Advancing the Field of Quantitative Finance
formerly the IAFE

Event:  IAFE Academic & Practitioner Members Only Seminar
Date: May 24, 2012
Time: 5:00pm Registration/Coffee Reception, 5:30 Seminar
Location:

pwc
300 Madison Avenue

New York, NY 10017

The International Association of Financial Engineers is

pleased to invite you to

 

IAFE Academic & Practitioner Members Only Seminar:

European Sovereign Debt Crisis from the Investment and Risk Management Point of View:

From the Greek PSI to the implications of ECB policy and of French elections

 

Speaker:  Dr. Raphael Douady,

Mathematician and Economist, C.N.R.S. , Centre d'Economie de la Sorbonne, University of Paris 1. Founder & Head of Research, Riskdata S.A.


ABSTRACT:

In order to face the 2008 financial crisis, the USA adopted a stream of extreme measures – TARP, QE1, QE2, etc. – which lead to doubling the monetary mass and brought the sovereign debt to unprecedented highs. In the meantime, Europe reacted in a more disordered manner. ECB first acted in a quite conservative way, providing the banking system the minimum needed liquidities to restore interbank confidence, while in parallel, Eurozone states literally blew up so-called Maastricht criteria (budget deficit < 3% GDP, debt < 60% GDP). Several countries, nicknamed “GIPSI” (Greece, Ireland, Portugal, Spain, Italy, in decreasing order of seriousness) entered, or almost entered, into a deadly debt burden spiral, by which the lack of market confidence and the dropping demand increased their borrowing rates, hence making the debt burden unsustainable, thus fulfilling the market prediction etc. one of the reasons for this uncontrollable vicious circle is the fact that Eurozone countries, unlike the USA, don’t have the power to print money. Misrepresentation of Greek public accounts finalized the destruction of Greece credibility, which left no other choice but restructuring its debt in quasi-bankruptcy conditions. In August 2011, the deep interconnection between Eurozone sovereign debts and the banking system drove fears and lead to a severe market plunge. Since then ECB starting adopting more a flexible policy, first with half a trillion euros of credit lines to banks, in a similar mood to US quantitative easing, then with a greater focus on restoring growth, not on the sole preservation of euro value.


In this presentation, I shall address the question of sovereign borrowing rates instability and the factors it depends on. I shall analyze the Greek restructuring more in depth: valuation, risk estimation, etc. In particular, I’ll show some risk indicators that one should monitor to help anticipate crises, which are still very likely to occur in such an unstable environment.
Then I shall try to explain the recent evolution of European economic policy, following elections in France, Greece and forthcoming in Germany and suggest paths to get through the current situation with minimal economic, hence social, risk.

DR. RAPHAEL DOUADY, is a French mathematician and economist, specialised in financial mathematics and chaos theory. With more than fifteen years experience in the banking industry (risk management, option models, trading strategies) and thirty years research in pure and applied mathematics, Dr Douady is renowned for his highly sophisticated quantitative solutions and statistical analysis. A former fellow of Ecole Normale Supérieure in Paris, he earned his Ph.D. in 1982 in Hamiltonian dynamics and became strongly involved in Finance in 1993. Currently affiliated with University of Paris 1-Sorbonne Economic Center (CES) and the French National Center for Scientific Research (CNRS), he has also been appointed International Associate Professor at New York University Polytechnic Institute. He has lead and organized numerous academic, as well as practitioner conferences around the world, including the New York University seminar of Mathematical Finance and Paris Europlace conferences. His most recent research topics are Hedge Funds risks, for which he has developed especially suited powerful nonlinear statistical models, and systemic risk.
Raphael Douady is one of the founders and the research director of Riskdata, a market-leading provider of risk management tools for investors, asset managers, hedge funds, fund of funds, and pension funds. He is also a member of a French "Laboratory of Excellence" devoted to financial regulation (LabEx ReFi), of the Praxis Club, a New York based think tank advising the French government on its economic policy and other related topics and on the "risk committee" of Finance Innovation, a French official entity supporting innovation in financial software.