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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: LÚvy , Sato, Savy (Sato LÚvy) processes.
13.30-15.00 Lecture II: Local LÚvy 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), LÚvy Processes in Finance: Pricing Financial Derivatives, Wiley Series in Probability and Statistics.

  • Sato, K. (1999), LÚvy 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  

 

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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