demonstrated for the No-Arbitrage SABR Model. Presented at the 32nd Australasian Finance and Banking Conference, December 2019.
Su, H. and Newton, D. P. (2020). Completing the Universality of Quadrature Methods for Option Pricing via Artificial Intelligence. Work in progress.

How good is research at University of Bath in Business and Management Studies?

FTE Category A staff submitted: 64.90

Research output data provided by the Research Excellence Framework (REF)

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