Risk Management of Option Books with Arbitrage-Free Neural-SDE Market Models

Explore a virtual talk on risk management of option books using arbitrage-free neural-SDE market models, presented by Christoph Reisinger from the University of Oxford. Delve into the development of a nonparametric model for European option books that respects financial constraints while remaining practical. Discover how to derive a state space for arbitrage-free prices and learn about the inference problem of training neural SDE models from discrete time series data. Examine the validation process using data from a Heston stochastic local volatility model and EURO STOXX 50 index. Analyze the Value-at-Risk (VaR) backtesting results, comparing coverage performance and procyclicality to standard filtered historical simulation approaches. Investigate sensitivity-based and minimum-variance-based hedging strategies, and evaluate their performance against Black-Scholes delta-vega hedging when applied to EURO STOXX 50 index option portfolios during various market conditions.