Laura Ballotta

Dr Ballotta works in the areas of quantitative finance and risk management. She has written on topics including stochastic modelling for financial valuation and risk management, numerical methods aimed at supporting financial applications, and the interplay between finance and insurance.

Recent major contributions have appeared in Journal of Financial and Quantitative Analysis, European Journal of Operational Research and Quantitative Finance among others. She serves as associate editor and referee for a number of international journals in the field.

Laura Ballotta obtained her PhD in Mathematical and Computational Methods for Economics and Finance from the Università degli Studi di Bergamo (Italy), following her BSc in Economics from Università Cattolica del Sacro Cuore, Piacenza (Italy), and MSc in Financial Mathematics from the University of Edinburgh - jointly awarded with Heriot-Watt University (UK). Laura has previously held positions at Università Cattolica del Sacro Cuore, Piacenza (Italy), and Department of Actuarial Science and Statistics, City University London (UK).

Qualifications

• BSc in Economics, Universita' Cattolica Sacro Cuore, Italy
• MSc in Financial Mathematics, University of Edinburgh, United Kingdom
• PhD in Computational Methods in Economics and Finance, Universita'degli Studi di Bergamo, Italy

Memberships of Professional Organisations

• Member, Bachelier Finance Society, Nov 2016 – present
• Fellow, The Association for Mathematics Applied to Economics and Social Sciences (AMASES), Oct 2014 – present
• Fellow, Istituto Italiano degli Attuari, Jan 2005 – present

Awards

• Cass Business School, City, University of London (2011) Teaching and Learning Prize
• for excellence in teaching at postgraduate level
• City University (2005) Excellence in Research
• Commendation for Excellence in Research

Languages

French, German and Italian (can read, write, speak, understand spoken and peer review).

Expertise

Primary Topics

• Derivatives
• Financial Engineering
• Mathematical Finance
• Quantitative Finance
• Risk Management
• Risk Modelling
• Simulation Methods

Additional Topics

• Futures & Options
• Life Insurance
• Multivariate statistics
• Probability Theory
• Stochastic Processes

Research

Research summary

Over the last few years, my research has contributed on problems of practical relevance in current financial markets conditions following the move of the financial industry towards the analysis and implementation of sophisticated tools for risk management. Specifically the themes I have been working on are Counterparty Credit Risk valuation, and development of realistic models for the dynamics of the relevant risk drivers which also recognize the interdependence in place between them.

Research Topics

Counterparty credit risk in a structural default model using multivariate Levy processes

This is joint work with Gianluca Fusai (Cass Business School) and Daniele Marazzina (Politecnico, Milan). We aim at providing a mathematically and computationally tractable setting for the computation counterparty risk at single trade level. The proposed model allows for the analysis of the impact of skewness, kurtosis and correlation on counterparty risk and wrong way risk, as to assess current Supervisory Authority recommendations on the multipliers to be applied for the calculation of the banks’ capital requirements. We also consider the treatment of the first to default problem, mitigating clauses and gap risk in the setting of a multivariate structural model. Finally, extensions to multiple trades and portfolio level are being investigated.

Multivariate Lévy Models by Linear Combination: Estimation

This is joint work with Angela Loregian and Gianluca Fusai. In this paper we propose a simple and effective two-step procedure to estimate the multivariate Lévy model introduced by Ballotta and Bonfiglioli (2014). We assess our estimation approach via simulations, comparing the results with those obtained through a standard but more computationally intensive one-step maximum likelihood estimation. The proposed method is then applied to the computation of the intra-horizon Value at Risk for a portfolio of assets following the model under consideration.

Multivariate Time Changed Lévy processes

In this work, we aim at extending the framework proposed by Ballotta and Bonfiglioli (2014) to incorporate volatility and leverage effects originated by both diffusion and pure jump components. Several applications in pricing, hedging and risk management are considered.

Smiles & Smirks

We propose a general setting for modelling equity prices with stochastic volatility and leverage effects based on time changed Lévy processes in order to answer some long standing modelling design questions: which risk factor offers sufficient flexibility for a robust calibration performance; which feature of the log-return process, such as volatility of volatility, leverage expressed as either covariance or correlation, enables the model to fit the data better; relevance of the classic diffusion component built on the Brownian motion in presence of leverage generated via jumps. The latter point assumes relevance in the case of extensions to multivariate asset modelling in order to maintain the parsimony of the dimensional complexity of the parameter space. The proposed model also allows the analysis of existing stochastic volatility models in terms of their distributional features, and to propose alternative robust constructions. Preliminary results point to the attractiveness of jumps.

• Ballotta, L., Deelstra, G. and Rayee, G. (2017). Multivariate FX models with jumps: triangles, Quantos and implied correlation. European Journal of Operational Research, 260(3), pp. 1181–1199. doi:10.1016/j.ejor.2017.02.018.
• Ballotta, L. and Bonfiglioli, E. (2016). Multivariate Asset Models Using Levy Processes and Applications. The European Journal of Finance, 22(13), pp. 1320–1350. doi:10.1080/1351847X.2013.870917.
• Ballotta, L. (2005). A Lévy process-based framework for the fair valuation of participating life insurance contracts. Insurance: Mathematics and Economics, 37(2 SPEC. ISS.), pp. 173–196. doi:10.1016/j.insmatheco.2004.10.001.
• Ballotta, L. and Haberman, S. (2003). Valuation of guaranteed annuity conversion options. Insurance: Mathematics and Economics, 33(1), pp. 87–108. doi:10.1016/S0167-6687(03)00146-X.

Chapters (7)

• Ballotta, L., Fusai, G. and Marena, M. (2016). Introduction to Default Risk and Counterparty Credit Modelling. In Kaminski, V. (Ed.), Managing Energy Price Risk (pp. 683–754). Riskbook ISBN 978-1-78272-209-0.
• Fusai, G. and Ballotta, L. (2016). VAR, Stress Testing and Supplementary Methodologies: Part 1. In Kaminski, V. (Ed.), Managing Energy Price Risk Riskbook ISBN 978-1-78272-209-0.
• Ballotta, L. and Fusai, G. (2016). VAR, Stress Testing and Supplementary Methodologies: Part 2. Managing Energy Price Risk Riskbooks. ISBN 978-1-78272-209-0.
• Ballotta, L. and Fusai, G. (2015). An introduction to stochastic calculus with Matlab examples. In Roncoroni, A., Fusai, G. and Cummins, M. (Eds.), Handbook of Multi-Commodity Markets and Products: Structuring, Trading and Risk Management (pp. 557–557). John Wiley & Sons. ISBN 978-0-470-74524-3.
• Ballotta, L. and Fusai, G. (2015). A Quick Review of Distributions Relevant in Finance with Matlab Examples. In Roncoroni, A., Fusai, G. and Cummins, M. (Eds.), Handbook of Multi-Commodity Markets and Products: Structuring, Trading and Risk Management (pp. 967–967). John Wiley & Sons. ISBN 978-0-470-74524-3.
• Ballotta, L. and Haberman, S. (2008). Options and guarantees in life insurance. In Melnick, E. and Everitt, B. (Eds.), Encyclopedia of Quantitative Risk Assessment (pp. 1244–1250). John Wiley & Sons Ltd, Chichester, UK.
• Ballotta, L. (2002). Alpha-quantile option in a jump-diffusion economy. In Pardalos, P. and Tsitsiringos, V. (Eds.), Financial Engineering, e-Commerce and Supply Chain (pp. 75–87). Springer. ISBN 978-1-4020-0640-1.

Journal Articles (16)

• Ballotta, L., Deelstra, G. and Rayee, G. (2017). Multivariate FX models with jumps: triangles, Quantos and implied correlation. European Journal of Operational Research, 260(3), pp. 1181–1199. doi:10.1016/j.ejor.2017.02.018.
• Ballotta, L., Gerrard, R. and Kyriakou, I. (2017). Hedging of Asian options under exponential Lévy models: computation and performance. The European Journal of Finance, 23(4), pp. 297–323. doi:10.1080/1351847X.2015.1066694.
• Ballotta, L. and Bonfiglioli, E. (2016). Multivariate Asset Models Using Levy Processes and Applications. The European Journal of Finance, 22(13), pp. 1320–1350. doi:10.1080/1351847X.2013.870917.
• Ballotta, L. and Kyriakou, I. (2015). Convertible bond valuation in a jump diffusion setting with stochastic interest rates. Quantitative Finance, 15(1), pp. 115–129.
• Ballotta, L. and Fusai, G. (2015). Counterparty credit risk in a multivariate structural model with jumps. Finance, Revue de l'Association Française de Finance, 36(1), pp. 39–74.
• Ballotta, L. and Kyriakou, I. (2014). Monte Carlo Simulation of the CGMY Process and Option Pricing. Journal of Futures Markets, 34(12), pp. 1095–1121. doi:10.1002/fut.21647.
• Ballotta, L. (2010). Efficient pricing of ratchet equity-indexed annuities in a variance-gamma economy. North American Actuarial Journal, 14(3), pp. 355–368. doi:10.1080/10920277.2010.10597639.
• Ballotta, L. (2009). Pricing and capital requirements for with profit contracts: modelling considerations. QUANTITATIVE FINANCE, 9(7), pp. 803–817. doi:10.1080/14697680802452068.
• Ballotta, L., Esposito, G. and Haberman, S. (2006). The IASB Insurance Project for life insurance contracts: Impact on reserving methods and solvency requirements. Insurance: Mathematics and Economics, 39(3), pp. 356–375. doi:10.1016/j.insmatheco.2006.04.004.
• Ballotta, L., Haberman, S. and Wang, N. (2006). Guarantees in with-profit and unitized with-profit life insurance contracts: Fair valuation problem in presence of the default option. Journal of Risk and Insurance, 73(1), pp. 97–121. doi:10.1111/j.1539-6975.2006.00167.x.
• Ballotta, L. and Haberman, S. (2006). The fair valuation problem of guaranteed annuity options: The stochastic mortality environment case. Insurance: Mathematics and Economics, 38(1), pp. 195–214. doi:10.1016/j.insmatheco.2005.10.002.
• Ballotta, L. (2005). A Lévy process-based framework for the fair valuation of participating life insurance contracts. Insurance: Mathematics and Economics, 37(2 SPEC. ISS.), pp. 173–196. doi:10.1016/j.insmatheco.2004.10.001.
• Ballotta, L. and Haberman, S. (2003). Valuation of guaranteed annuity conversion options. Insurance: Mathematics and Economics, 33(1), pp. 87–108. doi:10.1016/S0167-6687(03)00146-X.
• Ballotta, L. and Haberman, S. (2003). Reserving, Pricing and Hedging for Policies with Guaranteed Annuity Options. Abstract of the Discussion held by the Faculty of Actuaries. British Actuarial Journal, 9(2), pp. 409–412. doi:10.1017/S1357321700004220.
• Ballotta, L. (2002). α-Quantile Option in a Jump-Diffusion Economy. Financial Engineering, E-commerce and Supply Chain, 70, pp. 75–87. doi:10.1007/978-1-4757-5226-7_5.
• Ballotta, L. and Kyprianou, A.E. (2001). A note on the alpha-quantile option. Applied Mathematical Finance, 8(3), pp. 137–144.

Course Directorship

• 2005 - present, MSc Financial Mathematics, Admissions Tutor
• 2006 - present, MSc Quantitative Finance, Admissions Tutor
• 2003 - 2006, MSc Financial Mathematics, Director

Editorial Activities (2)

• Finance Research Letters, Associate Editor, 2015 – present.
• Business Research, Associate Editor, 2007 – present.