Quantitave Finance Seminars - March edition

We celebrated the end of the first half of our thematic program with the March installment of the Quantitative Finance Seminar Series .


Dilip Madan is thinking hard about the unintended consequences of the limited liabilities paradigm, the very foundation of publicly traded firms, in the presence of financial practices that lead to unbounded exposures to risk (think naked short sales by hedge funds). As he explained, this implicit leads to the appearance of a "taxpayer put", which can be extremely valuable (of the orders of hundreds of billions of dollars for major US banks) and yet are entirely absent from traditional valuations of financial institutions. His proposal is to introduce a capital requirement that off-sets the perverse incentives of this implicit put option. As FinReg  marches through the US Congress, nothing could be more topical.


Stan Uryasev based his entire talk in what he called a "quadrangle" with risk, deviation, regret and error in each of four corners and the arrows linking them representing specific procedures to go from one corner to another (things like minimization, taking expectations, etc). Just in case you find this too abstract, he showed how it all works for VaR and CVaR, and also advertised his own company, which runs funds based on the algorithm he described. Later during dinner I observed that one of his funds had over 100% return in 2008, which was better than Renaissance, which posted about 80% return that year. Dilip then remarked that this means very little, since everyone made a lot of money in 2008. Ok...