Nobel Laureate in Economic Sciences Prof Robert Engle from New York University discusses the concept of risk in financial markets and how it is measured with volatility models. He argues the use of standard Value at Risk measures ignores the risk that the risk will change and demonstrates how the use of short term risk measures contributed to the recent financial crisis.
This talk discusses the concept of risk in financial markets, how it is measured with volatility models and how it looks today. It then focuses on the causes of the recent financial crisis with a brief mention of the regulatory reforms that are being proposed for its solution. The long run risks facing our society, including global overheating are addressed.
It then goes on to address the measurement of risk in financial markets and how the use of standard Value at Risk measures ignores the risk that the risk will change. A proposal of additional risk measures and a discussion of portfolio strategies follow as well as a demonstration of how the use of short term risk measures contributed to the financial crisis.
About the speaker
Robert Engle, the Michael Armellino Professor of Finance at New York University Stern School of Business, was awarded the 2003 Nobel Prize in Economics for his research on the concept of autoregressive conditional heteroskedasticity (ARCH). He developed this method for statistical modeling of time-varying volatility and demonstrated that these techniques accurately capture the properties of many time series. Prof Engle shared the prize with Clive W. J. Granger of the University of California at San Diego.
Prof Engle is an expert in time series analysis with a long-standing interest in the analysis of financial markets. His ARCH model and its generalizations have become indispensable tools not only for researchers, but also for analysts of financial markets, who use them in asset pricing and in evaluating portfolio risk. His research has also produced such innovative statistical methods as cointegration, common features, autoregressive conditional duration (ACD), CAViaR and now dynamic conditional correlation (DCC) models.
Prof Engle received his BSc in Physics from Williams College, and his MSc in Physics and PhD in Economics from Cornell University. He is currently the Director of the newly created NYU Stern Volatility Institute and is the Co-Founding President of the Society for Financial Econometrics (SoFiE), a global non-profit organization housed at New York University. Before joining NYU Stern in 2000, he was Chancellor’s Associates Professor and Economics Department Chair at the University of California, San Diego, and Associate Professor of Economics at the Massachusetts Institute of Technology.
