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  Issue 8 | Archive   August 2011

Visitors from Guizhou
May 2011

On 5 May 2011, a group of six professors from China's Guizhou University of Finance and Economic visited RMI. The group, led by the University's Deputy Director of Teaching Affairs Prof. Jing Yaping, was hosted by Prof. Sun Defeng, RMI's Deputy Director. Through two presentations given by RMI staff, they gained information about RMI and its operations, of which they were particularly interested in its Master of Science in Financial Engineering (MFE) degree and the non-profit Credit Rating Initiative. Prof. Jing also shared their University's practices in offering the MFE degree in Guizhou and mentioned that the visit to RMI was very informative and helpful to further improve their work.

RMI Workshop Series
May 2011

On 6 May 2011, Prof. Masaaki Kijima, Professor of Finance at Graduate School of Social Sciences, Tokyo Metropolitan University presented his paper entitled 'Buhlmann's Economic Premium Principle in an Incomplete Market'. His paper examined the Buhlmann's equilibrium pricing model (1980) in an incomplete market setting and derived the (multivariate) Esscher transform within the framework under some assumptions. The result revealed that the Esscher transform was an appropriate probability transform for the pricing of insurance risks whose market is presumably incomplete.

The session was followed by Prof. Wang Tan from the Shanghai Institute of Finance, who presented his paper on 'Time-Varying Risk Aversion and SAD: Evidence from an Asset Pricing Model' to the audience consisting of academics from NUS. His paper investigated a representative agent consumption-based asset pricing model with two states: low risk aversion and high risk aversion where he explored whether there was a reasonable parameterization capable of generating the empirically observed seasonally-varying equity and Treasury returns documented by Kamstra, Kramer and Levi (2008). Calibrating the asset pricing model to observed consumption data, Prof. Wang showed seasonally varying risky and risk-free asset returns that could mimic the broad characteristic of market data. The findings were produced with small values for the coefficient of relative risk aversion and with small variation in the coefficient of relative risk aversion.

RMI Workshop Series
June 2011

Prof. George M von Furstenberg of Indiana University spoke at RMI's Research Workshop Series on 3 June 2011 on 'Concocting Marketable Cocos'. Prof. von Furstenberg attempted to evaluate U.S. responses to the 2007 - 2009 financial crisis by investigating whether it is effective for greater self-insurance of financial institutions to issue contingent capital, specifically "Cocos" which would convert to common equity automatically when minimum capital ratios have been breached. He believed that a "Cocos" mandate would make financial institutions invest more to insure adequate recapitalization, resulting in the reduction of leverage and debt overhang during financial crisis so that they could rely on themselves rather than rely on fiscal support.

In the next session, Prof. Fan Yu from Claremont McKenna College presented his paper entitled "Endogenous Liquidity in Credit Derivatives" where he studied the determination of liquidity provision as measured by the number of distinct dealers providing quotes in the single-name credit default swap (CDS) market. He also showed that, consistent with endogenous liquidity provision by informed financial institutions, more liquidity can be associated with obligors for which there is greater information flow from the CDS market to the stock market ahead of major credit events.

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