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  Issue 23 | Archive May 2015

IMF Advisor Daniel Hardy Talks Design, Interpretation, and Limits of Stress Testing

On 2 April 2015, Dr. Daniel Hardy, Advisor at the International Monetary Fund (IMF), gave a talk on ¡°Design, Interpretation, and Limits of Stress Testing: An IMF Perspective.¡± The talk was organized for the MFE students and alumni, to give them a better understanding of stress testing as a tool of financial surveillance. The interest of the students was reflected in their attendance, as 55 students were present to hear Dr. Hardy discuss the various aspects of stress testing in today¡¯s financial environment.

Stress testing has gained popularity in recent times as a regulatory tool which is used by authorities like IMF to analyze the capacity of financial institutions to deal with crisis. Dr. Hardy, who has worked in a wide range of regions ¨C industrialized, emerging markets, and developing countries ¨C discussed IMF¡¯s experience with stress testing and emphasized that the design of stress testing needs to be consciously adopted in each case. He also highlighted that in order to interpret the results of stress tests one needs an equal understanding of the economic environment as well as the fundamentals of stress testing.

Dr. Hardy concluded his talk by pointing out the limitations of stress testing and briefly touching upon the scope for future research. The seminar not only provided a great learning opportunity for MFE students, but also provided them with a perspective on the real world applications of stress testing. This talk is a part of the CRI-IMF collaboration which officially launched in January 2015.

Prof. Marc Paolella Discusses Large-Scale Portfolio Optimization

On 17 April 2015, Prof. Marc Paolella gave a talk on the research conducted by him and his fellow researchers, which focused on large-scale portfolio optimization. The talk was held at RMI for an audience of around 40 RMI students and faculty. Titled ¡°Portfolio Selection with Active Risk Monitoring,¡± the seminar gave the audience an insight into how risk monitoring of the optimal portfolio can provide early warning system against large market risk.

Prof. Paolella of Department of Banking and Finance at University of Zurich, began the seminar with a brief discussion of the advantages and disadvantages of Markovitz¡¯s framework along with a glimpse into the evolution of financial models that lead up to his work. Talking about his research, the main goal of their study, he said, is ¡°to produce accurate return density forecasts for a multivariate set of financial assets.¡±

After sharing the main contributions of his new research model to the field, he discussed its applications to risk management. According to him, his model provides better risk predictions to help manage a financial crisis. A renowned researcher, Prof. Paolella¡¯s articles have been published in several prestigious journals, like Journal of Econometrics, Journal of Banking and Finance, Journal of Financial Econometrics, European Journal of Finance, and Journal of the American Statistical Association.

This event was jointly hosted by RMI and Swissnex Singapore.

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