Market Risk: Understanding & Managing Tail Events

Investment risk models and economic assessments work well during periods of business-as-usual, but are deficient when the economy switches into a financial crisis. There are many examples of the failures of otherwise-reliable risk models during periods of market turmoil. Understanding the process of contagion in the financial markets, to the global banking system, and to sovereign and central banks remains a severe challenge. Regulators have responded to the financial crisis failures of 2008 by requiring financial institutions to instigate stress tests to demonstrate that their practices and risk capital are adequate for future crises, but these stress tests have been controversial.

This seminar presented research work from the Cambridge Centre for Risk Studies, together with contributions from leading practitioners in understanding market tail risks, developing coherent stress tests, and instigating effective risk management strategies.

The day seminar was followed by an evening programme at Sidney Sussex College.

Seminar Programme – 8 December 2015




Registration and Morning Tea


Welcome Address


Keynote 1: “System-wide Commonalities in Market Liquidity”
Mark Flood, Research Principal, OFR, US Treasury


Keynote 2: “Macro-modelling: Capturing Contagion & Downside Risks”
Keith Church, Director, Macro-modelling and Scenario, Oxford Economics


Coffee Break


Keynote 3: Financial Crises Research at the Centre for Risk Studies
Andrew Coburn, Director, Centre for Risk Studies


Panel Discussion 1: How Should Tail Risk Be Managed?


Financial Crises Research Showcase 1

  • Exploring Tail Risks in Financial Catastrophe
  • Financial Catastrophe Scenarios
    • Asset Bubble Collapse
    • Dollar Deposed
    • Eurozone Meltdown
    • High Inflation World
  • Financial Scenarios: Comparison & Overview


Afternoon Tea

  • Climate Change & Investor Sentiment Shock: Stress-Testing Financial Portfolios
  • Early Warning Systems & Investor Strategies for a Resilient Portfolio
  • Regulatory Perspectives in Financial Crises


Financial Crises Research Showcase 2


Panel Discussion 2: What should be the state of the art for stress testing?


Closing Remarks

Evening Programme – 8 December 2015


Arrival of guests
Sidney Sussex College


Networking Drinks Reception
Knok Shaw Room


Formal Dinner
The College Hall

Keynote speakers

Dr Mark D Flood

Research Principal, Office of Financial Research, US Treasury

Mark D.Flood did his undergraduate work at Indiana University in Bloomington, where he majored in finance (BS, 1982), and German and economics (BA, 1983). In 1990, he earned his PhD in finance from the Graduate School of Business at the University of North Carolina at Chapel Hill. He has taught finance and business at universities in the US and Canada, and worked as a financial economist on issues of regulatory policy and risk management at the Federal Reserve Bank of St Louis, the Office of Thrift Supervision, the Federal Housing Finance Board, and the Federal Housing Finance Agency. He was a founding member of the Committee to Establish a National Institute of Finance. He is currently a Research Principal in the Treasury’s Office of Financial Research. His research has appeared in a number of scholarly journals, including the Review of Financial Studies, the Annual Review of Financial Economics, Quantitative Finance, the Journal of International Money and Finance, the Federal Reserve Bank of St Louis Review, and in the two-volume Handbook of Financial Data and Risk Information.

Systemwide commonalities in market liquidity

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Andrew Coburn

Director of External Advisory Board, Centre for Risk Studies

Andrew manages the External Advisory Board of the Centre for Risk Studies, coordinating the inputs of consumers of research into the Centre’s risk agenda. Andrew is the principal coordinator of the research programme on ‘System Shock’ at the Centre. He is one of the leading contributors to the creation of the class of catastrophe models that over the past 20 years has come to be an accepted part both of business management in financial services and of public policy making for societal risk. He has extensive experience in developing models and using them for business decision support. Andrew has also provided research inputs into government policy, such as House of Congress legislation on terrorism risk management policy and urban planning for disaster mitigation in Mexico, Metro Manila, and Southern Italy. Andrew is also a member of the senior management of Risk Management Solutions, the leading provider of catastrophe risk models to the insurance industry.

Financial Crises Research at the Cambridge Centre for Risk Studies

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Keith Church

Director of Macromodelling and Scenarios, Oxford Economics

Keith re-joined Oxford Economics in April 2014 as Director of Macro-modelling and Scenarios. He is responsible for overseeing developments in Oxford Economics Global Economic Model and for leading scenario related work, including the Global Scenarios Service, and stress testing projects. Prior to this, between February 2008 and April 2014, Keith held various positions within Lloyds TSB/Lloyds Banking Group and latterly TSB. His role at TSB involved responsibility for forecasting the impairment charge and capital requirements on the TSB mortgage, current accounts, loans, credit cards and commercial portfolios and delivering the first stress tests on the TSB portfolio in support of its ICAAP and IPO. Keith also provided ad-hoc economic insight to senior management and other stakeholders.

Macro-modelling: Capturing Contagion & Downside Risks

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Amadeo Alentorn

Head of Research and Fund Manager, Global Equities, Old Mutual Global Investors

Amadeo Alentorn joined Old Mutual Global Investors in 2005. He serves as Head of Research and Fund Manager in the global equities team, responsible for co-managing a range of global equity market neutral funds and long only equity funds. He is also responsible for directing the global equity research programme with an in-house team of analysts as well as an external team of academic advisors. He has extensive experience in investment research and software development. Prior to joining Old Mutual, he developed simulation models for systemic and liquidity risk at the Bank of England (2004-2005), and worked as a software developer for CAD systems (2001-2004) and for robotic applications (1998-1999). Amadeo holds a BEng in Robotics (2000) from the University of Plymouth, an MSc in Computer Science (2001) and a PhD in Computational Finance (2006) from the University of Essex. During his doctoral research he developed a new option pricing model based on extreme value theory, and published on the subject. He is a CFA charterholder.

Alan Laubsch

Director and Head of Risk Products, Financial Network Analytics

A passionate risk practitioner for over two decades, Alan has advised leading institutions on the art and science of risk management. Alan currently designs advanced visual risk analytics at FNA to diagnose emerging risk and generate Adaptive Stress Tests. He is a co-founder of the RiskMetrics Group (now part of MSCI), where he authored Risk Management: A Practical Guide (1999) and held a number of global roles. At RiskMetrics Labs, Alan led research in next-generation risk management and developed a framework for Integrated Risk Management. Alan started his career at JPMorgan’s Corporate Risk Management Group in New York after receiving a degree in Industrial Engineering from Stanford University in 1993. Alan is inspired by evolutionary ecosystems, and regularly speaks at industry and academic forums including the Cambridge Centre For Risk Studies. Alan also contributes to high-profile financial publications such as the Asia Wall Street Journal. Alan’s mission is to catalyse a proactive risk culture to protect the systems that sustain us.

Dr Marco Galbiati

Senior Economist, Bank of England

Marco Galbiati is senior economist at the Bank of England, where he covered positions in Financial Stability (financial infrastructures), Monetary Analysis (macro forecast), and Banking (risk management for the BoE’s balance sheets). He has previously worked at the European Central Bank and in the Monte dei Paschi Group (wealth management). Marco Galbiati holds a PhD in game theory from the European University Institute and is author of a number of papers in the fields of mechanism design, applied network theory, financial infrastructures.

Marwa Hammam

Executive Director, Cambridge Master of Finance Programme (MFin)

Marwa Hammam is the Executive Director of the Cambridge Master of Finance (MFin) programme and was, until recently, a Credit Portfolio Banker at Citigroup with responsibility for managing a $9bn Western European Power and Utilities portfolio. Her duties also involved coordinating portfolio wide stress testing projects. Marwa has over 14 years of banking experience, predominantly in the risk management space and began her career with Citi in EMEA where she held a number of roles in relationship management, investment banking, credit, country and market risk management. She has also worked for Société Générale Corporate & Investment Bank and The Bank of Tokyo-Mitsubishi UFJ in senior front office origination and risk management roles. In her current role at Cambridge Judge Business School, Marwa has developed the credit risk component of the MFin curriculum and teaches the core fundamentals of credit course as well as an elective course covering more advanced topics in credit risk. Marwa is a 2009 graduate of the Cambridge MFin programme and also holds an MBA with a concentration in International Banking and Finance.

Aleksander Petrov

Senior Risk Partner, McKinsey & Company

Aleksander Petrov is Senior Risk Partner at McKinsey & Company and leader of the London Risk Advanced Analytics Group. He has broad experience in capital markets, derivatives pricing and portfolio management, supporting clients on a variety of risk topics focused on asset analysis, stress testing and real estate. Prior to joining McKinsey & Company in 2009, Aleksander spent approximately ten years in various quantitative and trading roles within the European fixed income and structured finance industry.


Professor Daniel Ralph

Academic Director, Cambridge Centre for Risk Studies

Professor Daniel Ralph is a Founder and Director of the Centre for Risk Studies, Professor of Operations Research at Cambridge Judge Business School, and a Fellow of Churchill College. Daniel received his PhD in 1990 from the University of Wisconsin Madison. He was a faculty member of the Mathematics & Statistics Department at the University of Melbourne before coming to Cambridge University for a joint appointment in the Engineering Department and Cambridge Judge Business School. Daniel’s research interests include optimisation methods, equilibrium models for electricity markets, and risk in business decision making. He is Editor-in-Chief of Mathematical Programming (Series B).

Managing a Multiplicity of Financial Market Catastrophes

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Scott Kelly

Senior Research Associate, Centre for Risk Studies

Scott leads the research on macroeconomic modelling. Within the centre, macroeconomic models are used to describe the global and regional impacts that occur as a result of different risk scenarios developed as part of the Cambridge Risk Framework. Research includes estimating the economic impact of exogenous shocks and their propagation in global networks. Specific research areas include the analysis of international trade, supply chain analysis, sector analysis and the estimation of supply chain risk. Prior to joining the Centre for Risk Studies research included modelling the macroeconomic impact of disasters, the economics of infrastructure, complex systems modelling, input output analysis, econometrics, energy systems modelling and sustainable development. Specialising in applied modelling approaches, expertise has been developed in a variety of different statistical techniques such as multiple linear regression, panel methods and structural equation modelling. More recently knowledge has been developed in the application input-output models, social network analysis and agent based models.

Exploring Tail Risk in Financial Catastrophe

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Climate Change & Investor Sentiment Shock

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Olaf Bochmann

Research Associate, Centre for Risk Studies

Olaf Bochmann is a postdoctoral research associate at the Centre for Risk Studies. He was previously a postdoctoral fellow at the University of Oxford, and he holds a PhD from the University of Leuven. His research mainly focuses on systemic risk and financial stability, as well as complex networks and agent-based modelling.

Scenario 1: Global Property Crash

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Andrew Chaplin

Risk Researcher, Centre for Risk Studies

Dr Andrew Chaplin was a Non-Resident Senior Member of King’s College, Cambridge. He has Eurozone central government and central bank economic, fiscal and monetary policy formation advisory experience under financial crisis conditions and is member of a private international government advisory expert network. He has advised a pre-EU accession candidate sovereign on economic reform policy. His doctorate is in econometric modelling from the University of Cambridge, where he was member of the Cambridge Growth Project. He holds a masters degree in economics from Oxford University, where he was member of the Governing Body and Investment Committee of Wolfson College, and he has early career private banking and non- executive board director experience. During the Thatcher Administration he was Economic Adviser to the Cabinet Office Policy Unit for regulatory reform and deregulation policy. He has held a Mediterranean university econometrics lectureship and supervised for the University of Cambridge’s Economics Tripos. He worked with the Policy Fellows Programme at the Centre for Science and Policy, University of Cambridge Judge Business School, and research interests included central bank response to international crises.

Regulatory Perspectives in Financial Crises

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Jay Jung

Risk Researcher, Centre for Risk Studies

Jay Jung is an associate of the Centre for Risk Studies. Jay has expertise in performing business analytics and measuring the performance of global financial services institutions operating in emerging economies. Jay is interested in examining various aspects of risk elements in the network of financial services institutions and developing tools that can monitor and analyse behaviour of financial networks. Jay holds a PhD degree in History from the University of Cambridge and has worked with and advised executives at numerous financial institutions and multinational corporations.

Scenario 2: Dollar Deposed

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Eugene Neduv

Risk Researcher, Centre for Risk Studies

Eugene Neduv is an expert in quantitative methods in finance and a risk management professional. His interests include network analytics, volatility trading and portfolio optimisation. Eugene graduated from Columbia University in 2002 with a PhD degree in Mathematics and continued as a postdoctoral researcher at the Brazil Institute for Pure and Applied Mathematics and Humboldt University in Germany. Eugene has 10 years’ work experience in financial analytics and risk management software and as an independent consultant for several hedge funds in New York and Sao Paulo.

Early Warning for Financial Crises

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Ali Rais Shaghaghi

Research Assistant, Centre for Risk Studies

Ali Shaghaghi holds a PhD in Computational Finance from the Centre for Computational Finance at the University of Essex. Ali’s research at the Centre for Risk Studies focuses on quantifying systemic risk and building holistic data-based models representing financial systems. He was a KTP Associate and a Marie Curie Fellow at the University of Essex before coming to the University of Cambridge. His recent publications include systemic risk analytics in CDS markets and the role of clearing counterparties in OTC derivatives markets reform.

Scenario 3: Eurozone Meltdown

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Jaclyn Yeo

Research Assistant, Centre for Risk Studies

Jaclyn is a Research Assistant at the Centre for Risk Studies, holding an MPhil degree in Engineering for Sustainable Development from Cambridge University. At the Centre for Risk Studies, Jaclyn leads the research on macroeconomic modelling, which is the main tool used for describing risk scenarios developed as part of the Cambridge Risk Framework. Jaclyn’s specific research areas include the analysis of climate change risks, regional trade and economy, scenario stress-testing and financial portfolio management. Prior to joining the Centre for Risk Studies, Jaclyn spent six years in a specialist consultancy firm in Singapore as the Head of Section, Environmental Services Management, specialising in environmental monitoring, impact assessments, and project management.

Scenario 4: High Inflation World

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