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Systemic risk

Financial markets generate a continuous flow of data. Prices change every moment, prompting traders to revise their portfolios. For financial institutions with hundreds of traders, keeping track of their ever- changing portfolios and their future possible evolutions is a very complex task, requiring sophisticated skills in computer science, statistics and finance. The financial industry keeps investing massively in its information and risk management systems. The financial crisis of 2008 has given new scope to this endeavor, prompting new efforts to bring the inter-bank transactions to regulated clearing facilities.

It is necessary to continue developing appropriate algorithms to effectively use the most powerful hardware to monitor trading portfolios and their risk. Moreover, it is necessary to design market facilities able to withstand the stress that occurs periodically in financial markets. That is accomplished largely through simulation methods, such as the Filtered Historical Simulation. The challenge in creating these simulations is the changing risks affecting the financial industry which require the continued search for fast and robust techniques to improve existing algorithms.

Link to Knowledge Area:

Institute of Finance (IFIN)

Center for Economic and Political Research on Aging

Knowledge Area Leader: Giovanni Barone-Adesi

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