Let me provide answers to some frequently asked questions.
We know that various social and natural events influence the status of the financial markets. So, an investor tries to link most of the fluctuations in the market with some contemporary events. Most of those events cause a predictable effect on the price movements of some relevant financial assets. On the other hand, a stochastic model of asset price fluctuation disregards this causal relation and instead proposes a theoretical random noise as a driver of asset price fluctuation. By virtue of this, a stochastic model possesses no predictive power. So, why is it useful?
It is true that in many cases, a specific event occurs beyond any anticipation, and so the exact occurrence of the resulting shocks in financial assets is not predictable. However, since an asset price gets affected regularly by some events or the other, an empirical distribution of the shocks can be obtained and is meaningful. This distribution/law is more robust than the realizations of an individual one and this does not frequently alter. So, the mathematical modeling of the conditional distribution of future asset prices is relevant when we need to manage risk over a period longer than the immediate future. On the other hand, we recall that for a sufficiently liquid asset, the price changes every hour, without a need for an event to occur. So, a complete knowledge of the events and news is not enough for predicting asset movements. So, the risky assets do have inherent uncertainty in their prices. Hence, a stochastic model becomes relevant.
There are two types of models of asset price dynamics. One is econometric another is mathematical. An econometric model relies on the history of the immediate past and predicts a range of possible values of the asset price for the next time interval with a certain level of confidence. This is basically a time-series model and is based on statistics. Due to some of their complex structure and the presence of many calibrated parameters, these are believed to have predictive power over a short period. However, these cannot factor in relatively rare events. A mathematical model on the other hand does not attempt to predict tomorrow's asset price. This rather assumes that asset prices are not predictable and uncertainties are inherent. Instead of predicting the realization of the asset price, a stochastic differential equation models the conditional law of the price dynamics. In other words, it is designed to answer only the following question. "If the price at any future time is treated as a random variable, what is its conditional distribution given the past realization of the asset price?"
Why should one be interested in modeling the conditional distribution of asset prices?
In the financial market, many types of assets are traded. Prices of some secondary risky assets depend on the present anticipation of future distribution of a primary risky asset. For finding a rational price of such secondary assets it's important to have a Mathematical model of the corresponding primary asset. These secondary assets are useful in managing risks.
I am reading a paper as part of the summer school and I do not fully understand this. I need help in finding some appropriate material so that I am able to completely understand.
Please contact me to schedule a presentation where you will present the concepts of the paper in simple terms to everyone, and then ask your questions. If anybody else has also read that part and has similar or other doubts on that paper may also mention those. We will discuss that.
I am not familiar with the concepts of Black Scholes's option pricing theory. What should I read to get a working knowledge?
Read sequentially
I am willing to learn the subject of math finance beyond the scope of this summer school. I am seeking guidance on how to start with.
Check this link. You may find these references useful.
I wish to learn more about the use of simulation for finding the theoretical price of options. How should I start?
Read this report made by some earlier students.
I wish to learn some fundamentals of simulation techniques quickly. How should I start?
Read this report made by some earlier students.
I want to do my summer internship under your supervision, but I am not a student of IISER Pune. May I get an accommodation?
The summer internship is an outreach program of IISER, managed centrally. For an internship, you need to apply via the portal only. Only the selected candidates via this channel are provided with free accommodation by IISER. Thus, I have no freedom to provide a candidate with accommodation who has not applied via the portal.
I have been selected for a project with you via the IAS channel. Is it possible to get an accommodation at IISER, Pune?
Yes, but on a payment basis.
I have applied through the IISER Summer program portal. What is the chance factor for getting selected?
Every year, I receive hundreds of applications. But for the logistical constraints, I can select at most two candidates.
Does contacting you by email or phone help in highlighting the cv or increasing the chance of getting selected?
No, not at all. Repeated communication might actually leave a negative impression.
I have applied through the IISER Summer program portal. I was not selected. May I still get a chance to do a project under your supervision?
I generally shortlist around 30 students for joining the online summer school based on the applications received at the portal. I inform those candidates by email.
I already have an accommodation in Pune (inside or outside the IISER Campus). How can I apply for a summer project?
Follow the same process as others. However, if you wish to meet me in person, write me at my iiserpune email id along with your college ID number, a CV, a copy of the transcript, a statement of motivation, and a statement of proficiency in computer programming.
Why don't I find my name in the list of selected candidates, although I have already received a confirmation from you stating that I am selected for the internship?
I might have missed your name unintentionally. Inform me immediately about this.