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  Issue 15 | Archive May 2013

MFE Alumni Return to RMI as Guest Lecturers

On 7 and 11 March 2013, two distinguished alumni of RMI’s Master of Science in Financial Engineering (“MFE”) program returned to the campus and shared their knowledge with the current MFE cohort by giving two guest lectures.

On 7 March 2013, Mr. Max Wong, Head of VaR Model Testing at Royal Bank of Scotland, gave a lecture on VaR model as part of the module named “Risk Analysis and Management”. A graduate of the MFE program in 2005, Mr. Wong is a risk professional with 17 years of experience in financial industry. His career has covered a rich mix of trading, market analysis, risk management and modeling experiences. Having witnessed two financial crises, one as an “open outcry” trader at Simex (now SGX) during the Asian Financial Crisis in 1998, and the other as a quant risk manager during the financial crisis in 2008, he felt the importance of reviewing VaR models for students.

VaR is the time-honored risk model used under the international Basel risk framework for banks. But the recent global financial crisis has discredited this standard model, as he explained. What really is a VaR model? How does it work in practice? Why does it fail horribly during crises? The philosophical and epistemological reasons the model should never work – black swans and bad assumptions. He opined that the key is to study how to remedy the model so that it can be robust and still be useful for capital buffers during a crisis.

A second talk was held on 11 March by Mr. Benjamin Wong, who graduated from the MFE program in 2004 and was the Head of Risk Analytics, Wholesale Banking, Standard Chartered Bank. His presentation centered on “Credit Risk Modeling within Banks” and contributed to the module “Credit Analysis Practicum”.

He noted that in the post-crisis era, the risk management in financial and banking institutions has gained prominence. He then underscored the importance and implementation of risk models in banks by explaining various steps starting from data collection, single and multi-factor analysis and model calibration. He also introduced to the students, from a practitioner’s perspective, the critical factors of Basel II’s three pillars, and the regulatory initiatives to address critical concerns in Basel III.

He presented fundamental concepts of credit rating based on: a) Point-in-Time (PiT) rating models to predict the next one year Probability of Default (PD)/Loss Given Default (LGD)/ Exposure At Default (EAD); b) Through-the-Cycle (TtC) rating models predicting the long run average PD/LGD/EAD while focusing on idiosyncratic (firm-specific) information, and c) Hybrid models exhibiting different degrees of TtC/PiT behavior. In addition, Basel II Asymptotic Single Risk Factor model was critically elaborated and the impact of each individual parameter in estimating risk was analyzed. Modifications to factor firm size adjustments for small and medium-sized entities were also discussed along with the estimation of a Systematic Risk Index & Correlation Matrix.

Such guest lectures have given the MFE modules a practical blend. For example, the module Credit Analysis Practicum, which Mr. Wong contributed to, is the MFE program’s first project-based module. Emphasizing action-based learning through applying conceptually rich academic knowledge in real-world settings, the module requires students to work on real-world problems in quantitative credit analysis. In doing so, the module provides an opportunity for teams of students to work in different organizations and to identify important credit risk related issues, engage in data collection and analysis, and ultimately recommend and carry out insightful solutions.

“His presentation provided an insight into the credit risk modeling and implementation in banks,” commented Guruprasad Katti, a current MFE student who is taking the above module and attended Mr. Wong’s talk. “The information about the evolution of Basel accord not only provided historical perspective to risk but also presented the contemporary issues and initiatives. I find it really helpful to my completion of the project and my MFE study in general,” he added.

Over 600 alumni with some having reached senior positions in their firms to date are in the MFE program’s alumni network since the program’s inaugural run in 1999. Besides sharing their knowledge as guest lecturers, they also maintain ties with RMI through other collaborations. Among others, some return as teaching assistants while others provide career guidance to their juniors. RMI’s Annual Risk Management Conference also sees active participation from many MFE alumni year after year.

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