Seminar

Department of Systems Engineering and Engineering Management

The Chinese University of Hong Kong

Title           : Bank Compensation: Sprint Swimming in Short Bonus Pools

Speaker    : Prof. Jussi Keppo
Date          : Feb. 04th, 2013 (Monday)**Special Date**
Time          : 4:30 p.m. - 5:30 p.m.

Venue        : Room 513

                     William M.W. Mong Engineering Building

                     CUHK

Abstract:

Bonuses are a series of sequential call options on profits. Their present value and risk-sensitivity are the higher, the shorter is the time between bonus payment points. However, the manager's concern for getting red as a result of poor performance makes her risk-averse, unless the earnings threshold which triggers firing is relatively high. For the 100 largest US banks, we find only marginal evidence that banks with more risk-averse CEOs, according to our model, had relatively better stock returns during the global financial crisis. Instead, we find strong evidence that large banks did more poorly during the crisis. This could have resulted from growth and risk-taking incentives induced by their too-big-to-fail status, as we find that bank market share is related with a lower CDS spread.



Biography:

Professor Keppo teaches stochastic process, financial engineering, and risk management courses. He has several publications in the top-tier journals such as Journal of Economic Theory, Review of Economic Studies, Journal of Business, Mathematical Finance, and Journal of Economic Dynamics and Control on topics such as investment analysis, derivative instrument pricing, information economics, and production optimization. His research has been supported by several European and US agencies such as the National Science Foundation. He is on the editorial boards of Mathematics of Operations Research, Operations Research Letters, Production and Operations Management, and Journal of Energy Markets. He has consulted several Fortune 100 and asset management companies.


************************* ALL ARE WELCOME ************************


Host        : Prof. Chen Nan.

Tel          : (852) 3943-8237

Email       : nchen@se.cuhk.edu.hk

Enquiries : Prof. Li Lingfei

                 Department of Systems Engineering and Engineering Management

                 CUHK

Website    : http://seminar.se.cuhk.edu.hk

Email        : seem5202@se.cuhk.edu.hk