jointly organize an International Conference on


New Frontiers in Systemic Risk Measures

and Extreme Risk Management


Now available:

The minutes of the conference can be found here.

Some pictures taken at the conference are here. (and you can also download the entire album of photos)

Where are the new Frontiers


Brooklyn College, CUNY, June 4th, 2015


with the support of

in partnership with

Traditional economic models proved inadequate in the face of the recent financial crisis, damaging the faith that both policymakers and the general public had in them. Therefore, after this financial turmoil, special attention has been paid to “macroprudential” regulation and to the necessity to identify Systemically Important Financial Institutions (SIFIs), so that systemic risk may be tracked accurately. As a consequence, several research studies have been conducted in recent years, adopting various approaches from economics, finance and financial econometrics to econophysics. This global conference, organized jointly by three universities, will be an opportunity to present the latest research in systemic risk. This year, there will be a special focus on networks, offering academics and professionals perspectives both of where we stand now, and the new research frontiers in this subject.


Robert Engle (NYU), Christian Gouriéroux (U. of Toronto), Christian Brownlees (Pompeu Fabra U.), Thomas Hurd (McMaster U.), Mila Getmansky Sherman (U. of Massachusetts, Amherst), Rama Cont (Imperial College London), Jón Daníelsson (London School of Economics), Jin-Chuan Duan (National U. of Singapore), Howard Kunreuther (Wharton School, U. of Pennsylvania), and Christophe Pérignon (HEC Paris) will give presentations on their latest research.


During the conference, Howard Kunreuther (Wharton School, U. of Pennsylvania) will present his book entitled "Insurance and Behavioral Economics: Improving Decisions in the Most Misunderstood Industry" published by Cambridge University Press (Available here).


Thomas Hurd (McMaster University) will also officially announce the imminent publication of his new book entitled "Contagion! The Spread of Systemic Risk in Financial Networks", and briefly present a summary of its contents (you can have a view of the book in progress on Thomas Hurd's website). This book will be published soon in the SpringerBriefs in Quantitative Finance series.


Serge Darolles, a Professor at the University of Paris-Dauphine and a board member of the House of Finance will be here to present this young and ambitious institution of the University of Paris-Dauphine.



Location:
Brooklyn College

June 4th, 2015

at the Brooklyn College Center in Manhattan (Right next to the Charging Bull of Wall Street),

Graduate Center for Education, 25 Broadway, NY.



Academics and professionals interested to participate are invited to register (before May 30th, 2015) here.
(or e-mail to: patricia.lenfant[ /@/ ]dauphine.fr)

Due to the strict security protocole, official ID cards must be provided at the entrance of the building. As a complementary piece, Brooklyn College students are also invited to bring their official college card.

Conference Program:

You will find the program of the conference here.
(Following the program you will see a short bio of the speakers and the material for their presentation)


  •             9h00 - 9h30

  •             9h30 - 9h45





  •             9h45 - 10h30
     


  •           10h30 - 11h15

     

  •           11h15 - 11h30


  •           11h30 - 12h15



  •           12h15 - 13h00
     


  •           13h00 - 13h15
     


  •           13h15 - 14h15

  •           14h15 - 14h30 



  •           14h30 - 15h00
     

  •           15h00 - 15h30
     


  •           15h30 - 16h00
     


  •           16h00 - 16h15



  •           16h15 - 16h45 



  •           16h45 - 17h15
     


  •           17h15 - 17h45
     


  •           17h45 - 18h00


Speakers' Short Bios:


Presentations:

9h45-10h30 Howard Kunreuther (Wharton School, U. of Pennsylvania)

"The Role of Insurance in Reducing Losses from Extreme Events" (Paper) (Slides)
This paper describes the challenges consumers, insurers and insurance regulators face in dealing with insurance for low-probability high-consequence events. Given their limited experience with catastrophes, there is a tendency for all three parties to engage in short-term intuitive thinking rather than long-term deliberative thinking when making insurance-related decisions. Public-private partnerships can encourage investment in protective measures prior to a disaster, deal with affordability problems and provide coverage for catastrophic risks. Insurance premiums based on risk provide signals to residents and business as to the hazards they face and enable insurers to lower premiums for properties where steps have been taken to reduce their risk. To address issues of equity and fairness, homeowners who cannot afford insurance could be given vouchers tied to loans for investing in loss reduction measures. The National Flood Insurance Program provides an opportunity to implement a public-private partnership that could eventually be extended to other extreme events.
Howard will also present his book: "Insurance and Behavioral Economics: Improving Decisions in the Most Misunderstood Industry" (Available here)



10h30-11h15 Christian Gouriéroux (U. of Toronto)

"Contagion and Systematic Risk: An Application to the Survival of Hedge Funds" (Paper) (Slides)
(Co-authored with Serge Darolles and Patrick Gagliardini)

This paper explores the modeling and measurement challenges of systematic risks and contagion for failure events, with an application to hedge funds’ survival. The dependence in individual liquidation risks results either from an exogenous common factor with joint effects on the survival intensities, or from contagion phenomena which make the intensities dependent on past liquidations. In order to get tractable models for estimation and prediction purposes, we perform the analysis at a semi-aggregate level and consider the liquidation counts of several management styles. We introduce a dynamic model for multivariate count data with both lagged count values (contagion) and unobserved factors (dynamic frailty) among the regressors. The assumptions ensure that the joint process of liquidation counts and common factor is affine to facilitate nonlinear prediction at any horizon and estimation by a new method of moments. Our empirical analysis shows that the common factor, the sensitivities to this factor and the contagion scheme can be interpreted in terms of liquidity risks. The factor is related nonlinearly to rollover and margin funding liquidity risks. The sensitivities to the factor are funding liquidity risk exposures, which depend on the redemption and leverage policies of fund managers. The causal scheme captures the reinforcing spiral between funding and market liquidity risks.



11h30-12h15 Jin-Chuan Duan (National U. of Singapore)

"Cascading Defaults and Systemic Risk of a Banking Network" (Paper) (Slides)
(Co-authored with Changhao Zhang)

Systemic risk of a banking system arises from cascading defaults due to interbank linkages. We propose a model which distinguishes systemic risk from its drivers – systematic and idiosyncratic risks. Systemic risk is characterised by systemic exposure and systemic fragility, corresponding to the expected losses and pervasiveness of defaults respectively (under a stress scenario). The model takes into account the banking network, asset-liability dynamics, interbank exposures and netting. Using actual data for 15 British banks, we find that systematic shocks are more likely to drive systemic risk, as opposed to banks’ idiosyncratic elements. We also demonstrate a method for ranking banks according to systemic importance.



12h15-13h00 Robert Engle (NYU Stern)

"The Prospects for Global Financial Stability" (Paper) (Slides)

Dynamic Conditional Beta (DCB) is an approach to estimating regressions with time varying parameters. The conditional covariance matrices of the exogenous and dependent variable for each time period are used to formulate the dynamic beta. Joint estimation of the covariance matrices and other regression parameters is developed. Tests of the hypothesis that betas are constant are non-nested tests and several approaches are developed including a novel nested model. The methodology is applied to global systemic risk estimation with non-synchronous prices. New evidence on global systemic risk will be presented.



14h15-14h30 Serge Darolles (U. of Paris-Dauphine)

Presentation of the House of Finance (Slides)

The House of Finance of the University of Paris-Dauphine is built on a multidisciplinary approach that brings together teaching and research. It is a uniquely collaborative ecosystem built on partnerships between business professionals with faculty and researchers. It clearly positions the University of Paris-Dauphine as a leading institution in the field. Elyès Jouini is the Director and Serge Darolles is a member of the board of the House of Finance. For more information, please contact: aida.hamdi[ /@/ ]dauphine.fr



14h30-15h00 Christophe Pérignon (HEC Paris)

“Where the Risks Lie: A Survey on Systemic Risk” (Paper) (Slides)

(Co-authored with Sylvain Benoit, Jean-Edouard Colliard and Christophe Hurlin)

We review the extensive literature on systemic risk and connect it to the current regulatory debate. While we take stock of the achievements of this rapidly growing field, we identify a gap between two main approaches. The first one studies different sources of systemic risk in isolation, uses confidential data, and inspires targeted but complex regulatory tools. The second approach uses market data to produce global measures which are not directly connected to any particular theory, but could support a more efficient regulation. Bridging this gap will require encompassing theoretical models and improved data disclosure.



15h00-15h30 Jón Daníelsson (London School of Economics)

"On the Nature of Financial Risk: Why Risk is so Hard to Measure and Why Risk Models Fail so Often" (Slides)

We consider the robustness of standard risk analysis techniques, with a special emphasis on those in Basel III and focussing on the relationship between value-at-risk and expected shortfall, the small sample properties of these risk measures and the impact of using an overlapping approach to construct data for longer holding periods. We find that VaR is superior to ES practical applications that time scaling is superior to using overlapping data and that risk forecasts are extremely uncertain at very low sample sizes.



15h30-16h00 Rama Cont (Imperial College London)

"Endogenous Risk and Price-mediated Contagion: Modeling, Monitoring and Regulation" (Slides)
(Co-authored with Eric Schaanning)

Large-scale deleveraging of assets by distressed financial institutions have been recognized as an important channel for the contagion of losses during the recent financial crisis. We propose a mathematical model for analyzing the impact of fire sales on system-wide losses in a system with multiple financial institutions subject to a macroeconomic stress scenario. Our model emphasizes the nonlinear threshold nature of deleveraging, as a result of which the volume of deleveraging is a convex function of initial asset losses. We show that the magnitude of spillover effects due to price-mediated contagion depends on "liquidity-weighted overlaps" of institutional asset holdings. A key concept which emerges from the model is the notion of indirect exposure of a financial institution to an asset class: we show that, when the impact of fire sales is taken into account, the effective exposure of an institution to an asset class may be found to be much larger than the apparent exposure as revealed by the portfolio holdings alone. We illustrate these observations on a dataset of European banks.

Finally, we show that regulatory risk weights of asset classes may be used as a macroprudential tool for a decentralized regulation of fire sales risk, by providing incentives to financial institutions to reduce their exposure to this contagion channel without revealing confidential information on institutional portfolio holdings.



16h15-16h45 Christian Brownlees (Pompeu Fabra U.)

"Bank Credit Risk Networks: Evidence from the Eurozone" (Paper) (Slides)
(Co-authored with Christina Hans and Eulalia Nualart)

The credit risk of large financial institutions is highly interdependent as a result of a number of linkages between financial entities such as exposure to common asset classes and counterparty risk. In this work, we propose a novel methodology to study credit risk interconnectedness in large panels of financial institutions. Building upon the standard reduced form framework for credit risk, we introduce a model for European financial institutions in which defaults can be triggered by systematic global and country shocks as well as idiosyncratic bank specific shocks. The idiosyncratic shocks are assumed to have a sparse conditional dependence structure that we call the bank credit risk network. We then develop an estimation strategy based on Lasso regression that allows to detect and estimate network linkages from CDS data. We apply this technique to analyse the interdependence of large European financial institutions between 2006 and 2013. Results show that the credit risk network captures a substantial amount of dependence in addition to what is explained by systematic factors.



16h45-17h15 Mila Getmansky Sherman (U. of Massachusetts, Amherst)

"Sovereign, Bank and Insurance Credit Spreads: Connectedness and System Networks" (Paper) (Slides)
(Co-authored with Monica Billio, Dale Gray, Andrew W. Lo, Robert C. Merton and Loriana Pelizzon)

Macrofinancial risk has become increasingly important over time as global markets have become increasingly more connected. In this paper we apply several econometric measures of connectedness based on Granger-causality networks to the changes of sovereign risk of European countries and credit risks of major European, U.S., and Japanese banks and insurers to investigate the evolution of these connections. This allows us to calculate the extent of connections between financial institutions and sovereigns and quantify the effects of risk transmission within and across countries and financial institutions. The recent global financial crisis that began in 2007 reminds us about the importance of including complex interactions, spillovers, and feedback relationships between financial institutions and sovereigns in the modeling and analysis of financial crises and sovereign risk. We examine how vulnerabilities can build up and suddenly result in a financial crisis with potentially disastrous feedback effects for sovereign debt and economic growth. Traditional macroeconomic analysis overlooks the importance of financial system risk, which makes it ill-suited to examine interconnectedness and transmission mechanisms in response to common shocks. Using contingent claims analysis (CCA) and network theory, we propose new ways to measure and analyze financial system, sovereign, and credit risks.



17h15-17h45 Thomas Hurd (McMaster University)

"Contagion! The Spread of Systemic Risk in Financial Networks" (Book in Progress) (Slides)

The book aims to provide a timely summary of a growing body of systemic risk research as well as a unified mathematical framework for the primary channels that can transmit damaging shocks through financial systems. Much of its contents are new, not having appeared previously in published journals. In the talk we will review how to study default and liquidity cascade mechanisms on random financial networks. We find that large graph analytics are available and computable when the network model has a property called "locally-treelike independence", and the cascade mechanism satisfies a "no direct feedback" condition.



Registration:

Academics and professionals interested to participate are invited to register (before May 30th, 2015) here.

(or e-mail to: patricia.lenfant[ /@/ ]dauphine.fr)

Due to the strict security protocole, official ID cards must be provided at the entrance of the building. As a complementary piece, Brooklyn College students are also invited to bring their official college card.



Organizers:

Christian Gouriéroux, University of Toronto and CREST, christian.gourieroux[ /@/ ]ensae.fr
Bertrand Maillet, University of Paris-Dauphine, bertrand.maillet[ /@/ ]dauphine.fr
Hervé Queneau, Brooklyn College, CUNY, hqueneau[ /@/ ]brooklyn.cuny.edu




Hosted by:

Brooklyn College is a senior college of the City University of New York, located in Brooklyn and in Broadway Street , New York, United States. Established in 1930 by the New York City Board of Higher Education, the College had its beginnings as the Downtown Brooklyn branches of Hunter College and the City College of New York. With the merger of these branches, Brooklyn College became the first public coeducational liberal arts college in New York City. For more information, please contact Hervé Queneau at hqueneau[ /@/ ]brooklyn.cuny.edu


Cooperation Program:

This conference has been prepared in the framework of the Dauphine/Brooklyn Cooperation Program.

The University of Paris-Dauphine and the Brooklyn College (City University of New York) have joined forces to implement an international third year Bachelor program for outstanding students with close links to companies. A group of 30 to 40 selected students from the University of Paris-Dauphine are doing their spring semester (January to August) of their junior year (Bachelor 3rd year) in Economics, majoring in Financial Engineering, at the Brooklyn College in New York. All the students do a 6 to 8 months internship in New York, from January to August, before coming back to the University of Paris-Dauphine for integrating their Master programs.

Here is the resume book of the students currently involved in the program: Student_Resume_Book_of_Brooklin_Dauphine_January_2015.

Please contact: Philippe Bernard, (Head of the program within the University of Paris-Dauphine) at philippe.bernard[ /@/ ]dauphine.fr and/or, Patricia Lenfant at patricia.lenfant[ /@/ ]dauphine.fr if you want to know more...



Academic Partners for this Conference:

The University of Paris-Dauphine was founded in 1968 in the former NATO headquarters in Western Paris, in the XVIth arrondissement and has been specialized in the organization and decision sciences: Management, Economics, Law, Political Science, Sociology, Applied Mathematics, Management Information Systems and Languages. For more information, please contact: philippe.bernard[ /@/ ]dauphine.fr

The University of Toronto is a public research university in Toronto, Ontario, Canada. Established in 1827, the University of Toronto has one of the strongest research and teaching faculties in North America, presenting top students at all levels with an intellectual environment unmatched in depth and breadth on any other Canadian campus. For more information: www.utoronto.ca/contacts


With the support of:

The theme of the conference has been chosen as part of the GRI in Financial Services research project on "Systemic Risk". Please see the Systemic Risk Hub and the Global Risk Institute in Financial Services websites.

Founded by representatives from Canada’s private and public sectors, the GRI enables financial institutions, policy-makers and regulators to better manage the balance between risk and opportunity. Its mandate is the provision of applied research and education programs that build risk capacity and stimulate evidence-based debate for all those engaged in risk management in the financial services sector around the world. For more information, please go to: www.globalriskinstitute.org/


The new House of Finance of the University of Paris-Dauphine is also happy to leverage its high ambition by actively participating in this event. Please see the presentation of the House of Finance in the website of the University of Paris-Dauphine.

The House of Finance is built on a multidisciplinary approach that brings together teaching and research. It is a uniquely collaborative ecosystem built on partnerships between business professionals with faculty and researchers. It clearly positions the University of Paris-Dauphine as a leading institution in the field. Elyès Jouini is the Director and Serge Darolles is a member of the board of the House of Finance. For more information, please contact: aida.hamdi[ /@/ ]dauphine.fr

The new House of Finance of the University of Paris-Dauphine is also happy to leverage its high ambition by actively participating in this event. Please see the presentation of the House of Finance in the website of the University of Paris-Dauphine.

The House of Finance is built on a multidisciplinary approach that brings together teaching and research. It is a uniquely collaborative ecosystem built on partnerships between business professionals with faculty and researchers. It clearly positions the University of Paris-Dauphine as a leading institution in the field. Elyès Jouini is the Director and Serge Darolles is a member of the board of the House of Finance. For more information, please contact: aida.hamdi[ /@/ ]dauphine.fr


The main organizing research missions of the Chair Autorité de Contrôle Prudentiel et de Résolution (ACPR) is to facilitate the contact between academics and the ACPR and to develop an international center for reflection and proposals regarding systemic risk management. Olivier De Bandt and Christian Gouriéroux, are two of the researchers involved in the initiative on Systemic Risk at the French Prudential Supervisory Authority Chair ACPR "Regulation and Systemic Risk". For more information, please contact: bibli@acpr.banque-france.fr


In partnership with:

The Society for Financial Econometrics (SoFiE) is a global network of academics and practitioners dedicated to sharing research and ideas in the fast-growing field of financial econometrics. It is an independent non-profit membership organization, currently housed at New York University. SoFiE is committed to promoting and expanding research and education by organizing and sponsoring conferences, programs and activities at the intersection of finance and econometrics, including links to macroeconomic fundamentals. Eric Renault is the President of The Society for Financial Econometrics. For more information, please contact: sofie@stern.nyu.edu



The goal of The Risk Banking and Finance Society is to promote the exchange of risk, bank management and finance knowledge by establishing and developing a scientific and practitioner’s community made up by people interested in the above mentioned subjects. Oliviero Roggi is the President of The Risk Banking and Finance Society. For more information, please contact: info@irmc.eu