On August 24, 2024, Dr. Darko Vuković, a leading expert in financial modeling and market efficiency from the GSOM SPbU, delivered a lecture on stochastic volatility within a Bayesian framework at the 5th International Summer School on Mathematical Finance.  

The lecture of Prof. Vuković:

His lecture explained the integration of stochastic processes for volatility within the context of Bayesian Global Vector Autoregression model. The lecture emphasizes the flexibility of Bayesian methods to incorporate prior information and handle parameter uncertainty, which is particularly beneficial when dealing with complex, high-dimensional models like the BGVAR.

By using Bayesian techniques such as Markov Chain Monte Carlo, Prof. Vuković demonstrated how posterior distributions of model parameters can be estimated effectively, allowing for more robust inferences in situations where data may be sparse or noisy. His approach also addresses the issue of over-parameterization, which can lead to numerical instability and overfitting, by incorporating shrinkage priors that improve model estimation and prediction accuracy.

Furthermore, Dr. Vuković discussed with the students the significance of modeling stochastic volatility directly within the BGVAR framework. His lecture highlights how traditional models that assume constant error variance might not adequately capture the dynamic nature of financial markets, where volatility is often time-varying and subject to sudden shocks. By employing a flexible variance-covariance matrix and addressing potential heteroscedasticity, the Bayesian framework enhances the model's ability to adapt to these fluctuations. This allows for a more accurate assessment of volatility spillovers across different markets, which is crucial for understanding the interconnectedness of global financial systems, particularly in the context of cryptocurrency markets and their impact on traditional financial sectors.

5th International Summer School on Mathematical Finance held in the Tver region from August 23-30, brought together some of the brightest postgraduate minds in mathematics from across Russia. A total of 38 students, selected from a competitive pool of 150 applicants, had the opportunity to engage with Dr. Vuković's cutting-edge insights into the dynamic field of mathematical finance.

The lecture was part of a week-long program featuring distinguished international speakers, including experts from Oxford University (UK), MSU (Russia), Khalifa University (UAE), and the University of Padova (Italy). This international gathering of scholars and students highlights the Vega Institute's commitment to fostering advanced education and collaboration in the field of mathematical finance.

For more information about the International Summer School on Mathematical Finance