German-Portuguese Project in Computational Finance

As part of the activities of the ECMI Special Interest Group on computational finance and energy markets a bilateral German-Portuguese Project FRACTAL – FRActional models and CompuTationAL Finance was granted in January 2019. It  will run for two years (01/2019 – 12/2020) and is jointly coordinated by Matthias Ehrhardt (University of Wuppertal) and Maria do Rosario Grossinho (ISEG – Lisbon School of Economics & Management). This project  is  financed by DAAD and the CRUP – Conselho de Reitores das Universidades Portuguesas.

The aim of this project is to investigate analytically and numerically boundary value problems of fractional partial differential equations (fPDEs). Our focus is on possible real world applications in close cooperation with local industry partners. Suggested by the recent literature for the application of fPDEs in finance (e.g. in option pricing models based on Lévy processes or fractional Brownian motion), we are concerned with:

  1. analytical study of fPDEs (existence and uniqueness results; properties of the solution
  2. numerical methods for fPDEs (investigate algorithmic realisations and numerical results)
  3. application to financial option pricing (including the rigorous derivation of the fPDE associated to the fractional Black-Scholes model, Lévy processes, and clarification of absence of arbitrage in the resulting model.)

The project with a multidisciplinary composition of the team members (statistics, numerics and economics) will reinforce the academic relations between both teams, exploring significant complementarities in cooperative research work, with special emphasis on qualification of young academics in an international environment.

This Project FRACTAL will further strengthen the academic relations between the two working groups, but also between the two universities. Right in this context we will establish a new german-portuguese subgroup in the ECMI special interest group on computational finance  and an active student and staff exchange in the framework of the ERASMUS+ programme. Here we plan jointly supervised theses and compact courses offered by the staff of the partner group with the vision of a truly European education and qualification on a high academic level, also with the emphasis to train fellows to work in multi-cultural research teams.

Further information can be found on the project homepage.