Agenda

Day 1
Day 2

09:20	Chairman's opening remarks	Jon Gregory Consultant and author
9:30	The 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 Daniel Beunza London School of Economics & Political Science (LSE) - Department of Management
10:45	Coffee
11:00	Hedge 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.	Dr Yuval Millo London School of Economics Professor Jan Simon IESE Business School
12:30	Lunch
13:30	Premium 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 Nikolaos Thomaidis Adjunct Lecturer in Financial Engineering, Department of Financial Engineering & Management, University of the Aegean
14:45	Coffee
15:00	Organizational 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?	Dr Horacio Ortiz Associate LAIOS
16:15	Chairman's closing comments

09:10

Chairman’s opening comments

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 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 Emmanuel Derman
Department of Industrial Engineering and Operations Research, Columbia University. Partner , Prisma Capital Partners

11:00

Coffee

11:15

The 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
Head of Front-Office Market Risk and Head of Quantitative Analytics, RBS, Visiting Lecturer Mathematical Finance, Oxford University

12:00

Was 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
Head of Macro Vol Strategies, Capital Fund Management

13:00

Lunch

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

Professor Claudio Albanese
Visiting Professor of Mathematical Finance, King's College London