Research Symposium --
The Quantitative Revolution and the Crisis: How Have Quantitative Financial Models Been Used and Misused

Friday December 4, 2009
8:30 a.m. – 2:00 p.m.

Venue: The Italian Academy
1161 Amsterdam Avenue (between 117th and 118th Streets)
New York (directions and online map).

Co-hosted by: The Center on Japanese Economy and Business and the Sanford C. Bernstein & Co. Center for Leadership and Ethics

The popular press and a recent spate of remarkable books have pointed critically to the contribution of financial innovation and quantitative models to the financial crisis. These critiques have cited particular statistical approaches, such as the Gaussian copula, for massively underestimating systemic risk. The broader critiques doubt the risk management capabilities of firms and regulators to understand and evaluate complex financial instruments, such as synthetic securities. These critiques cut at the core of the Basel II international regulations which permitted banks to create their own models to value illiquid and risky assets. They also have major implications for the design of a regulatory system and regulations regarding whether regulation is at all possible, who is best able to do it, and ultimately if complex financial innovation should be sharply curtailed.

This symposium will bring together academics and financial professionals to discuss the impact of the quantitative revolution in financial markets and the challenges posed to exchanges, institutions, regulators and other players.

AGENDA
8:30 – 8:45 AM

 Breakfast and Registration

8:45 – 9:00 AM

Welcome and Introduction

Welcome by Hugh Patrick
R.D. Calkins Professor of International Business Emeritus;
Director, Center on Japanese Economy and Business
Columbia Business School

Introduction of Keynote speaker by Bruce Kogut
Sanford C. Bernstein & Co. Professor of Leadership and Ethics;
Director, Sanford C. Bernstein & Co. Center
Columbia Business School

9:00 – 9:45 AM

Keynote Presentation: 

Donald MacKenzie
Professor of Sociology
University of Edinburgh:
"Models, Markets, and Crises"

Donald MacKenzie is one of the leading scholars on the impact of option modeling on market behavior as well as a frequent contributor to the current debate.
(35 minute presentation, 10 minute Q&A | Download presentation PDF | See video of the keynote presentation on YouTube.)

9:45 – 11:15 AM

Panel 1: Does the Practice of Quantitative Finance Need to Be Changed?
Quantitative financial models have been the source of major financial innovations in capital markets, but they also have been heavily criticized for being wrong and to having underestimated and contributed to systemic risk. Is this true and what should be done?

See video of this panel on YouTube.

Paul Glasserman (Moderator)
Jack R. Anderson Professor of Business
Columbia Business School

Emanuel Derman
Professor, Department of Industrial Engineering and Operations Research
Columbia University
Head of Risk
Prisma Capital Partners (Download presentation PDF)

Daniel Beunza
Lecturer, Department of Management
London School of Economics

Kent Daniel
Director of Research
Goldman Sachs

Adam Parker
Chief Investment Strategist;
Director of Quantitative Research
Sanford C. Bernstein & Co. LLC

(15 minute presentations, 30 minutes Q&A )

11:15–11:30 AM
 Coffee Break

11:30 – 1:00 PM

Panel 2: Why Was the Financial Crisis Less Enduring in Japan and Other Countries…this time around?
The financial sectors in the United States and the United Kingdom have been deeply hurt in this crisis, generally more so than in other countries, with a few notable exceptions, e.g. Iceland. Were other countries less affected because they did not adopt the new financial innovations proposed by quantitative finance? Were they better regulated?

See video of this panel on YouTube.

Ronald Gilson (Moderator)
Marc and Eva Stern Professor of Law and Business
Columbia Law School

Takatoshi Ito
Visiting Professor at Columbia University;
Professor of Economics, The University of Tokyo

Floyd Norris
Chief Financial Correspondent
The New York Times

Jacques Longerstaey
Executive Vice President and Chief Risk Officer
State Street Global Advisors

Thierry Porte
Operating Partner
J.C. Flowers & Co., LLC.
Former President and CEO
Shinsei Bank, Limited

1:00 – 2:00 PM
 Closing Remarks and Buffet Lunch


Researchers and faculty interested in attending future symposia can contact: leadershipethics (AT) gsb (DOT) columbia (DOT) edu.

Related Academic papers

Beunza, Daniel and Stark, David, 2009, "Looking Out, Locking In: Financial Models and the Social Dynamics of Arbitrage Disasters", available at SSRN.

MacKenzie, Donald "All Those Arrows", June 2009.

MacKenzie, Donald "Is Economics Performative? Option Theory and the Construction of Derivatives Markets", June 2006.

MacKenzie, Donald "Models as Coordination Devices".

Derman, Emanuel "On Fischer Black: Intuition is a Merging of the Understander with the Understood". Talk delivered at Bloomberg, NYC. November 24, 2009.

Derman, Emanuel "Models".