Seminar on Financial Mathematics
May 27, 1998,
SCHEDULE
4:30 - 6:00 p.m.
Valuation and Hedging of Securities with Default Risk
Mark Davis, Research and Product Development, Tokyo-Mitsubishi International
(London, England)
- Moderator:
- Stuart Turnbull, CIBC/Queen's University
- Discussants:
- Alan White, University of Toronto
- Glen Swindle, Credit Suisse First Boston Corporation
ABSTRACT OF THE TALK
Valuation and Hedging of Securities with Default Risk
Mark Davis, Tokyo-Mitsubishi International plc (London, England)
If a liquidly-traded corporate bond trades at below its "theoretical
value" this can only be because of the possibility of default. The talk will
dscribe how the distribution of the default time can be inferred from market
bond prices and how this information can be used to price simple "credit derivatives"
such as default swaps. More complicated products such as credit spread options
will also be described, as well as some optimal hedging problems. In these
problems the default time is the killing time of some underlying Markov process.
SPEAKER
Mark Davis is Director and Head of
Research and Product Development at Tokyo-Mitsubishi International (TMI),
a London-based investment banking subsidiary of the Bank of Tokyo-Mitsubishi.
His group at TMI is concerned with pricing models and risk management for
derivative securities. Prior to joining TMI in 1995, Mark Davis was Professor
of System Theory at Imperial College, London, specializing in stochastic analysis
and control theory. His publications include three books, most recently "Markov
Models and Optimization" (Chapman & Hall, 1993). He holds a PhD in Electrical
Engineering from the University of California, Berkeley and an ScD in Mathematics
from Cambridge University, and is a Fellow of the Royal Statistical Society
and of the Institute for Mathematical Statistics.
ORGANIZERS
Claudio Albanese (Mathematics, University of Toronto), Phelim Boyle (Finance,
University of Waterloo), Michel Crouhy (Canadian Imperial Bank of Commerce),
Donald A. Dawson (Fields Institute), Ron Dembo (President, Algorithmics Inc.),
Thomas McCurdy (Management, University of Toronto), Gordon Roberts (Finance,
York University), and Stuart Turnbull (Economics, Queen's University)
OTHER INFORMATION
The Financial Mathematics Seminar is offered to any interested participant
-- no reservation is necessary.
The Institute is located at 222 College Street, between University
Ave. and Spadina Ave. near Huron. Parking is available in pay lots located
behind the Fields Institute building (quarters and loonies only), across College
St. from the Institute (cash only), and underground at the Clarke Institute
of Psychiatry (entry on Spadina Ave., just north of College St.)
Information on the 1997-98 Seminar Series on Financial Mathematics is available
through electronic notices sent via e-mail and through the Fields Institute's
world wide web site.
