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Day 1: Academic seminars

June 15

09:20 Chairman's opening remarksJon Gregory
Jon Gregory
Consultant and author
9:30The Social Calculus of the Arbitrageur -- model use and cognitive inter-dependence in derivatives trading at an investment bank

After an acclaimed three-year ethnographic study of the derivatives trading room of a major investment bank, Dr Daniel Beunza offers an alternative theory for the large scale mis-pricings. Focusing on the “backing out” phenomena observed in options markets, Dr Beunza shows how traders use models to imply independent variables consistent with market observed pricing.

The process can lead to cognitive interdependence, and so-called resonance. Unlike model misuse (Black Swans) or abuse of imitation (Herding), resonance is the result of smart traders being independently minded. However the reflexive nature of the backing out culture can lead to systemic effects, where enough traders are wrong about expected results and the backed-out positions send the wrong message.

Dr Beunza
Dr Daniel Beunza
London School of Economics & Political Science (LSE) - Department of Management
11:00Hedge Fund Connectedness and the Emergence of Consensus Trades

Presenting the groundbreaking results of the first study to use triangulating interviews, field observations and social network analysis to reveal how investment decisions are made in hedge funds.

In analyses of funds managing 15 percent of global hedge fund assets, we show the social and organizational infrastructure that underpins the transfer of investment information among traders and brokers, identifying a new species of risk with implications for risk managers and regulators.

Yuval Millo
Dr Yuval Millo
London School of Economics

Jan Simon
Professor Jan Simon
IESE Business School
13:30Premium puzzles in the equity market: The anatomy of style investing strategies

When investing in equity markets, many professionals focus attention on certain groups of stocks (or styles), formed on the basis of market capitalisation, industry classification, liquidity, value or growth criteria. This session addresses practical and theoretical issues regarding style portfolio strategies.

  • Which styles have been mostly preferred by investors?
  • Efficient markets dilemma: Can the superior return of certain asset classes be regarded as compensation to fundamental risk?
  • How investors’ behaviour and market “mood” impact the risk/return profile of style portfolios?
  • Investment strategies for the hedging and diversification of style risk.
Dr Thomaides
Dr Nikolaos Thomaidis
Adjunct Lecturer in Financial Engineering, Department of Financial Engineering & Management, University of the Aegean
15:00Organizational and Cognitive Rationales among Investors in CDOs of ABS

A globally important study into attitudes and behaviours at a leading fund manager as it decides to switch its investment strategy from buy and hold of highly rated CDO tranches to active management of sub-investment grade tranches.

This change was due to market conditions and organizational issues within the firms, linked to struggles for compensation and recognition. The study helps us understand the interplay of these two during for the strategy shift, which exposed the company to heavy losses after 2007.

  • How are teams organized around specific expertise impacted by organizational conflicts?
  • What are the organizational rules that make experts adopt less familiar practices?
  • How important are the conflicts around approaches to value creation in defining commercial strategy?
  • How do fragmented interests impact investment decisions?
Horacio Ortiz
Dr Horacio Ortiz
Associate LAIOS
16:15Chairman's closing comments

Day 2: Conference

June 16

09:10 Chairman’s opening commentsJon Gregory
Jon Gregory
Consultant and author
09:15 Keynote: Evaluation Cultures and the Credit Crises

How did shared beliefs, practices, ways of calculating, and technical systems impact evaluation of asset-backed securities and CDOs before and during the credit crises?

  • Similar structures but different evaluation cultures
  • Arbitrage opportunities arising out of evaluation cultures
  • Dangers arising and risk management defects
Professor MacKenzie
Professor Donald MacKenzie
School of Social and Political Science, University of Edinburgh
10:00 Understanding the World: Metaphors, Models & Theories

  • Metaphors
  • What Makes a Model a Model?
  • What Makes a Theory a Theory?
  • Spinoza, Emotions, Derivatives
  • Money: Desire + Pain + Pleasure
  • The Scientific Foundations of Finance
  • The Right Way To Build Valuation Models
Professor Derman
Professor Emmanuel Derman
Department of Industrial Engineering and Operations Research, Columbia University. Partner , Prisma Capital Partners
11:15The Causal/Diagnostic Bias in the Elicitation of Subjective Probabilities: Implications for Stress Testing

  • Conditional probabilities: why they are important, and why they can be difficult to assign
  • Well-known biases: representativeness and causal/diagnostic bias
  • How to reduce the impact of the representativeness bias
  • How to reduce the impact of the causal diagnostic bias
  • Other cognitive improvements
  • Information about doubly-conditioned probabilities
  • Applications of Probabilities: Bayesian nets
Riccardo Rebonato
Riccardo Rebonato
Head of Front-Office Market Risk and Head of Quantitative Analytics, RBS, Visiting Lecturer Mathematical Finance, Oxford University
12:00Was that Lucky or Good? Creating a framework for skill attribution in finance, business management and other risky endeavors

  • Survival of the fattest: how the survivorship bias affects perception of history and allocation of capital and resources
  • Lucky S.O.B.s: Designing Strategies to Outperform Benchmarks with survivorship bias
  • Defining, measuring and rewarding the true skills
Arthur Berd
Arthur Berd
Head of Macro Vol Strategies, Capital Fund Management
13:30 Plato to Aristotle: From Classical to Constructive mathematics

Mathematics has engendered great progress during the twentieth century, but its Platonic paradigm is now being challenged by emerging technologies. One already sees the early signs of an emerging Aristotelic swing toward Constructive Mathematics. The presentation attempts to anticipate the radical changes in financial modelling, risk management practices and trading strategies that will ensue.

  • Platonic and Aristotelian Mathematics
  • Cantor’s paradise and why it served a purpose
  • The Black-Scholes Platonic paradigm
  • Local calibration, why it worked and why it failed
  • The innovation wave in Computer Engineering
  • Paradigm shifts in modelling and risk management
Claudio Albanese
Professor Claudio Albanese
Visiting Professor of Mathematical Finance, King's College London
14:30How should we apply the conference themes to practice in financial markets?

Short presentations from some of the most innovative thinkers in global markets on how we should apply the conference ideas to every day work in complex markets

  • Andrew Rennie, Consultant and author
  • Wim Schoutens, Research Professor and Independent Consultant, Catholic University of Leuven
  • Robert Mcadie, Head of Credit Strategy and Co-Head of European Credit Research at Barclays Capital, Barclays Capital
  • Massimmo Morini, Head of Credit Models, Coordinator of Model Research, Intesa San Paolo - Banca IMI


Stream A:Stream B:Stream C:
Recipes in the Philosophy of Mathematics

Led by Emanuel Derman/Claudio Albanese
Lessons from Sociology of the Financial Crises

Led by Donald Mackenzie
Hedge Fund Networks and Modeling - Innovations

Led by Daniel Beunza/Yuval Millo
16:30 Workshop presentations and discussion

A nominated speaker from each workshop gives a 10-minute presentation of findings, and takes questions from the audience
17:15 Chairman's closing comments
17:20Networking drinks