Seminar: Large Portfolio Asymptotics for Loss From Default


Department of Systems Engineering and Engineering Management
The Chinese University of Hong Kong

Title: Large Portfolio Asymptotics for Loss From Default

Speaker: Prof. Kay Giesecke
               Dept. of Management Science and Engineering
               Stanford University

Date: Jan. 17th, 2012 (Tuesday)

Time: 4:00 p.m. - 5:00 p.m.

Venue: Room 513
            William M.W. Mong Engineering Building
            (Engineering Building Complex Phase 2)


We prove a law of large numbers for the loss from default and use it for approximating the distribution of the loss from default in large, potentially heterogenous portfolios. The density of the limiting measure is shown to solve a non-linear SPDE, and the moments of the limiting measure are shown to satisfy an infinite system of SDEs. The solution to this system leads to the distribution of the limiting portfolio loss, which we propose as an approximation to the loss distribution for a large portfolio. Numerical tests illustrate the accuracy of the approximation, and highlight its computational advantages over a direct Monte Carlo simulation of the original stochastic system.

This is joint work with Kostas Spiliopoulos, Richard Sowers, and Justin Sirignano.


Kay Giesecke is an Assistant Professor of Management Science & Engineering at Stanford University. He is on the faculty of Stanford's Financial Mathematics Program. Prior to joining Stanford in 2005, he was with Cornell University's School of Operations
Research and Information Engineering. Kay's research addresses the quantification and management of financial risks, especially the risk of default. He is particularly interested in the stochastic modeling, valuation and hedging of credit risks, the development of statistical tools to estimate and predict these risks, and the methods for solving the significant computational problems that arise in this context. His research contributions
enable more effective hedging of credit risks, better risk management at financial institutions, and more accurate measurement of systemic risk in financial markets. They also inform the design of regulatory policies. Kay's research group CreditLab has been
funded by grants from JP Morgan, Morgan Stanley, Mizuho, Moody's, Credit Suisse and American Express. In 2003, Kay received the Gauss Prize of the Society for Actuarial and Financial Mathematics of Germany. He is the recipient of the 2007 Stanford Graduate Teaching Award. Kay has served as a consultant to banks, investment and risk management firms, governmental agencies, and supranational organizations in the area of risk management and derivatives valuation and hedging. He holds a U.S. patent on a method for the quantification of credit risk in the presence of incomplete information. Kay serves on the editorial boards of Operations Research, the Journal of Banking and Finance, Operations Research Letters, and IIE Transactions.

************************* ALL ARE WELCOME ************************
Host: Prof. Nan Chen

Tel: (852) 3943-8237


Enquiries: Prof. Nan Chen or Prof. Sean X. Zhou
                 Department of Systems Engineering and Engineering Management




Tuesday, January 17, 2012 - 08:00 to 09:00