Topics in Financial Stability

Paul Glasserman
Monday, May 19, 2014 - 4:00pm to Tuesday, May 20, 2014 - 6:30pm
Rudower Chaussee 26; Room 0.307

These lectures will cover problems of mathematical modeling that arise from efforts to enhance the stability of the financial system. They take place

  • Monday, May 19th; 16:oo - 17:oo and 17:3o - 18:3o; RUD 26; Room 0.307
  • Thuesday, May 20th; 16:oo - 17:oo and 17:3o - 18:3o; RUD 26; Room 0.307 

The first two lectures will address contingent capital for banks in the form of debt that converts to equity when a bank nears financial distress. Contingent capital offers a promising potential solution to the problem of banks that are too big to fail, but the design of these securities and the trigger for conversion turns out to be surprisingly delicate and raises interesting questions of broader scope. Next, we will consider the design of risk weights for regulatory capital requirements. We observe than in a simple portfolio selection model, ideal risk weights should be proportional to asset profitability rather than asset risk, and we analyze an adaptive implementation in which risk weights are adjusted in response to changes in bank portfolios. Finally, we consider the problem of gauging the magnitude of network effects on contagion and loss amplification in interbank networks. We develop bounds on the potential magnitude of network effects that do not rely on detailed knowledge of network topology.

This years' lecture is delivered by Paul Glasserman. Paul is is the Jack R. Anderson Professor of Business at Columbia Business School, where he is research director of the Program on Financial Studies. Since 2011, he has also served as a consultant to the Office of Financial Research, a new agency within the U.S. Treasury department created to collect data and undertake research and analysis to enhance financial stability and promote best practices in risk management. His research recognitions include the INFORMS Lanchester Prize, an IMS Medallion from the Institute of Mathematical Statistics, and the Erlang Prize in Applied Probability. He is also a recipient of Risk magazine's Quant of the Year Award.

The event is accompanied by the First Berlin-Singapore Workshop on Quanitative Finance