Josip Kovačević

Josip Kovačević completed his doctorate at the Faculty of Science of the University of Zagreb, where his dissertation developed pricing frameworks for European and American derivatives under exponential Lévy models. The core of the work applied Fourier and characteristic function methods to derive semi-closed pricing formulae for European options under a class of jump-diffusion and pure-jump models — including Kou, Variance Gamma, and CGMY processes — and analysed the regularity properties of the resulting option price functions as functions of the underlying parameters. The American option problem was addressed through a free boundary formulation, with a penalty approximation scheme introduced to convert the variational inequality into a nonlinear PDE amenable to finite difference discretisation. The dissertation established convergence of the penalty scheme and provided computable error bounds as a function of the penalty parameter and the grid resolution. He subsequently held a postdoctoral fellowship at the Department of Financial and Actuarial Mathematics at the University of Vienna, where he worked on the calibration of jump-diffusion models to market option surfaces.

Following the postdoctoral period, Kovačević investigated the stability properties of model calibration procedures for Lévy-driven option pricing models, characterising how calibration error propagates from the implied volatility surface into the resulting model parameters and onwards into hedging strategies and exotic derivative valuations. This line of work identified conditions under which small perturbations in the observed surface produce large deviations in calibrated jump intensities — a stability failure with direct practical consequences — and proposed regularisation techniques that restore well-posedness at the cost of a controlled bias. A complementary programme examined variance reduction methods for Monte Carlo pricing of path-dependent derivatives under stochastic volatility models, developing control variate and importance sampling strategies adapted to the heavy-tailed marginals characteristic of Lévy processes.

At IADU, Kovačević contributes derivative pricing theory to the Institute's fixed income and quantitative finance research programme. His work examines the pricing and hedging of interest rate derivatives and sovereign bond options under term structure models that incorporate jump risk and stochastic volatility, with particular attention to the calibration and stability issues that arise when fitting these models to sovereign fixed income markets with limited liquidity and irregular price discovery. He supports the quantitative underpinnings of IADU's advisory work on derivatives strategy and fixed income risk for sovereign and institutional clients.