The document discusses the role of mathematical models in the current financial crisis and lessons that can be learned. Key points include:
1) Mathematical models played a role in the crisis by being over-relied upon and used inappropriately to represent complex market conditions.
2) Models failed to capture important risks like liquidity, concentration, and systemic risk. Assumptions used in models were not properly validated.
3) One of the major lessons is that models are tools and should not replace human judgment. Multiple models and metrics are needed to avoid overreliance on any single approach. Assumptions must reflect business realities.
This document provides an overview of a two-day seminar on decoding financial statements and investing in times of uncertainty. Day one covers financial ratios for measuring liquidity, profitability, and leverage. It also explains the profitability model for evaluating companies. Day two discusses sources of macroeconomic uncertainty, historical perspectives on market returns and risk, and how global demographics will influence future investment returns and economic growth. The seminar aims to help investors understand company and market fundamentals in order to make informed investment decisions.
Fundamentals of financial_institutions_powerpointhe22_sinceforum
This document discusses why financial institutions exist and some of the key concepts in financial markets and institutions. It covers transaction costs, asymmetric information including adverse selection and moral hazard, and conflicts of interest. Financial institutions help address issues like transaction costs, information problems, and principal-agent problems. They provide services that help the financial system function more efficiently through economies of scale and scope in producing and applying financial information. However, conflicts can arise when institutions have multiple objectives and competing interests.
The document contains multiple articles from The Wall Street Journal covering the 2008 financial crisis and aftermath. It reports on the collapse of major financial institutions like Lehman Brothers, Bear Stearns, and AIG through in-depth reporting on their declining stock prices, desperate attempts to avoid bankruptcy, and the impacts of their failures. It also traces how taxpayer bailout money was used, including payments to banks like Goldman Sachs that were counterparties on insurance contracts held by AIG.
The document contains multiple articles from The Wall Street Journal covering the 2008 financial crisis and aftermath. It reports on the collapse of major financial institutions like Lehman Brothers, Bear Stearns, and AIG through in-depth reporting on their declining stock prices, desperate attempts to avoid bankruptcy, and the impacts of their failures. It also traces how government bailout money was used, including payments to banks like Goldman Sachs that were counterparties on insurance contracts held by AIG.
The document contains multiple articles from The Wall Street Journal covering the 2008 financial crisis and aftermath. It reports on the collapse of major financial institutions like Lehman Brothers, Bear Stearns, and AIG through in-depth reporting on their declining stock prices, desperate attempts to avoid bankruptcy, and the impacts of their failures. It also traces how taxpayer bailout money was used, including payments to banks like Goldman Sachs that were counterparties on insurance contracts held by AIG.
This document summarizes a student paper that analyzes the causes of adverse performance in collateralized debt obligations (CDOs) backed by asset-backed securities (ABS CDOs). Using data from 735 ABS CDOs, the paper finds: 1) CDOs with exposure to subprime and Alt-A mortgages from 2006-2007 significantly underperformed, 2) The identity of the CDO underwriter was a predictor of performance, with some banks having higher quality underwriting, 3) Original credit ratings assigned to CDOs failed to capture the true risks and were inflated. Overall, the collapse of the CDO market was caused by poorly constructed CDOs, irresponsible underwriting, and flawed
This article summarizes an interview with Joe Walsh, president of Amherst Securities, about the firm's role in the securitization space and outlook. Key points:
- Amherst is a leading broker-dealer specializing in mortgage-backed securities, serving institutional investors in new issue and secondary markets.
- The firm has expanded into ABS and CMBS, seeing these as natural extensions of its RMBS expertise. It aims to provide better data, analysis and market understanding.
- Walsh sees opportunities in the second half of 2020 as market volatility has increased uncertainty over the economic recovery trajectory and asset performance.
- Fundamental performance may differ from expectations due to economic, political and regulatory factors, creating both
This document provides an overview of a two-day seminar on decoding financial statements and investing in times of uncertainty. Day one covers financial ratios for measuring liquidity, profitability, and leverage. It also explains the profitability model for evaluating companies. Day two discusses sources of macroeconomic uncertainty, historical perspectives on market returns and risk, and how global demographics will influence future investment returns and economic growth. The seminar aims to help investors understand company and market fundamentals in order to make informed investment decisions.
Fundamentals of financial_institutions_powerpointhe22_sinceforum
This document discusses why financial institutions exist and some of the key concepts in financial markets and institutions. It covers transaction costs, asymmetric information including adverse selection and moral hazard, and conflicts of interest. Financial institutions help address issues like transaction costs, information problems, and principal-agent problems. They provide services that help the financial system function more efficiently through economies of scale and scope in producing and applying financial information. However, conflicts can arise when institutions have multiple objectives and competing interests.
The document contains multiple articles from The Wall Street Journal covering the 2008 financial crisis and aftermath. It reports on the collapse of major financial institutions like Lehman Brothers, Bear Stearns, and AIG through in-depth reporting on their declining stock prices, desperate attempts to avoid bankruptcy, and the impacts of their failures. It also traces how taxpayer bailout money was used, including payments to banks like Goldman Sachs that were counterparties on insurance contracts held by AIG.
The document contains multiple articles from The Wall Street Journal covering the 2008 financial crisis and aftermath. It reports on the collapse of major financial institutions like Lehman Brothers, Bear Stearns, and AIG through in-depth reporting on their declining stock prices, desperate attempts to avoid bankruptcy, and the impacts of their failures. It also traces how government bailout money was used, including payments to banks like Goldman Sachs that were counterparties on insurance contracts held by AIG.
The document contains multiple articles from The Wall Street Journal covering the 2008 financial crisis and aftermath. It reports on the collapse of major financial institutions like Lehman Brothers, Bear Stearns, and AIG through in-depth reporting on their declining stock prices, desperate attempts to avoid bankruptcy, and the impacts of their failures. It also traces how taxpayer bailout money was used, including payments to banks like Goldman Sachs that were counterparties on insurance contracts held by AIG.
This document summarizes a student paper that analyzes the causes of adverse performance in collateralized debt obligations (CDOs) backed by asset-backed securities (ABS CDOs). Using data from 735 ABS CDOs, the paper finds: 1) CDOs with exposure to subprime and Alt-A mortgages from 2006-2007 significantly underperformed, 2) The identity of the CDO underwriter was a predictor of performance, with some banks having higher quality underwriting, 3) Original credit ratings assigned to CDOs failed to capture the true risks and were inflated. Overall, the collapse of the CDO market was caused by poorly constructed CDOs, irresponsible underwriting, and flawed
This article summarizes an interview with Joe Walsh, president of Amherst Securities, about the firm's role in the securitization space and outlook. Key points:
- Amherst is a leading broker-dealer specializing in mortgage-backed securities, serving institutional investors in new issue and secondary markets.
- The firm has expanded into ABS and CMBS, seeing these as natural extensions of its RMBS expertise. It aims to provide better data, analysis and market understanding.
- Walsh sees opportunities in the second half of 2020 as market volatility has increased uncertainty over the economic recovery trajectory and asset performance.
- Fundamental performance may differ from expectations due to economic, political and regulatory factors, creating both
The document discusses the causes of the financial crisis and solutions to prevent future crises. It argues that the financial system is too important to leave unregulated and that mistakes were made during the crisis that went unpunished. It identifies three main challenges regulators face: 1) increasing capital requirements for financial institutions, 2) increasing regulation and transparency of credit derivative markets, and 3) regulating credit rating agencies to address conflicts of interest. Nationalizing credit rating agencies and increasing clearinghouse requirements are proposed as solutions.
This document provides an overview of the chapters in a book about profiting from the financial crisis. It summarizes the causes of the crisis as risky lending practices by banks that led to a housing bubble. When housing prices declined, it caused mortgage-backed securities to plummet in value. This led to losses for banks and a freezing of the credit markets. The crisis then spread globally. However, the document argues that crises also create investment opportunities for knowledgeable investors, and the following chapters will discuss how to profit by buying undervalued stocks and sectors.
Repo, Security, Collateral Management –are we on the right track? - Godfried ...László Árvai
The document summarizes key findings from an ICMA study on the potential impacts of introducing mandatory buy-ins under the Central Securities Depositories Regulation (CSDR). The study found that liquidity across European bond and repo markets would significantly decrease, with bid-offer spreads widening dramatically. For less liquid bonds, market makers would withdraw liquidity or stop providing quotes altogether. The repo market would also be significantly affected, with more reliance on short-term repo and withdrawals of liquidity for less liquid bonds. The study estimates the costs of these impacts for bond and repo markets would be substantial.
This document discusses MetLife's commercial mortgage portfolio. It notes that MetLife originated and holds over $36 billion in commercial mortgages, with about 1,000 loans concentrated in core property types like office and retail. In contrast to securitized loans, MetLife's focus is on sustainable income properties with relatively low leverage, as they originate loans to own rather than to sell. The document compares the current recession to the early 1990s recession, noting lower new supply, vacancies, and delinquency rates heading into the current downturn compared to the early 1990s, putting MetLife's portfolio in a stronger position currently.
The document discusses trends in the European software market in 2012 that will impact independent software vendors. It summarizes that:
1) The European political and economic environment in 2012 will be dominated by austerity measures and debt issues, leading governments to pursue authoritarian policies to stimulate growth within tight budgets.
2) Social media will be key to building customer trust during hard times, as consumers increasingly rely on peer recommendations over advertising.
3) Technical trends like cloud computing that reduce costs through low initial investment and pay-as-you-go models will be attractive to cost-conscious businesses. Cloud pricing is also decreasing aggressively.
4) Independent software vendors will need to focus on customer retention, upselling, cross
This document provides an overview of credit derivatives and their role in the 2008 financial crisis. It discusses how credit derivatives developed as a way for banks to transfer credit risk to meet capital requirements but spread risk to other entities. While intended as a risk management tool, credit derivatives contributed to the crisis by spreading counterparty risk without adequate understanding of the risks involved. The document outlines the key types of market participants in credit derivatives and how their roles changed over time.
The document discusses various topics related to finance and economics including barriers to entry in financial services due to reputation risk, how financial products and derivatives are developed from existing markets and business needs, and examples of regulatory arbitrage in developing new financial instruments.
The document provides an overview of The Wall Street Journal's circulation figures for its various regional editions. It then discusses early coverage in 2001-2002 of the emerging housing bubble and concerns about rapidly rising home prices. Several experts are quoted warning about the potential for a collapse in prices. The document also summarizes several WSJ articles covering key events during the unfolding of the financial crisis between 2007-2009, including the collapse of Bear Stearns, Lehman Brothers, and AIG as well as the government bailouts.
Using Cross Asset Information To Improve Portfolio Risk Estimationyamanote
There are obvious relationships between the various securities of a given firm that impact our expectations of risk. For example, if fixed income investors expect a corporate bond of a company to default, there must be a related bankruptcy event that would negatively impact shareholders in that firm. In this presentation, Nick will describe how to use data from bond and option markets to improve risk estimation for equity portfolios, and how to use information from the equity markets to improve estimation of credit risk in fixed income securities. The goal of the process is to create holistic risk estimation where all expectations of risk are mutually consistent across the entire capital structure of a firm, and related derivatives.
This is the presentation I gave at the Branding in Banking and Finance Conference that was held in Johannesburg, South Africa on 26th - 28th September 2011. I have added speaker notes on some of the slides.
The document discusses mathematical models of tumor invasion and growth. It examines both cellular automata models that model tumor invasion at the individual cell level, and continuous reaction-diffusion models that model tumor growth across tissues. Key aspects covered include modeling the effects of acidity levels, glucose and hydrogen concentrations, vascularization, and how tumors can transform and invade surrounding areas. Simulation results demonstrate how tumors can spread over time at different vascular densities and pH levels according to the mathematical models.
The document discusses arithmetic and geometric sequences and their key characteristics. An arithmetic sequence has a common difference, while a geometric sequence has a common ratio. Several example sequences are provided and the reader is asked to identify whether they are arithmetic, geometric, or neither and determine their common differences or ratios.
This document provides an overview of topics that will be covered in a linear algebra course, including matrices, vectors, and their applications. Some example applications discussed are cryptography, space exploration, game programming, and electrical networks. It also provides examples of how matrices and vectors are used in games, specifically in representing game properties like position, velocity, acceleration, distance, and line of sight for objects in 2D and 3D space.
1) OFDM uses multiple carriers to transmit data in parallel. It can be described mathematically using the Fourier transform which relates events in the time and frequency domains.
2) At the transmitter, the signal is defined in the frequency domain using a discrete Fourier transform and generated using the inverse discrete Fourier transform. This allows the carriers to be orthogonal.
3) A guard interval is added between symbols to prevent intersymbol interference from multipath distortion. This increases the symbol duration and provides timing tolerance at the receiver.
This document provides guidance for teachers on teaching the Mathematical Applications topics of Investment and Loans and Shares. For Investment and Loans, an examined topic, it summarizes common student errors on past exams and recommendations for skills and application tasks and folio assessments. For Shares, a non-examined topic, it includes example skills tasks and a sample folio on minimizing interest paid on a home loan. The document concludes by asking teachers to identify their key learnings to apply in teaching these topics.
Mathematical models for the determination of archaeological potentialProgetto Mappa
The Department of Archaeological Science of the University of Pisa is undertaking the MAPPA project, which is a research project in which archaeologists, geologists, mathematicians will study predictive modelling tools applied to the archaeological potential of an urban area. The project main objectives are:
- Enhancing the development in archaeological research by fostering collaboration among different sectors and by developing a common langua¬ge.
- Creating a model that may be applied to all urban centres in order to facilitate land use decisions. Within this con¬text, we propose predictive mathe¬matical models, which will have an impact on archaeological he-ritage protection, territorial planning and historical knowledge.
- Making raw data from archaeological in¬vestigations available. The project proposes that after acknowledging au¬thorship of the data, the latter shall be made publicly available and easy to consult.
Based on the discussions between the mathematical, archaeological and geological teams, an analogy arose between the criteria used for attri¬buting archaeological potential and those used for assigning importance to web pages by search en¬gines. Indeed, the key issue of the archaeological interpretation process, from an abstract viewpoint, is the identification of the relations that exist among finds, both in spatial terms and in functional terms. In other words, the presen¬ce of a particular find near another that has already been discovered could strengthen or weaken the pro¬bability that they will form a more complex structu¬re, and so strengthen or weaken the archaeological potential of the area itself. This is exactly the crite¬ria upon which page ranking algorithms are based, whereby each web page attributes importance to the web pages it points to (via a link) and, in turn, recei¬ves importance from the web pages it receives a link from.
In order to adapt a page rank model to the determi¬nation of archaeological potential, variants need to be created:
- A three-dimensional grid will model the subsurface of the urban area. A single cell plays the role of a web page, and its importance will be the archaeological potential;
- The information available for a cell will be used in a relative manner to build the elements of the matrix that, like in page rank models, assigns the transfer of importance among cells, and in an abso¬lute manner, providing the absolute value of the archaeological potential;
- The matrix controlling the transfer of importance will be constructed on the basis of categories used for classifying the archaeological finds. The categories characterise the geometry of the distribution of importance;
- Geological information will be used in a binary manner, allowing to exclude certain cells from the calculation of archaeological potential.
Ghrelin Mathematical model Presentation iasi bio mathlabJorge Pires
The document summarizes Jorge Guerra Pires's final talk from his second year of a PhD pathway on mathematical modeling of ghrelin. It discusses the envisioned goals of creating mathematical models of ghrelin, insulin, and leptin to better understand energy homeostasis and appetite control. It provides an overview of the complex biological processes involved in eating and metabolism. The talk then focuses on an initial mathematical model of ghrelin dynamics, highlighting key aspects captured in the model such as ghrelin being constantly produced but its production being inhibited by stomach/duodenum stretching.
This document summarizes a paper on mathematical models, simulations, and test beds used for cloud computing research. It defines cloud computing and discusses key areas of research. It also outlines various mathematical models, simulation software like CloudSim, commercial cloud services like Amazon EC2, research test beds including OpenCirrus, and software frameworks for setting up private clouds. The document provides an overview of approaches and tools used to model, simulate and experiment with cloud computing systems.
The document discusses genome expression and evolution. It begins by defining the transcriptome as the collection of RNA molecules derived from protein-coding genes expressed by a cell at a given time. It then discusses two views of genome expression - observing the transcriptome which is high-throughput and context dependent/dynamic, and how it predicts biology and regulatory networks. The remainder discusses various mechanisms of genome evolution, including duplication of entire chromosome sets, alterations of chromosome structure through fusions/inversions, duplication and divergence of gene-sized DNA regions, evolution of related gene functions through duplication and divergence like human globin genes, and evolution of novel gene functions through duplication and divergence.
Mathematical models are useful for predicting drug release kinetics from dosage forms before release systems are realized. Various mathematical models including zero-order, first-order, Higuchi, Korsmeyer-Peppas, Hixson-Crowell, and Weibull models are described. These models are based on different mathematical functions that can describe dissolution profiles and evaluate the kinetics and mechanisms of drug release from dosage forms by fitting experimental release data.
The document discusses the causes of the financial crisis and solutions to prevent future crises. It argues that the financial system is too important to leave unregulated and that mistakes were made during the crisis that went unpunished. It identifies three main challenges regulators face: 1) increasing capital requirements for financial institutions, 2) increasing regulation and transparency of credit derivative markets, and 3) regulating credit rating agencies to address conflicts of interest. Nationalizing credit rating agencies and increasing clearinghouse requirements are proposed as solutions.
This document provides an overview of the chapters in a book about profiting from the financial crisis. It summarizes the causes of the crisis as risky lending practices by banks that led to a housing bubble. When housing prices declined, it caused mortgage-backed securities to plummet in value. This led to losses for banks and a freezing of the credit markets. The crisis then spread globally. However, the document argues that crises also create investment opportunities for knowledgeable investors, and the following chapters will discuss how to profit by buying undervalued stocks and sectors.
Repo, Security, Collateral Management –are we on the right track? - Godfried ...László Árvai
The document summarizes key findings from an ICMA study on the potential impacts of introducing mandatory buy-ins under the Central Securities Depositories Regulation (CSDR). The study found that liquidity across European bond and repo markets would significantly decrease, with bid-offer spreads widening dramatically. For less liquid bonds, market makers would withdraw liquidity or stop providing quotes altogether. The repo market would also be significantly affected, with more reliance on short-term repo and withdrawals of liquidity for less liquid bonds. The study estimates the costs of these impacts for bond and repo markets would be substantial.
This document discusses MetLife's commercial mortgage portfolio. It notes that MetLife originated and holds over $36 billion in commercial mortgages, with about 1,000 loans concentrated in core property types like office and retail. In contrast to securitized loans, MetLife's focus is on sustainable income properties with relatively low leverage, as they originate loans to own rather than to sell. The document compares the current recession to the early 1990s recession, noting lower new supply, vacancies, and delinquency rates heading into the current downturn compared to the early 1990s, putting MetLife's portfolio in a stronger position currently.
The document discusses trends in the European software market in 2012 that will impact independent software vendors. It summarizes that:
1) The European political and economic environment in 2012 will be dominated by austerity measures and debt issues, leading governments to pursue authoritarian policies to stimulate growth within tight budgets.
2) Social media will be key to building customer trust during hard times, as consumers increasingly rely on peer recommendations over advertising.
3) Technical trends like cloud computing that reduce costs through low initial investment and pay-as-you-go models will be attractive to cost-conscious businesses. Cloud pricing is also decreasing aggressively.
4) Independent software vendors will need to focus on customer retention, upselling, cross
This document provides an overview of credit derivatives and their role in the 2008 financial crisis. It discusses how credit derivatives developed as a way for banks to transfer credit risk to meet capital requirements but spread risk to other entities. While intended as a risk management tool, credit derivatives contributed to the crisis by spreading counterparty risk without adequate understanding of the risks involved. The document outlines the key types of market participants in credit derivatives and how their roles changed over time.
The document discusses various topics related to finance and economics including barriers to entry in financial services due to reputation risk, how financial products and derivatives are developed from existing markets and business needs, and examples of regulatory arbitrage in developing new financial instruments.
The document provides an overview of The Wall Street Journal's circulation figures for its various regional editions. It then discusses early coverage in 2001-2002 of the emerging housing bubble and concerns about rapidly rising home prices. Several experts are quoted warning about the potential for a collapse in prices. The document also summarizes several WSJ articles covering key events during the unfolding of the financial crisis between 2007-2009, including the collapse of Bear Stearns, Lehman Brothers, and AIG as well as the government bailouts.
Using Cross Asset Information To Improve Portfolio Risk Estimationyamanote
There are obvious relationships between the various securities of a given firm that impact our expectations of risk. For example, if fixed income investors expect a corporate bond of a company to default, there must be a related bankruptcy event that would negatively impact shareholders in that firm. In this presentation, Nick will describe how to use data from bond and option markets to improve risk estimation for equity portfolios, and how to use information from the equity markets to improve estimation of credit risk in fixed income securities. The goal of the process is to create holistic risk estimation where all expectations of risk are mutually consistent across the entire capital structure of a firm, and related derivatives.
This is the presentation I gave at the Branding in Banking and Finance Conference that was held in Johannesburg, South Africa on 26th - 28th September 2011. I have added speaker notes on some of the slides.
The document discusses mathematical models of tumor invasion and growth. It examines both cellular automata models that model tumor invasion at the individual cell level, and continuous reaction-diffusion models that model tumor growth across tissues. Key aspects covered include modeling the effects of acidity levels, glucose and hydrogen concentrations, vascularization, and how tumors can transform and invade surrounding areas. Simulation results demonstrate how tumors can spread over time at different vascular densities and pH levels according to the mathematical models.
The document discusses arithmetic and geometric sequences and their key characteristics. An arithmetic sequence has a common difference, while a geometric sequence has a common ratio. Several example sequences are provided and the reader is asked to identify whether they are arithmetic, geometric, or neither and determine their common differences or ratios.
This document provides an overview of topics that will be covered in a linear algebra course, including matrices, vectors, and their applications. Some example applications discussed are cryptography, space exploration, game programming, and electrical networks. It also provides examples of how matrices and vectors are used in games, specifically in representing game properties like position, velocity, acceleration, distance, and line of sight for objects in 2D and 3D space.
1) OFDM uses multiple carriers to transmit data in parallel. It can be described mathematically using the Fourier transform which relates events in the time and frequency domains.
2) At the transmitter, the signal is defined in the frequency domain using a discrete Fourier transform and generated using the inverse discrete Fourier transform. This allows the carriers to be orthogonal.
3) A guard interval is added between symbols to prevent intersymbol interference from multipath distortion. This increases the symbol duration and provides timing tolerance at the receiver.
This document provides guidance for teachers on teaching the Mathematical Applications topics of Investment and Loans and Shares. For Investment and Loans, an examined topic, it summarizes common student errors on past exams and recommendations for skills and application tasks and folio assessments. For Shares, a non-examined topic, it includes example skills tasks and a sample folio on minimizing interest paid on a home loan. The document concludes by asking teachers to identify their key learnings to apply in teaching these topics.
Mathematical models for the determination of archaeological potentialProgetto Mappa
The Department of Archaeological Science of the University of Pisa is undertaking the MAPPA project, which is a research project in which archaeologists, geologists, mathematicians will study predictive modelling tools applied to the archaeological potential of an urban area. The project main objectives are:
- Enhancing the development in archaeological research by fostering collaboration among different sectors and by developing a common langua¬ge.
- Creating a model that may be applied to all urban centres in order to facilitate land use decisions. Within this con¬text, we propose predictive mathe¬matical models, which will have an impact on archaeological he-ritage protection, territorial planning and historical knowledge.
- Making raw data from archaeological in¬vestigations available. The project proposes that after acknowledging au¬thorship of the data, the latter shall be made publicly available and easy to consult.
Based on the discussions between the mathematical, archaeological and geological teams, an analogy arose between the criteria used for attri¬buting archaeological potential and those used for assigning importance to web pages by search en¬gines. Indeed, the key issue of the archaeological interpretation process, from an abstract viewpoint, is the identification of the relations that exist among finds, both in spatial terms and in functional terms. In other words, the presen¬ce of a particular find near another that has already been discovered could strengthen or weaken the pro¬bability that they will form a more complex structu¬re, and so strengthen or weaken the archaeological potential of the area itself. This is exactly the crite¬ria upon which page ranking algorithms are based, whereby each web page attributes importance to the web pages it points to (via a link) and, in turn, recei¬ves importance from the web pages it receives a link from.
In order to adapt a page rank model to the determi¬nation of archaeological potential, variants need to be created:
- A three-dimensional grid will model the subsurface of the urban area. A single cell plays the role of a web page, and its importance will be the archaeological potential;
- The information available for a cell will be used in a relative manner to build the elements of the matrix that, like in page rank models, assigns the transfer of importance among cells, and in an abso¬lute manner, providing the absolute value of the archaeological potential;
- The matrix controlling the transfer of importance will be constructed on the basis of categories used for classifying the archaeological finds. The categories characterise the geometry of the distribution of importance;
- Geological information will be used in a binary manner, allowing to exclude certain cells from the calculation of archaeological potential.
Ghrelin Mathematical model Presentation iasi bio mathlabJorge Pires
The document summarizes Jorge Guerra Pires's final talk from his second year of a PhD pathway on mathematical modeling of ghrelin. It discusses the envisioned goals of creating mathematical models of ghrelin, insulin, and leptin to better understand energy homeostasis and appetite control. It provides an overview of the complex biological processes involved in eating and metabolism. The talk then focuses on an initial mathematical model of ghrelin dynamics, highlighting key aspects captured in the model such as ghrelin being constantly produced but its production being inhibited by stomach/duodenum stretching.
This document summarizes a paper on mathematical models, simulations, and test beds used for cloud computing research. It defines cloud computing and discusses key areas of research. It also outlines various mathematical models, simulation software like CloudSim, commercial cloud services like Amazon EC2, research test beds including OpenCirrus, and software frameworks for setting up private clouds. The document provides an overview of approaches and tools used to model, simulate and experiment with cloud computing systems.
The document discusses genome expression and evolution. It begins by defining the transcriptome as the collection of RNA molecules derived from protein-coding genes expressed by a cell at a given time. It then discusses two views of genome expression - observing the transcriptome which is high-throughput and context dependent/dynamic, and how it predicts biology and regulatory networks. The remainder discusses various mechanisms of genome evolution, including duplication of entire chromosome sets, alterations of chromosome structure through fusions/inversions, duplication and divergence of gene-sized DNA regions, evolution of related gene functions through duplication and divergence like human globin genes, and evolution of novel gene functions through duplication and divergence.
Mathematical models are useful for predicting drug release kinetics from dosage forms before release systems are realized. Various mathematical models including zero-order, first-order, Higuchi, Korsmeyer-Peppas, Hixson-Crowell, and Weibull models are described. These models are based on different mathematical functions that can describe dissolution profiles and evaluate the kinetics and mechanisms of drug release from dosage forms by fitting experimental release data.
The document discusses transcriptomics and the relationship between transcriptome size and organism complexity. It questions how gene expression contributes to transcriptome size and what new studies reveal about size and complexity. Specifically, it notes that alternative splicing and RNA editing increase transcriptome size and complexity. It also discusses that the human genome is pervasively transcribed, with one stretch of DNA encoding many RNAs, including microRNAs, which control mRNA expression and are involved in development, gene regulation, and diseases like cancer.
Microarray and dna chips for transcriptome studyBia Khan
Microarrays and DNA chips can be used to study transcriptomes by comparing gene expression profiles. They work by immobilizing reference cDNA or oligonucleotides on a glass slide, then hybridizing labeled cDNA from the cells of interest. This allows determining which genes are expressed and their relative expression levels based on fluorescence intensities. While powerful, the method has complications like cross-hybridization of similar mRNAs and experimental errors. Normalization procedures help account for these. Yeast is commonly used as a model organism in transcriptome studies due to its stable yet responsive gene expression. Applications include stem cell research, cancer studies, and embryonic development.
Transcriptomics is the study of RNA in cells and tissues. The transcriptome refers to the complete set of transcripts in a cell under a specific condition. Understanding the transcriptome reveals the functional elements of the genome and molecular constituents of cells. Techniques for studying the transcriptome include microarray analysis and RNA sequencing. Microarrays measure gene expression levels using fluorescently-labeled cDNA hybridized to probes on an array. RNA sequencing determines expression levels by sequencing individual cDNAs produced from target RNA. Transcriptomics provides insights into development, disease, and varying gene expression under different environmental conditions.
This document provides an overview of various operations research (OR) models, including: linear programming, network flow programming, integer programming, nonlinear programming, dynamic programming, stochastic programming, combinatorial optimization, stochastic processes, discrete time Markov chains, continuous time Markov chains, queuing, and simulation. It describes the basic components and applications of each model type at a high level.
Metabolites have various functions, including fuel, structure, signaling, stimulatory and inhibitory effects on enzymes, catalytic activity of their own (usually as a cofactor to an enzyme), defense, and interactions with other organisms (e.g. pigments, odorants, and pheromones).
Metabolome refers to the complete set of chemical compounds involved in an organism's metabolism (such as metabolic intermediates, hormones and other signaling molecules, and secondary metabolites)
Metabolomics is the scientific study of chemical processes involving metabolites. Metabolomics is a relatively new member to the ‘-omics’ family of systems biology technologies.
Operations research (OR) deals with applying analytical methods to improve decision-making and originated during World War II. OR involves representing real-world business problems as mathematical models that can be solved optimally or heuristically using various tools and techniques. Some common applications of OR include supply chain planning, transportation and logistics, manufacturing scheduling, and strategic planning. The goal of this session is to discuss the methods and models used in the science of operations research.
The document provides an overview of linear algebra and matrix theory. It discusses the history and development of matrices, defines key matrix concepts like dimensions and operations, and covers foundational topics like matrix addition, multiplication, inverses, and solving systems of linear equations. The document is intended as an introduction to linear algebra and matrices for students.
The document presents an overview of mathematical models. It defines mathematical models as mathematical descriptions of real situations that make assumptions and simplifications about reality. There are three main types of models: linear, quadratic, and exponential models. The document discusses how to develop a mathematical model by comparing model predictions to real data. It provides an example of a differential equation model of the spread of a contagious flu.
This document provides an overview of linear algebra concepts including vectors, matrices, and matrix decompositions. It begins with definitions of vectors as ordered tuples of numbers that represent quantities with magnitude and direction. Vectors are elements of vector spaces, which are sets that satisfy properties like closure under addition and scalar multiplication. The document then discusses linear independence, bases, norms, inner products, orthonormal bases, and linear operators. It concludes by stating that these concepts will be applied to image compression.
“It is a process by which a drug leaves a drug product
& is subjected to ADME & eventually becoming
available for pharmacological action.”
It involves the study of drug release rate, dissolution
/diffusion/erosion studies and the study of factors
affecting release rate of the drug.
The document discusses the causes of the 2008 financial crisis. It attributes the crisis to excessive borrowing and debt in the United States as jobs moved overseas and education became more expensive. This led to the rise of subprime mortgages as banks lent to borrowers with low credit quality. Investment banks then securitized these mortgages into CDOs, misleading ratings agencies and investors about the risks. When housing prices fell, the toxic assets could not be valued, spreading losses around the global financial system and causing major institutions like Lehman Brothers and AIG to collapse.
Dr. Charles Calomiris "An Incentive-Robust Program for Financial Reform"Nataly Nikitina
KSE Open Lecture with Dr. Charles Calomiris (Columbia University Graduate School of Business) on "An Incentive-Robust Program for Financial Reform" was held on April 12, 2011.
Part 7 switzerland - forum nexus finance class summer 2011Brian David Butler
The document discusses international finance concepts including the "pyramid of promises", fixed vs. flexible exchange rates, and the size of the global financial system. It notes that the modern financial system represents a pyramid of promises totaling $140 trillion in 2005, with the US holding $52 trillion in promises. It describes how exchange rate systems have historically shifted between fixed and flexible regimes and explains some of the tradeoffs between the two approaches.
The document discusses characteristics of banking credit in Latin America across several areas:
1. Credit is scarce and costly in the region, with high interest rate margins and volatility. Recurring banking crises are also common.
2. Sudden stops of capital flows and banking crises are linked, with dollarization exacerbating the effects of abrupt changes in relative prices. Weak regulation and supervision have contributed to crises.
3. Reforms improving creditor rights, increasing foreign bank ownership, and reducing the role of inefficient public banks have helped increase financial depth, competition, and access to credit in some countries. However, challenges remain regarding stability and supporting small businesses.
Thomas Mayer - The Challenges of Economic Thinking in PracticeDieter Meyeer
1) Conventional economic theories did not anticipate or explain the financial crisis because they do not adequately account for the credit cycle.
2) To understand the credit cycle, economists had to study discarded theories and economic history.
3) Rethinking economics requires shifting from deductive to inductive reasoning and being more interdisciplinary, incorporating insights from fields like history, psychology, and anthropology.
The sub-prime crisis highlighted issues with credit risk measurement in retail mortgage lending. Factors like plummeting interest rates pre-2005, lack of oversight on new risky products, and an active CDO market that enabled easy risk transfer contributed to the crisis. However, credit scoring approaches, which became prevalent during this period of innovation, also share some blame. Credit scoring focuses only on past payment history and does not fully capture borrowers' ability to repay, especially given changing macroeconomic conditions. This led to underestimation of risk. Going forward, credit risk measurement needs a more holistic approach that considers a borrower's full financial profile and macroeconomic factors. Outsourcing some aspects of the underwriting process could also
The core objectives of a bank’s treasury are clear; to conduct the asset liability management
process and in particular, to invest in creditworthy assets, to maintain sufficient liquidity and to maximise returns. The challenge is that these
three objectives are not always mutually compatible; as a result the Treasurer and their
team has a delicate balancing act, how to measure and manage these complex factors
and to keep proper control of all the processes.
This document presents an agenda on the subprime crisis and housing bubble. It discusses the traditional mortgage model versus the subprime model, and the various players involved like the Fed, mortgage salespersons, lenders, and home buyers. It then explains how the housing bubble formed and burst, leading to a global financial crisis. The impact on banks and stock markets is outlined, along with a timeline of key events like government bailouts. Potential costs and responses going forward are also addressed.
Week 6 - Final Assignment Integrative Literatu.docxjessiehampson
Week 6 - Final
Assignment
Integrative Literature
Review
A special report on financial risk l February 13th 2010
The gods strike back
RISk.indd 1 2/2/10 13:08:02
The Economist February 13th 2010 A special report on �nancial risk 1
Financial risk got ahead of the world’s ability to manage it.
Matthew Valencia asks if it can be tamed again
ed by larger balance sheets and greater le-
verage (borrowing), risk was being capped
by a technological shift.
There was something self-serving
about this. The more that risk could be cali-
brated, the greater the opportunity to turn
debt into securities that could be sold or
held in trading books, with lower capital
charges than regular loans. Regulators ac-
cepted this, arguing that the �great moder-
ation� had subdued macroeconomic dan-
gers and that securitisation had chopped
up individual �rms’ risks into manageable
lumps. This faith in the new, technology-
driven order was re�ected in the Basel 2
bank-capital rules, which relied heavily on
the banks’ internal models.
There were bumps along the way, such
as the near-collapse of Long-Term Capital
Management (LTCM), a hedge fund, and
the dotcom bust, but each time markets re-
covered relatively quickly. Banks grew
cocky. But that sense of security was de-
stroyed by the meltdown of 2007-09,
which as much as anything was a crisis of
modern metrics-based risk management.
The idea that markets can be left to police
themselves turned out to be the world’s
most expensive mistake, requiring $15 tril-
lion in capital injections and other forms
of support. �It has cost a lot to learn how lit-
tle we really knew,� says a senior central
banker. Another lesson was that managing
risk is as much about judgment as about
numbers. Trying ever harder to capture
The gods strike back
�THE revolutionary idea that de�nesthe boundary between modern
times and the past is the mastery of risk:
the notion that the future is more than a
whim of the gods and that men and wom-
en are not passive before nature.� So wrote
Peter Bernstein in his seminal history of
risk, �Against the Gods�, published in 1996.
And so it seemed, to all but a few Cassan-
dras, for much of the decade that followed.
Finance enjoyed a golden period, with low
interest rates, low volatility and high re-
turns. Risk seemed to have been reduced
to a permanently lower level.
This purported new paradigm hinged,
in large part, on three closely linked devel-
opments: the huge growth of derivatives;
the decomposition and distribution of
credit risk through securitisation; and the
formidable combination of mathematics
and computing power in risk management
that had its roots in academic work of the
mid-20th century. It blossomed in the
1990s at �rms such as Bankers Trust and
JPMorgan, which developed �value-at-
risk� (VAR), a way for banks to calculate
how much they could expect to lose when
things got really rough.
Suddenly it seemed possible for any �-
nancial risk to be ...
Combined Credit And Political Risk Paperathula_alwis
This document proposes two methods for modeling combined credit and political risk in emerging markets:
1. A diffusion process that sums individual credit and political risk default rates, subtracting any overlap estimated via a copula function. This provides a conservative starting point but does not fully capture the coverage.
2. A jump diffusion process that allows for sudden increases in default rates during crisis periods. This approach more accurately reflects the coverage provided by combined credit and political risk insurance.
The paper recommends the jump diffusion method and outlines using historical data on default rates, losses, and correlations to develop a stochastic model quantifying the risk-reward profile to support underwriting this line of business.
Week-9 Bank RegulationMoney and Banking Econ 311Tuesdays 7 .docxalanfhall8953
Week-9 Bank Regulation
Money and Banking Econ 311
Tuesdays 7 - 9:45
Instructor: Thomas L. Thomas
Capital Adequacy Management
Bank capital helps prevent bank failure
The amount of capital affects return for the owners (equity holders) of the bank
Regulatory requirement – Regulatory Capital – Tier 1 and Tier 2 Basle Rules
Economic Capital - What is this
2
Capital Adequacy Management:
Returns to Equity Holders
3
Traditional Economic Capital Value-At-Risk (VaR) View
Frequency of Occurrence / Probability
Mean/Average Expected Losses (m)
Unexpected Losses @ 99.9% confidence Level (s)
Economic Capital
Reserves
Value-at-Risk
VAR
Before we can develop adequate credit stress testing we need to understand the differences between traditional credit loss measures and what stress tests incorporate.
Aside form standard concentration and coverage analysis, a standard portfolio credit risk analysis typically employs a Value-at-Risk view.
Credit risk in this view generally follows a positive skewed distribution (by definition one cannot have negative defaults and thus a normal distribution is not applicable).
Reserves ALLL generally cover average expected losses over a horizon. In reality these are usually allocated to general reserves since most ALLL have two components: general reserves and specific reserves for known credits that are detraining.
Economic capital functions as a cushion against unexpected loss up to some confidence level. In this case 99.9% or a single “A” rating is the regulatory standard (once every 10,000 years)
In addition to a loss cushion economic capital represents the amount of the firm’s equity that is at risk which requires a return sufficient to cover the associated risk.
The shape of the curve or tail will then reflect the underlying credit risk of the portfolio or product.
However this view has some assumptions that can miss important risk elements.
The distribution is generally based on one variable PD in this case and does necessarily fully account for other correlated factors that when combined either change the tail or increase the likelihood of default.
Second, while the event may be rare, this methodology does not tell how severe or the magnitude of the event when it occurs beyond the confidence level prescribed for economic capital.
4
Old Measure: New Ones
RAROC - Risk Adjusted Return on Capital
EVA - Economic Value Added.
Hurdle Rate – What is it. How is it measured?
5
Time Line of the Early History of Commercial Banking in the United States
6
Historical Development of the Banking System
Bank of North America chartered in 1782
Controversy over the chartering of banks.
National Bank Act of 1863 creates a new banking system of federally chartered banks
Office of the Comptroller of the Currency
Dual banking system
Federal Reserve System is created in 1913.
7
Asymmetric Information and Financial.
110
Bank credit expansion
100
Lender of last
resort
China
90
80
Chinese government
70
60
45
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: BIS
IV.2 Lessons from history
1. Crises are inevitable in a debt-based monetary system with fractional reserve banking
2. Excessive credit growth and asset bubbles will eventually burst
3. A lender of last resort is needed to prevent liquidity crises from turning into solvency crises
4. Regulation is needed to limit the build-up of excessive risks in the financial
The document provides a summary of the key causes and events of the global financial crisis that began in 2007-2008. It discusses how a decline in lending standards and rising housing prices in the US encouraged many homeowners to take on difficult mortgages. Once housing prices dropped and interest rates rose, defaults and foreclosures increased dramatically. US banks had repackaged risky mortgages into complex financial products that were distributed globally, spreading risk throughout the financial system and making the effects of the crisis global in scale. The document outlines several major events such as the failures of Bear Stearns and Lehman Brothers that accelerated the crisis.
The document provides an overview of the causes of the global economic crisis that began in 2007. It discusses how reckless and irresponsible lending practices, including low documentation loans and increasing home prices due to speculation, led to many homeowners defaulting on subprime mortgages in 2006. These defaults were bundled into mortgage-backed securities that were often given high credit ratings and sold off, obscuring the risks. A perfect storm of factors like off-balance sheet vehicles and the "wealth effect" that encouraged risky behavior ultimately caused the system to unravel.
Jon terracciano: Hedging the Global Market - IntroductionJon Terracciano
The introduction to a series of presentations on "Hegding the Global Market: Avoiding Excessive Hedge Fund Regulation in a Post-Recession Era". Additional presentations to follow. By Jon Terracciano, 2008
This document provides a summary of a student's dissertation analyzing banking crises that occurred in Germany in 1931 and the recent US crisis. It begins with an acknowledgement section thanking various parties. The abstract indicates that the Knoop model of banking crises will be used to understand the causes of the two crises. It notes that causes are related to prevailing macroeconomic conditions that reduce bank net worth and profitability. Key causes identified are the role of authorities and bank involvement in wrongful activities. The document includes various charts and tables analyzing aspects of the German and US crises such as money supply, bank assets, and policies impacting housing prices. It also discusses the Basel Accords and measures to prevent banking failures.
The document discusses various theories of banking and their implications for macroeconomics. It covers the mainstream view that banks intermediate between savers and borrowers through the loanable funds market. Alternative post-Keynesian approaches see banks as creating money through lending, rather than intermediating existing money. Recent macro models have incorporated more detailed banking systems but still have limitations. Overall, the treatment of banks and credit is an area where mainstream and post-Keynesian theories diverge significantly.
Review the CIBC Mellon Managing a Cross-Border Joint Venture Case.docxhealdkathaleen
Review the CIBC Mellon: Managing a Cross-Border Joint Venture Case Study found on below and respond to the following:
· Compare and contrast strategic controls and financial controls. Provide specific examples of how each may be used to best serve a corporation.
· As a strategic leader, determine if you would feel ethically responsible for developing your firm’s human capital and state why. Discuss whether or not you believe your position is consistent with the majority or minority of today’s strategic leaders.
Thomas MacMillan leaned back in his chair and glanced out of his office window down onto Bay Street, the epicenter of the Canadian financial industry. During his 10-year tenure as president and CEO of CIBC Mellon, MacMillan had presided over the dramatic growth of the jointly owned, Toronto-based asset servicing business of CIBC and The Bank of New York Mellon Corporation (BNY Mellon). However, now it was an overcast day in mid-September 2008 and MacMillan had a front-row seat to witness the onset of the worst financial crisis since the Great Depression. CIBC Mellon was facing this oncoming global financial storm with a solid balance sheet and was secure in the knowledge that both of its parents were also well capitalized. However, the well-publicized impending collapse of several long-standing financial titans threatened to impact all players in the financial services industry worldwide. Despite the fact that joint ventures (JVs) were uncommon in the financial sector, MacMillan believed that the CIBC Mellon JV was uniquely positioned to withstand the fallout associated with the financial crisis and that it would be able to weather the most significant risks facing the JV—execution risk and the potential exodus of assets and clients who were panicked by the wider financial pandemonium. MacMillan and his team recognized that it would be critical for the JV to continue to deliver a high level of client service and to avoid any major operational missteps. MacMillan’s moment of introspection was interrupted by a knock on the door. He was scheduled to meet with three members of the company’s executive management committee, Paul Marchand, Mark Hemingway and James Slater, to discuss two pressing issues facing the JV. First, they needed to discuss how to best manage any risks confronting the JV as a consequence of the financial crisis. Given the massive size and global reach of the largest financial service giants, and the likelihood that some of these behemoths might now be teetering on the edge of bankruptcy, CIBC Mellon, like other players in the financial services industry, would be forced to move adeptly to protect its operations from any potential exposure to the larger players’ fates. While the systems, structure and culture that prevailed at CIBC Mellon served as evidence of MacMillan and his team’s diligent efforts over the past 10 years to focus on risk management and to foster a culture of synergistic cooperation, the question re ...
The document discusses the origins of the financial crisis. It identifies several key factors:
1) A housing price bubble formed from the mid-1990s to 2006 as home prices increased each year, outpacing household income growth and moving out of line with economic fundamentals. This fueled expectations of continued price increases.
2) Subprime lending expanded rapidly after 2000, helped inflate the housing bubble, and enabled many new subprime borrowers to access credit. Innovative mortgage products like ARMs contributed.
3) Financial innovations like securitization, CDOs, and credit default swaps masked risk and facilitated the subprime lending boom by channeling funds to subprime mortgages. However
Similar to The Role Of Mathematical Models In The Current Financial Crisis Athula Alwis (20)
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OJPs are becoming a critical resource for policy-makers and researchers who study the labour market. LMIC continues to work with Vicinity Jobs’ data on OJPs, which can be explored in our Canadian Job Trends Dashboard. Valuable insights have been gained through our analysis of OJP data, including LMIC research lead
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The Role Of Mathematical Models In The Current Financial Crisis Athula Alwis
1. Athula Alwis, Senior Vice President, Global Credit, Surety and
Political Risk Practice February 12, 2009
2. Robert Merton
“At times we can lose sight of the ultimate purpose of the models when their mathematics
become too interesting. The mathematics of financial models can be applied precisely, but
the models are not all precise in their application to the complex real world.
Their accuracy as a useful approximation to that world varies significantly across time
and place. The models should be applied in practice only tentatively, with careful
assessment of their limitations in each application.”
3. The Role of Mathematical Models in the Current
Financial Crisis – Lessons for the Export Credit and
Political Risk Business
3
4. Agenda
I. Introduction
II. Liquidity Crisis
III. Credit Crisis
IV. Mortgage Crisis
V. History of Mathematical Modelling
VI. The Role of Models in the Current Crisis
VII. What can we learn?
4
15. Liquidity Crisis
When an entity experiences a shortage of cash
To pay for day-to-day business operations (e.g., Payroll)
To meet debt obligations on time
To expand inventory and production
Does not necessarily mean that the business is insolvent
A specific liquidity risk!
15
16. Liquidity Crisis
When businesses in general experience shortages of cash
Due to reduced lending by banks
Due to tighter lending standards by banks
Due to shortage of cash at banks
A liquidity crisis!
16
17. Liquidity Crisis
Comparison to credit crisis
A sound business can experience a liquidity crisis by
temporary inaccessibility to required financing
A credit crisis is based on insolvency of entities
• Due to steep decline of previously over-priced assets
(mortgage-backed securities, CDO, etc)
17
19. Credit Crisis
Widening of credit spreads
Increase in credit default rates
Weak corporate financials
Unstable capital bases
leading to…
A material reduction in available credit and / or
A significant increase in cost of credit
19
20. Credit Crisis
Crisis of insolvency
Anticipated decline in value of collateral
Increased perception of risk
Change in monetary conditions
Loss of capital at banks
Lack of confidence in financial markets!
20
24. Mortgage Crisis
The cost to economy
Recession
Lack of financing for solvent companies and individuals
with good credit
Over 2M job losses so far in the US in 2008 (4.5M
overall)
Over 2.8M unemployed in the UK
24
25. Mortgage Crisis
The cost to financial institutions
Lack of confidence
• Bear Stearns and Merrill Lynch acquired
• Lehman Brothers – Chapter 11
• Washington Mutual acquired
• Goldman Sachs and J P Morgan became banks to survive
• Concerns at Citibank and AIG
• Issues at RBS
Lack of capital for growth
25
27. Mortgage Crisis
Exacerbation of the credit cycle
Major corporate failures
High unemployment
Stagflation (inflation and economic stagnation)
Recession
27
28. Mortgage Crisis – Perfect Storm
Liquidity crisis
Credit crisis
Mortgage crisis
Recession
It may not be over!
28
30. Brief History of Credit Modeling
Ancient Romans traded options against outgoing cargo
from seaports
Charles Castelli (1877): Book titled “The Theory of Options
in Stocks and Shares”
Louis Bachelier (1900): Earliest known analytical valuation
for options in his mathematics dissertation at Sorbonne
Paul Samuelson (1955): Brownian Motion in the Stock
Market
Resource: A Study of Option Pricing Models, Kevin Rubash, Foster College of Business
Administration, Bradley University
30
31. Brief History of Credit Modeling
Richard Kruizenga (1955): Put and Call Options: A
Theoretical and Market Analysis
James Boness (1962): A Theory and Measurement of Stock
Option Value
A clear theoretical improvement from previous work and a precursor to …
Black Scholes (1973): Option pricing Model
Resource: A Study of Option Pricing Models, Kevin Rubash, Foster College of Business
Administration, Bradley University
31
32. Brief History of Credit Modeling
Fischer Black Myron Scholes Robert Merton
32
33. Brief History of Credit Modeling
Robert Merton (1973): Relaxed the assumption of no
dividends
Jonathan Ingerson (1976): Relaxed the assumption of no
taxes or transaction costs
Robert Merton (1976): Relaxed the restriction of constant
interest rates
This is the beginning of structural modeling!
33
34. Brief History of Credit Modeling
Vasicek – Kealhofer (1989): Modified Structural model
Jarrow – Turnbull (1995): Reduced Form model
Duffie – Singleton (1999): Improved Reduced Form model
David Li (2001): Incorporated a Gaussian Copula to tackle
correlation
34
35. History of Mathematical Modeling
Benefits of Modeling
To be disciplined in risk selection and management
To be strategic in managing and growing the business
To compare against other businesses in terms of risk and
rewards
To measure and manage risk in a consistent manner
35
36. History of Mathematical Modeling
Benefits of Modeling
To question and investigate assumptions, gut instincts and
“what if” scenarios
To assist in increasing shareholder value
To protect the franchise
36
38. The Role of Models in the Current Crisis
A heavy reliance on mathematical models by banks,
investors and rating agencies
The use of inappropriate models to represent complex
market conditions
Over reliance on unrealistic models
38
39. The Role of Models in the Current Crisis
Use of incorrect ratings from rating agencies
Improper calibration of models (lack of reliable data, wrong
assumptions, parameter error)
The mechanical use of models without properly
understanding underlying data, assumptions and
economic implications
39
40. The Role of Models in the Current Crisis
Use of single metric to make decisions (For ex. Using VaR to
measure one boundary of risk)
Lack of awareness of boundaries/break points (for ex. real
estate values are bounded by income)
The limitations of models were not readily evident
Provided false confidence that encouraged additional risk
taking by practitioners
40
41. The Role of Models in the Current Crisis
Lack of real world business experience by model
users/builders
Supported decision making solely based on past patterns
Models failed to capture liquidity risk, concentration risk,
correlation risk
Lack of appreciation for systemic risk and
interconnectedness of financial markets at moments of
extreme stress
41
43. What Can We Learn
A mathematical model is a tool. It cannot and should not
replace the practitioner's experience, judgment and
business intuition. The major strategic decisions should
be guided by business knowledge and common sense of
experienced business leaders not by models.
43
44. What Can We Learn
A model must reflect business realities as closely as
possible. Using inappropriate models mechanically
without exploring the applicability has been a serious
issue that must be addressed
Multiple metrics and models should be employed, if
possible (VaR, CTE, Volatility, Scenario Testing, …)
44
45. What Can We Learn
The assumptions used in any model should be validated
by business practitioners. It is imperative that analysts
and modelers understand the market conditions,
coverage and business processes rather than
independently selecting assumptions for models in a
vacuum
The simplifying assumptions should be evaluated for
validity
Use actual original data (a clear advantage for the export
credit and political risk industry)
45
46. What Can We Learn
The data that go into models should be validated,
scrubbed and compared to at least one other independent
source.
Regular review/upgrade of models and underlying
technologies has to be carried out
Model correlation (risk is not randomly distributed;
cannot escape it)
Consider systemic risk
46
47. What Can We Learn
Mathematical tools cannot precisely model human
behavior
47
48. • In preparing this presentation, W illis Re has relied upon data provided by external data
sources. N o attem pt has been m ade to independently verify the accuracy of this data.
W illis R e does not represent or otherw ise guarantee the accuracy or com pleteness of such
data, nor assum e responsibility for the result of any error or om ission in the data or other
m aterials gathered from any source in the preparation of this Presentation. W illis R e shall
have no liability in connection w ith results stem m ing from the analysis including but not
lim ited to any errors, om issions, inaccuracies, or inadequacies associated w ith the data.
W illis R e expressly disclaim s any and all liability to any third party in connection w ith
this presentation.
• In preparing this presentation, W illis Re has used procedures and assum ptions that W illis
R e believes are reasonable and appropriate. H ow ever, there are m any uncertainties
inherent in actuarial analyses. T hese include, but are not lim ited to, issues such as
lim itations in the available data, reliance on client data and outside data sources, the
underlying volatility of loss and other random processes, uncertainties that characterize
the application of professional judgm ent in estim ates and assum ptions, reinsurance
collectability, etc. U ltim ate losses, liabilities and claim s depend upon future contingent
events, including, but not lim ited to, unanticipated changes in inflation, law s, and
regulations. A s a result of these uncertainties, the actual outcom es could vary
significantly from W illis Re’s estim ates in either direction. W illis R e m akes no
representation about and does not guarantee the outcom e, results, success, or profitability
of any insurance or reinsurance program or venture, w hether or not such program or
venture applies the analysis or conclusions contained herein. Please consult your ow n
independent professional advisors before m aking any decisions related to any inform ation
contained herein.
• T his presentation is provided for inform ational purposes only; it is not intended to be
relied upon, and is not intended to be a com plete actuarial com m unication. A com plete
com m unication can be provided upon request. W illis Re actuaries are available to answ er
questions about this presentation.
• T he statem ents and opinions included in this presentation are those of the individual
speakers and do not necessarily represent the view s of W illis R e or its m anagem ent.
Disclaimer 48