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Bloomberg Quant (BBQ) Seminar - March 2021

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Date Aired: 3/31/2021
Duration: 60 minutes

Please join us for the next virtual installment of the Bloomberg Quant (BBQ) Seminar Series. The seminar takes place every month and covers a wide range of topics in quantitative finance.

In this virtual session, chaired by Bruno Dupire, Head of Quantitative Research at Bloomberg L.P., John Hull will discuss his current perspective, followed by several "lightning talks" of 5 minutes each in quick succession. This format gives the audience the opportunity to be exposed to a wider variety of topics.

Valuating Exotic Options and Estimating Model Risk
Keynote: John Hull, Maple Financial Professor of Derivatives and Risk Management, Joseph L. Rotman School of Management, University of Toronto

A common approach to valuing exotic options involves choosing a model and then determining its parameters to fit the volatility surface as closely as possible. We refer to this as the model calibration approach (MCA). This paper considers an alternative approach where the points on the volatility surface are features input to a neural network. We refer to this as the volatility feature approach (VFA). We conduct experiments showing that VFA can be expected to outperform MCA for the volatility surfaces encountered in practice. Once the upfront computational time has been invested in developing the neural network, the valuation of exotic options using VFA is very fast.  VFA is a useful tool for the estimation of model risk. We illustrate this using S&P 500 data for the 2001 to 2019 period.

John Hull is the Maple Financial Professor of Derivatives and Risk Management at the Joseph L. Rotman School of Management, University of Toronto. He was in 2016 awarded the title of University Professor (an honor granted to only 2% of faculty at University of Toronto.) He is an internationally recognized authority on derivatives and risk management and has many publications in this area. His work has an applied focus. His areas of research have included the impact of stochastic volatility on the pricing and hedging of options, the valuation of interest rate derivatives and credit derivatives, the calculation of value at risk, the evaluation of model risk, the regulation of financial institutions, and machine learning. He was, with Alan White, one of the winners of the Nikko-LOR research competition for his work on the Hull-White interest rate model, which is widely used by practitioners. In 1999 he was voted Financial Engineer of the Year by the International Association of Financial Engineers. He has acted as consultant to many financial institutions throughout the world and has won many teaching awards, including University of Toronto's prestigious Northrop Frye award. His current research interests are concerned with the application of machine learning to finance.

He is well known for his four books:  "Risk Management and Financial Institutions" (now in its 5th edition);   "Options, Futures, and Other Derivatives" (11th edition published in 2021); "Fundamentals of Futures and Options Markets" (now in its 9th edition); and "Machine Learning in Business: An Introduction to the World of Data Science" (now in its second edition). The books have been translated into many languages and are widely used by practicing managers as well as in the classroom. 

Dr. Hull is academic director of FinHub (Rotman’s Financial Innovation Lab) and co-director of Rotman’s Master of Finance and Master of Financial Risk Management programs. In addition to the University of Toronto, Dr. Hull has taught at York University, University of British Columbia, New York University, Cranfield University, and London Business School. 

Dr. Hull’s full CV is at


Peter Carr (NYU Tandon School of Engineering)
Why does more volatility cause more expected return?

Aakriti Mittal (Bloomberg L.P.)
Introduction to Singular Spectrum Analysis

Matheus Grasselli (McMaster University) 
God does not play DICE with the climate

Jose Menchero (Bloomberg L.P.)
Estimating correlations using PCA Shrinkage


John Hull

Maple Financial Professor of Derivatives and Risk Management

Joseph L. Rotman School of Management, University of Toronto

Bruno Dupire

Head of Quantitative Research

Bloomberg L.P.

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