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The largest investment banks in London each have thousands of servers largely devoted to Monte Carlo simulations, and to quantify their risks and satisfy regulatory demands they need to be able to calculate huge numbers of sensitivities (defined below) known collectively as "Greeks". An adjoint technique developed by Professor Mike Giles in 2006 greatly reduced the computational complexity of these calculations. The technique is used extensively by Credit Suisse and other major banks, reducing their computing costs and energy consumption. It has also led to the Numerical Algorithms Group developing new software to support the banks in exploiting this new adjoint approach to computing sensitivities.
Research carried out by Cairns (Maxwell Institute), Blake (Cass Business School) and Dowd (Nottingham, now Durham) in 2006 produced the `CBD' model for predicting future life expectancy. The CBD model and its extensions developed in 2009 by Cairns and collaborators have had a major impact on pensions and life industry risk management practices: multinational financial institutions [text removed for publication] and other stakeholders have relied on the CBD model to risk assess, price and execute financial deals [text removed for publication] since 2010. CBD is also used by risk management consultants to advise clients, is embedded in both open-source and commercial software, and is used by the UK's Pension Protection Fund to measure and manage longevity risk.
Research by Reimer Kühn (RK) and collaborators has produced a framework to study and quantify the influence of interactions on risk in complex systems, including default risk in economy-wide networks of financial exposures. This work has had impact on practitioners and professional services dealing with financial risk, including research groups at central banks, who — partly in response to the recent financial crisis — have adopted such network oriented approaches to analyse and quantify systemic risk. The Financial Stability Division at the Bank of England has, for instance, developed refined versions of the network-oriented models proposed by Kühn and collaborators to specifically assess risk in the British banking system.
Neuberger, together with David McCarthy (Imperial), who, in their earlier work, had raised concerns about the sustainability of the Pensions Protection Fund (PPF), were commissioned by the Fund to conduct research on alternative levy structures. This led to the development of a new risk-based levy structure, which was implemented over the years 2012-2013. This research and its resulting impact have not only shaped how the PPF operates in ensuring the levy's burden is fairly shared, but has also benefited all UK holders of occupation based pensions and the taxpayer at large.
RVC's Veterinary Epidemiology, Economics and Public Health team (VEEPH) has been at the forefront of applying and evaluating new techniques for modelling disease risk, for policy and decision makers to use in surveillance and control of animal and zoonotic infections. Application of their recommendations, including European `Commission Decision' legislation, is contributing to ensuring that Europe remains free from African swine fever (ASF). The status of FAO Reference Centre in Veterinary Epidemiology, awarded by the United Nations' Food and Agriculture Organisation in 2012, recognises the RVC as a centre of excellence in this field and reinforces its role in guiding policies relating to animal health.
This case study charts the influence of the Risk On / Risk Off (RORO) paradigm, developed in research at the University of Oxford in collaboration with investment bank HSBC. Since 2008, RORO has had a significant economic impact on HSBC as well as wider impact on the thinking and actions of investors and other global market participants. Having begun as a specialised research tool within HSBC's foreign exchange team, the RORO methodology was publicised in the advice that HSBC supply to a wide range of major fund managers, corporate institutions and central banks. The research has led directly to a change in the way that asset managers think about investment decisions, with consequent impact on the investment and risk management strategies they undertake. RORO is regularly featured in the financial press and is becoming increasingly mainstream, with coverage in national and international media aimed at retail investors.
Statistical modelling of storms by Professor David Stephenson and co-workers in the mathematics institute at the U. of Exeter, has improved the understanding and thereby the pricing of insurance risk due to European windstorms and tropical cyclones. Temporal clustering in these catastrophic natural hazards has been quantified using novel process-based statistical models, which have then been implemented by industry to improve insurance pricing, e.g. on the integrated financial platform used by Willis actuaries to provide a more reliable view of risk as required by EU solvency 2 regulation. This research has also raised awareness in the industry about storm clustering, and has stimulated significant improvements in the main vendor catastrophe models, which are the main tools used by insurance companies to price European windstorm insurance.
Research of Professor Brigo in the areas of credit risk, pricing models for the valuation of counterparty risk, and the development of accurate calibration methods of various credit risk models has generated significant impact both on public policy and on practitioners and professional services. His models were implemented and his calibration methods adopted in the financial industry. The significance attached to his work by the industry also resulted in a collaboration with the German regulator (BAFIN). Further evidence of his impact can be found in the fact that a Court of Law based its analysis in a financial intermediation case on Brigo's research.
The Life Market is a major new global capital market for transferring longevity risk from corporate pension plans and annuity providers to long-term capital market investors, such as sovereign wealth funds and endowments, in exchange for a longevity risk premium (paid to the investors by the institutions laying off their longevity risk). Previously, the only source of longevity risk hedging was the insurance industry which, given that so many people are living much longer than anticipated, now has insufficient capacity to deal with this risk (estimated at $25trillion) on a global basis. The size of their future pension liabilities now present serious threats to the solvency of many companies. The longevity bonds and swaps designed by Professor David Blake at the Pensions Institute at Cass Business School, City University London, were integral to the creation and operation of the Life Market. The adoption of these bonds and swaps by investors has served to establish a global capital market investor base contributing towards the long-term availability of longevity solutions, benefiting the insurance and pensions industries, employers and, in turn, employees through greater security of their pensions in retirement.
This case study concerns the research of Professor David Spiegelhalter on `funnel plot' methodology for comparing institutions. This system has now become the standard method within the National Health Service for comparing clinical outcomes, including hospital Trusts with apparently `outlying' mortality rates. In particular, mortality following children's heart surgery is analysed and presented using funnel plots, and Professor Spiegelhalter's work has been instrumental in handling high-profile cases such as surgery at Oxford Radcliffe Infirmary and Leeds General Infirmary.