NUS Quantitative Finance Joint Seminar Series (Webinar)
NUS Quantitative Finance Joint Seminar Series (Webinar)
This webinar is jointly organised by Risk Management Institute and Centre for Quantitative Finance
Programme
Title: Rogue Traders
Prof. Paolo Guasoni (Dublin City University)
Abstract: Investing on behalf of a firm, a trader can feign personal skill by committing fraud that with high probability remains undetected and generates small gains, but that with low probability bankrupts the firm, offsetting ostensible gains. Honesty requires enough skin in the game:
If two traders with isoelastic preferences operate in continuous-time and one of them is honest, the other is honest as long as the respective fraction of capital is above an endogenous fraud threshold that depends on the trader’s preferences and skill. If both traders can cheat, they reach a Nash equilibrium in which the fraud threshold of each of them is lower than if the other one were honest. More skill, higher risk aversion, longer horizons, and greater volatility all lead to honesty on a wider range of capital allocations between the traders.
About the Speaker
Paolo Guasoni holds the Stokes Chair in Financial Mathematics at Dublin City University since 2009 and specializes in Mathematical Finance, focusing on the effects of market frictions, incentives, and preferences in portfolio choice and asset pricing. Guasoni has published in the Annals of Applied Probability, Finance and Stochastics, Journal of Financial Economics, Mathematical Finance, and the SIAM Journal on Financial Mathematics, and has attracted funding by the European Research Council, the National Science Foundation, Science Foundation Ireland, and the European Commission. Guasoni serves as Coeditor for Finance and Stochastics and as Associate Editor Mathematical Finance, SIAM Journal in Financial Mathematics, Applied Mathematical Finance, and the European Journal of Finance.
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