| Abstract |
The recent financial crises led to new risks, measures of risk and asset classes coming into the spotlight; the degree of interconnectedness of financial institutions is also now given its due attention. The proposed seminar series aims to give an overview of this new financial reality, with sessions on new risks, new asset classes, as well as new measures of risk and risk transmission mechanisms. The series also aims to establish links not only between the four institutions which would be hosting events (two UK and two international), but also between academia and the financial industry. This is of particular importance since, while innovation in the modelling of financial activity and risks takes place in academia, product innovation is always led by the practice. The proposed seminar series could help create a forum where academics can benefit from learning about the latest developments in the markets and practitioners can become accustomed with the state of art in financial modelling. Furthermore, we also aim to build an agenda that would give all participants, but Early Career Researchers in particular, the possibility to interact and get feedback from the top experts in the areas of research in finance which are currently of the utmost importance to practitioners. The first seminar will focus on systemic risk - broadly, the risk of failure of an entire or significant part of a financial system. Following the recent crises, this type of risk has been at the forefront of the agenda for finance academics, practitioners and regulators alike. The seminar aims to present a critical overview of the prominent existing approaches for measuring and managing systemic risk, with inputs from both academia and the financial industry. Another type of risk which became prominent post-crisis is liquidity risk: the liquidity dry-up which followed the initial crisis which started in the sub-prime sector of the American mortgage market was an important factor in the transition from a crisis which affected solely the financial sector to a global economic crisis, which led to significant financial instability. The second seminar will tackle the impact of liquidity on financial stability. The focus of the third seminar will be on investment and trading strategies involving volatility derivatives. Much of the recent development in this asset class is motivated by a number of studies, which are in-line with widely-held practitioners' beliefs, and which showed that these instruments would have proved very efficient in reducing the risk of equity portfolios during the crisis. Given that financial product innovation comes from the financial practice, the participation of representatives from various financial institutions (including exchanges, central banks, regulators as well as investment banks) to this seminar is of particular relevance. There has been much debate in recent years whether the drawbacks of the most widely used measure of risk (Value-at-Risk) have played a role in the crisis; a new set of banking regulation guidelines stipulate replacing it with another measure (Expected Shortfall). Support for this change is however only partial, with practitioners highlighting the higher computational cost of the new measure and with some academics highlighting that its theoretical superiority over Value-at-Risk may not be absolute. Seminar 4 will provide an in-depth analysis of existing risk measures as well as propose regulatory solutions. The importance of the interdependence of the global financial system cannot be understated: had the original sub-prime crisis been contained in the sub-prime mortgage sector, we would not have witnessed the global economic crisis that ensued. Seminar 5 will therefore focus on the appropriate modelling of the dependence between asset classes and markets and Seminar 6 will serve as a round-up and give further opportunities to explore linkages between the topics presented in previous seminars. |