Dr Kristoffer Glover
Biography
Kristoffer joined the School of Finance and Economics at the University of Technology, Sydney in September 2008 as a Postdoctoral Research Fellow. He holds a masters degree in Mathematics and Physics and a Ph.D. in Mathematical Finance (completed in 2008) both from the University of Manchester in the UK. His primary research interests involve the application of optimal stopping theory to a wide range of problems within finance and economics. Kristoffer has also worked in the areas of liquidity modelling and behavioural finance.
In the UTS Business School, Kristoffer currently serves as the CFA Program Partnership Director and the CAIA (Chartered Alternative Investment Analyst) Academic Partnership Director.
Professional
Member of CFA Institute and the CFA Society of Sydney
Senior Lecturer,
Finance Discipline Group
Core Member,
QFRC - Quantitative Finance
PhD (Manchester)
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Phone
+61 2 9514 7778
ORCID
Research Interests
Optimal stopping and free-boundary problems applied to finance and economics, derivative pricing in illiquid markets, bounded rationality and behavioural finance and general computational finance.
Can supervise: Yes
Conferences
Evatt, G., Johnson, P., Cheng, M. & Glover, K. 2012, 'Optimal bank and regulatory capital reserve strategies under loan-loss uncertainty', Proceedings of the 25th Australasian Finance and Banking Conference 2012, The 25th Australasian Finance and Banking Conference 2012, University of NSW, Sydney, Australia, pp. 1-25.
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View/Download from: UTS OPUS
We formulate a general model of a commercial bank and its regulator where the bank's loans are exposed to default risk. The bank's objective is to maximise equity value by appropriately controlling the rate at which new loans are issued, early clo- sure, and dividend payments. The regulator's objective is to reduce the probability of the bank's early closure, which they achieve by appropriately controlling the bank's minimum capital requirements. We show that the regulator can in fact minimise this probability of closure, which is achieved via suitably balancing the risk of insolvency (associated with lower capital requirements) and the risk of endogenous closure (as- sociated with higher capital requirements). Both analytic and numerical results are presented, thus allowing for the full non-linearity of the model to be understood.
Glover, K. 2011, 'Efficient computation of a general class of two-dimensional optimal stopping problems', 17th International Conference on Computing in Economics and Finance, San Francisco, California, USA.
Glover, K. & Hulley, H. 2011, 'The limits of arbitrage and the term structure of stock index futures mispricing', Fourth International Conference on Mathematics in Finance, Berg-en-Dal, Kruger National Park, South Africa.
Glover, K. & Hambusch, G. 2011, 'Agency conflicts and the provision of debt when prices are mean reverting', International Finance and Banking Society Conference 2011, Rome, Italy.
Glover, K. 2011, 'A heterogeneous agent model for gold and stock prices', The Paul Woolley Centre for Capital Market Dysfunctionality 2011 Conference, Sydney Australia.
Glover, K. 2011, 'Efficient computation of a general class of two-dimensional optimal stopping problems', Quantitative Methods in Finance 2011 Conference, Sydney Australia.
Gerig, A. & Glover, K. 2010, 'What makes the market in a market without market-makers?', 16th International Conference on Computing in Economics and Finance, London, UK.
Glover, K., Peskir, G. & Samee, F. 2010, 'The British Russian option', 6th World Congress of the Bachelier Finance Society, Toronto, Canada.
Glover, K. 2010, 'Optimal prediction of the CEV process', Quantitative Methods in Finance 2010 Conference, Sydney, Australia.
Glover, K. 2009, 'Path dependent British options', Seminar Presentation, School of Finance and Economics, University of Technology, Sydney, Sydney, Australia.
We examine the British payoff mechanism (introduced in Peskir and Samee, 2008) in the context of path dependent options. In particular, we focus on the âBritish Asianâ and the âBritish Russianâ option. Such options provide their holder with an endogenous protection against unfavourable stock price movements. The price of such options can be characterised as the unique solution to a parabolic free-boundary problem, whose properties and solution we investigate. Finally, we provide a preliminary financial analysis of both options and conclude that in many circumstances these options can be considered an attractive alternative to existing path dependent options.
Glover, K., Peskir, G. & Samee, F. 2009, 'Path dependent British options', PDEs and Mathematical Finance III Conference, Stockholm, Sweden.
Glover, K. 2009, 'Path dependent British options', Quantitative Methods in Finance 2009 Conference, Sydney, Australia.
Glover, K., Peskir, G. & Samee, F. 2009, 'Path dependent British options', Optimal Stopping with Applications Symposium, Turku, Finland.
Glover, K., Peskir, G. & Samee, F. 2009, 'Path dependent British options', Seminar Presentation, Nottingham University Business School, Nottingham, UK.
Glover, K. 2008, 'On the properties of the British option', Quantitative Methods in Finance 2008 Conference, Sydney, Australia.
Journal articles
Ekstrom, E., Glover, K. & Leniec, M. 2017, 'Dynkin games with heterogeneous beliefs', Journal of Applied Probability, vol. 54, no. 1, pp. 236-251.
Glover, K. & Hambusch, G. 2016, 'Leveraged investments and agency conflicts when cash flows are mean reverting', Journal of Economic Dynamics and Control, vol. 67, pp. 1-21.
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View/Download from: Publisher's site
Baur, D.G. & Glover, K.J. 2015, 'Speculative trading in the gold market', International Review of Financial Analysis, vol. 39, pp. 63-71.
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View/Download from: Publisher's site
© 2015 Elsevier Inc. In this paper we use a recently developed econometric test to identify bubble-like price behaviour in the gold market. We find that the price of gold followed an explosive price process between 2002 and 2012 and exhibited super-exponential growth between 2002 and 2008, indicating excessive speculative trading and exuberance in the gold market. We also provide a theoretical foundation for such bubble tests based on a behavioural model in which chartists can cause episodes of explosive price dynamics.The identification strategy yields economically intuitive results and is a simple alternative to using more complex estimation techniques commonly used in the heterogeneous agents literature.
Glover, K. & Hambusch, G. 2014, 'The trade-off theory revisited: On the effect of operating leverage', International Journal of Managerial Finance, vol. 10, no. 1, pp. 2-22.
Baur, D.G. & Glover, K. 2014, 'Heterogeneous expectations in the gold market: Specification and estimation', Journal of Economic Dynamics and Control, vol. 40, no. 1, pp. 116-133.
Glover, K. & Hulley, H. 2014, 'Optimal prediction of the last-passage time of a transient diffusion', SIAM Journal on Control and Optimization, vol. 52, no. 6, pp. 3833-3853.
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View/Download from: UTS OPUS or Publisher's site
Glover, K., Hulley, H. & Peskir, G. 2013, 'Three-dimensional Brownian motion and the golden ratio rule', Annals Of Applied Probability, vol. 23, no. 3, pp. 895-922.
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View/Download from: UTS OPUS or Publisher's site
Baur, D.G. & Glover, K. 2012, 'The destruction of a safe haven asset?', Applied Finance Letters, vol. 1, no. 1, pp. 8-15.
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View/Download from: UTS OPUS
Gold has been a store of value for centuries and a safe haven for investors in the past decades. However, the increased investment in gold for speculative or hedging purposes has changed the safe haven property. We demonstrate theoretically and empirically that investor behaviour has the potential to destroy the safe haven property of gold. The results suggest that an asset cannot be both an investment asset and an effective safe haven asset. This finding has important implications for financial stability since assets are more likely to exhibit excess comovement and volatility in the absence of a safe haven.
Glover, K., Peskir, G. & Samee, F. 2011, 'The British Russian option', Stochastics. An International Journal of Probability and Stochastic Processes, vol. 83, no. 4-6, pp. 315-332.
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View/Download from: UTS OPUS or Publisher's site
Following the economic rationale of the British put and call option, we present a new class of lookback options (by first studying the canonical 'Russian' variant) where the holder enjoys the early exercise feature of American options, whereupon his payoff (deliverable immediately) is the 'best prediction' of the European payoff under the hypothesis that the true drift of the stock price equals a contract drift. Inherent in this is a protection feature which is key to the British Russian option. Should the option holder believe the true drift of the stock price to be unfavourable (based upon the observed price movements) he can substitute the true drift with the contract drift and minimize his losses. The practical implications of this protection feature are most remarkable as not only is the option holder afforded a unique protection against unfavourable stock price movements (covering the ability to sell in a liquid option market completely endogenously), but also when the stock price movements are favourable he will generally receive high returns. We derive a closed-form expression for the arbitrage-free price in terms of the rational exercise boundary and show that the rational exercise boundary itself can be characterized as the unique solution to a nonlinear integral equation. Using these results, we perform a financial analysis of the British Russian option that leads to the conclusions above and shows that with the contract drift properly selected, the British Russian option becomes a very attractive alternative to the classic European/American Russian option.
Glover, K., Peskir, G. & Samee, F. 2010, 'The British Asian option', Sequential Analysis, vol. 29, no. 3, pp. 311-327.
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View/Download from: UTS OPUS or Publisher's site
Following the economic rationale of Peskir and Samee (2008a,b), we present a new class of Asian options where the holder enjoys the early exercise feature of American options whereupon his payoff (deliverable immediately) is the `best prediction of the European payoff under the hypothesis that the true drift of the stock price equals a contract drift. Inherent in this is a protection feature that is key to the British Asian option. Should the option holder believe the true drift of the stock price to be unfavorable (based upon the observed price movements), he can substitute the true drift with the contract drift and minimize his losses. The practical implications of this protection feature are most remarkable, as not only is the option holder afforded a unique protection against unfavorable stock price movements (covering the ability to sell in a liquid option market completely endogenously), but also when the stock price movements are favorable he will generally receive high returns. We derive a closed form expression for the arbitrage-free price in terms of the rational exercise boundary and show that the rational exercise boundary itself can be characterized as the unique solution to a nonlinear integral equation. Using these results we perform a financial analysis of the British Asian option that leads to the conclusions above and shows that with the contract drift properly selected the British Asian option becomes a very attractive alternative to the classic (European) Asian option.
Glover, K., Duck, P. & Newton, D. 2010, 'On nonlinear models of markets with finite liquidity: Some cautionary notes', SIAM Journal on Applied Mathematics, vol. 70, no. 8, pp. 3252-3271.
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View/Download from: UTS OPUS or Publisher's site
The recent financial crisis and related liquidity issues have illuminated an urgent need for a better understanding of the effects of limited liquidity on all aspects of the financial system. This paper considers such effects on the BlackScholesMerton financial model, which for the most part result in highly nonlinear partial differential equations (PDEs). We investigate in detail a model studied by Schönbucher and Wilmott (2000) which incorporates the price impact of option hedging strategies. First, we consider a first-order feedback model, which leads to the exceptional case of a linear PDE. Numerical results, and more particularly an asymptotic approach close to option expiry, reveal subtle differences from the BlackScholesMerton model. Second, we go on to consider a full-feedback model in which price impact is fully incorporated into the model. Here, standard numerical techniques lead to spurious results in even the simplest cases. An asymptotic approach, valid close to expiry, is mounted, and a robust numerical procedure, valid for all times, is developed, revealing two distinct classes of behavior. The first may be attributed to the infinite second derivative associated with standard option payoff conditions, for which it is necessary to admit solutions with discontinuous first derivatives; perhaps even more disturbingly, negative option values are a frequent occurrence. The second failure (applicable to smoothed payoff functions) is caused by a singularity in the coefficient of the diffusion term in the option-pricing equation. Our conclusion is that several classes of model in the literature involving permanent price impact irretrievably break down (i.e., there is insufficient financial modeling in the pricing equation). Our analysis should provide the information necessary to avoid such pitfalls in the future.
Other
Glover, K.J. & Hambusch, G. 2016, 'Leveraged investments and agency conflicts when cash flows are mean reverting'.
Evatt, G.W., Johnson, P.V., Glover, K.J. & Cheng, M. 2015, 'Capital Ideas: Optimal Capital Reserve Strategies for a Bank and Its Regulator'.
Baur, D.G. & Glover, K. 2012, 'A Gold Bubble?'.
In this paper we use a test developed by Phillips et al. (2011) to identify a bubble in the gold market. We find that the price of gold followed an explosive price process between 2002 and 2012 interrupted only briefly by the
subprime crisis in 2008. We also provide a theoretical foundation for such bubble tests based on a behavioural model of heterogeneous agents and demonstrate that periods of explosive price behaviour are consistent with increased
chartist activity in the gold market. The identification strategy yields economically intuitive results and is a simple alternative to using more complex estimation techniques commonly used in the heterogeneous agents literature.
Glover, K., Peskir, G. & Samee, F. 2010, 'The British Russian Option', Research Paper Series, Quantitative Finance Research Centre, University of Technology, Sydney.
Research Paper Number 269 Abstract: Following the economic rationale of [10] and [11] we present a new class of lookback options (by first studying the canonical âRussianâ variant) where the holder enjoys the early exercise feature of American options where upon his payoff (deliverable immediately) is the âbest predictionâ of the European payoff under the hypothesis that the true drift of the stock price equals a contract drift. Inherent in this is a protection feature which is key to the British Russian option. Should the option holder believe the true drift of the stock price to be unfavourable (based upon the observed price movements) he can substitute the true drift with the contract drift and minimise his losses. The practical implications of this protection feature are most remarkable as not only is the option holder afforded a unique protection against unfavourable stock price movements (covering thea bility to sell in a liquid market completely endogenously) but also when the stock price movements are favourable he will generally receive high returns. We derive a closed form expression for the arbitrage-free price in terms of the rational exercise boundary and show that the rational exercise boundary itself can be characterised as the unique solution to a nonlinear integral equation. Using these results we perform a financial analysis of the British Russian option that leads to the conclusions above and shows that with the contract drift properly selected the British Russian option becomes a very attractive alternative to the classic European/American Russian option.
Glover, K., Peskir, G. & Samee, F. 2009, 'The British Asian Option', Quantitative Finance Research Centre, University of Technology, Sydney.
Research Paper Number: 249 Abstract: Following the economic rationale of [7] and [8] we present a new class of Asian options where the holder enjoys the early exercise feature of American options whereupon his payoff (deliverable immediately) is the âbest predictionâ of the European payoff under the hypothesis that the true drift of the stock price equals a contract drift. Inherent in this is a protection feature which is key to the British Asian option. Should the option holder believe the true drift of the stock price to be unfavourable (based upon the observed price movements) he can substitute the true drift with the contract drift and minimise his losses. The practical implications of this protection feature are most remarkable as not only is the option holder afforded a unique protection against unfavourable stock price movements (covering the ability to sell in a liquid market completely endogenously) but also when the stock price movements are favourable he will generally receive high returns. We derive a closed form expression for the arbitrage-free price in terms of the rational exercise boundary and show that the rational exercise boundary itself can be characterised as the unique solution to a nonlinear integral equation. Using these results we perform a financial analysis of the British Asian option that leads to the conclusions above and shows that with the contract drift properly selected the British Asian option becomes a very attractive alternative to the classic (European) Asian option.