PUBLIC LECTURE
Professor
Dilip Madan
Robert H. Smith School of Business, University of Maryland College Park, USA
December 7, 2009
EURANDOM, Laplace Building TU/e, Green Lecture Room (LG 1.105)
PROGRAMME
15.45 |
Coffee/Tea |
15.55
|
Welcome
by
Professor Onno Boxma, Scientific
Director EURANDOM Introduction:
Professor dr. A.M. Cohen, Dean Mathematics and Computer Science
department TU/e
Professor dr. W. Schoutens, KU Leuven |
16.00
|
Capital Requirements, Acceptable Risks
and Profits
The optimality of free markets is called into question by
the presence of limited liability. Risk distortions induced by limited
liability in the private sector are documented. It is noted that risk
preferences are biased towards higher volatility, skewness and kurtosis
coupled with an incentive to decorrelate assets from liabilities. The
consequence is economically poor risk choices that are ex-aggerated by
compensation aligned with stock market values. In such a context we
introduce the concept of socially acceptable risks, operationalized by a
positive expectation after distortion of the distribution function for risky
cash flows. This results in a definition of capital requirements making the
risks undertaken acceptable to the wider community. Enforcing such capital
requirements can mitigate the perverse risk incentives introduced by limited
liability, provided that the set of acceptable risks is suitably
conservatively defined. A careful, critical and external assessment of
capital requirements is therefore essential for the efficient and proper
functioning of the private sector.Short Biography
Professor Dilip B. Madan (12-12-1946) is Professor of Finance
at the Robert H. Smith School of Business, University of Maryland at College
Park. He did his PhD in Economics (1971), University of Maryland and PhD in
Mathematics (1975), University of Maryland. He serves as a consultant to
Morgan Stanley, Caspian Capital LLC, and the FDIC. He is a founding member
and immediate Past President of the Bachelier Finance Society, Co-Editor of
Mathematical Finance and Associate Editor for the Journal of Credit Risk and
Quantitative Finance.
His work is dedicated to improving the quality of financial
valuation models, enhancing the performance of investment strategies, and
advancing the understanding and operation of efficient risk allocation in
modern economies. Recent major contributions have appeared in Mathematical
Finance, Finance and Stochastics, Quantitative Finance, The Journal of
Computational Finance, among other journals. His particular area of
expertise is Mathematical Finance with its wide array of theoretical,
applied and innovative concerns that range from issues of formulating and
testing our understanding of market price determination to the more detailed
aspects of pricing particular claims, like the wide range of equity and
fixed income derivatives now traded, and improving the quality of risk
management through the development of innovative financial products and better
methods for processing financial information. |
17.00 |
Reception |
Mini-Course (1)
Professor
Dilip Madan
Robert H. Smith School of Business, University of Maryland College Park, USA
Monday
February 1, 2010
EURANDOM, Laplace Building TU/e, Green Lecture Room (LG 1.105)
"Stochastic Processes in
Financial Applications"
Programme
10.15-12.30 |
Lecture I: Lévy , Sato, Savy (Sato Lévy)
processes. |
13.30-15.00 |
Lecture II: Local Lévy processes and
Stochastic Volatility |
15.00-15.30 |
Coffee/Tea break |
15.30-17.00 |
Lecture III: Multivariate Processes, FGC, VGC, LML and Local Correlation |
Reading materials
-
Schoutens, Wim (2003), Lévy Processes in Finance: Pricing Financial
Derivatives, Wiley Series in
Probability and Statistics.
-
Sato, K. (1999), Lévy
processes and Infinitely Divisible Distributions,
Cambridge University Press, Cambridge.
-
Carr, P., H. Geman, D. Madan and M. Yor (2007),
Self-Decomposability and Option Pricing,.Mathematical
Finance, 17, 31-57.
-
Madan, D. and Wim Schoutens (2009), Simple Processes and the
pricing and Hedging of Cliquets, Working Paper, Smith School of Business.
not published, available on request,
koorn@eurandom.tue.nl .
Carr, P., H. Geman, D. Madan and M. Yor (2005), From Local
Volatility to Local Levy Models,. Quantitative
Finance, 4, 581-588
Carr, P., H. Geman, D. Madan and M. Yor (2003), Stochastic
Volatility for Levy Processes,
Mathematical Finance, 13, 345-382.
Madan, D. (2009), A Tale of Two Volatilities, Review of Derivatives Research,
12, 213-230.
E. Eberlein and D. Madan (2009), Sato Processes and the
Valuation of Structured Products,
Quantitative Finance, 9, 27-42.
Khanna, A. and D. Madan (2009), Non-Gaussian models of
dependence in returns,.Working paper, Smith School of Business, not published, available on request,
koorn@eurandom.tue.nl .
Mini-Course
(2)
Professor
Dilip Madan
Robert H. Smith School of Business, University of Maryland College Park, USA
Wednesday
January 13, 2011
EURANDOM, Laplace Building TU/e, Green Lecture Room (LG 1.105)
"An
Introduction to Conic Finance and its Applications"
Programme
08.30 - 09.00 |
Welcome |
|
|
|
|
09.00 - 10.30 |
Lecture 1 |
Indices of risk acceptability |
|
|
|
10.30 - 11.00 |
Coffee/tea break |
|
|
|
|
11.00 - 12.30 |
Lecture 2 |
The market as a counterparty and
the law of two prices |
|
|
|
12.30 - 13.30 |
Lunch |
|
|
|
|
13.30 - 15.00 |
Lecture 3 |
Determining capital requirements and the value of the taxpayer put |
15.00 - 15.30 |
Coffee/tea break |
|
15.30 - 17.00 |
Lecture 4 |
The corporate balance sheet, DVA, and capital minimization as a
corporate objective |
|
|
|
17.00 - 18.00 |
Closing Drinks |
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Reading Material
(Papers may be downloaded from SSRN)
Cherny, A. and D. Madan (2009), New Measures for Performance Evaluation, Review
of Financial Studies, 22, 2571-2606. SSRN 1422407.
Cherny, A. and D. Madan (2010), Markets as a counterparty: An introduction to
conic finance, forthcoming, International Journal of Theoretical and Applied
Finance, SSRN 1540777.
Madan, D. (2009), Capital Requirements, Acceptable Risks and Profits,
Quantitative Finance, 9, 767-773, SSRN 1540812.
Eberlein, E. and D. Madan (2010), Unbounded Liabilities, Capital requirements,
and the value of the taxpayer put option, SSRN 1540813.
D. Madan and W. Schoutens (2010), Conic Finance and The Corporate Balance Sheet,
SSRN 1547022.
Eberlein, E. Gehrig, T. and D. Madan (2010), Pricing to Acceptability: With
applications to valuing one.s own credit risk. SSRN 1540778.
Carr, P, D. Madan and J.J. Vicente Alvarez (2010), Markets, Profits, Capital,
Leverage and Return, SSRN 1679503.
Madan, D. (2010), Conserving Capital by adjusting Deltas for Gamma in the
presence of Skewness, forthcoming Journal of Risk and Financial Management, SSRN
1679519.7
Last modified:
13-01-11
Maintained by Patty Koorn
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