Mathematics in Financial Industry Frans Boshuizen
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Mathematics in Financial Industry Frans Boshuizen

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Mathematics in Financial Industry Frans Boshuizen Mathematics in Financial Industry Frans Boshuizen Presentation Transcript

  • Mathematics in Financial Industry Frans Boshuizen 15 December 2009
  • Mathematics in Financial Industry
    • Retail banking
    • Investment banking
    • Insurance
    • Pension funds
    • Risk Management
    • Investment Management
    • Trading environment – structured products
    • Product development
  • Statistics
    • Internal models for capital adequacy testing (Basle II, Solvency II):
      • Multivariate statistics
      • Extreme value statistics
      • Dependence – copula’s
  • Finance – cash flow modeling
    • Retail bank
    • Most complex product in Finance: Mortgage
      • Forward starting
      • Prepayment risk
      • Losses depending on economic cycle …
      • Some mortgages have explicit embedded derivatives such as caps and floors
      • Structured mortgage products (MBS)
    • Variable rate savings accounts
    • Insurance
    • Guarantees and profit sharing
    • Separate accounts for pension clients
  • Risk management
    • Market risk
    • Value-at-risk
    • Earnings-at-risk
    • Hedging decisions
    • Stress tests
    • Concentration risk
    • Credit risk
    • Modelling loss distributions
    • Based on economic time series and customer data
    • Actuarial risk
    • Mortality
    • Longevity
    • Disability
    • Operational risk/Strategic risk
    • Liquidity risk
  • Asset Liability Management
    • Classical Markovitz efficient frontier (asset only)
    • Liability driven benchmarks
    • Replicating portfolios – optimization tool
    • Fair value of liabilities – incomplete markets
    • More complex scenario models for ALM-decisions
    • For pension funds more complex:
      • Investment policy
      • Indexation: compensation policy for inflation
      • Premium policy
  • Scenario generation
    • Yield curve fitting methods
    • Time-series modelling
      • autocorrelation
    • Modelling of cycles (Fourier analysis) – Hens Steehouwer (Ortec)
  • Structured products
    • Derivative pricing
      • Interest rate derivatives
      • Equity derivatives
      • Inflation derivatives
      • Credit derivatives
      • Hybrids
    • Structuring by ‘investment banks’
    • Used as hedge instruments by banks, insurance companies and pension funds
  • General
    • Few financial institutions have pure research departments
    • Better ‘to stand with your feet in the mud’
      • Modelling in combination with policy and reporting
    • Model validation
    • Consultancy firms
      • Accountings firms
      • Actuarial firms
      • Specialist risk consultancy