Indonesia Research Workshop in Financial Engineering
Research Workshop in Financial Engineering, 4-15 Agustus 2008
Please find below (also attached) the announcement for the Research
Workshop on Financial Engineering.
We kindly ask your help to spread around this announcement to your
colleagues, students, or graduates if you think they might be
interested to participate in the in the Research Workshop.
Thank you for your attention …
This announcement is also available at http://www.labmath-indonesia.or.id
Research Work Shop
THE MATHEMATICS OF RISK MANAGEMENT
4 – 15 August 2008
Organised jointly by
Laboratorium Matematika Indonesia (LabMath-Indonesia)
Universitas Katolik Parahyangan
in collaboration with
. Delft University of Technology, the Netherlands . University of
Twente, the Netherlands
AIM AND DESCRIPTION
The aim of the two-week Research Work Shop (RWS) is to provide some
background of methods and ideas in Financial Engineering. For the best
performing participants, this may be the start of continued research,
guided by one of the lecturers of the RWS.
This course aims to provide a thorough mathematical introduction to
the modeling of financial derivatives. We start with dynamic models in
discrete time for asset prices and derive the mathematical conditions
that have to be used in such models to make them realistic
representations of markets. Using binomial models, and the powerful
concept of markets that are arbitrage-free, i.e. markets in which it
is impossible to make riskless profits, we will be able to prove
important results concerning the structure of such markets.
We then look at models in continuous time, and we will quickly realize
that a realistic model for stock prices should lead to paths which are
almost everywhere continuous but almost nowhere differentiable. The
analysis of processes with this property is made possible through the
use of Ito Calculus, which will be introduced in the course. It turns
out that the structural properties that can be derived for the
discrete time models mentioned earlier generalize to an astonishing
extent in continuous time.
This results in the powerful theory of risk neutral pricing, which is
the cornerstone of modern mathematical finance.
To be able to use all these concepts, the last part of the course will
also discuss in detail how option pricing models can be implemented in
The main aim of option pricing models is not to make riskless profits,
or use advanced statistical techniques to profit from speculation. The
aim of option markets is to provide a service which allows other
parties to reduce their financial risk, in a way that is comparable to
taking out insurance against possible misfortune. Option pricing
theory therefore deals with more than establishing consistent pricing
models. It is also essential to derive trading strategies which
minimize the risk for the option trader. This leads to deep questions
concerning the existence and uniqueness of certain stochastic integral
representations for random variables, and financial engineering
applications have thus lead to a lot of new mathematical research into
For some models there are explicit solutions which can be implemented
using techniques varying from partial differential equations (such as
the Black-Scholes equation) to Monte Carlo simulations under
transformed probability measures. Efficient numerical implementation
of these methods, and formal proofs of their convergence, form an
essential part of mathematical finance and will therefore be discussed
on an introductory level in this course too.
Mathematics is often extra exciting when quantitative problems in the
real world require not only application of existing mathematical
techniques, but the extension of these techniques due to new
conditions or model assumptions which are essential for a realistic
model. In this course we hope to show you how fruitful the interplay
between the theory of stochastic processes and the practice of option
trading has been, and to make you enthusiastic for one of the most
successful applications of probability theory and functional analysis
in modern times.
Please consult the webpage
for additional information and preparatory material.
Project 1 : PRICING AND HEDGING OF ASIAN OPTIONS.
We consider the pricing and hedging problem for an ‘Asian option’, an
option with a payoff that depends on the average of certain asset
price values, instead of a fixed end value. The numerical computations
for this kind of options are known to be challenging, but many
different and interesting ways to attack the problem have been
proposed in the literature. We will focus in particularly on the
question what the speed of convergence of these different methods will be.
Project 2 : INDONESIAN OPTIONS.
In September 2006, the Jakarta Stock Exchange (JSX) introduced the
trading of options on stocks of five companies: Telekomunikasi
Indonesia Tbk (TLKM), Astra International Tbk (ASII), HM Sampoerna Tbk
(HMSP), Bank Central Asia Tbk (BBCA) and Indofood Sukses Makmur Tbk
(INDF). The regulations for trading in these options contain, among
others, descriptions of put and call option contracts with the stock
of one of the above-mentioned companies as underlying. Since these
contracts are rather special, we will refer to them as Indonesian put
or call option. In this project we try to find the precise regulations
for Indonesian options from information that is officially published
by the Jakarta Stock Exchange and use this to try to price and hedge
Project 3 : ATM FORWARD PERCENTAGE CALL SPREADS.
The ATM Forward Percentage Call Spread is a special type of call
option contract in which there is only a pay-off if the price of the
underlying asset at a future maturity time is higher than the price at
the initial time. In this case the pay-off is 1 euro for every percent
of increase of price between those times up to a certain maximum. As
such, an ATM Forward Percentage Call Spread is more like a trading
strategy. They are not traded on the market, but they are an example
of a so-called structured product. In this project we will calculate a
price and a replication strategy for an ATM Forward Percentage Call
Spread. Using historical and boot-strapped data, we try to get some
insight into the risk of the replication strategy.
Project 4 : BASKET OPTIONS.
Basket options are options whose payoff depends on the value of a
basket, i.e. a portfolio of assets. We will consider baskets of
futures or forward contracts on different (but related) commodities
that mature at the same time. Such basket options are very common in
commodity markets. We assume that under the risk neutral measure the
prices of the futures follow correlated Geometric Brownian Motions. In
recent work, the probability distribution of the price of the basket
was approximated by a generalized family of lognormal distributions.
We start this project with a study of futures traded at Indonesian
markets, and continue with a study of the distribution of sums of
correlated lognormal distributions to test the approximation that have
The first week is a Course week, with lectures and exercise classes.
This Course week can be attended by maximal 30 participants. At the
end of this week, the projects will be introduced and Project groups
will be formed. At most 20 participants can continue with these
projects, when necessary selected based on their performance during
the Course week. This project work will be executed during the whole
second week with close guidance by the RWS lecturers. Participants
will prepare written and oral presentations of their work.
Arrangements for further activities will be made if applicable.
For at most five of the best performing participants, a continued
activity will be designed. Such a continuation may consist of further
study and own research investigations in a specific topic. Working on
the topic may include a period of several months as guest of
LabMath-Indonesia in Bandung.
During these periods, and as much as possible also during other
periods using email for correspondence, tutorial guidance will be
provided by one of the lecturers of the RWS. When achievements are
good, sooner or later the results will lead to an application for a
research grant, to an international publication, and/or to a visit or
following a study programme at a university abroad, whatever is
possible and desired. The best performing participants will be invited
and guided to write a research proposal to be submitted to (inter-)
national funding agencies.
Dr. Ferry Jaya Permana, Universitas Katolik Parahyangan, Indonesia Dr.
Hans van der Weide, University of Delft, the Netherlands Dr. Michel
Vellekoop, University of Twente, the Netherlands
Students and staff from governmental or private universities and
organisations, and employees of companies and Banks can apply for
participation. Especially young S1 students in their final year and
S2 students are strongly encouraged to participate.
To profit from the course, participants should be eager to learn new
topics, both the theoretical background as well as the specific
applications. In general, basic knowledge concerning probability
theory is required. Students with a math, physics, engineering or
econometric background will be able to enjoy the lectures and
projects. Programming skills (Matlab, Maple), will be needed in the
execution of some projects. The applications will be thoroughly
examined, and at most 30 participants will be allowed to participate
in the first Course Week and 20 participants in the Project week.
DEADLINE FOR APPLICATION: 20 July 2008.
NOTIFICATION OF PARTICIPATION: 27 July 2008.
Participants who register earlier than the above mentioned deadline
will receive sooner notification of participation.
FEE AND SUPPORT
For participation a fee is requested of Rp. 1.000.000 for registration
before 20 July 2007, and Rp. 1.500.000 thereafter. This fee includes
the workshop material, lunch and coffee/tea during breaks, and the
Support is given to reduce the fee for young students to Rp. 100.000
and for university staff members to Rp. 500.000.
Computer Laboratory & Lecture Room, Department of Mathematics,
Universitas Katolik Parahyangan, Jl. Ciumbuleuit No. 94, Bandung.
Registration is easiest by using the electronic form available from
the LabMath-Indonesia website:
You will be asked to provide the following information: Your name,
current position (student/ lecturer University/ other), your address,
telephone and email-address. Besides that, you will be requested to
upload file documents that consist of your CV, an updated academic
record, a letter of motivation that describes in your own words your
motivation to participate, and (if
applicable) a request for financial support. ALL these documents and
all further (email-) correspondence should be in English.
Alternatively, you can provide the details listed above in the main
part of an email, with the documents as attachment, and email to:
Info Beasiswa S1 S2 S3 scholarship dalam negeri dan luar negeri Indonesia Sekolah Diploma