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  Issue 6 | Archive   February 2011

FEATURE
Siddiqi Shares Thoughts on Derivatives and Financial Engineering at RMI’s Public Lecture

"It’s not about products; it’s a way of thinking” – this was the theme of the latest NUS-RMI public lecture on January 26. Organized in conjunction with its Master of Science in Financial Engineering (MFE) program briefing session, the public lecture was delivered by Lutfey Siddiqi, the Managing Director and Asia Pacific Head of Corporate Coverage, Fixed Income, Currencies and Commodities Division (FICC) of UBS, to share his opinions on derivatives and financial engineering from an industry practitioner’s perspective.

An Adjunct Professor at RMI and one of the MFE program lecturers, Siddiqi spoke in a personal capacity to a crowd of over 80 people at Suntec City Convention Centre on the Wednesday night. He started off by describing financial engineering as the match-making and risk framework which involved responding to various situations with solutions as well as identifying quants and structurers. Then, he pointed out that people should bear in mind two fundamental assumptions when handling derivatives: first of all, life is non-linear; secondly, things are interlinked. He then quoted three vivid illustrations derived from real life, which included FX options, carry trades and basis swaps, to support his arguments. The way of thinking is far more important than the technical skills of creating exotic financial products, opined Siddiqi, who was the managing director of foreign exchange Asia-Pacific at the British bank Barclays before joining UBS in 2010.

In the second half of his talk, Siddiqi spoke to the audience about the transformation from a graduate to a professional by offering them a few insightful tips on job interviews and early days on the job. He particularly stressed the importance of the narration of a person’s resume to make it stand out from the rest. Showing attitude of personal accountability is also the key to the success of a job interview, he added.



FICS Risk Management Program Briefing

RMI's FICS Risk Management Program is now into its sixth intake. On December 17, as part of its marketing initiatives, RMI conducted a program briefing session at its training venue at Finexis Building, 108 Robinson Road. A lunch time presentation by RMI's FICS Manager, Ms. Ivy Wang and one of the programs' trainers, Ms. Naomi Hoe, was attended by more than 30 potential program participants.

Many of the attendees for the program briefing session were already working in the industry and were looking to enhance their knowledge or expand their skills in other areas of risk management.


RMI Christmas Dinner

It was that festive season of the year where the Christmas tree is put up, dinner is served and the staff of RMI get together to enjoy an evening of good food, good company and many good games of Bingo.

On December 17 2010, RMI staff along with its affiliated researchers, trainers and industry partners and their spouses, got together at the Garden Terrace, Shangri-La Hotel, Singapore for the RMI Christmas Dinner. A buffet of international cuisine heartily filled the stomachs of those who attended the dinner. RMI’s Director, Prof. Duan Jin-Chuan, welcomed all guests and also took the chance to thank them for all their continuous support and contribution to RMI on various projects over the past years.


Why Do Sellers Hold Out in the Down Market? An Option-based Explanation

A paper by Wenlan Qian (National University of Singapore)

In the residential housing market, sellers tend to hold onto their homes when prices fall. RMI affiliated researcher Dr. Wenlan Qian's working paper offers one rational explanation of the "hold-out" phenomenon in down times in the housing market. Motivated by the concept of real options, the paper models the owner's selling decision as an endogenous optimal stopping time. It provides a theoretical basis for understanding the market determinants of home owners' listing and selling decisions. Evidence from U.S. aggregate residential housing data is consistent with the theoretical model. Cross sectional variation in transaction volume are strongly associated with the asset expected growth rate and volatility; and their effects are amplified in areas with low supply elasticities and in times with low market prices.

In the theoretical model, in response to some random shocks, people change their demand for owner-occupied housing. An existing home owner becomes a potential seller whose reservation price, in the model, is equal to a fixed transaction cost. However, buyer's reservation price for the home consists of two components. One is the equivalent rental cost she needs to pay during her duration of stay if she chooses to live in the rental housing instead. Since home ownership, compared to renting, grants owners resale benefits, buyer's reservation price also includes the resale option component in the event she needs to move and sell the house. As a result, gain from trade is a time-varying endogenous function of economic fundamentals. Each seller and buyer pair's encounter is modelled as an alternating bargaining game (Rubinstein and Wolinsky, 1985) in which the time-varying trade gain is split based on the population size of the buyer and seller group.






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RMI Joint Seminars

November 2010

On November 18, Prof. Li Yuying from the School of Computer Science in University of Waterloo gave a talk at RMI’s Joint Seminar with the Centre for Computational Science and Engineering. She described market price and impact models which have been proposed to develop optimal execution algorithms after the U.S. market Flash Crash on May 6, 2010. Prof. Li also presented to the audience the properties of the resulting execution algorithms and proposed a computational method to compute optimal profile executions strategies under a CVaR measure for execution risk.


Sparse High-Dimensional Statistical Models in Economics and Finance

November 2010

On November 22 and 29, Frederick L. Moore'18 Prof. of Finance Fan Jianqing from Princeton University gave a two-part pedagogical lecture on the sparse high-dimensional statistical models in economics and finance where ultrahigh-dimensionality characterizes many contemporary statistical problems from genomics and genetics to finance and economics.


RMI Workshop Series

December 2010

On the December 3, Prof. Lai Tze Leung from the Department of Statistics at Stanford University and Prof. Wong Hoi Ying from The Chinese University of Hong Kong presented at RMI’s monthly research workshop. Prof. Lai presented the overview of classical theories and empirical methods for option pricing and hedging without transaction costs. Then, he reviewed developments in option pricing and hedging in the presence of transaction costs.


Optimization and Statistics

January 2011

On January 12, RMI and the Department of Decision Sciences conducted a joint seminar which featured Prof. Terry Rockafellar from Department of Mathematics at University of Washington. Prof. Rockafellar proposed that much of statistics is concerned with estimating the values of uncertain quantities from available data, whether historical or experimental. The estimates can be obtained by minimizing some error expression and fall, therefore, into specially structured category of optimization.



Master of Science in Financial Engineering 2011 Intake Registration
29 December - 19 March 2011

Fifth Annual Risk Management Conference - Call for Paper
Deadline: 15 March 2011

PRMTM Certification Training Program
26 March - 13 August 2011

Symposium on Credit Rating Systems
29 March 2011

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