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  Issue 29 | Archive November 2016

Prof. Dr. Paul Embrechts Conducts a Public Lecture on Risk Management in Banking and Insurance


On 7 November 2016, Prof. Dr. Paul Embrechts, Professor of Mathematics at ETH Zurich, held a public lecture for an audience of nearly 70 participants, consisting of financial professionals, regulators, academics, as well as students. The lecture was titled ¡°Risk Management for Banking and Insurance: Then, Now, and Tomorrow.¡± Prof. Embrechts launched into his talk by stating that financial institutions in insurance and banking find themselves in constant search for a balance with their various stakeholders, specifically between the companies and their regulators. The talk focused on the regulatory regimes in banking and insurance, Basel III and Solvency II respectively, and their critical appraisal.

First Prof. Embrechts gave the audience an overview on the history of various ideas in the fields of finance and insurance that have helped shape modern financial and insurance markets. Discussing the basics of Basel II-III and Solvency II, he commented that the use of internal models was granted with the aim of achieving greater risk sensitivity and that the calculation of risk weighted assets through these models became widely accepted. This gave rise to what he termed as ¡°model-Darwinism¡±, that is, survival of the fittest model.

Describing the recent consequences of the shift from Basel II to III Prof. Embrechts stated that quantitative and qualitative modeling considerations are both important. He highlighted the shift from ¡®if-thinking¡¯ models such as value-at-risk (VaR) model to ¡®what-if¡¯ models like, expected shortfall (ES) model. Speaking about solvency capital, risk weighted assets (RWA), and leverage, he said that under Basel II-III, regulatory capital is calculated as a percentage of RWA. (Mis)use is prevalent in such cases via creative accounting, tax constructions, and financial engineering. He also touched upon Solvency II and principle based versus rule based regulation, before moving on to a discussion of current regulations in place, where he criticized some of their shortcomings.


RMI Hosts Industry Talks for MFE Students

In August and September RMI hosted two talks for its Master of Science in Financial Engineering (MFE) students. Both the talks featured industry professionals who gave the MFE students a deeper insight into charting a career path in the financial industry, specifically in hedge funds and FX trading.

The first talk held on 26 August 2016 featured the topic ¡°What is the Future of Hedge Funds?¡± by Mr. Scott Treloar. Mr. Treloar is the Founder of Noviscient, a Singapore-based systematic trading company. He opened up the talk with a brief history of his personal career path, which he began as an engineer, then taking up the role of a banker, before finally becoming a hedge fund manager. He discussed the 2008 financial crisis, its causes and consequences before listing down some of the main lessons to be learned from it.


New Research Initiatives:

A Market Monitoring System for Forward Looking Returns and Volatilities

By Steven Kou (National University of Singapore)

In 2016, RMI embarked on three new research initiatives and this issue of the newsletter will discuss the third and final research initiative on developing a market monitoring system for forward looking returns and volatilities.

It will be useful for regulators to have indices that give continuous forecasts of forward looking returns and forward looking volatilities. However, currently there is no forward looking returns index and the only available forward looking volatility indices are VIX type indices of the Chicago Board Options Exchange (CBOE) Volatility Index. The problem with these VIX type indices is that many options, the number being around 100, are needed to compute the indices and these indices do not distinguish regular volatilities from jump volatilities. In view of this, RMI plans to build a system that gives daily updates of forward looking returns and volatilities, by combining information from both the return series and the associated derivative prices.


New Staff

Zhu Chunyang who recently completed his Master¡¯s Degree in Quantitative Finance from National University of Singapore (NUS) joined RMI as a Research Analyst on 15 August 2016. Prior to this, he obtained his Bachelor of Science Degree in Financial Engineering from Nanjing University. His research interests include credit risk management, financial modelling, and portfolio strategies among others. In his spare time, he likes swimming, playing basketball, and going on outdoor adventures.

Visitors

Prof. Dr. Paul Embrechts is visiting RMI from 2 November to 9 December 2016 under the NUS-RMI Professorship in Risk Management. Prof. Embrechts is Professor of Mathematics at the ETH Zurich specializing in actuarial mathematics and quantitative risk management. Previously he held academic positions at the Universities of Leuven, Limburg, and Imperial College, London. Prof. Embrechts has held visiting professorships at numerous universities and has an Honorary Doctorate from the University of Waterloo, the Heriot-Watt University, Edinburgh, and the Universit¨¦ Catholique de Louvain. He belongs to various national and international research and academic advisory committees.



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Workshop in Anti-Money Laundering and Model Risk Management

22 & 23 August 2016

On 22 and 23 August 2016, RMI conducted a workshop in Anti-Money Laundering (AML) and Model Risk Management taught by Dr. Yimin Yang, Director of Protiviti Inc. USA. This unique two-day training course equipped the attendees with current fundamentals and regulations on the developments within the AML space in Singapore.


RMI Research Seminars

August & October 2016

RMI conducted a research seminar in August and two in October. On 15 August 2016, Prof. Kuldeep Kumar of Bond University, gave a talk on, ¡°Bankruptcy Prediction and Fraud Detection Using Cutting Edge Recursive Partitioning Techniques.¡± The talk discussed some of the cutting edge recursive partitioning techniques to predict financial distress, as the financial and economic downturn has triggered a rise in fraudulent activity in the corporate world.


Pedagogical Lectures

2 to 4 November 2016

Prof. Dr. Paul Embrechts, conducted three pedagogical lectures on 2, 3, and 4 November 2016 for a group of 25 participants on each day. The first lecture on 2 November titled, ¡°An Extreme Value Approach for Modelling Operational Risk Losses Depending on Covariates¡± was based on his joint work with Valerie Chavez-Demoulin (EPF Lausanne) and Marius Hofert (University of Waterloo).




Financial Risk Manager (FRM®) Certification Training Program 2017
7 Jan to 13 May 2017

Enterprise Wide Risk Management Workshop
16 & 17 Jan 2017

Commodity Markets Workshop
21 & 22 Feb 2017

NUS RMI Specialist Diploma in Credit Risk Management ¨C Corporate Banking
6 Mar to 24 Apr 2017

NUS RMI IFRS9 for Loan Impairment Workshop
20 & 21 Mar 2017

NUS RMI Specialist Diploma in Operational Risk Management
25 Mar to 26 Apr 2017

Second Paris-Asia Conference in Quantitative Finance
23 - 24 May and 26 - 27 May 2017

Eleventh Annual Risk Management Conference
5 & 6 July 2017

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Published quarterly by Risk Management Institute, NUS
Editor: Shivani Nakhare (rminsr@nus.edu.sg)