Can Swing Pricing Prevent Mutual Fund Runs and Fire Sales?


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


Date: Thursday, 4:30pm - 5:30pm, December 21, 2017

Title: Can Swing Pricing Prevent Mutual Fund Runs and Fire Sales?

Speaker: Prof. Agostino Capponi

Abstract: We develop a model of the feedback between mutual fund outflows and price impact in which asset illiquidity can lead to fund failure through the first-mover advantage in the pricing of mutual fund shares. Some investors anticipate the impact on the fund's net asset value of other investors' redemptions and exit first at favorable prices. Our model shows that (i) this first-mover advantage introduces a nonlinear dependence between an initial price shock and the resulting endogenous asset price change, amplifying the fire sale impact of the initial shock; (ii) because of this amplification, there is a critical shock threshold beyond which a run brings down the fund; (iii) swing pricing transfers liquidation costs from the fund to redeeming investors, and it reduces these costs by removing the nonlinearity stemming from the first-mover advantage.(joint work with Paul Glasserman and Marko Weber)

Biography:  Agostino Capponi is an assistant professor of financial engineering in the Industrial Engineering and Operations Research Department at Columbia. His research interests are in systemic risk and financial stability, counterparty risk, economics of clearinghouses, market microstructure, and fixed-income portfolio selection. He serves as an External Consultant at the U.S. Commodity Futures Trading Commission, Office of the Chief Economist, on topics related to clearinghouse collateral requirements and financial stability. His research has been funded by the NSF, DARPA, the Institute for New Economic Thinking, and the Global Risk Institute. He received a prize from the MIT Center for Finance and Policy and the Harvard Crowd Innovation Laboratory for his SIFI default resolution framework, and the Bar-Ilan prize for general research in financial mathematics. Agostino serves on the editorial boards of Mathematical Finance, Applied Mathematical Finance, Operations Research Letters, and as the Department Editor of the Institute of Industrial Engineering Transactions. Agostino received his Master and Ph.D. Degree in Computer Science and Applied and Computational Mathematics from the California Institute of Technology, respectively in 2006 and 2009.

Everyone is welcome to attend the talk!

Venue: Room 513,William M.W. Mong Engineering Building
(ERB),(Engineering Building Complex Phase 2) The Chinese University of
Hong Kong.

The talk will be hosted by:
Prof. Chen Nan,
Department of Systems Engineering and Engineering Management,
The Chinese University of Hong Kong,

SEEM-5201 Website:

Thursday, December 21, 2017 - 16:30 to 17:30