Professor Erik Schlogl

Schlogl, E. & Schlogl, L. 2009, 'Factor Distributions Implied by Quoted CDO Spreads' in Cont, R (eds), Frontiers in Quantitative Finance, John Wiley and Sons, New Jersey, USA, pp. 217-234.

Schlogl, E. 2008, 'Markov Models for CDOs' in Meissner, G (eds), The Definitive Guide to CDOs: Market, Application, Valuation and Hedging, Risk Books, Cambridge, UK, pp. 319-340.

Schlogl, E. 2002, 'Arbitrage-free interpolation in models of market observable interest rates' in Sandmann K; Schonbucher PJ (eds), Advances in Finance and Stochastics: essays in honour of Dieter Sondermann, Springer-Verlag Berlin Heidelberg, Berlin, Germany, pp. 197-218.

Choy, B., Dun, T. & Schlogl, E. 2005, 'Correlating market models' in Dunbar, N (eds), Derivatives Trading and Option Pricing, Risk Books, London, UK, pp. 303-322.

Bruti Liberati, N., Nikitopoulos Sklibosios, C., Platen, E. & Schlogl, E. 2009, 'Alternative defaultable term structure models', Asia - Pacific Financial Markets, vol. 16, no. 1, pp. 1-31.
View/Download from: Publisher's site
View description>>

The objective of this paper is to consider defaultable term structure models in a general setting beyond standard risk-neutral models. Using as numeraire the growth optimal portfolio, defaultable interest rate derivatives are priced under the real-world probability measure. Therefore, the existence of an equivalent risk-neutral probability measure is not required. In particular, the real-world dynamics of the instantaneous defaultable forward rates under a jump-diffusion extension of a HJM type framework are derived. Thus, by establishing a modelling framework fully under the real-world probability measure, the challenge of reconciling real-world and risk-neutral probabilities of default is deliberately avoided, which provides significant extra modelling freedom. In addition, for certain volatility specifications, finite dimensional Markovian defaultable term structure models are derived. The paper also demonstrates an alternative defaultable term structure model. It provides tractable expressions for the prices of defaultable derivatives under the assumption of independence between the discounted growth optimal portfolio and the default-adjusted short rate. These expressions are then used in a more general model as control variates for Monte Carlo simulations of credit derivatives.

Mahayni, A.B. & Schlogl, E. 2008, 'The Risk Management of Minimum Return Guarantees', BuR - Business Research, vol. 1, no. 1, pp. 55-76.
View description>>

Contracts paying a guaranteed minimum rate of return and a fraction of a positive excess rate, which is specified relative to a benchmark portfolio, are closely related to unit-linked life-insurance products and can be considered as alternatives to direct investment in the underlying benchmark. They contain an embedded power option, and the key issue is the tractable and realistic hedging of this option, in order to rigorously justify valuation by arbitrage arguments and prevent the guarantees from becoming uncontrollable liabilities to the issuer. We show how to determine the contract parameters conservatively and implement robust risk-management strategies.

Chiarella, C., Nikitopoulos Sklibosios, C. & Schlogl, E. 2007, 'A Control Variate Method for Monte Carlo Simulations of Heath-Jarrow-Morton Models with Jumps', Applied Mathematical Finance, vol. 14, no. 5, pp. 365-399.
View/Download from: Publisher's site
View description>>

This paper examines the pricing of interest rate derivatives when the interest rate dynamics experience infrequent jump shocks modelled as a Poisson process. The pricing framework adapted was developed by Chiarella and Nikitopoulos to provide an extension of the Heath, Jarrow and Morton model to jump-diffusions and achieves Markovian structures under certain volatility specifications. Fourier Transform solutions for the price of a bond option under deterministic volatility specifications are derived and a control variate numerical method is developed under a more general state dependent volatility structure, a case in which closed form solutions are generally not possible. In doing so, a novel perspective is provided on control variate methods by going outside a given complex model to a simpler more tractable setting to provide the control variates.

Chiarella, C., Nikitopoulos Sklibosios, C. & Schlogl, E. 2007, 'A Markovian Defaultable Term Structure Model with State Dependent Volatilities', International Journal of Theoretical and Applied Finance, vol. 10, no. 1, pp. 155-202.
View/Download from: Publisher's site
View description>>

The defaultable forward rate is modelled as a jump diffusion process within the Schonbucher [26,27] general Heath, Jarrow and Morton [20] framework where jumps in the defaultable term structure fd(t, T) cause jumps and defaults to the defaultable bond prices Pd(t, T). Within this framework, we investigate an appropriate forward rate volatility structure that results in Markovian defaultable spot rate dynamics. In particular, we consider state dependent Wiener volatility functions and time dependent Poisson volatility functions. The corresponding term structures of interest rates are expressed as finite dimensional affine realizations in terms of benchmark defaultable forward rates In addition, we extend this model to incorporate stochastic spreads by allowing jump intensities to follow a square-root diffusion process. In that case the dynamics become non-Markovian and to restore path independence we propose either an approximate Markovian scheme or, alternatively, constant Poisson volatility functions. We also conduct some numerical simulations to gauge the effect of the stochastic intensity and the distributional implications of various volatility specifications.

Choy, B., Dun, T. & Schlogl, E. 2004, 'Correlating market models', Asia Risk, vol. October, pp. 53-59.

Schlogl, E. 2002, 'A multicurrency extension of the lognormal interest rate market models', Finance and Stochastics, vol. 6, no. 2, pp. 173-196.
View/Download from: Publisher's site

Dun, T., Barton, G.W. & Schlogl, E. 2001, 'Simulated Swaption Delta-Hedging in the Lognormal Forward Libor Model', International Journal of Theoretical & Applied Finance, vol. 4, no. 4, pp. 677-709.
View/Download from: Publisher's site
View description>>

Alternative approaches to hedging swaptions are explored and tested by simulation. Hedging methods implied by the Black swaption formula are compared with a lognormal forward LIBOR model approach encompassing all the relevant forward rates. The simulation is undertaken within the LIBOR model framework for a range of swaptions and volatility structures. Despite incompatibilities with the model assumptions, the Black method performs equally well as the LIBOR method, yielding very similar distributions for the hedging prot and loss even at high rehedging frequencies. This result demonstrates the robustness of the Black hedging technique and implies that being simpler and generally better understood by nancial practitioners it would be the preferred method in practice.

Choy, B., Dun, T. & Schlogl, E. 2004, 'Response to comments by Stephen Blyth and Maciej Sawicki', Risk, vol. 17, no. 11, p. 118.

Peng, T. & Schlogl, E. 2008, 'Dynamic Default Correlation Models: Binomial Lattices, Cross Entropy and Perfect Match', Seminar, Lehman Brothers Investment Bank, London, UK, July 2008.

Schlogl, E. 2008, 'Design Patterns and Objects in Monte Carlo Simulation', Quantitative Methods in Finance 2008 Conference, Sydney, Australia, December 2008.

Schlogl, E. 2008, 'Option pricing where assets follow a Gram-Charlier density of arbitrary order', Bachelier Finance Society 5th World Congress, London, UK, July 2008.

Schlogl, E. 2008, 'Option pricing where the underlying assets follow a Gram/Charlier density of arbitrary order', Third International Conference on Mathematics in Finance, Kruger National Park, South Africa, September 2008.

Bruti Liberati, N., Nikitopoulos, C., Platen, E. & Schlogl, E. 2007, 'Defaultable Term Structure Models Under the Benchmark Approach', Quantitative Methods in Finance 2007 Conference, Sydney, Australia, December 2007.

Bruti Liberati, N., Nikitopoulos Sklibosios, C., Platen, E. & Schlogl, E. 2007, 'Real-World Pricing for Defaultable Term Structure Models', CREDIT 2007, Venice, Italy, September 2007.

Peng, T. & Schlogl, E. 2007, 'Default Correlation Modelling: Binomial Lattices, Cross Entropy and Perfect Match', CREDIT 2007 Conference, Venice, Italy, September 2007.

Schlogl, E. 2007, 'Option pricing where the underlying assets follow a Gram/Charlier density of arbitrary order', Q Group Australia 2007 Colloquium, Sydney, Australia, October 2007.

Schlogl, E. & Schlogl, L. 2006, 'Fitting CDO factor distributions to quoted synthetic tranche spreads.', 2006 Symposium on Credit Risk, Extreme Values and Actural Studies, Canberra, Austalia, March 2006 in 2006 Symposium on Credit Risk, Extreme Values and Actural Studies.

Schlogl, E. 2006, 'Fitting the market: Tractable approximations and calibrating models to multiple volatility smiles.', Quantitative Methods in Finance 2006 Conference, Sydney, Australia, December 2006 in Quantitative Methods in Finance 2006 Conference.

Schlogl, E. 2006, 'Generic implementation of control variates in option pricing.', 5th National Symposium on Financial Mathematics, Melbourne, Australia, September 2006 in 5th National Symposium on Financial Mathematics.

Mahayni, A.B., Schlogl, E. 2003, 'The risk management of power options embedded in life-insurance products', AFFI International Conference, Lyon, France, June 2003 in 20th AFFI International Conference, ed --, The Association Francaise de Finance, Lyon, France, pp. 1-27.