Research Workshop in Financial Engineering, 4-15 Agustus 2008Dear Colleagues,Please find below (also attached) the announcement for the ResearchWorkshop on Financial Engineering.We kindly ask your help to spread around this announcement to yourcolleagues, students, or graduates if you think they might beinterested to participate in the in the Research Workshop.Thank you for your attention …Kind regards,LabMath-IndonesiaThis announcement is also available at www.labmath-indonesia.or.id============================Research Work ShopCOURSE WEEKPROJECT WEEKFINANCIAL ENGINEERINGTHE MATHEMATICS OF RISK MANAGEMENT4 – 15 August 2008BandungOrganised jointly byLaboratorium Matematika Indonesia (LabMath-Indonesia)andUniversitas Katolik Parahyanganin collaboration with. Delft University of Technology, the Netherlands . University ofTwente, the NetherlandsAIM AND DESCRIPTIONThe aim of the two-week Research Work Shop (RWS) is to provide somebackground of methods and ideas in Financial Engineering. For the bestperforming 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 tothe modeling of financial derivatives. We start with dynamic models indiscrete time for asset prices and derive the mathematical conditionsthat have to be used in such models to make them realisticrepresentations of markets. Using binomial models, and the powerfulconcept of markets that are arbitrage-free, i.e. markets in which itis impossible to make riskless profits, we will be able to proveimportant results concerning the structure of such markets.We then look at models in continuous time, and we will quickly realizethat a realistic model for stock prices should lead to paths which arealmost everywhere continuous but almost nowhere differentiable. Theanalysis of processes with this property is made possible through theuse of Ito Calculus, which will be introduced in the course. It turnsout that the structural properties that can be derived for thediscrete time models mentioned earlier generalize to an astonishingextent in continuous time.This results in the powerful theory of risk neutral pricing, which isthe cornerstone of modern mathematical finance.To be able to use all these concepts, the last part of the course willalso discuss in detail how option pricing models can be implemented inpractice.The main aim of option pricing models is not to make riskless profits,or use advanced statistical techniques to profit from speculation. Theaim of option markets is to provide a service which allows otherparties to reduce their financial risk, in a way that is comparable totaking out insurance against possible misfortune. Option pricingtheory therefore deals with more than establishing consistent pricingmodels. It is also essential to derive trading strategies whichminimize the risk for the option trader. This leads to deep questionsconcerning the existence and uniqueness of certain stochastic integralrepresentations for random variables, and financial engineeringapplications have thus lead to a lot of new mathematical research intosuch questions.For some models there are explicit solutions which can be implementedusing techniques varying from partial differential equations (such asthe Black-Scholes equation) to Monte Carlo simulations undertransformed probability measures. Efficient numerical implementationof these methods, and formal proofs of their convergence, form anessential part of mathematical finance and will therefore be discussedon an introductory level in this course too.Mathematics is often extra exciting when quantitative problems in thereal world require not only application of existing mathematicaltechniques, but the extension of these techniques due to newconditions or model assumptions which are essential for a realisticmodel. In this course we hope to show you how fruitful the interplaybetween the theory of stochastic processes and the practice of optiontrading has been, and to make you enthusiastic for one of the mostsuccessful applications of probability theory and functional analysisin modern times.Please consult the webpagewww.math.utwente.nl/~vellekoopmh/FEcursusLabmath/for additional information and preparatory material.PROJECTSProject 1 : PRICING AND HEDGING OF ASIAN OPTIONS.We consider the pricing and hedging problem for an ‘Asian option’, anoption with a payoff that depends on the average of certain assetprice values, instead of a fixed end value. The numerical computationsfor this kind of options are known to be challenging, but manydifferent and interesting ways to attack the problem have beenproposed in the literature. We will focus in particularly on thequestion what the speed of convergence of these different methods will be.Project 2 : INDONESIAN OPTIONS.In September 2006, the Jakarta Stock Exchange (JSX) introduced thetrading of options on stocks of five companies: TelekomunikasiIndonesia 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, amongothers, descriptions of put and call option contracts with the stockof one of the above-mentioned companies as underlying. Since thesecontracts are rather special, we will refer to them as Indonesian putor call option. In this project we try to find the precise regulationsfor Indonesian options from information that is officially publishedby the Jakarta Stock Exchange and use this to try to price and hedgesuch options.Project 3 : ATM FORWARD PERCENTAGE CALL SPREADS.The ATM Forward Percentage Call Spread is a special type of calloption contract in which there is only a pay-off if the price of theunderlying asset at a future maturity time is higher than the price atthe initial time. In this case the pay-off is 1 euro for every percentof increase of price between those times up to a certain maximum. Assuch, an ATM Forward Percentage Call Spread is more like a tradingstrategy. They are not traded on the market, but they are an exampleof a so-called structured product. In this project we will calculate aprice and a replication strategy for an ATM Forward Percentage CallSpread. Using historical and boot-strapped data, we try to get someinsight into the risk of the replication strategy.Project 4 : BASKET OPTIONS.Basket options are options whose payoff depends on the value of abasket, i.e. a portfolio of assets. We will consider baskets offutures or forward contracts on different (but related) commoditiesthat mature at the same time. Such basket options are very common incommodity markets. We assume that under the risk neutral measure theprices of the futures follow correlated Geometric Brownian Motions. Inrecent work, the probability distribution of the price of the basketwas approximated by a generalized family of lognormal distributions.We start this project with a study of futures traded at Indonesianmarkets, and continue with a study of the distribution of sums ofcorrelated lognormal distributions to test the approximation that havebeen proposed.PROGRAMME LAY-OUTThe first week is a Course week, with lectures and exercise classes.This Course week can be attended by maximal 30 participants. At theend of this week, the projects will be introduced and Project groupswill be formed. At most 20 participants can continue with theseprojects, when necessary selected based on their performance duringthe Course week. This project work will be executed during the wholesecond week with close guidance by the RWS lecturers. Participantswill prepare written and oral presentations of their work.Arrangements for further activities will be made if applicable.AWARD/CONTINUATIONFor at most five of the best performing participants, a continuedactivity will be designed. Such a continuation may consist of furtherstudy and own research investigations in a specific topic. Working onthe topic may include a period of several months as guest ofLabMath-Indonesia in Bandung.During these periods, and as much as possible also during otherperiods using email for correspondence, tutorial guidance will beprovided by one of the lecturers of the RWS. When achievements aregood, sooner or later the results will lead to an application for aresearch grant, to an international publication, and/or to a visit orfollowing a study programme at a university abroad, whatever ispossible and desired. The best performing participants will be invitedand guided to write a research proposal to be submitted to (inter-)national funding agencies.LECTURERSDr. Ferry Jaya Permana, Universitas Katolik Parahyangan, Indonesia Dr.Hans van der Weide, University of Delft, the Netherlands Dr. MichelVellekoop, University of Twente, the NetherlandsPARTICIPATIONStudents and staff from governmental or private universities andorganisations, and employees of companies and Banks can apply forparticipation. Especially young S1 students in their final year andS2 students are strongly encouraged to participate.To profit from the course, participants should be eager to learn newtopics, both the theoretical background as well as the specificapplications. In general, basic knowledge concerning probabilitytheory is required. Students with a math, physics, engineering oreconometric background will be able to enjoy the lectures andprojects. Programming skills (Matlab, Maple), will be needed in theexecution of some projects. The applications will be thoroughlyexamined, and at most 30 participants will be allowed to participatein 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 deadlinewill receive sooner notification of participation.FEE AND SUPPORTFor participation a fee is requested of Rp. 1.000.000 for registrationbefore 20 July 2007, and Rp. 1.500.000 thereafter. This fee includesthe workshop material, lunch and coffee/tea during breaks, and theworkshop dinner.Support is given to reduce the fee for young students to Rp. 100.000and for university staff members to Rp. 500.000.VENUEComputer Laboratory & Lecture Room, Department of Mathematics,Universitas Katolik Parahyangan, Jl. Ciumbuleuit No. 94, Bandung.REGISTRATION FORMRegistration is easiest by using the electronic form available fromthe LabMath-Indonesia website:www.labmath-indonesia.or.id/Registration/Form.phpYou 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 toupload file documents that consist of your CV, an updated academicrecord, a letter of motivation that describes in your own words yourmotivation to participate, and (ifapplicable) a request for financial support. ALL these documents andall further (email-) correspondence should be in English.Alternatively, you can provide the details listed above in the mainpart of an email, with the documents as attachment, and email to:international@labmath-indonesia.or.id ================Info Beasiswa S1 S2 S3 scholarship dalam negeri dan luar negeri Indonesia Sekolah Diploma