Introduction: The Department of Econometrics, Statistics and Mathematical Finance offers a seminar for summer semester 2012. The prospective applicants participated this seminar are required to write a report about thirty A4 pages after reading about thirty to fifty academic articles from research journals. A presentation for about twenty minutes related to the report will be given at the last stage of this seminar. The planned topics consist of two parts: I. Quantitative models for market microstructure analysis and day trading of securities. II. Fat-tailed models for the asset price process and its application to finance.
I. Quantitative Models for Market Microstructure Analysis and Day Trading of Securities:Theoretical and Empirical Research: Day trading refers to the market
practice of buying and selling financial instruments (for example, stocks , stock options, currencies equity index futures, interest rate futures, and commodity futures) within the same trading day (or within a fixed short-term) such that all positions will be closed (not necessarily) before the market close of that day. Day trading requires to employ the methods of analyzing intra-daily data (tick-by-tick data). There is a huge market demand for financial analysts who can utilize successfully day trading strategies. Meantime, understanding of microstructure of the financial markets will help the trader to find a successful day trading strategies.
II. Fat-tailed Models for the Asset Price Process and its Applications: Asset management and pricing models require the proper modeling of the return distribution of financial assets. While the return distribution used in the traditional theories of asset pricing and portfolio selection is the normal distribution, numerous studies that have investigated the empirical behavior of asset returns in financial markets throughout the world reject the hypothesis that asset return distributions are normally distribution. Alternative models for describing return distributions have been proposed since the 1960s, with the strongest empirical and theoretical support being provided for the family of stable distributions (with the normal distribution being a special case of this distribution). Since the turn of the century, specific forms of the stable distribution have been proposed and tested that better fit the observed behavior of historical return distributions. More specifically, subclasses of the tempered stable distribution have been proposed. In this seminar, we study subclasses of the non-normal Levy processes: the jump diffusion process, alpha stable process, tempered stable process. Moreover, we consider the stochastic volatility based on the Levy processes. By the process, we model the return process of stock and bond with credit risk. Using the model, we price the derivatives related to the stock, interest rate, and credit.
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