Who: Dr. Enrique ter Horst, Universidad de los Andes, Bogotá, Colombia
What: “A Bayesian time varying approach to risk neutral density estimation.”
When: Friday November 4th, 4PM
Where: Beaupre 105
We expand the literature of risk neutral density estimation across maturities from
implied volatility curves, which are usually estimated and interpolated through cubic smoothing splines.The risk neutral densities are computed through the second derivative, which we extend through a Bayesian approach to the problem, featuring an extension to a multivariate setting across maturities and over time, a flexible estimation approach for the smoothing parameter, which is traditionally assumed common to all assets, known and fixed across maturities and
time, but now potentially different between assets and maturities, and over time, and information borrowing about the implied curves and risk neutral densities not only across different option maturities, but also dynamically.
Enrique ter Horst has worked as a quantitative trading researcher at Credit Suisse First Boston and MorganStanley where he was also co-editor of the “Quant Strategist”, a weekly research piece distributed both internally within Morgan Stanley and externally to all its institutional clients. Prior to his industry experience, he completed a Ph.D in Bayesian Statistics at Duke University, and is a FinancialRisk Manager (GARP). He was elected as the secretary of the Economics, Finance and Business section of the International Society for Bayesian Analysis (ISBA) from 2015 until 2016. His research focuses on the development of new algorithms and statistical models in a wide variety of fields such as economics (energy economics), quantitative finance, text sentiment analysis (twitter and social media), physics, medicine, psychology, and marketing to name a few. Enrique terHorst has done consulting for some international agencies such as the EuropeanCentral Bank in Frankfurt, Germany, Eurostat (Brussels, Belgium), and the Inter-AmericanDevelopment Bank (IADB) in Washington DC. His research is currently used by some investment banks such as Morgan Stanley, European agencies such as theEuropean Central Bank and Eurostat. He is an associate professor and former director of research at the Universidad de los Andes in Bogotá, Colombia.