The New Financial Reality

Lead Research Organisation: University of Kent
Department Name: Kent Business School


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.

Planned Impact

Our objective is for the seminar series to be of significant benefit to two main groups. First, practitioners from various areas of the financial industry will be invited to attend (and some of them to present at) the seminars. The seminar series will serve as an opportunity for practitioners to exchange knowledge and ideas on the rapidly evolving financial landscape with other professionals and academics in similar or different fields. Our ambition is for the seminar series to offer a forum that stipulates a critical reflection on the current financial and economic paradigms as well as a meaningful discussion on future directions. The practitioners who participate in the seminar series will also benefit from attending presentations and discussing the cutting edge of academic research in their respective fields. We expect that some of the issues that will be discussed in the seminar series will then inform their professional practice, hopefully contributing towards a better understanding of the New Financial Reality that has begun to emerge.

Second, we intend for the seminar series to be of benefit to policy makers. Some of the non-academic speakers and discussants will be invited from institutional organizations in the financial sector (such as the Bank of England and the European Central Bank). The seminars will provide an opportunity for policy makers to share a common forum with academics and practitioners in the financial industry, contributing towards the formers' evaluation of recent developments. Ultimately, we expect that the seminars will help policy makers draw ideas and insights from the interaction with academics and practitioners, which they could consider when setting their own policy agendas.

Finally, even though attending the seminars will be on an invitation-only basis, the seminar materials will be freely available online. This will allow the wider community of academics, practitioners and policy makers to benefit from the robust discussion of the new financial environment that will take place during the seminars. Obviously, the online seminar materials will also be available to the general public (in both technical and non-technical form), which we expect to benefit from a debate among leading experts on relevant issues that have a significant impact on the economy as a whole as well as on individual consumers.

Drawing from the organizing committee's existing list of contacts, we will invite representatives from the following institutions to the seminars:
- Bank of England (Nicholas Fawcett - Senior Economist - Monetary Analysis & Structural Economic Analysis Division)
- European Central Bank (Vincent Brousseau & Alain Durre - Principal Economists)
- Deutsche Bundesbank (Norbert Metiu - Economist - Forecasting in Economics and Finance & Financial Stability Research Group)
- De Nederlansche Bank (Robert Vermeulen - Economist - Economics and Research Division)
- Eurex (Stuart Heath - Executive Director)
- BlackRock (Ralph Smith - Head of Fixed Income Research)
- Deutsche Bank (Carmen Firescu - VP)
- ICE IntercontinentalExchange (Andreza Barbosa - Director)
- ING Investment Bank (Ioannis Theodoropoulos - CVA Desk Quant)
- JP Morgan (Nikolaos Panigirtzoglou - Strategist - Asset allocation)
- Societe Generale (Mirela Mandare & Nikos Prepalas - VP Structured Products Marketing & VP Emerging Markets Institutional Sales)
- UBS Investment Bank (Gregory Kolokouris - Director Desk Quant)
- Millenium Partners hedge fund (Anca Dimitriu - Managing Director)
- Fulcrum Asset Management (Stamatis Leontsinis - Portfolio Manager)
- Center for Pacific Basin Studies International Research (Mark Spiegel - VP & Director)


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