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Issue 2 | Archive

February 2010

FEATURE
The past, present and future of regulations

The roles of monetary authorities, need for harmonization and reform, new tools and models, were underlined at The NUS Risk Management Institute's breakfast dialogue in December.

The NUS Risk Management Institute in collaboration with the NUS Business School organized a breakfast dialogue on the theme of "The past, the present and the future of regulations for financial institutions" on Saturday, 19 December, 2009 at the Shangri-La Hotel in Singapore. Panelists Dr. Malcolm D. Knight (Vice Chairman, Deutsche Bank Global Group, and Visiting Professor in
Finance, London School of Economics and Political Science) and Ms. Teo Swee Lian (Deputy Managing Director, Prudential Supervision Group, Monetary Authority of Singapore) presided, with the dialogue moderated by Prof. Franklin Allen (Nippon Life Professor of Finance and Professor of Economics, Co-Director, Financial Institutions Centre, Wharton School, University of Pennsylvania).



The Financial crisis: A question of guilt

By Prof. Paul Embrechts, Professor of Mathematics,          ETH Zurich

The current crisis can be partly laid at the door of the flawed choice of risk-metrics used in the Basel framework. More regulation, without rethinking and correcting these flaws, will just be a plaster over the wound.

The recent financial crisis has been a rude wakeup call on how fragile our financial system really is. The media has laid the blame for the crisis on many parts of the financial system, such as the credit rating agencies, mortgage brokers and lenders, special investment vehicles, structured finance products, banks and financial engineers, while exhorting regulators to come up with more stringent regulation to reel in the lack of transparency and conflicts of interests apparent in the finance industry.


Performance Management: Theory, Practice and the Reality

By Jeffrey R. Bohn, Head, Risk Appetite,                      Standard Chartered Bank, Singapore

More stringent regulation measures may have been in the media limelight recently, but new performance management metrics are key to a sustained recovery.

Given the recent financial crisis, there has been public outcry for more stringent regulation on regulatory capital requirements. This idea, though well-intended, is misguided: regulatory capital does not reflect diversification inherent in most large financial institutions' portfolios. Rather, regulatory capital can often be the result of committee-based compromises or even the result of the arbitrary whims of regulators. Excessive regulation may also lead to regulatory arbitrage where banks shift risks beyond the regulators' purview. Instead, I propose mitigating financial crises can be better handled through prudent use of new performance measures, which I will introduce here. I will also discuss some of the practical issues with implementing these new measures.

Clustered Defaults

A working paper by Prof. Jin-Chuan Duan, Director of NUS Risk Management Institute, and Cycle & Carriage Professor of Finance, NUS Business School.

Prof. Jin-Chuan Duan has just finished his new working paper "Clustered Defaults" in which he built a hierarchical intensity model to analyze defaults of firms in one or many economies. The model is also useful for dealing with many obligors in a large credit portfolio.

Credit risk analysis of large portfolios is at the heart of credit risk management, and understanding clustered defaults in an economy has important regulatory policy implications. Credit rating agencies, however, have been severely criticized for not fulfilling their responsibility in revealing obligors' credit risk, with the models used by such agencies seriously questioned in the light of the current crisis.

As part of the remedial solutions, better credit analytical tools for modeling a large pool of obligors are needed. In
academic literature, one popular approach is the Poisson intensity model.





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Indexed CDS and the Subprime Crisis

November 2009

Last November, the Institute of Real Estate Studies and RMI were privileged to have Prof. Nancy Wallace from the Haas School of Business, University of California, Berkeley speak on her findings of the ABX.HE indices which are currently being used as the main benchmark for financial institutions when marking their subprime mortgage portfolios to market.


Financial
Mathematics Program 

November - December 2009

International researchers gathered for the Institute for Mathematical Sciences and RMI's two-month long joint workshop program back in November 2009. Topics covered included risk measures and robust optimization in finance, pricing and hedging of environmental and energy-related financial derivatives and optimal stopping and singular stochastic control problems in finance. 



Revision of
Markowitz Strategies

December 2009

Prof. Yan Jia-An from the Chinese Academy of Sciences in Beijing gave a talk at a seminar jointly held by RMI, Department of Statistics and Applied Probability and Department of Mathematics. He presented to the attendees that the VaR (Value-at-Risk) may not be the right measure in guiding investment practice.


RMI Credit Rating Initiative

January 2010

RMI launched a non-profit credit rating initiative in early 2009. Since then we have made significant progress on it. More than 30 staff and interns are currently working on the various aspects of the project, encompassing data collection, data cleaning and validation, IT and market monitoring. 



Professional Risk Manager (PRMTM)Certification Training Program 2010 
20 March - 28 August 2010

Public Lecture by Dr. Chi-fu Huang
06 April 2010

Symposium for Computational Finance
28 - 29 June 2010

RMI Annual Conference
15 - 17 July 2010

more




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