Financial Mathematics Post Crisis (FIMAC)
Contact Person: Prof. Dr. Thilo Meyer-Brandis.
Principal Investigators: Prof. Dr. Francesca Biagini, Dr. Nils Detering, Prof. Dr. Christian Fries, Prof. Dr. Thilo Meyer-Brandis, Prof. Stefan Mittnik Ph.D., Prof. Dr. Konstantinos Panagiotou, Prof. Dr. Gregor Svindland
The financial crisis has demonstrated that systemic risk due to the interconnectedness of financial-market participants - such as financial institutions, insurers, governments and, even, regulators themselves - can dramatically amplify the consequences of isolated shocks to financial systems and pose a serious threat to prosperity and social stability. Traditional risk management strategies as well as regulation have predominantly focused on the solvency of individual institutions and ignored the systemic risk. The research program “Financial Mathematics Post Crisis” seed funded by the Investment Fund as part of the LMUexcellent initiative, aims to overcome this, potentially, fatal flaw and to develop an innovative quantitative framework for systemic risk management that can help to better understand, monitor, and subsequently enhance the performance of complex large scale financial systems. This will enable financial institutions to design more realistic risk-management strategies and regulators to design more adequate and robust regulatory processes, making financial-market meltdowns less likely.
To achieve these research objectives, the proposed interdisciplinary project intends to bring experienced researchers from Financial Mathematics, Discrete Mathematics and Statistics together in order to cooperate in the following three core areas of investigations:
- Establishing models for asset bubbles (i.e., cases of persistent asset mispricing), which are a common cause of financial-market shocks.
- Provide a framework to realistically model, measure and control systemic risk.
- Making systemic risk an integral part of counterparty-risk assessment in portfolio valuation and optimization models.
Project related events and conferences:
- Workshop on Financial Modeling of Bubbles, May 2013
- quantLab-Workshop: Stochastic Volatility and Multi-Curves, April 2014
Project related publications:
- Shifting Martingale Measures and the Birth of a Bubble as a Submartingale
Biagini, F. , Föllmer, H., Nedelcu, S. ,
Finance and Stochastics: Volume 18, Issue 2, Page 297-326, 2014
- The formation of financial bubbles in defaultable markets
Biagini, F. , Nedelcu, S. ,
- Risk-Consistent Conditional Systemic Risk Measures
Hoffmann, H. , Meyer-Brandis, T. , Svindland, G. ,
- Collateralization and funding valuation adjustments for Total Return Swaps
Fries, C. , Lichtner, M. ,
- VaR-implied tail-correlation matrices
Economic Letters, 2014, 69-73
- Bootstrap percolation in inhomogeneous random graphs
Amini, H. , Fountoulakis. N. , Panagiotou K.