Risk management in insurance
by Prof. Hansjörg Albrecher
Abstract: In this talk, some recent challenges in modeling and measuring insurance risk will be discussed. The modification of the regulatory framework for solvency requirements of insurance companies has led to changes of paradigms and raised new questions. Some of these will be studied, both from an academic and practical perspective.
Short CV: Hansjoerg Albrecher is Professor of Actuarial Science at the University of Lausanne and a Faculty Member of the Swiss Finance Institute. His research activities focus on the fields of insurance, risk theory, risk management and applied probability, with a particular emphasis on linking theory and practice. Hansjoerg co-authored several books, including the second edition of the book "Ruin probabilities" (together with S. Asmussen). He is Editor of Insurance: Mathematics & Economics, Co-Editor of the European Actuarial Journal and the journal Statistics & Risk Modeling. Furthermore he is series editor of the Springer EAA Book Series and serves on the editorial board of the Applied Probability journals as well as the Radon Series for Computational and Applied Mathematics.
Credit risk modeling in risk management
by Dr. Christian Bluhm
Abstract: Credit risk modeling is a standard topic in financial mathematics for almost two decades. However, based on the probabilistic nature of the topic there will always remain significant uncertainties in credit risk models itself as well as their parameterizations. The talk sheds some light on various naturally embedded uncertainties which can not be argued away and, therefore, need to be accepted and taken into account whenever a credit risk model suggests a result or solution. (Joint work with Dr. Christoph Wagner)
Short CV: After graduating in mathematics and spending time on research projects in Germany and as a postdoctoral fellow at Cornell University in Upstate New York, Christian Bluhm worked in risk management for Deutsche Bank, McKinsey & Company and HypoVereinsbank. In early 2004, he became Head of Credit Portfolio Management at Credit Suisse in Zurich where he worked as Managing Director before joining FMS Wertmanagement. He is Chief Risk & Financial Officer at FMS Wertmanagement, Member and Spokesman of the Executive Board. FMS Wertmanagement is a federal state-owned winding-up institution for managing and unwinding risk positions and non-strategic assets formerly owned by Hypo Real Estate Group.
Risk Management under liquidity risk
by Prof. Damiano Brigo
Abstract: Within the context of risk integration, we introduce in risk measurement stochastic holding period (SHP) models. This is done in order to obtain a `liquidity-adjusted risk measure' characterized by the absence of a fixed time horizon. The underlying assumption is that - due to changes on market liquidity conditions - one operates along an `operational time' to which the P&L process of liquidating a market portfolio is referred. This framework leads to a mixture of distributions for the portfolio returns, potentially allowing for skewness, heavy tails and extreme scenarios. We analyze the impact of possible distributional choices for the SHP. In a multivariate setting, we hint at the possible introduction of dependent SHP processes, which potentially lead to non linear dependence among the P&L processes and therefore to tail dependence across assets in the portfolio, although this may require drastic choices on the SHP distributions. This is relevant for interpreting liquidity risk as a partially systemic risk. We also find that increasing dependence as measured by Kendall's tau through common SHP's appears to be unfeasible. We finally discuss developments based on availability of market data and on recent suggestions of the Basel committee in terms of adopting different holding periods for different assets. This presentation is based on Brigo and Nordio (2010).
Short CV: Prof. Damiano Brigo is Chair and co-Head of Mathematical Finance at Imperial College, London, consistently ranked among the top 10 world universities, and Director of the Capco Research Institute in the industry. Damiano's previous roles include Gilbart Professor and Head of Group at King's College, Managing Director and Quantitative Innovation Global Head in Fitch, Head of Credit Models in Banca IMI and Fixed Income Professor at Bocconi. Damiano published more than 70 works in top journals for Mathematical Finance, Systems Theory, Probability and Statistics, and books for Springer and Wiley that became field references in stochastic interest rate and credit modelling (H-index 25). Damiano is Managing Editor of the International Journal of Theoretical and Applied Finance. Damiano's interests include pricing, risk measurement, counterparty credit risk collateral and funding, stochastic commodities and inflation modelling, exponential and mixture manifolds, information geometry and nonlinear filtering. Damiano holds a PhD in stochastic filtering with differential geometry.
Copula-based dependence models: applicability and limitations
by Prof. Fabrizio Durante
Abstract: Copula-based models have gained popularity in the recent years due to their ability to capture different facets of dependence among random variables such as non-exchangeability and tail dependence. In this talk, we review the classical literature about copulas models, with particular emphasis on high-dimensional models, by stressing pros and cons of each method and by trying to propose possible extensions. Potential applications in risk management will be discussed as well.
Short CV: Fabrizio Durante is Assistant Professor for Statistics at the School of Economics and Management of the Free University of Bozen-Bolzano (FUB), Italy (since 2010). He studied at the University of Lecce, Italy, where he has obtained his doctoral degree in Mathematics. Before joining FUB, he was also working at the Johannes Kepler University Linz, Austria, where he has obtained the habilitation in Mathematics in 2010. His research activities focus on the fields of dependence and copula models, with particular emphasis on applications in financial risk management, reliability theory, and environmental science (especially hydrology). He co-edited two books devoted to copula theory and its applications. Moreover, he has organized several international events and special sessions about dependence models in the recent years. Currently, he is associate editor of the journal "Dependence Modeling".
Regulatory developments in risk management
by Dr. Michael Kemmer
Abstract: Regulation in the post-crisis-era is an issue not only for expert discussions but also for populistic debates bashing all of the participants involved (mainly banks and bankers but also regulators and risk managers; their relevant models even being included). Currently it is fashionable to critisize the internal risk management models that banks are using for the calculation of their capital requirements, even though everybody is aware of the fact that these models have to be checked and approved by the regulators for official use. With regards to the political debate it is crucial to analyse what added value these models can provide and work out where their limits are, both carefully and in an understandable way. One should avoid high expectations and – more importantly - suspicion of manipulating the risks to lower capital requirements. The mathematical and statistical models provided by the experts from renowned universities are often considered as too complex and to positively highlight the real risks by highly paid risk managers in the banks. It is therefore of utmost importance that a balance of trade off occurs between the - from a scientific standing point - possible exactness on the one hand and the clarity and understandability for a "normal" financial expert on the other hand. The gap between the highly sophisticated models and the distrust of the adressees (politicians, regulators, analysts, investors, press and public) can only be bridged if both side are able and willing to listen to the arguments of the other side respectively.
Short CV: Michael Kemmer, born in Nördlingen (Germany) in 1957, has been acting as General Manager and Member of the Board of Directors of the Association of German Banks since October 2010. After studying business administration and completing his doctorate at Munich’s Ludwig Maximilian University and qualifying as a certified tax accountant in 1987, he worked at Bayerische Vereinsbank until 1994. Kemmer then joined DG Bank in Frankfurt am Main, where he led the financial division. Between 1996 and 2003 he was Director, then Head, of Group Accounting and Controlling at HypoVereinsbank in Munich and in 2003 was appointed Chief Risk Officer and member of the bank’s Board of Management. From mid-2006 to the end of 2009 Michael Kemmer served on the Board of Management of BayernLB, first as Chief Financial Officer and from March 2008 as Chairman.
Model Risk for Energy Markets
by Prof. Rüdiger Kiesel
Abstract: Recently, model risk, in particular parameter uncertainty, has been addressed for financial derivatives. During this talk we will review these concepts and apply the methods to energy markets. In particular, we will discuss parameter uncertainty for spread options and implications for fossil power plant valuation. To capture model risk we use a methodology recently established in a series of papers by Bannör and Scherer. As gas-fired power plants are seen as flexible and low-carbon sources of electricity which are important building blocks in terms of the switch to a low-carbon energy generation, we consider the model risk in this asset class in detail. Our findings reveal that spike risk is by far the most important source of model risk. (Based on joint work with Karl Bannör, Anna Nazarova and Matthias Scherer)
Short CV: Rüdiger Kiesel heads the chair for “Energy Trading and Financial Services” at the University Duisburg-Essen. Previously he has been Director of the Institute for Mathematical Finance at the University of Ulm. He also held positions as Lecturer and Reader for actuarial science and financial mathematics at Birkbeck College, University of London and London School of Economics, where he is still visiting professor. He is also a Visiting Professor at the Center for Mathematics for Applications, Oslo University. His main research areas are currently risk management for power utility companies, design and analysis of Emission Trading Schemes, valuation and hedging of derivatives (interest-rate, credit- and energy-related), methods of risk transfer and structuring of risk (securitization). He is Co-author of the Springer Finance monograph Risk-Neutral Valuation (now in its second edition) and has written more than fifty published research papers. He is a frequent speaker at international conferences and organized several practitioner seminars. Professor Kiesel also consults financial institutions and regulators on (credit- and energy-) risk management, derivative pricing models and asset allocation.
Some recent mathematical developments for use in risk management
by Prof. Ralf Korn
Abstract: The talk will cover a range of recent mathematical developments that can be used in the riskmanagement process. Examples include new Monte Carlo methods for estimating the Value at Risk that combine exact simulation with importance sampling, new Monte Carlo methods for sensitivities of popular Bermudan interest rate products, multi-dimensional binomial tree methods or news-enhanced time series models for risk management.
Short CV: Ralf Korn is full professor for financial mathematics at the Dept. Mathematics of the Univ. Kaiserslautern (since 1999). He has published over 70 articles in refereed journal and 6 books. His main research interests are portfolio optimization, financial modelling, Monte Carlo methods and numerical methods in finance and insurance. Since 2000 (with short breaks) he is heading the Financial Mathematics Department of Fraunhofer ITWM and has been involved in various industry projects. Further, he is deputy head of the DGVFM and a co-founder and chairman of the European Institute for Quality Ensurance of Methods and Products in Financial Mathematics EI-QFM in Kaiserslautern.
Model, calibration and parameter risk - Moment matching calibration
by Prof. Wim Schoutens
Abstract: We discuss several new developments and insights related to the calibration of financial models to a given set of derivative prices. In particular, we focus on the new moment matching technique where the moments of the risk-neutral density function are directly inferred from at-the-money and out-the-money European vanilla option quotes. The calibration of several models can be performed almost instantaneously and rest on closed-form expressions only. We illustrate the general theory with calibration exercises employing the popular Levy models and Heston's Stochastic Volatility model.
Short CV: Wim Schoutens (Leuven, Belgium) is professor in financial engineering at the Catholic University of Leuven, Belgium. He has extensive practical experience of model implementation and is well known for his consulting work to the banking industry and other institutions. He is an independent expert advisor to the European Commission (DG-COMP) on “State aid assessment of valuation of impaired assets and of asset relief measures” and has assessed in that position more than EUR 1 trillion of assets; in particular he was one of the main expert advisors for the stress test on the Spanish banks and the related bailouts. Wim is the author of several books including “Contingent Convertibles (CoCos) : Structure and Pricing”, the first book ever on Contingent Capital and CoCo bonds (written together with Jan De Spiegeleer). Further he has been (co)author of the Wiley books “Lévy Processes in Finance”, “Lévy Processes in Credit Risk”, and “The Handbook of Convertible Bonds” and the Springer books “Quantitative Assessment of Securitisation Deals” and “Stochastic Processes and Orthogonal Polynomials”. He is Managing Editor of the “International Journal of Theoretical and Applied Finance” and “Quantitative Finance” and Associate Editor of “Mathematical Finance”, “Review of Derivatives Research” and “International Journal of Portfolio Analysis & Management”. Further, he is series editor of the book series "Financial Engineering Explained" for Palgrave Macmillan. Finally, he is member of the Belgium CPI commission and enjoys making his own jam from time to time.
Risk management in asset management
by Prof. Josef Zechner
Abstract: The presentation will first identify important dimensions of risk management for asset managers. A discussion of theoretical justifications of each of these dimensions follows. In particular preference-based motives and agency-based motives for risk management will be analyzed. In the main part of the talk the traditional approach of defining portfolios via capital weights will be contrasted with that of defining risk-budgets, based on a portfolio component’s marginal risk contribution. The concept of relative and absolute risk budgets will be introduced and their application to portfolio controlling discussed. Finally, the interplay between risk budgeting, performance evaluation and capital allocation to external portfolio managers will be covered.
Short CV: Josef Zechner is Professor of Finance at the Vienna University of Economics and Business (WU). Before joining WU in 2008, he was professor at the University of Vienna and at the University of British Columbia, respectively. He has obtained his doctoral degree and habilitation from the Karl Franzens University of Graz.
His research has contributed to unify asset pricing theory with corporate finance. Several of his papers derive valuation models for corporate claims in the presence of default risk. In particular he has pioneered the analysis of dynamic corporate finance decisions and their implications for debt- and equity valuations. He has also derived asset pricing models which take into account that firms’ ownership structures influence their governance and therefore their fundamental values. A third major strand of his research focuses on asset management. Josef Zechner’s papers have been published in leading finance and economics journals such as the Journal of Finance, the Journal of Financial Economics, the Journal of Political Economy or the Review of Financial Studies.
He is heavily involved in academic life on both sides of the Atlantic. He is currently vice president of the prestigious Western Finance Association (WFA) and is past president of the European Finance Association (EFA) and the German Finance Association (DGF). He is on several editorial boards and was managing editor of the Review of Finance (joint with Marco Pagano) from 2003 to 2012. He is director of the Vienna Graduate School of Finance (VGSF). Josef Zechner is a member of the Austrian Academy of Sciences, a CEPR Research Fellow, and a member of the Financial Economists Round Table. In 2007 Professor Zechner was awarded a honorary doctoral degree from the Ludwig-Maximilians-University, Munich.
Josef Zechner has been a consultant to financial institutions, regulators and governments. He is also founding partner of Spängler IQAM Invest, an Austrian asset management company and actively involved in designing and implementing innovative portfolio management strategies.