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  Issue 12 | Archive August 2012

RMI Holds its Sixth Annual Risk Management Conference

The NUS Risk Management Institute successfully hosted its Sixth Annual Risk Management Conference from 12 to 13 July 2012 at Shangri-La Hotel, Singapore. The one-day policy forum, followed by a one-day scientific program, themed “Risk Management Responses to Rising Systematic and Systemic Risks”, attracted about 300 participants from financial institutions, central banks, regulatory agencies, academia, and think tanks.

Opened by RMI Director, Professor Jin-Chuan Duan, the first session of the conference was “Setting the Scene”. The session, chaired by Mr. Lutfey Siddiqi, Managing Director at UBS and RMI’s Adjunct Professor, consisted of speakers Mr. Russell Kincaid, Director in the Office of Internal Audit and Inspection at the International Monetary Fund (IMF), and Mr. Matthew Yiu, Senior Economist at AMRO. They gave their views on recent developments in the financial markets, including key risks and growth outlooks. This set the stage for the discussions that followed.

Following the first session was the keynote speech, delivered by Prof. Kuan Chung-Ming, University Chair Professor at National Taiwan University and a key policymaker in Ma Ying-Jeou’s administration. He delivered a speech entitled, “Economic Stability and Systemic Risk in Asia”. In his speech, he adopted a network perspective in assessing systemic risks, which cuts across both real and financial sectors. He suggested that while a complete and robust network in the real economy is good for the economic stability of the Asian region, a monetary union in Asia may not be desirable because a fully connected network for financial linkages may not improve economic stability. In this context, real linkages in Asia can be made more complete and robust by strengthening bi-lateral and multi-lateral economic connections between and amongst countries in Asia, promoting trade within Asia and expanding free trade areas, and establishing formal institutions. China’s growing dominance is a double-edged sword to countries in Asia: it can serve as a “shock absorber” for shocks that it can contain, but otherwise, it may become a “shock amplifier”. Hence, Prof. Kuan suggested that Asian countries need to build evenly distributed connections within this region and to maintain a balance, and should avoid connecting only with China.

The keynote speech was followed by the session: “Guiding the System”. This session was chaired by Dr. Michael Gordy, Senior Economist at the Federal Reserve Board, with panel members Mr. Christoph Michel, Chief Risk Officer (Asia Pacific) of Natixis, Mr. Michel Maila, President and CEO of Global Risk Institute, and Mr. Gilbert Kohnke, Chief Risk Officer of OCBC Bank. They stressed that risk management is a strategic process with the need to align internal units towards similar goals, and that communication is crucial to manage risks effectively.

During the lunch break, Prof. Duan gave a briefing on RMI’s newest initiative: the Corporate Vulnerability Index (CVI) under the Credit Research Initiative. During the briefing, he described the CVI’s concept, construction and application.

The conference resumed with a session on “Responding to Systemic and Systematic Risk”, chaired by Dr Jarrad Hee, Senior Vice President, Risk Management Group at DBS Bank, with speakers Dr Jing Zhang, Global Head of Quantitative Research at Moody’s Analytics, Mr. Marc Joffe, Principal Consultant at Public Sector Credit Solutions, and Dr. T. Sabri Öncü, Head of Research at Centre for Advanced Financial Research and Learning, Reserve Bank of India.The speakers gave their unique perspectives on measuring risks and how to best address them.

Following this were the two sessions jointly organized by RMI and the International Association of Credit Portfolio Managers (IACPM) on New Initiatives for Credit Portfolio Management: (1) Defining Risk Appetite and Limits, and (2) Assessment of Current Credit Market Conditions.

The first session was chaired by Dr Jeff Bohn, CEO of Soliton Financial, with panel members Mr. Laurie Antioch, Managing Director, Risk Management Group at DBS Bank, Mr. Marko Zilly, Head of Wholesale Banking Risk Appetite at Standard Chartered Bank, and Mr. Wan Aik Chye, Head of Specialist Risk Management at the Monetary Authority of Singapore. The session discussed risk appetite from a holistic perspective, including linking business strategy to risk appetites, driving convergence of business and finance, and linking risk taking with potential outcomes. In the second session, chaired by Ms Marcia Banks, Associate Director at IACPM, the speakers discussed the evolution of credit portfolio management, impact of Basel III and other regulations, and the current credit market conditions. Panel discussants were Mr. Benoit Stroesser, Executive Director at JP Morgan Chase Bank, Ms. Vanessa Leung, Managing Director at Standard Chartered Bank, and Mr. Achim Teske, Head of Portfolio Management Asia-Pacific at Barclays Capital.

On the second day of the two-day conference, the scientific program was organized along the lines of an academic conference, with papers presented in these areas: (i) Credit Risk, (ii) Systemic Risk, (iii) Variance Risk, (iv) Corporate Decision, (v) Asset Pricing, and (vi) Derivatives Pricing.

The plenary talks were chaired by Professor Joseph Cherian of the NUS Business School. The first speaker, Dr. Gurdip Bakshi of the University of Maryland, discussed his joint research on “The Baltic Dry Index as a Predictor of Global Stock Returns, Commodity Returns, and Global Economic Activity”. The second speaker, Dr Michael Gordy of the Federal Reserve Board, presented a research paper entitled “Stochastic Time-Change of Default Intensity Models: Pricing and Estimation”.

In the first plenary session, Dr. Bakshi started off by discussing the robustness of the Baltic Dry Index (BDI) growth rate as a predictor of real economic activity. Based on his findings, Dr. Bakshi said that the quarterly BDI growth rate helps to predict aggregate equity index excess returns across international markets, commodity index excess returns, and industrial production across a large number of countries.

In the second plenary session, Dr. Gordy introduced stochastic time change to default intensity models of credit risk as a parsimonious way to account for stochastic volatility in credit spreads.This additional model feature still results in straightforward and efficient solutions to bond prices and CDS spreads, allowing the estimation of the time-changed model on panels of CDS spreads (across maturity and observation time). Strong evidence of stochastic time change was found.

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Published quarterly by Risk Management Institute, NUS
Editor: Ivy Wang (rmiwy@nus.edu.sg)