Neural-SDEs and Market Models of Options

Sam Cohen

Speaker: Sam Cohen (University of Oxford)

Measuring market risk for option portfolios is challenging; it requires modelling joint dynamics of liquid options under the real world measure, simulating realistic trajectories of risk factors, and evaluating option prices efficiently under a large of amount of risk scenarios. In this talk we will construct an arbitrage-free neural-SDE market model for European call options. This involves building neural networks satisfying certain structural assumptions. Through backtesting analysis, we show that our models are more computationally efficient and accurate for evaluating Value-at-Risk (VaR) of option portfolios, with better coverage performance and less procyclicality than standard filtered historical simulation approaches.

Bio: Sam Cohen is Associate Professor in the Mathematical Institute at the University of Oxford, and Theme lead for Machine Learning in Finance at the Alan Turing Institute. He completed his PhD at the University of Adelaide, Australia, under the supervision of Robert Elliott, and has since worked on a variety of topics in stochastic analysis, statistics and financial modelling.

Thursday Feb. 2
5 pm - 6 pm
Babbio Center room 431