This years Actuarial and Financial Engineering master's theses

Three master's theses were successfully defended in the Master's program in Actuarial and Financial Engineering.

Congratulations to those who successfully defended their theses!

Zhexi Rao studied the use of hidden Markov models for identifying market regimes in financial time series, with a focus on the CSI 300 index. It combines a simulation study with an empirical application to compare how different decoding methods behave when regime dependence is weak or emission distributions overlap strongly. The results show that model fit, data frequency, and regime separability are more important than small differences between decoders.

Tobias Reiter says that liquidity provision in prediction markets has received less attention than in traditional financial markets. Thesis tests whether observed bid–ask spreads and fill-intensity patterns on Polymarket follow the predictions of a logit-transformed Avellaneda-Stoikov market-making framework. The logit transform is used because prediction market prices are bounded between zero and one. The results give only partial support for the framework.

Jiabei Zeng's thesis investigates the pricing of lookback options using numerical methods, implementing Monte Carlo simulation and the binomial tree model alongside the finite difference method as a benchmark. The numerical results demonstrate that the finite difference method achieves the highest numerical accuracy, whereas the binomial tree model provides significant computational efficiency. Overall, the study highlights the fundamental trade-off between numerical accuracy and computational efficiency in pricing lookback options.