RiskLab and Center of Competence Finance in Zurich

invite you to attend the

Risk Day 2008

Mini-Conference on Risk Management in Finance and Insurance

Time: Friday, September 19, 2008, full day

Location:ETH Zürich, Main Building, Room HG G-60 (Semper Aula),
Rämistrasse 101, 8092 Zürich.

Registration:
  • The Risk Day 2008 is free of charge
    but given the limited numer of places in the Aula of ETH Zurich you are kindly requested to register electronically following the
    registration link.
    Places will be offered on a "first came, first served" basis.

Organizer: Walter Farkas

Program:

9.00–9.15 Prof. Dr. Paul Embrechts (Department of Mathematics, ETH Zürich):
Opening

9.15–10.00 Prof. Dr. Semyon Malamud (Department of Mathematics, ETH Zürich):
Information Percolation with Equilibrium Search Dynamics

Abstract: This is a joint work with Gustavo Manso (MIT) and Darrell Duffie (Stanford University). We solve for the equilibrium dynamics of information sharing in a large population. Each agent is endowed with signals regarding the likely outcome of a random variable of common concern. Individuals choose the effort with which they search for others from whom they can gather additional information. When two agents meet, they share their information. The information gathered is further shared at subsequent meetings, and so on. Equilibrium exist in which agents search maximally until they acquire sufficient information precision, and then minimally. Endowing agents with public signals can in some cases reduce welfare.
10.00–10.30 Coffee Break
10.30–11.00 Dr. Michel Andenmatten (Executive Director, Risk Methodology, UBS Investment Bank):
A Practitioner's View on Risk Methodology

Abstract: An overview on the broad range of activities that form part of quantitative risk management in large financial institutions is given from a practical standpoint, with a deliberate bias towards the speaker's employer where dedicated teams focus on, amongst other things, developing methodologies required to measure market, credit and model risk. A selection of current projects is motivated and presented.
11.00–11.30 Elise Gourier (Deloitte Zurich and PhD student at the Swiss Banking Institute, University of Zurich):
On Operational Risk Quantification using Extreme Value Theory and Copulas: From Theory to Practice

Abstract: In this work, jointly done with Donato Abbate (Deloitte Zurich) and Walter Farkas (University & ETH Zurich) we point out several pitfalls of the standard methodologies for quantifying operational losses. Firstly, we use Extreme Value Theory to model real heavy-tailed data. We show that using the Value-at-Risk as a risk measure may lead to a mis-estimation of the capital requirements. In particular, we examine the issues of stability and coherence and relate them to the degree of heavy-tailedness of the data. Secondly, we introduce dependence between the business lines using Copula Theory. We show that standard economic thinking about diversification may be inappropriate when infinite-mean distributions are involved.
11.30–12.00 Dr. David Ardia (Econometric Institute, Erasmus University Rotterdam):
Bayesian Estimation of a Markov-Switching Threshold Asymmetric GARCH Model

Abstract: A Bayesian estimation of a regime-switching threshold asymmetric GARCH model is proposed. The specification is based on a Markov-switching model with Student?s t innovations and K separate GJR(1,1) processes whose asymmetries are located at free non-positive threshold parameters. The model aims at determining whether or not: (i) structural breaks are present within the volatility dynamics; (ii) asymmetries (leverage effects) are present, and are different between regimes; (iii) the threshold parameters (locations of bad news) are similar between regimes. A novel MCMC scheme is proposed which allows for a fully automatic Bayesian estimation of the model. The presence of two distinct volatility regimes is shown in an empirical application to the Swiss Market Index log-returns. The posterior results indicate no differences with regards to the asymmetries and their thresholds when comparing highly volatile periods with the milder ones. Comparisons with a single-regime specification indicates a better in-sample fit and a better forecasting performance for the Markov-switching model.
12.00–14.00 Lunch Break
14.00–14.45 Prof. Dr. Nizar Touzi (Centre de Mathematiques Appliquees, Ecole Polytechnique, Paris):
Probabilistic Numerical Methods for fully nonlinear PDEs

Abstract: TBA
14.45–15.15 Dr. Patrick Schünemann (CEO Dixendris AG, Basel):
Approach Management: a new comprehensive Sales Management Methodology incorporating risk dimensions

Abstract: Nowadays, most markets -- especially in finance, insurance and consumer goods -- can be characterized as saturated commodity markets. At the same time, marketing and sales are among the last business functions to become process oriented. We therefore developed a new systematic methodology to acquire new customers bound to competitors and retain them, called Approach Management, i.e. implementing a marketing and sales "Approach". Introducing this methodology the first time at PostFinance showed dramatic results in improving sales performance. However, marketing and sales organizations primary focus is fulfilling sales quota and not managing risk. It has been shown, that indeed Approach management is a very well suited tool to implement risk management in the whole customer and market lifecycle, specifically regarding market risk, counterparty risk, credit risk and operational risk. In this talk we discuss the mechanics of Approach Management and how risk management can be integrated.
15.15–15.45 Coffee Break
15.45–16.15 Dr. Gilles Zumbach (Risk Metrics Group, Petit Lancy):
The RiskMetrics 2006 risk methodology and Backtesting: from 1 day to 1 year

Abstract: The basic concepts used in market risk evaluations are reviewed, as well as the standard methodologies to compute quantitatively the risk. A new methodology is introduced with the goal to incorporate the state-of-the-art knowledge about financial time series, in particular fat-tails and the long memory for the volatility clustering. It is designed to be robust, to be more accurate than the existing methodologies, and to be able to reach long risk horizons, up to one year. The performance evaluation of risk methodologies is explained. To compare the performance measures of the main risk methodologies, we present a systematic backtesting study using 233 time series covering all geographic areas and asset classes, for time horizons ranging from one day to one year.
16.15–16.45 Prof. Dr. Loriano Mancini (Swiss Banking Institute, University of Zurich):
Robust Value at Risk Prediction

Abstract:We propose a general robust semiparametric bootstrap method to estimate conditional predictive distributions of GARCH-type models. Our approach is based on a robust estimator for the parameters in GARCH-type models and a robustified resampling method for standardized GARCH residuals, which controls the bootstrap instability due to influential observations in the tails of standardized GARCH residuals. Monte Carlo simulation shows that our method consistently provides lower VaR forecast errors, often to a large extent, and in contrast to classical methods never fails validation tests at usual significance levels. We test extensively our approach in the context of real data applications to VaR prediction for market risk, and find that only our robust procedure passes all validation tests at usual confidence levels. Moreover, the smaller tail estimation risk of robust VaR forecasts implies VaR prediction intervals that can be nearly 20% narrower and 50% less volatile over time. This is a further desirable property of our method, which allows to adapt risky positions to VaR limits more smoothly and thus more efficiently.
16.45–17.15
17.15–18.00 Apero

The speakers:

  • Prof. Dr. Nizar Touzi is Professor at Ecole Polytechnique in Paris and his research is focused on deterministic and stochastic control problems related to finance and insurance and on Monte Carlo methods in finance.
  • Dr. Michel Andenmatten is an Executive Director in Risk Methodology at UBS Investment Bank in Zurich. He holds a MSc in Mathematics from ETH Zurich and a PhD in Mathematics from New York University.
  • Elise Gourier graduated in spring 2008 the "Master of Advanced Studies in Finance", joint degree program of the University of Zurich and of ETH Zurich. She is a Consultant in the Risk Management team at Deloitte Zurich and will start in fall 2008 as a PhD student at the Swiss Banking Institute of the University of Zurich.
  • Dr. David Ardia graduated in 2003 the "Master of Advanced Studies in Finance", joint degree program of the University of Zurich and of ETH Zurich. He holds a PhD from the University of Fribourg and a MSc in Financial Mathematics from the University of Neuchatel.
  • Prof. Dr. Semyon Malamud was appointed in 2007 as a Professor for Quantitative Risk Management at the Department of Mathematics at the ETH Zurich.
  • Dr. Patrick Schünemann is founder and CEO of Dixendris AG, a company focusing on Approach Management and holds a PhD in Physical Chemistry, a MSc in Chemistry and a bachelor in Business Administration.
  • Dr. Gilles Zumbach is a senior researcher at the RiskMetrics Group. Before his move to finance he had held research positions at the University of Roma, the Max Planck Institut in Stuttgart and at Harvard University. He holds a PhD from the Swiss Polytechnic School in Lausanne.
  • Prof. Dr. Loriano Mancini was appointed in 2007 as a Professor for Quantitative Finance at the Swiss Banking Institute of the University of Zurich.
  • Dr. Philipp Halbherr is since July 2008 Head of Investment Banking at Zürcher Kantonalbank (ZKB). Prior to that he was CFO at ZKB.

Conference Secretary:

Ms. Galit Shoham, HG G21.3 (IFOR), Phone 044/632 40 16, E-mail: sekretariat@ifor.math.ethz.ch

Previous Risk Days:

2007, 2006, 2005, 2004, 2003, 2002, 2001, 2000, 1999, 1998.

Please send comments and suggestions to Walter Farkas.
Last update:  August 16, 2008