FIELDS INSTITUTE FOR RESEARCH IN MATHEMATICAL SCIENCES
Quantitative Finance Seminar
at the Fields Institute, 222 College St., Toronto
The Quantitative Finance Seminar has been a centerpiece of the Commercial/Industrial
program at the Fields Institute since 1995. Its mandate is to arrange
talks on current research in quantitative finance that will be of
interest to those who work on the border of industry and academia.
Wide participation has been the norm with representation from mathematics,
statistics, computer science, economics, econometrics, finance and
operations research. Topics have included derivatives valuation,
credit risk, insurance and portfolio optimization. Talks occur on
the last Wednesday of every month throughout the academic year and
start at 5 pm. Each seminar is organized around a single theme with
two 45-minute talks and a half hour reception. There is no cost
to attend these seminars and everyone is welcome.
To be informed of speakers and titles for upcoming seminars and
financial mathematics activities, please subscribe to the Fields
streamed live at FieldsLive
|April 30, 2014
Tom Hurd (McMaster)
Contagion channels for financial systemic risk
Financial systemic risk (SR) is the risk that an economic shock triggers
a chain of failures or significant losses in markets or financial institutions.
It results in serious economic impact, including increases in the cost
of capital and decreases in its availability. There are many distinct
channels of SR, including correlated asset shocks, default contagion,
funding liquidity contagion and market illiquidity effects. My talk
will focus on computational methods, both Monte Carlo and analytic,
for the contagion channels of SR that lead to cascading chains of defaulted
and illiquid financial institutions. A number of deliberately simplified
modelling frameworks, beginning with the Eisenberg-Noe 2001 model, aim
to reveal pure contagion effects in isolation from other SR channels.
It turns out there is a large amount of commonality amongst these contagion
models, which means that similar computational algorithms work even
as their financial mechanisms differ. Towards the end we will explore
what can happen in networks when two separate contagion mechanisms intertwine
to create a "double cascade".
Alex Krenin (IBM)
Multivariate Poisson Processes and their Applications in Operational
Estimation of Economic Capital of a financial institution requires
modeling of operational losses of the business units of a financial
organization. Operational losses are usually represented as an aggregate
sum of the losses incurred by the operational events of the business
units. Simulation of these events requires introduction of a co-dependence
structure for realistic description of the loss process. In this paper,
we discuss some of the approaches to this modeling problem. We propose
a backward simulation method to model the operational events. We also
consider the corresponding calibration problem. Finally, we discuss
the aggregation problem for loss distributions. Joint work with
Konrad Duch and Yijun Jiang.
|February 26, 2014
Andrei Kirilenko, MIT
High Frequency Trading (Slides)
High frequency trading is a recent innovation in financial intermediation
that does not fit neatly into a standard liquidity-provision framework.
While the net contribution of high frequency trading to market dynamics
is still not fully understood, their mere presence has already shaken
the confidence of traditional market participants in the stability
and fairness of the financial market system as a whole.
Peter Christoffersen, Rotman School of Management, U of Toronto
Illiquidity Premia in the Equity Options Market (Slides)
Illiquidity is well-known to be a significant determinant of stock
and bond returns. We are the first to report on illiquidity premia
in equity option markets using a large cross- section of firms. An
increase in option illiquidity decreases the current option price
and predicts higher expected delta-hedged option returns. This e§ect
is statistically and economically significant, and it is consistent
with existing evidence that market makers in the equity options market
hold net long positions. The illiquidity premium is robust across
puts and calls, across maturities and moneyness, as well as across
di§erent empirical approaches. It is also robust when controlling
for various firm- specific variables, including standard measures
of illiquidity of the underlying stock. For long term options, we
find evidence of a liquidity risk factor.
|January 29, 2014
Tobias Adrian, Federal Reserve Bank of New York
Intermediary Leverage Cycles and Financial Stability
We present a theory of financial intermediary leverage cycles within
a dynamic model of the macroeconomy. Intermediaries face risk-based
funding constraints that give rise to procyclical leverage. The pricing
of risk varies as a function of intermediary leverage, and asset return
exposure to intermediary leverage shocks earns a positive risk premium.
Relative to an economy with constant leverage, financial intermediaries
generate higher consumption growth and lower consumption volatility
in normal times, at the cost of endogenous systemic financial risk.
The severity of systemic crisis depends on intermediaries leverage
and net worth. Regulations that tighten funding constraints affect
the systemic risk-return trade-off by lowering the likelihood of systemic
crises at the cost of higher pricing of risk.
William F. Shadwick, Omega Analysis Limited
Market Cycles, Risk and Early Warning of Asset Price Bubbles (Slides)
(Joint work with Ana Cascon and William H. Shadwick)
Empirical studies employing new risk measurement technology reveal
recurring risk anomalies in historic data.These provide
reliable early warnings of emerging asset price bubbles in the expansion
phases and early indicators of recovery following market collapses.
Bubble indicators also allow estimates of the severity of the correction
which will follow the boom. Major bubbles emerge in periods of relatively
low risk, for example, in the US prior to the 1929 Crash, in Japan
prior to the 1990 Crash, and in Global Equity Markets prior to the
This combination of bubble warning with low downside risk is currently
present in equity markets across the developed economies. I will describe
the background to these indicators, the way in which they might be
used in policy decisions and portfolio management and the levels to
which they say major markets will correct.
|November 27, 2013
Video of talks
Christian Gourieroux, Toronto
Bilateral Exposures and Systemic Solvency Risk
By introducing a structure of the balance sheets of the banks, which
takes into account their bilateral exposures in terms of stocks or
lendings, we get a structural model for default analysis. This model
allows to distinguish the exogenous and endogenous default dependence.
We prove the existence and uniqueness of the liquidation equilibrium,
we study the consequences of exogenous shocks on the banking system
and we measure contagion phenom- ena. This approach is illustrated
by an application to the French banking system.
Kartik Anand, Bank of Canada (slide presentation)
The Macro-Financial Risk Assessment Framework (MFRAF): Model Features
and Policy Use
We present the top-down banking sector stress-testing framework used
at the Bank of Canada and recent innovations in modeling information
contagion, wherein news of one institution's health can modify market
perceptions on the health of others. We discuss how we implement the
model and use it in practice to assess the resilience of banks."
|Please note that there will be no seminars
this month beacause of the Quantitative Finance Retrospective Workshop
taking place October 27-30, 2013
||Please note that there will be no seminars
this month beacause of the Industrial-Academic Workshop on Optimization
in Finance and Risk Management taking place on September 23-24, 2013
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