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H2020Doctoral network2015–2018

WAKEUPCALL · Applied mathematics for risk measures in finance and insurance, in the wake of the crisis

Horizon 2020 — Marie Skłodowska-Curie Actions

Duration
2015-01-01 → 2018-12-31
EU contribution
€1,522,617
Participants
11
Scheme
MSCA-ITN-EID

Lines connect the coordinator with its partners.

Results in brief

Applied mathematics for risk measures in finance and insurance, in the wake of the crisis

The EID WAKEUPCALL has been set up with the knowledge that, in the wake of the financial crisis, a reconsideration of fundamental assumptions that have been standard in the mathematical models for the valuation of financial and insurance products is taking place. The crisis alerted to reiterate models, assumptions, analysis and computations. It is now better understood that the usual paradigm, in which financial risks can be mitigated, spread, or even hedged away perfectly, is too simplistic for markets under stressed conditions. Lead by the Basel Committee on Banking Supervision, the financial and insurance industry is currently implementing new paradigms regarding risk management. Many of the updates in the risk measures involve sophisticated mathematics. In this sense, the crisis has provided important feedback on appropriate directions for the required mathematical improvements. As regards to hedging and risk mitigation, which are important steps in the risk management chain, nowadays even the hedging of basic financial instruments has become a complicated task. Since the 2008 crisis, the historically stable relationship between a bank's funding rate, government rates, and inter-bank offered rates is no longer valid, which can be explained by credit risk, liquidity risk, and related bid-ask spreads. More sophisticated models are needed if hedging programs are to remain effective under financial stress, but then also model risk needs to be taken into account. A good understanding of financial risks in the modern world is important for society. The overall objective is to perform multi-disciplinary research and gain insight into a variety of aspects of financial risk, such as model risk, market risk, and credit risk. Each industrial partner focusses with an ESR on a specific risk which is important in their businesses. From the various ESR projects, the ESRs will gain expertise on risk measures and risk management for modern financial mathematical models, on computing algorithms, software, frameworks, and also consultancy expertise will result. The ESRs will have an excellent background to obtain a high level job in the industry afterwards.

Data: CORDIS, © European Union

Project objective

The EID WAKEUPCALL has been set up with the knowledge that, in the WAKE of the financial crisis, a reconsideration of fundamental assumptions that have been standard in the mathematical models for the valuation of financial and insurance products, like CALLs is taking place. The crisis alerted to reiterate models, assumptions and computations. It is now better understood that the usual paradigm, in which financial risks can be mitigated, spread, or even hedged away perfectly, is too simplistic for markets under stressed conditions. Lead by the Basel Committee on Banking Supervision, financial and insurance institutions are currently implementing new paradigms regarding risk management. Many of the updates in the risk measures involve sophisticated mathematics. In this sense, the crisis has provided important feedback on appropriate directions for the required mathematical improvements. As regards to hedging and risk mitigation, which are important steps in the risk management chain, nowadays even the hedging of basic financial instruments has become a complicated task. More sophisticated models are needed if hedging programs are to remain effective under financial stress.We wish to bring together academic researchers in financial mathematics and high level professionals in financial and insurance industries, discuss and interact by means of early-stage researchers (ESRs). We are interested in the mathematical models, as well as in advanced solution techniques used for pricing and risk measurement. We wish to educate young experts in modern risk measures and management. Advanced courses by academic and professional lecturers will be selected for the education of the ESRs. We will additionally work on providing entrepeneurial skills to ESRs as they will have a unique knowledge of applied mathematics on practically relevant research questions in computational finance. All ESRs will produce software, according to latest standards in high performance computing.

Original text from CORDIS.

Participants

  • STICHTING NEDERLANDSE WETENSCHAPPELIJK ONDERZOEK INSTITUTEN · UtrechtCoordinatorNetherlands
  • ACE Venture Lab · AMSTERDAMNetherlands
  • ALMA MATER STUDIORUM - UNIVERSITA DI BOLOGNA · BolognaItaly
  • ANALISTAS FINANCIEROS INTERNACIONALES SA · MADRIDSpain
  • BANCO SANTANDER SA · CANTABRIASpain
  • ERNST & YOUNG ACCOUNTANTS LLP · LONDONUnited Kingdom
  • NIER INGEGNERIA SPA · Castel Maggiore (Bo)Italy
  • TECHNISCHE UNIVERSITEIT DELFT · DelftNetherlands
  • UNIPOL GRUPPO FINANZIARIO SPA · BolognaItaly
  • UNIVERSIDADE DA CORUNA · La CorunaSpain
  • VORTECH BV · DELFTNetherlands

Links

Data: CORDIS, © European Union