Group discussion on Problems in finance
John-Paul Broussard – (Rutgers University)
Natalie Packham (Frankfurt School of Finance & Management)

Over time, financial professionals have dealt with numerous ways to approach extreme movements in markets. We have gone from looking solely at univariate perspectives, using both parametric and non-parametric approaches, to bi-variate considerations, and now multivariate portfolio perspectives. How should an institution reorient itself to extreme market, credit, operational, liquidity and other events? What should an institution do to take into account the potential “correlation breakdown” when multiple extreme risks occur simultaneously? Who at a financial institution needs to keep an eye on the potential devastation caused?

The purpose of this Group Discussion is to elicit ideas on which severe outcomes should be considered, how to evaluate the problems those extreme outcomes potentially generate, and certainly, which approaches to take that offer the best risk-return trade-off given the problems of extremes facing institutions.

• Material:
  • John-Paul Broussard “Extreme Value Problems in Finance”

Summary of the group discussion :

A small but lively group gathered to discuss current and ongoing problems in finance that can be analysed and solved using techniques from extreme value theory. The discussion focused on the feasibility of tail-risk protection strategies employing extreme value theory methods in market environments where classical protection strategies such as protective put are not effective. Participants thought creating an index of tail risk protection strategies may add value. Since there are multiple vehicles employed, an index representing multiple protection strategies may be one way to evaluate risk management effectiveness. Generally, the group expects extreme value theory continues to spread from the purely academic realm to practical applications in the finance industry.

John is an Associate Finance Professor at Rutgers University’s Camden, NJ campus where he teaches various financial market courses. John’s academic research has been published in Journal of Financial Economics, Financial Management, Management Science, Journal of Financial Services Research, Quarterly Review of Economics and Finance, European Journal of Operational Research and other journals. John’s financial market research interests currently relate to high frequency trading, multivariate extreme statistical applications to portfolio management problems, and the behavior of various mutual fund investment strategies. His consulting activities focus on risk management matters as they apply to financial markets, as well as implementation of techniques to consistently select superior-performing mutual fund managers.

He received his BS and PhD from Louisiana State University and an MBA from Millsaps College. John has won and has been nominated for various teaching awards in his career, and has helped prepare financial market professionals for various designations since 1999 in Europe, Asia and the US. John is a CFA Charterholder, a Certified Financial Risk Manager, and a Professional Risk Manager. To know more…

Natalie is Assistant Professor of Quantitative Finance at Frankfurt School of Finance & Management with a particular focus on Mathematical Finance, Quantitative Risk Management and Computational Finance. She holds Master degrees in Computer Science (MSc.) and Finance (MA), and a PhD in Quantitative Finance. In addition, Natalie spent several years has several years of industry experience as a front-office software engineer at an investment bank. To know more…