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                                                     Seminar

             Department of Systems Engineering and Engineering Management
                                  The Chinese University of Hong Kong

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Title

:

Prospect Agents and Volatility Smile: A Microeconomic Approach

　

　

　

Speaker

:

Dr. Yipeng Yang

　

　

Research Associate at Hong Kong University of Science and Technology

　

　

Assistant Professor at Shanghai Jiao Tong University

　

　

　

Date

:

Jan 22nd, 2010 (Friday)

　

　

　

Time

:

4:30 p.m. - 5:30 p.m.

　

　

　

Venue

:

Room 513

　

　

William M.W. Mong Engineering Building

　

　

(Engineering Building Complex Phase 2)

　

　

CUHK

　

　

　

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Abstract:
　

The application of prospect theory in financial engineering has received more and more research interest recently. We propose a microeconomics approach to derive the risky asset price fluctuations, where the market participants are modeled as prospect trading agents. As asset price is generated by the temporary equilibrium between demand and supply, the agents\' trading behaviors can affect the price process, which we call the feedback effect. The prospect agents make actions based on their expectation or reference on the investment, and as a consequence of the feedback effect, a volatility smile of the price process is obtained in foreign currency market where the expectation has mean reverting properties, and a volatility skewness is obtained in equity market where the expectation is set at a point higher than the spot price. Thus a relationship between the agents\' trading behavior and the price fluctuations is constructed, which enables us to explain the implied volatility smile and skewness phenomena observed in actual market.


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Biography:
　

Yipeng Yang received his Bachelor’s degree on Control Theory & Engineering and a second Bachelor’s degree on Applied Mathematics at Shanghai Jiao Tong University (SJTU), Shanghai, China, in the year 2000 and 2001 respectively. In 2003 he received a Master’s degree on Control Theory & Engineering from SJTU, and after that he joined North Carolina State University, Raleigh, USA, where he achieved a Master’s degree on Financial Mathematics in 2007 and a Ph.D. on Operations Research in 2008. Upon graduation, he joined SJTU as an Assistant Professor, and starting from Nov 2009, he joined the Hong Kong University of Science and Technology as a Research Associate. Dr. Yang’s research interests include financial engineering, stochastic control, operations research, Markov decision process and their applications in finance.


************************* ALL ARE WELCOME ************************

　

　

　

Host

:

Prof. Zhou Xiang, Sean

Tel

:

(852) 2609-8336

Email

:

zhoux@se.cuhk.edu.hk

　

　

　

Enquiries

:

Prof. Nan Chen or Prof. Sean X. Zhou

　

:

Department of Systems Engineering and Engineering Management

　

　

CUHK

Website

:

http://www.se.cuhk.edu.hk/~seg5810

Email

:

seg5810@se.cuhk.edu.hk

　

　

　

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