Otto Konstandatos joined the UTS Busniess Faculty in November 2005. A mathematician by training, he completed a Bachelor of Science with First Class Honours and University Medal in Mathematics and a Bachelor of Laws at the University of Sydney. His PhD thesis, also from the University of Sydney, developed a new methodology and framework for the pricing of exotic derivatives, in particular barrier and lookback type options under (multi-dimensional) Black-Scholes dynamics.
His research interests are in the pricing of derivatives securities, with an emphasis on pricing path-dependent options including barrier options, double barrier options, lookback options, and hybrid path-dependent options which simultaneously include both barrier and lookback option features, as well as multi-dimensional Rainbow exotic extensions of barriers and lookbacks. He is also interested in term-structure modelling, the application of symmetry group methods in mathematical finance, and the pricing of derivatives under alternative asset-price dynamics.
Can supervise: YES
Pricing of derivatives securities, term-structure modelling, the application of symmetry group methods in mathematical finance, and the pricing of derivatives under alternative asset-price dynamics.
Konstandatos, O 2008, Pricing Path Dependent Exotic Options, VDM Verlag, Germany.
Konstandatos, O 2020, 'Fair-value analytical valuation of reset executive stock options consistent with IFRS9 requirements', Annals of Actuarial Science, vol. 14, no. 1, pp. 188-218.
Kyng, T, Konstandatos, O & Bienek, T 2016, 'Valuation of employee stock options using the exercise multiple approach and life tables', INSURANCE MATHEMATICS & ECONOMICS, vol. 68, pp. 17-26.View/Download from: Publisher's site
Konstandatos, O 2015, 'Third Order Compound Option Valuation Of Flexible Commodity Based Mining Enterprises', Archives of Business Research, vol. 3, no. 1, pp. 19-35.View/Download from: Publisher's site
Flexibility in managerial decision making will alter the true value of real world projects. Standard actuarial practice for evaluating real-world projects such as commodity based mining operations rely upon Net Present Value methodology and in essence ignore any flexibility available to the operator to vary the project. Real Option analysis rectifies this to allow better evaluation of economic investment decisions by incorporating managerial flexibility into an option pricing framework. In this paper we extend the results of Konstandatos and Kyng (2012) to evaluate a multi-stage compound mining investment decision where the mining operators have the flexibility to delay project commencement as well as options to abandon production and to expand production to a new mining seam if conditions improve. We allow an independent abandonment of the expansion from the underlying project. We demonstrate that the flexibilities considered give rise to a third-order exotic compound structure, which are evaluated in terms of first, second and third order generalised compound option instruments (Konstandatos (2008)). Our novel representations of the project values contain generalizations of standard compound options and are interpretable as generalised call, call-on-call and call-on-call-on-call type options on the mined commodity price. We provide readily-implementable closed-form analytical formulae which are expressed in terms of the uni-variate, bi-variate and tri-variate Normal distribution functions.
Kyng, T & Konstandatos, O 2014, 'Multivariate Monte-Carlo Simulation and Economic Valuation of Complex Financial Contracts: An Excel Based Implementation', Spreadsheets in Education, vol. 7, no. 2, pp. 1-38.
The economic valuation of complex financial contracts is often done using Monte-Carlo simulation. We show how to implement this approach using Excel. We discuss Monte-Carlo evaluation for standard single asset European options and then demonstrate how the basic ideas may be extended to evaluate options with exotic multi-asset multi-period features. Single asset option evaluation becomes a special case. We use a typical Executive Stock Option to motivate the discussion, which we analyse using novel theory developed in our previous works. We demonstrate the simulation of the multivariate normal distribution and the multivariate Log-Normal distribution using the Cholesky Square Root of a covariance matrix for replicating the correlation structure in the multi-asset, multi period simulation required for estimating the economic value of the contract. We do this in the standard Black Scholes framework with constant parameters. Excel implementation provides many pedagogical merits due to its relative transparency and simplicity for students. This approach also has relevance to industry due to the widespread use of Excel by practitioners and for graduates who may desire to work in the finance industry. This allows students to be able to price complex financial contracts for which an analytic approach is intractable.
Konstandatos, O & Kyng, T 2012, 'Real options analysis for commodity based mining enterprises with compound and barrier features', Accounting and Finance Research, vol. 1, no. 2, pp. 216-225.View/Download from: Publisher's site
Traditional project evaluations rely mainly on Net Present Value methodology, and largely ignore the flexibilities available to the sponsor to vary the project after initiation. Real Options Analysis remedies this by applying option pricing theory to more fully evaluate investment decisions. Through several hypothetical gold-mining examples, we illustrate the economic valuation of multi-stage investment decisions as simple or compound options, possibly with barrier option features. We present analytic valuation formulae for the types of compound options arising in this context, which differ from standard compound options. Barrier options are common in foreign exchange markets, and also arise in our analysis. We also present formulae for the valuation of the compound options appearing in our analysis with barrier features. It turns out that the decision to delay commencement contingent on commodity prices rising requires an up-and-in barrier option feature, whereas the risk of project nationalization may be modeled by adding an up-and-out barrier feature. Other barrier option features also arise in a Real Options context. We apply recently developed valuation methods for compound and barrier exotic options to several gold-mining examples, and we implement examples of the closed form valuation formulae using Excel spreadsheet software
Buchen, PW & Konstandatos, O 2009, 'A New Approach to Pricing Double-Barrier Options with Arbitrary Payoffs and Exponential Boundaries', Applied Mathematical Finance, vol. 16, no. 6, pp. 497-515.View/Download from: Publisher's site
We consider in this article the arbitrage free pricing of double knock-out barrier options with payoffs that are arbitrary functions of the underlying asset, where we allow exponentially time-varying barrier levels in an otherwise standard Black-Scholes model. Our approach, reminiscent of the method of images of electromagnetics, considerably simplifies the derivation of analytical formulae for this class of exotics by reducing the pricing of any double-barrier problem to that of pricing a related European option. We illustrate the method by reproducing the well-known formulae of Kunitomo and Ikeda (1992) for the standard knock-out double-barrier call and put options. We give an explanation for the rapid rate of convergence of the doubly infinite sums for affine payoffs in the stock price, as encountered in the pricing of double-barrier call and put options first observed by Kunitomo and Ikeda (1992).
This paper formally analyses two exotic options with lookback features, referred to as extreme spread lookback options and look-barrier options, first introduced by Bermin. The holder of such options receives partial protection from large price movements in the underlying, but at roughly the cost of a plain vanilla contract. This is achieved by increasing the leverage through either floating the strike price (for the case of extreme spread options) or introducing a partial barrier window (for the case of look-barrier options). We show how to statically replicate the prices of these hybrid exotic derivatives with more elementary European binary options and their images, using new methods first introduced by Buchen and Konstandatos. These methods allow considerable simplification in the analysis, leading to closed-form representations in the Black-Scholes framework.
A new method for pricing lookback options (a.k.a.hindsightoptions) is presented, which simplifies the derivation of analytical formulas for this class of exotics in the Black-Scholes framework. Underlying the method is the observation that a lookback option can be considered as an integrated form of a related barrier option. The integrations with respect to the barrier price are evaluated at the expiry date to derive the payoff of an equivalent portfolio of European-type binary options. The arbitrage-free price of the lookback option can then be evaluated by static replication as the present value of this portfolio. We illustrate the method by deriving expressions for generic, standard floating-, fixed-, and reverse-strike lookbacks, and then show how the method can be used to price the more complex partial-price and partial-time lookback options. The method is in principle applicable to frameworks with alternative asset-price dynamics to the Black-Scholes world.
Alexander, DM, Bourke, PD, Sheridan, P, Konstandatos, O & Wright, JJ 2004, 'Intrinsic connections in tree shrew V1 imply a global to local mapping', Vision Research, vol. 44, no. 9, pp. 857-876.View/Download from: Publisher's site
The local-global map hypothesis states that locally organized response propertiessuch as orientation preferenceresult from visuotopically organized local maps of non-retinotopic response properties. In the tree shrew, the lateral extent of horizontal patchy connections is as much as 80100% of V1 and is consistent with the length summation property. We argue that neural signals can be transmitted across the entire extent of V1 and this allows the formation of maps at the local scale that are visuotopically organized. We describe mechanisms relevant to the formation of local maps and report modeling results showing the same patterns of horizontal connectivity, and relationships to orientation preference, seen in vivo. The structure of the connectivity that emerges in the simulations reveals a `hub and spoke organization. Singularities form the centers of local maps, and linear zones and saddle-points arise as smooth border transitions between maps. These findings are used to present the case for the local-global map hypothesis for tree shrew V1.
Alexander, D, Sheridan, P, Konstandatos, O, bourke, P & Wright, JJ 1999, 'Emergent symmetry of local and global maps in the primary visual cortex: self-organisation of orientation preference.', Complexity International, vol. 6.
Konstandatos, O & Kyng, T 2013, 'Mining real options with compound and barrier features' in Contemporary Issues in Mining.
Craddock, MJ, Konstandatos, O & Lennox, KA 2009, 'Some recent developments in the theory of Lie group symmetries for PDEs' in Baswell, AR (ed), Advances in Mathematics Research, Nova Science Publishers, United States of America, pp. 1-40.
Lie group symmetry methods provide a powerful tool for the analysis of PDEs. Over the last thirty years, considerable progress has been made in the development of this field. In this article, we provide a brief introduction to the method developed by Lie for the systematic computation of symmetries, then move on to a survey of some of the more recent developments. Our focus is on the use of Lie symmetry methods to construct fundamental solutions of partial differential equations of parabolic type. We will show how recent work has uncovered an intriguing connection between Lie symmetry analysis and the theory of integral transforms. Fundamental solutions of families of PDEs which arise in various applications, can be obtained by exploiting this connection. The major applications we give will be in financial mathematics. We will illustrate our results with the problem of pricing a so called zero coupon bond, as well as giving some applications to option pricing. We also discuss some results on group invariant solutions and show how an important PDE in nilpotent harmonic analysis can be studied via its group invariant solutions.
Buchen, P, Konstandatos, O & Kyng, TJ 2020, 'Images and barriers on the road to real options valuation', 18th World IMACS Congress and MODSIM 2009 - International Congress on Modelling and Simulation: Interfacing Modelling and Simulation with Mathematical and Computational Sciences, Proceedings, pp. 1486-1492.
© MODSIM 2009.All rights reserved. Traditional methods for evaluating investment decisions, such as Net Present Value, don't properly account for the flexibility inherent in many investment projects. This has been recognized and the attempt to value the such flexibilities is known as Real Options Analysis. This type of investment analysis involves applications of exotic option pricing theory to the evaluation of investment decisions by firms. Many investment projects involve particular types of flexibility and these situations have been identified and recognized as various types of options. This relates to investment decisions about non tradeable assets such as real estate development and mining projects. The decision to delay commencement of a mining project contingent on commodity prices rising enough to make a mining operation viable can be thought of as a type of call option. The decision to temporarily shut down a mining operation due to low commodity prices can be thought of and valued as a type of put option. Some of these options may have barrier features, where the investment project gets cancelled due to commodity prices falling below a critical level. This may the thought of as a "down and out barrier option". Many multi-stage investment decisions can be thought of as compound options, which are options over options. In this paper we consider how to combine the theory of exotic multi-period, multi-asset options and the theory of barrier option pricing to the evaluation of investment decisions. In particular we consider the valuation of compound options with various levels of complexity, and the valuation of barrier versions of these options. We show how to mathematically model such situations, and we derive closed form valuation formulae for evaluating some of them and discuss how to apply numerical methods in other cases. We illustrate the ideas and methods in the context of a hypothetical gold mining project. We derive an analytic formula for the opt...
Konstandatos, O 2011, 'Analytical approximations to functionals of fractional Brownian motion and their applications to finance', Mini-Workshop: Long-Range Dependent Processes (LRD) - modelling, calibration and applications, Sydney, Australia.
Buchen, PW, Konstandatos, O & Kyng, T 2009, 'Applications of barrier options theory to real options analysis', 18th IMACS World Congress on Modelling and Simulation, Cairns, Australia.
Buchen, PW, Konstandatos, O & Kyng, T 2009, 'Images and barriers on the road to real options valuation', 18th World IMACS Congress and MODSIM09 International Congress on Modelling and Simulation, International Congress on Modelling and Simulation, Modelling & Simulation Soc of Aust & NZ & Int Association for Mathematics & Computers in Simulation, Cairns, Australia, pp. 1486-1492.
for the flexibility inherent in many investment projects. This has been recognized and the attempt to value the such flexibilities is known as Real Options Analysis. This type of investment analysis involves applications of exotic option pricing theory to the evaluation of investment decisions by firms. Many investment projects involve particular types of flexibility and these situations have been identified and recognized as various types of options. This relates to investment decisions about non tradeable assets such as real estate development and mining projects. The decision to delay commencement of a mining project contingent on commodity prices rising enough to make a mining operation viable can be thought of as a type of call option. The decision to temporarily shut down a mining operation due to low commodity prices can be thought of and valued as a type of put option. Some of these options may have barrier features, where the investment project gets cancelled due to commodity prices falling below a critical level. This may the thought of as a down and out barrier option.
Konstandatos, O 2009, 'Quantifying and modelling the VaR risk metric for electricity derivatives', Seminar Presentation, The Mathematics in Industry Study Group, University of Wollongong, Wollongong, Australia.
Buchen, PW & Konstandatos, O 2007, 'On pricing double barrier options', Quantitative Finance Research Centre Workshop: Stochastic Analysis in Finance and Industry, Sydney, Australia.
Buchen, PW & Konstandatos, O 2006, 'Barriers, lookbacks and other exotica', SFMW (Q-Group Australia) Workshop, Sydney, Australia.
Buchen, PW & Konstandatos, O 2006, 'Pricing exotic options', Financial Integrity Research Network Two-Day Workshop on Exotic Options, Sydney, Australia.
Konstandatos, O 2004, 'A new method for pricing double barriers', National Symposium on Financial Mathematics, Melbourne, Australia.
Konstandatos, O 2004, 'Maximising your payoff', Quantitative Methods in Finance 2004 Conference, Sydney, Australia.
Konstandatos, O 2004, 'Pricing double barriers', Seminar Presentation, School of Finance and Economics, University of Technology, Sydney, Sydney, Australia.
Konstandatos, O 2003, 'A new framework for pricing lookbacks', Q Group Australia PhD Prize Presentation, Sydney, Australia.
Konstandatos, O 2002, 'Pricing partial lookbacks', ANZIAM Mini-Conference, Mollymook, Australia.
Alexander, D, Sheridan, P, Bourke, PD, Konstandatos, O & Wright, JJ 1998, 'Global and local symmetry of the primary visual cortex: Derivation of orientation preference', Proceedings of the Ninth Australian Conference on Neural Networks, ?, Sydney, Australia.
Alexander, D, Sheridan, P, Bourke, PD, Konstandatos, O & Wright, JJ 1997, 'Global and local similarity of the primary visual cortex: Mechanisms of orientation preference', Proceedings of the HELNET International Workshop on Neural Networks, VU University Press, Montreux, Switzerland.
Konstandatos, O 1997, 'Toowoomba foundry: Corrosion and wear in Mmoulding poxes', Proceedings of the Mathematics in Industry Study Group, Mathematics in Industry Study Group, Melbourne, Australia.
Alexander, D, Sheridan, P, Bourke, PD, Konstandatos, O & Wright, JJ Mental Health Research Institute 1998, Emergence under Hebbian learning of local maps in the primary visual cortex: Orientation preference in the tree shrew, Melbourne, Australia.
Alexander, D, Sheridan, P, Bourke, PD, Konstandatos, O & Wright, JJ Mental Health Research Institute 1997, Global and local symmetry of the primary visual cortex: Derivation of orientation preference, Melbourne, Australia.