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On 27 September, Paul Gruntjes (1981) will be awarded his doctorate at the UvA. His doctoral research at the Korteweg-de Vries Institute for Mathematics (KdVI) involved developing new methods for quickly and accurately calculating the price of a financial option.
What did you do?
‘I developed new mathematical models which can be used to determine the value
of a financial option at a given moment. A financial option is the right to buy
or sell something – such as a share, for example – at a previously agreed price.
The question is always, what is the value of that right; or, what does the
option cost? If it’s an option on just one share, that’s relatively easy to
determine. I looked at what’s known as basket options. These are options on
baskets which may contain 125 different products. Determining the price of that
is not quite so easy.’
Why is that more difficult?
‘The various products in the basket all influence each other. Calculating a
high dimensional option, meaning a big basket, is therefore more difficult than
for a basket with just one product. And you can’t just ‘add up’ all the
different products. So the larger the basket, the more difficult it is to
determine the price. There are models for high dimensional basket options, but
they usually use a fixed correlation. That makes the outcome static. With the
models I’ve developed, the correlation is variable over time, so they better
reflect actual circumstances. For instance, if there’s a crash in the financial
markets, everything drops and the correlation goes to +1. Existing models don’t
pick that up, but the models I've developed do. It took me around a year to
develop the first model. I then made another version of it, and two other
models.
Is the model being used yet?
‘Not yet, but I’d love to apply it in my own work. I’m a derivatives
portfolio manager at Syntrus Achmea, which is the asset management operation
within the Achmea Group. I came up with the idea of developing new models years
ago because I could see that professionals, including myself, were coming up
against the same problems. That’s why I embarked on this doctoral research six
years ago. The only reason I’m not working with the model yet, is simply because
I don’t have the time to implement it here.’
Now that you’re working fulltime at Achmea again, do you miss doing
research?
‘Absolutely, and I'd love to carry on doing it. I still have so many ideas
that follow on from my doctoral subject that I would like to investigate.
Ideally I would love to spend one day a week doing research at the UvA and
continue working at Achmea the rest of the week. That mix of theory and practice
suits me well. At the same time, what I loved about pursuing a doctorate was
being able to do in-depth research. I’ve found that others find it hard to
understand what I’m doing. But they’re always interested in knowing whether I
have any investment advice to share.’
Author: Carin Röst
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