The LTCM crisis: what can we learn 20 years after?

The LTCM crisis: what can we learn 20 years after?

Matthieu Benavoli Ace Finance Conseil LTCM crisis

This post about the LTCM crisis presents a recent resource about financial crises added by Matthieu Benavoli financial analyst at Ace Finance Conseil.

LTCM

LTCM, “Long Term Capital Management”, was a hedge fund created by John Meriwether in 1994. The mismanagement of the fund led to a major financial crisis in the late 90s. In the beginning, Meriwether had a simple strategy: being accompanied by the most brilliant minds of America. Hence, he gathered an all-star team of traders and academics composed of eminent professionals, professors, and the Nobel Prize recipients Robert Merton and Myron Scholes. This team convinced investors, including many large banks, to flock to the fund and to invest more than $1.3 billion in spite of the huge entry barriers Meriwether set. These experts team designed a strategy mainly based on convergence and relative-value trades, both combined with a high leverage effect.

What happened?

In the first years this strategy scored a huge success: LTCM marketed itself as providing the highest returns, superior to 40% in 1995 and 1996, for a risk that had no equivalent among competitors. But the catastrophe occurred in 1998. In August 1998, Russia devalued the rouble and declared a moratorium on $13.5 billion of its Treasury debt: these decisions undermined LTCM’s profit sources and trashed its hedging strategies. Russia’s default was the first strike of a long series: then the so-called “flight to liquidity” across fixed-income markets precipitated the debacle of LTCM. The fund lost a lot when the banks raised doubts about the fund’s ability to survive. On 21st September, the Fed of NYC, for the first time, organised a rescue package under which a consortium of banks injected $3.5-billion into the fund and took over its management and saved the situation at the expense of heavy losses.

What can we learn 20 years after?

What has to be taken away from this debacle? One should keep in mind that this debacle is due to the pride of talented, skilled intellectuals who could not imagine they were wrong. Warren Buffet underlined that “[The members of this team] had probably the highest average IQ of any 16 people working together in one business, 400 years of experience in their jobs […] and they went broke. That is absolutely fascinating. If I wrote a book, it’s going to be called “Why do smart people do dumb things?””. Never before had any financial institution benefited from such an impeccable reputation. That’s this “over-confidence” which dragged the fund down. So professionals and investors should take that “ego risk” into account when they invest.

Know more about the LTCM crisis…

Matthieu Benavoli
Financial analyst at Ace Finance Conseil

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Introducing the asymmetric time-exceedance model with optimal threshold

Introducing the asymmetric time-exceedance model with optimal threshold

Konstantinos Gkillas Patras University

This post presents a recent paper by Gkillas, Longin and Tsagkanos (2017). This paper introduces a new model with asymmetric time-exceedance of extreme shocks defined with optimal threshold derived from extreme value theory. It has implications in economics and finance.

Concept

We propose an innovative model, entitled asymmetric exceedance time model with optimal threshold, by combing the extreme value theory (distribution tails models) with regression techniques. Building on works related to the asymmetric phenomenon which has been widely documented in economic, finance and statistics, we examine the concept of asymmetry in extreme volatile periods. We use extreme value theory (peak-over-threshold method) to model extremes. We propose a procedure for the automatic computation of optimal thresholds, at the point where the fitting of the extreme value distribution is maximized. We define extreme shocks as exceedances over the optimal threshold and determine how the duration between past and present extreme shocks affects the dependent variable, introducing the temporal variability of extreme events.

Application

We present an empirical application to the exchange and equity markets. The mechanism of interactions between these markets is substantial for many outstanding issues in international economics and finance. Furthermore, both in theoretical and empirical literature, there is not consensus between the economic relation which connect these markets. We use daily data from S&P 500 and GBP/USD.

In this application we explore whether investors’ memory of past extreme events has a feedback effect at the time of an extreme shock. In other words, we separate the investors’ direct perceptions from the investors’ indirect expectations based on their memory. Our empirical findings suggest that the investors’ reaction at the time of an extreme shock is significantly affected by their memory and are consistent with the ‘portfolio balance’ models.

Usefulness

The understanding of interactions among financial variables in extreme volatile periods is crucial for several reasons. For example, theoretical economic models can be tested in extreme conditions or empirical findings can be useful in practice for asset managers (building portfolios based on diversification) and risk managers (defining hedging strategies against adverse events). However, the model is general and can be applied in any time series with heavy tails.

Reference: Gkillas K., F. Longin and A. Tsagkanos (2017) “Asymmetric Exceedance-Time Model: An Optimal Threshold Approach Based on Extreme Value Theory”. Available at SSRN: https://ssrn.com/abstract=3016145

Financial markets

Konstantinos Gkillas
University of Patras

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Crowdfunding research on cryptocurrency

Crowdfunding Research on Cryptocurrency ICOs

Stephen Chan Manchester University

Crowdfunding research on cryptocurrency : along with a few colleagues, I am testing out a relatively new crowdfunding platform (experiment.com) to raise some funding for research related to cryptocurrencies and the blockchain, see https://experiment.com/projects/quantifying-risks-associated-with-blockchain-tokens-by-how-much-will-or-will-not-equity-backing-protect-the-markets.

Quantifying risks associated with blockchain tokens. By how much will or will not equity backing protect the markets?

The cryptocurrency market has reached an overall value of $100B dollars with companies raising millions of dollars in a few minutes. Aragon raised $25m, Qtum $15.5m, Bancor at $150m, Golem at $8.6m, Status at $250m with new ICO projects coming out 4x a week. The token market carries a lot of potential in terms of reducing costs associated with security and eliminating middle men. Although it increases liquidity for a secondary markets, investors do not understand the risks involved. We want to fill in the gaps by providing quantitative analysis. Backing the tokens with fundamentals such as equity, which can create a linear compensation model for the team, and protection for investors create a less volatile environment for token holders.

We believe that it is a great project and the results will be of pivotal importance for the blockchain community. It has already been supported and endorsed by Prof KM Abadir, Professor of Financial Econometrics, Imperial College London and Prof Joerg Osterrieder,Senior Lecturer, Zurich University of Applied Sciences, Switzerland.

For more information about the project and its funding, contact Stephen Chan.

Crowdfunding Research on Cryptocurrency ICOs

Stephen Chan
Manchester University

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New book on investing

New book on investing: “Ever invested. Ever Failed. No matter. Invest again. Invest better”

Charles Pahud de Mortgange University Liege Non-parametric marketCharles Pahud de Mortgange University Liege Non-parametric market

New book on investing by Prof. Jean-Marie Choffray and Charles Pahud de Mortanges: “Ever invested. Ever Failed. No matter. Invest again. Invest better”

Ten thoughts, facts and rules :

  • 1. Watch out! Events that did not happen in the past, and facts that did not materialize, are usually the best predictors of the future.
  • 2. Most politicians are “naked” short-sellers. They sell what they don’t own and usually can’t provide.
  • 3. Investment candidates (businesses) should ideally generate a recurrent level of return on equity (greater than the cost capital), as well as a high level of earnings per share growth (greater than operational growth and return on equity).
  • 4. If you believe you understand financial statements, keep in mind that those who produce them usually don’t.
  • 5. Sad Belgian joke. Banks whose assets were greater than GDP collapsed. Hundreds of years of growth in smoke. Nobody responsible!
  • 6. Respect quarterly cycles. Invest on solid businesses (roe, Δeps, Δeps > roe, low peg, regular analysts estimates beats) at the end of their consolidation (bottoming) process. Avoid being invested when quarterly reports are released.
  • 7. In today’s low growth environment, the most strategic “products” of any business might be its shares and its bonds.
  • 8. As an investor, if you’re willing to pay managers/directors to do nothing, you will be amazed at how well they do it!
  • 9. There are two opposing crowds on the market: those who sell what they don’t own (short-sellers), and those who buy what they can’t afford (margin-buyers). Good investors follow them. Great investors lead them.
  • 10. Over time, financial markets don’t lie. Never. That’s why people – managers, directors, and leaders of all sorts – hate them!

Ever invested. Ever Failed. No matter. Invest again. Invest better

If you don’t see the link between these ten thoughts, facts and rules, you might consider having a look at Jean-Marie Choffray & Charles Pahud de Mortanges last book: Ever invested. Ever Failed. No matter. Invest again. Invest better. Their book provides a semi-ordered set of several hundred “experience-based” thoughts, facts and rules – allowing for some redundancy and randomness – whose any subset could provide a reasonable basis on which to build your own theory of investing. Painful and solitary work. But, your survival on the markets is at that price.

Protecting assets in non-parametric market conditions

In today’s chaotic economic and political environment, protecting assets, against all extreme – unpredictable, impossible, and even unthinkable – events, is the key to success. As we discussed in our contribution in the Wiley handbook Extreme Events in Finance edited by Prof. Longin, under such non-parametric market conditions, the analysis of the past is of limited help. As to the future, it might never exist! The present is all that matters, and that’s why investors usually become more concerned about the return of their money than about the return on their money. For a comprehensive discussion of this topic, refer to Extreme Events in Finance.

Investing. Ever invested. Ever failed. No matter. Invest again. Invest better

Prof. Jean-Marie Choffray
ESSEC Business School & University of Liège

Charles Pahud de Mortanges
University of Liège

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Statistical tools for extreme value analysis

Statistical tools for extreme value analysis

Stephen Chan Manchester University

Both academics and pratictioners widely apply Extreme Value Analysis (EVA) in their applied research work. Some examples of field applications: coastal engineers, structural engineers, geological engineers, investment banks, risk management, hydrologists and seismologists. More specifically the modelling of extreme events in environmental science has particularly intensified through disaster planning purposes for flood, wind, mudslides, fire, tornado, extreme temperatures and droughts.

EVA is a branch of statistics, which deals with the extreme deviations from the median of the probability distribution. Two distributions are commonly associated with the analysis of extreme value: the generalized extreme value (GEV) distribution and the generalized Pareto distribution (GPD).

Many software packages, particularly in the open source environment, are available to assist academics and industrial partners to perform analysis on extreme values. The main functions in these packages allow us to perform estimation of univariate, bivariate and multivariate extreme value theory. They include the following methods: block maxima, threshold model, estimation methods and non–stationary regression). Graphical techniques to analyse extreme value data are also available.

Statistical tools for extreme value analysis: a review of software packages

I propose a compiled review of the currently available software packages for extreme value analysis. This may not be a comprehensive list but it contains the most commonly used packages.

The development of software for statistical extremes has been rapid, particularly in the open source environment of R. R contains the most utilities and tools for modelling extreme values and is freely available without proprietary licensing requirements, causing R to be extremely popular for many academic statisticians.

This review list will greatly simplify the process of finding and understanding available software for EVA.

For more information on the use of statistical tools in risk management

For more information about statistical methods and their applications in finance (especially risk management with Value at Risk), you can read our contribution Estimation methods for Value at Risk with Professor Saralees Nadarajah (Manchester University) published in the Wiley handbook Extreme Events in Finance.

Stephen Chan
Manchester University

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Bounded rationalities, routines, and practical as well theoretical blindness: on the discrepancy between markets and corporations

Bounded rationalities, routines, and practical as well theoretical blindness: on the discrepancy between markets and corporations

Lauren Bibard

The everlasting financial 2008 crisis awoke people from a dream. The dream consisted in the assumption that everything, in our economy and financial networks could be put under the control of human rationale and will. People were consequently supposed to be able to contribute to maximize their profits without unsurpassable risks. This was quite a happy period, after the victory of the Western capitalist system over the ancient and beaten communist option in the late 80’s.

Risk and uncertainty

This illusion is now over, despite the constant risk of becoming naive again. Even the capitalist system is risky if not uncertain in the understanding of the famous economist Franck Knight who made a huge difference between risk and uncertainty: risky events may be previewed to a certain extent, contrary to uncertain ones, some of which cannot not only be anticipated, but even imagined. We are now in a context where the lace and role of uncertainty increases constantly.

A world of uncertainty, a world of opportunities

Contrary to what we could spontaneously believe, accepting uncertainty does not amount to abandoning any supportive personal as well as professional commitment in our daily lives. To the contrary, integrating uncertainty in our lives makes people able to cease opportunities, whereas when trying to control and preview everything, people will progressively become unable to identify the weak signals that indicate new changes in their environments, changes that might represent real opportunities for the close as well as the remote future.

Contribution to the Wiley handbook

The contribution Bounded rationalities, Routines, and Practical as well as Theoretical Blindness, On the Discrepancy Between Markets and Corporations published in the Wiley handbook Extreme Events in Finance presents and discusses thoroughly this specific context concerning people attitude, decision-making, and capacity to seize good opportunities.

Laurent Bibard
Professor of management – ESSEC Business School

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EVT seen by a Vet: a practitioner’s experience of extreme value theory

EVT seen by a Vet: a practitioner’s experience of extreme value theory

Jean-François Boulier

Financial shocks happen to be much more frequent than wanted. With longer life, and admittedly longer professional life, experience shows how difficult it is to manage through these events in a calm and efficient way. That is why a testimony about what extreme value theory (EVT) can bring can prove useful for some.

Misuse of the normal distribution

The starting point is around the inability to portray adequately the historical distributions of financial asset returns with classical tools, the normal distribution being the most frequently used, or should I say misused. Aside the well known paths, the aridity of the models has deterred many to try to implement them. It is a mistake, because EVT provides lots of tools in particular for risk management.

Use of extreme value theory

The contribution EVT seen by a Vet published in the Wiley handbook Extreme Events in Finance describes some of the applications of extreme value theory and their successes. Not mentioning the limitations of the approach and the work still to be achieved would not be realistic. But in a nutshell EVT has transformed the way modern financial institutions tackle rare events, or not so rare event after all…

Jean-François Boulier
CEO of Aviva Investors France

Wiley handbook Extreme events in finance

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Protecting Assets Under Non-Parametric Market Conditions

Protecting Assets Under Non-Parametric Market Conditions

Charles Pahud de Mortgange University Liege Non-parametric marketCharles Pahud de Mortgange University Liege Non-parametric market

How to invest under non-parametric market conditions! Whether we wish it or not, like it or not, we live in a world in which passenger planes disappear, buildings collapse, rockets explode, countries implode and earthquakes, tsunamis, floods and… political revolutions occur! Information acceleration allowing, financial markets react in less than a few tens of a second based on investors’ perceptions of the incidence of these events on the behavior of others. High frequency trading systems, over leveraged shadow entities, flash crashes, and stealth central bank actions, just to name a few, further compound the situation. In this “new world”, investors must cope with a whole spectrum of “unknowns”, from “known knowns” – things they know that they know – to “unknown unknowns” – things they don’t know that they don’t know!

Extreme events in finance

To make it simple, in this chapter we are not concerned so much about “Tail events” or “Black swans” – after all, aren’t they still swans? – as we are about “Charging rhinos”, “Dangling elephants” and other… “Constrictor snakes”! The sheer complexity of these situations characterising non-parametric markets is such that they are not easily amenable to mathematical analysis – deterministic and/or probabilistic models. They can only be dealt with through the development of a parsimonious and coherent set of empirically-tested heuristics, aimed at conceptualizing the market’s response, at connecting proven facts and at converting observed discrepancies into profitable investment opportunities.

Concepts for investing under non-parametric market conditions

Under such non-parametric market conditions, investors naturally become more concerned about the return of their money than about the return on their money. Protecting Assets Under Management (AUM) becomes the surest, if not the only, path to survival and growth. When markets become battlefields for bigger forces, it is critical to provide decision makers with the right concepts to understand the nature of the unknowns they face, and to arm them with “battle-tested” decision rules (heuristics) aimed at helping them design effective investment strategies.

That’s our goal in our chapter Protecting Assets Under Non-Parametric Market Conditions published in the Wiley handbook Extreme Events in Finance edited by Prof. Longin.

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Prof. Jean-Marie Choffray
ESSEC Business School & University of Liège

Charles Pahud de Mortanges
University of Liège

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Is financial euphoria sustainable under systemic unpredictability?

Is financial euphoria sustainable under systemic unpredictability?

Jacques Ninet

Why, sometimes I’ve believed as many as six impossible things before breakfast.” 
― Lewis Carroll, Alice in Wonderland

Whatever happens to the year that begins, the one that has just ended will surely remain as one of those periods during which financial markets break themselves of their economic and geopolitical backdrop with a growing insolence.

At the dawn of a year that looks as rich as the previous one with major political events (French presidential election, German parliamentary elections, Chinese CP XIXth congress…), the indifference shown by the markets vis-à-vis the geopolitical context can be interpreted as a sign of robustness or conversely as an indicator of great fragility. In this paper, we try to answer to this key question, first by looking at the markets themselves and then by highlighting the geopolitical and macro changes that are critical in our opinion.

1. THE MARKET

Can markets be wrong?

“Markets are always right, even when they are wrong.” This maxim favored by economists and financial academics may prove perfectly relevant for the present period. The paradox on which it is built is only apparent because:

  • Market prices reflect the opinions equilibrium at every moment. Their move describes the evolution of these equilibria over time. According to this literal interpretation -the only indisputable one-of informational efficiency, the market can never be mistaken because there can be no other price than that which has been fixed at the time t. The crucial question is to know what will happen at the instant t + 1 or t + n
  • Since these prices reflect future inflows (debt refunding, coupons, dividends, etc.), the information relative to these liabilities is constantly changing, which in turn take along expectations about their future
  • Under radical uncertainty, the spot price includes a discount factor that involves a risk premium – itself variable over time – that reflects the equilibrium of forward hazard expectations.
  • Provided with a rear-view mirror, the market can appreciate whether it has been right or wrong. Wrong, for example, for still betting on the “remain” as the counting of the British vote had already started, as well as collapsing by 5% during the night of the US presidential election. In a less anecdotal way, the comparison of ex-ante PEs, which express shareholders’ expectations for future profits, with ex-post PEs (realized profits over the same period), sheds a crude light on the relevance of instant valuations.

Markets are always right, but this may be for the wrong reasons!

From unforeseeable to unpredictable

From the world increasing unpredictability, of which the unexpected electoral results of 2016 are the most striking manifestations, our colleague Jean-Louis Bruguière deduces its “unpredictability”, synonymous with peoples’ incomprehension and executives’ powerlessness. The “rebellion of peoples”, evidenced by the predictive incapacity of opinion polls, takes shape in the rise of beliefs and the success of populist thinking. The confinement of finance in a sphere insensitive to the events of the world corresponds to a deliberate elimination of uncertainty, at the time when it is the strongest and, consequently, to overpriced assets thanks to risk underestimation.

Monades, embeddedness and systems theory

Jean-Louis Bruguière wonders: “Would economics and finance be Leibnizian monads that would escape the politico-societal turbulence that has placed unpredictability at the heart of political governance? The German philosopher Husserl describes the Monad as ” bearing a unique and original view of the world and all closed, impenetrable to other consciousness.” These thoughts converge with Karl Polanyi’s “Great Transformation” theory or with the systemic analysis of the financial sphere led by D. Dron. The latter observes “an inverse contagion of logic, from the financial subsystem to the main-systems”. She adds at once: “In biology, a low sensitivity of a subsystem to the signals issued by the main systems [what might be called finance’s autism] is not synonymous with robustness but with vulnerability“. One may add to this informational vulnerability of the financial sphere its insufficient diversification (in terms of actors and strategies) and the multiplication of derivative products that reduces feedback loops and generates instead more and more “domino effects”.

The contributions of behavioral finance

Financial euphoria, which was named irrational exuberance by Robert Shiller, is based on the fact that the opinions that determine market prices contain a share of collective beliefs, more or less distant from reality. The adherence of a growing number of operators to increasingly unrealistic beliefs is precisely what ignites “final market rallies” that in general, marks the end of “bull markets”. The most exciting dimension of the phenomenon is that these beliefs, whether they concern the macro or microeconomic realm, get strength through reflexive relationships with markets behavior. For example, in the Tech Bubble, the more the NASDAQ rose, the better the growth prospects for the new – sometimes clay-feet – giants. Undoubtedly, the same phenomenon underpins the recent “trumpmania”: market optimism is spreading over macroeconomic forecasts, which in turn fuel a clear improvement in the consumer confidence index, which in turn strengthens the stock market and so on.

Diagnosis and prognosis

“A speculative bubble is a train just about to derail but each passenger of which hopes to jump just before the crash”. From this pictorial formula stems the distinction between diagnosis and prognosis, or, for our purpose, between risk management and trend following. Regardless of trader’s wishes, making a diagnosis of vulnerability does not require a precise description of the next crisis triggering mechanisms, nor should it predict its precise date, let alone its magnitude. Reciprocally, the absence of these elements does not constitute any proof of the strength of the market.

2. THE GEOPOLITICAL AND MACROECONOMIC CONTEXT

Addressing the geopolitical and macroeconomic backdrop is an attempt to reestablish the broken link with the markets. The contagion of markets optimism on the economy, which operates through the wealth effect, cannot permanently escape from the “fundamentals”. Nor can the course of business ignore forever the geopolitical context.

Geopolitics: regime shifts

The invasion of Iraq and the American intervention in Afghanistan marked the end of the post-Cold War period and its unipolar regime based on the pax americana. The 2000 decade prepared its replacement by a genuine multipolar regime without leadership … and alas without Europe. In addition to the classic (reversal) game of alliances within the USA-China-Russia trio, global geopolitics is now setting up autonomous powers (Turkey, Iran), which are asserting themselves through regional influence strategies. Large regions are becoming the scene of major rivalries (Central Asian countries formerly members of the USSR, rivers descending from the Himalayas, poles). The globalization of trade and the Sino-US partnership (the surplus of the former financing the imported consumption of later) will be put under pressure by protectionist temptations in a context of hyper-competition on a totally finite planet, that is to say in a zero-sum game. To underscore the importance of these changes, BCA analysts soberly labeled their December 2016 “Geopolitical Strategy” newsletter: “we are all geopolitical strategists now”.

The economy: the Trumpmania, or the improbable remake of “America is back”

Trump’s plan to awaken America is based on four pillars: tax cuts, deregulation, energy and eliminating America’s chronic trade deficit. In addition, there is an ambitious plan for the renovation of infrastructures and the reactivation of military expenditure. Replacing infrastructures with «stars war” makes it sound a bit of déjà-vu!

In the Trump Plan evaluation document, written last September by Wilbur Ross and Peter Navarro, both members of the new administration, the shortfall for the US Treasury, as a result of the envisaged tax measures, is scored to 2,600 billion for the next ten years. But thanks to reforms in foreign trade, regulations (notably on renewable energy and coal restrictions) and energy, federal revenues on corporate and household income would grow by an amount (computed with a rudimentary metric) of 2 400 MDs. Such a scheme had been promised by Reagan at his time. But the federal deficit would on average climb to 5.25% of GDP between 1982 and 1993 (peaking at more than 6% in 1983). And the federal debt, which represented only 25% of the GDP in 1980, quickly rose to more than 50%. It now exceeds 100% and a large stake (6 000 MD) is held by the countries that are counterpart in the current account deficit. In the renegotiation of commercial treaties where US companies are disadvantaged and pushed to offshore factories, it is therefore not sure that the United States is in as good a position as the program document claims. And it is not certain either that multinational companies, which have so much benefited from world trade imbalances, are suddenly ready to play the game of the middle classes great return.

Interviewed by Bloomberg, former Treasury Secretary Larry Summers, who invented the concept of “secular stagnation”, violently criticized this program, placing it “beyond the voodoo economy” (a quote awarded by G.H Bush to the “reaganomics”) and calling it “the economic equivalent of creationism”. He deduces an “extraordinary uncertainty that is not taken into account by the markets”.

CONCLUSION

On  2016 second half episodes of recoveries and the contraction of their time scales, financial markets have built the feeling of their teflon-like invincibility. This kind of over-confidence appears to be paradoxical at a time when the geopolitical context is deeply shifting – to more instability – and as Donald Trump’s projects provide few convincing answers, if any, to the major macroeconomic issues that constrain growth, such as the widening of inequalities, the demographic issues and the future of pensions or the imbalances in the international monetary system.

Jacques Ninet
Senior Advisor for La Française and Convictions AM

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Multidisciplinary research at ESSEC

Multidisciplinary research at ESSEC in extreme events

Vincenzo Esposito Vinzi Dean of faculty and Professor of statistics and data analysis ESSEC Business School

It is my greatest pleasure and privilege, as the Dean of ESSEC Faculty, to talk about the Wiley handbook Extreme Events in Finance edited by my colleague Prof. François Longin from the Finance Department. This work is based on multidisciplinary research involving colleagues from different areas.

Besides my institutional role, I am a Professor of Statistics and Data Analysis. As such, I have witnessed how, for several decades, academic research has very often considered – and I dare to say wrongly – extreme events simply as outliers or anomalous observations. The related data were then removed from the empirical analysis, sometimes explained by means of extra-statistical considerations but very rarely modeled.

Extreme events: high impact of daily life

Nowadays, crashes, crises and extreme conditions happen more regularly – and sometimes even simultaneously – in different domains and in different parts of the world with a potentially high impact on the daily life of both individuals and the society as a whole.

Beyond normality

In this new framework, the classical assumptions – such as normality, linearity and stationarity just to mention a few – are routinely violated and the complete distributions of events are less and less available. Moreover, we are more and more frequently led to work on spikes and heavy tails. As a consequence, the Extreme Value Theory and Analysis cannot be ignored any longer by all sorts of companies, banks, regulators and, more generally, private organizations and even public bodies.

Indeed, the area needs academic multidisciplinary research as it is characterized by several advanced technicalities for the theoretical, conceptual and methodological developments but also by significant application relevance. Then, at ESSEC we can boost the contribution provided by professors from different fields such as Statistics, Mathematics, Finance, Economics, Marketing and Management among others. This is definitely an asset for us as we can propose a comprehensive approach to risk analysis and management.

A multidisciplinary research approach

At the same time, the pool of professors that have been developing for many years research in Extreme Events at ESSEC, also enjoy the collaboration with a large panel of external partners such as private and central banks, fund management firms, insurance companies, manufacturers and software developers that operate in an international and multi-polar environment.

Following ESSEC conference on Extreme Events in Finance at Royaumont Abbey in December 2014, I am very happy to see the long-term project of the Wiley handbook Extreme Events in Finance finally achieved. Like the conference, this handbook shows the productivity and multidisciplinary research approach of ESSEC professors with participation of Laurent Bibard (Management Department), Jean-Marie Choffray (Marketing Department) and Marie Kratz (Information Systems, Decision Sciences and Statistics Department & CREAR). Two ESSEC alumni also contributed: Maxime Laot and Christian Walter. Gabriel Eschbach (ESSEC alumni in wealth management) from ACE Finance & Conseil also sponsored the “Extreme Events in Finance” project.

Enjoy your reading.

Multidisciplinary research at ESSEC - Wiley handbook Extreme events in finance

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Vincenzo Esposito Vinzi
Dean of faculty and Professor of statistics and data analysis
ESSEC Business School

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New ESSEC research contribution in finance

New ESSEC research contribution in finance

Jean-Michel Blanquer

ESSEC is very happy to welcome this new Wiley handbook Extreme Events in Finance edited by Prof. François Longin. ESSEC research in financial risk and extreme events is a long tradition in our institution. Today this topic is important for financial institutions, firms, individuals and society as a whole.

A multidisciplinary work

“Extreme events in finance” is not only a topic for finance but also for other disciplines such as economics, statistics, mathematics and sociology. Therefore, this is the kind of topics that we have to address with different skills and expertise. Along this line, the editor has gathered researchers from different departments that do not usually work together. This collective work includes 25 contributions written by more than 40 contributors from all over the world.

Point of view of both academics and practitioners

“Extreme events in finance” is also the kind of topics that we have to address not only from the point of view of the actors but also from the academic point of view. This book is then diverse in terms of contributors: it includes academics and practitioners from banks, fund management firms, insurance companies and central banks.

“Extreme events in finance” is also a complex topic that we have to address with an open mind. Hence, this book offers many technical contributions on extreme value theory and its applications in finance and insurance, but it also includes professional expressions, reflection on modeling issues and time.

Beyond technicality

From a technical point of view, this book deals with extreme events in finance using extreme value theory. I’m sure that advanced readers will enjoy the high technicality. Beyond the math, there is also the message that extremes events should not be underestimated in financial models. This is especially the case as such events matter the most for investors and can have far-reaching consequences for the financial world but also for the real world, impacting everybody at the very end.

Enjoy your reading.

Wiley handbook Extreme events in finance

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Jean-Michel Blanquer
Dean of ESSEC Business School

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Extreme Events in Finance: the Wiley handbook is out!

Extreme Events in Finance: the Wiley handbook is out!

Prof François Longin

Please to announce the latest Wiley research publication Extreme Events in Finance: a handbook of extreme value theory and its applications in the handbooks series Financial engineering and econometrics. Both versions – hard-copy and electronic – are now out!

This book is a collective work: it gathers 25 contributions written by more than 40 contributors from all over the world. It is diverse in terms of contributors as it includes academics and practitioners from banks, fund management firms, insurance companies and central banks.

Wiley handbook Extreme events in finance

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I would like to thank all the contributors to this handbook:

François Longin (ESSEC Business School)
Editor

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Wiley handbook Extreme Events in Finance coming soon!

Wiley research book coming soon: Extreme Events in Finance: a handbook of extreme value theory and its applications

Prof François Longin

Please to announce the Wiley publication Extreme Events in Finance: a handbook of extreme value theory and its applications in the handbooks series Financial engineering and econometrics.

This book is a collective work: it gathers 25 contributions written by more than 40 contributors from all over the world. It is diverse in terms of contributors as it includes academics and practitioners from banks, fund management firms, insurance companies and central banks.

Multidisciplinary research at ESSEC - Wiley handbook Extreme events in finance

I would like to thank all the contributors to this handbook:

François Longin (ESSEC Business School)
Editor

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Concluding international “RARE” workshop

Announcing : Concluding international “RARE” workshop

As part of a large worldwide network (FP7 – funded by Europe) working for the last 3 years on Risk Analysis, Ruin theory and Extremes – RARE, we are reaching our final 4th year event, in which we want to broadcast our latest findings in the areas.

Concluding international “RARE” workshop

July 3-8, 2016
Hôtel Le Majestic, La Baule, France

Keynote speakers:

  • Prof. Søren Asmussen (Aarhus University, Denmark)
  • Dr. Michel Dacorogna (SCOR, Switzerland)
  • Prof. Paul Embrechts (ETH Zurich, RiskLab, Switzerland)
  • Prof. Fima Klebaner (Monash Univ., Australia)
  • Prof. John Nolan (American Univ., Washington DC, USA)
  • Prof. Ragnar Norberg (Univ. Lyon 1, SAF, France)
  • Prof. Richard Smith (SAMSI, UNC Chapel Hill, USA)

Alongside, principal investigators from all the RARE partners institutions will present their most recent results.

Working groups on specific topics, poster sessions and a concluding round table will be organized, enhancing then interaction not only between peers but also with a few well-known experts from the actuarial practice and academia, and young researchers.

A call for papers will be sent by the end of the year.

Organization: Marie Kratz (ESSEC CREAR), with the help of Prof. Séverine Arnold (HEC Lausanne) and Corina Constantinescu (IFAM Liverpool)

img_logo_CREAR

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Three postdoctoral positions at the Departments of Mathematics and Statistics of the Pontificia Universidad Catolica de Chile

Three postdoctoral positions at the Departments of Mathematics and Statistics of the Pontificia Universidad Catolica de Chile

The Departments of Mathematics and Statistics of the Pontificia Universidad Catolica de Chile invite applications for three postdoctoral positions, two in Mathematics and the other in Statistics, starting at any date between May 2016 and September 2016. These positions are intended for a new or recent Ph.D. with outstanding potential in research. The duration of the position is one year, with the possibility of extension.

The approximate yearly salary will be of 30900USD plus 2000USD for moving expenses (these figures are based on an exchange rate of 700 chilean pesos per dollar on November 11, 2015, and may vary as the exchange rate changes). Successful applicants will be required to apply to the Chilean national grant system.

Applications must include a cover letter, description of research plans, curriculum vitae, and three or more letters of recommendation.

The application deadline date is December 23, 2015. Application materials should be sent to:

Alejandro Ramirez (aramirez@mat.puc.cl)
Facultad de Matematicas
Pontificia Universidad Catolica de Chile
Av. Vicuña Mackenna 4860 Macul
Santiago
CHILE
Fax: [56](2)25525916

See the ad on MathJobs

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