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Convex optimisation in financial risk management

Summary of the impact

Prof. Pennanen and collaborators have developed mathematical models and computational techniques for financial risk management. The techniques allow for quantitative analysis and optimization of financial risk management actions in an uncertain investment environment. The techniques have been used by the State Pension Fund, Ministry of Social Affairs and Health, Bank of Finland and Pension Policy Institute. The techniques have significant impact on practitioners and professional services in increasing the awareness and understanding of long-term financial risks that are difficult to quantify with more traditional techniques. Beneficiaries of the developed risk management techniques include future pensioners and tax payers.

Submitting Institution

King's College London

Unit of Assessment

Mathematical Sciences

Summary Impact Type

Economic

Research Subject Area(s)

Mathematical Sciences: Applied Mathematics, Statistics
Commerce, Management, Tourism and Services: Banking, Finance and Investment

Designing financial instruments to protect against financial stress

Summary of the impact

Research by Oxford econometricians provided the basis for innovative new methods for predicting periods of potential financial stress and providing protection for investors against extreme events. During periods of financial stress, equity funds tend to sharply lose value while volatility tends to increase. Adding some long volatility exposure to a standard equity portfolio can significantly improve the tail behaviour of a portfolio. However, it is expensive to continually hold volatility contracts due to the volatility risk premium. Researchers at Man Group have applied the Oxford research to create new strategies to protect against tail risk and these are incorporated in their Tail Protect fund launched in October 2009.

Submitting Institution

University of Oxford

Unit of Assessment

Economics and Econometrics

Summary Impact Type

Economic

Research Subject Area(s)

Mathematical Sciences: Statistics
Economics: Econometrics
Commerce, Management, Tourism and Services: Banking, Finance and Investment

1: Impact of Research on Financial Crises

Summary of the impact

As part of our commitment to public sociology (see REF3a), we have prioritised making Edinburgh sociological research on financial crises available to wider audiences: financial practitioners, policy makers and interested members of the general public. This has been primarily via six essays by Donald MacKenzie in the London Review of Books (LRB) and two invited articles in the Financial Times, listed in section 5.3. The impact of this research is in enhancing cultural understanding of finance and contributing to critical public debate. Evidence of its significance and reach includes: (a) public recognition (eg Prospect magazine naming MacKenzie amongst the 25 intellectuals with most impact on the "public conversation" about the financial crisis);
(b) articles by others in prominent sources (the Financial Times and Economist) drawing on his work;
(c) use of the Edinburgh University research in a major US corporate lawsuit;
(d) reprints of the LRB articles eg in French and German public affairs magazines, in the booklets accompanying a Swedish exhibition and a Belgian art video, and in two financial-practitioner magazines.

Submitting Institution

University of Edinburgh

Unit of Assessment

Sociology

Summary Impact Type

Societal

Research Subject Area(s)

Economics: Applied Economics, Econometrics
Commerce, Management, Tourism and Services: Banking, Finance and Investment

The ethics of finance and business

Summary of the impact

This case study looks at the impact on the international finance industry and big business of research conducted at Heythrop College by Catherine Cowley. Cowley's work is transforming the ethical framework with which some of the most powerful corporations in the world operate and how they understand their role in society, as well as influencing the direction and content of the public debate over the ethics of finance and business.

Submitting Institution

Heythrop College

Unit of Assessment

Theology and Religious Studies

Summary Impact Type

Societal

Research Subject Area(s)

Mathematical Sciences: Statistics
Economics: Applied Economics
Commerce, Management, Tourism and Services: Banking, Finance and Investment

Mortgage market choices and policy

Summary of the impact

Professor David Leece's research on household decision making, risk and mortgage design had a significant influence on a fundamental review of the United Kingdom's mortgage market carried out in 2003-4, and consequently has had a major continuing impact on: (i) understanding the role of mortgage market economics in the financial crisis of 2007-8; and (ii) the ability of a global investment bank (and the banking sector more widely) to understand, value and hedge risk in securitised mortgage debt.

Submitting Institution

Keele University

Unit of Assessment

Business and Management Studies

Summary Impact Type

Economic

Research Subject Area(s)

Economics: Applied Economics, Econometrics
Commerce, Management, Tourism and Services: Banking, Finance and Investment

UOA10-11: Risk On / Risk Off: from academic research to financial market staple

Summary of the impact

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.

Submitting Institution

University of Oxford

Unit of Assessment

Mathematical Sciences

Summary Impact Type

Economic

Research Subject Area(s)

Economics: Applied Economics, Econometrics
Commerce, Management, Tourism and Services: Banking, Finance and Investment

Informing Governance and Building Capacity in the Islamic Financial Services Sector

Summary of the impact

Durham University research on the governance and regulation of Islamic Finance in the global political economy has played a significant role in shaping the rapidly-growing global Islamic Financial services sector, informing industry provision and contributing to the development of the human resource base in many countries. Pioneering research over the past twenty years has made Durham a supplier of research-based advisory services to public and private institutions which manage the regulation and governance of the sector, deliver Islamic financial products, and develop the knowledge and skills of sector workers through the work of the Durham Centre for Islamic Economics and Finance.

Submitting Institution

University of Durham

Unit of Assessment

Politics and International Studies

Summary Impact Type

Economic

Research Subject Area(s)

Economics: Applied Economics
Commerce, Management, Tourism and Services: Banking, Finance and Investment
Philosophy and Religious Studies: Religion and Religious Studies

Improving Financial Capability and Wellbeing in Britain

Summary of the impact

Between 2008 and 2011 Essex researchers were funded by the Financial Services Authority (FSA) to investigate the determinants and effects of an individual's `financial capability'. Since 2010 the results of this research have informed Money Advice Service initiatives, under the direction of the FSA, to increase the financial capability of people negotiating significant life events. The research has also raised awareness among mental health providers and policy makers of the benefits that financial management skills have in building resilience and improving wellbeing. In particular, the Money Advice Service used the team's findings to develop an online service for people experiencing divorce/separation and a redundancy guide for people faced with job loss. The research also influenced the current government's policy objectives surrounding wellbeing and child poverty.

Submitting Institution

University of Essex

Unit of Assessment

Business and Management Studies

Summary Impact Type

Economic

Research Subject Area(s)

Medical and Health Sciences: Public Health and Health Services
Economics: Applied Economics

Improving individuals’ financial knowledge, skills and behaviours

Summary of the impact

The Personal Finance Research Centre (PFRC) at the University of Bristol conducted research between 2004 and 2006 to develop the UK's first quantitative baseline survey of financial capability. The survey was a significant departure from previous methodologies in that it not only assessed knowledge, but also skills and behaviours. The survey results became the basis for the Financial Services Authority's (FSA) understanding of financial capability in the UK, and PFRC's analysis of the survey findings were used to set priorities for its National Strategy for Financial Capability, worth £90 million. One of the findings of the survey was that young people are much less financially capable than their elders. As a result, a priority within the National Strategy was to educate young people. A number of programs were put in place including Learning Money Matters, which offered free advice, support and resources to schools between 2006 and 2011. The program successfully reached over 2 million young people in 4,259 schools, and in 2011 economic wellbeing and financial capability became a statutory part of school curriculum in England. Overall, the FSA strategy was deemed successful, exceeding its target of reaching 10 million people. International bodies regard the FSA's baseline survey as a model for their own work and the UK methodology has been adopted by countries including Ireland, Canada and the Netherlands. The World Bank has led a substantial research and evaluation programme in low and middle income countries that uses the UK approach.

Submitting Institution

University of Bristol

Unit of Assessment

Geography, Environmental Studies and Archaeology

Summary Impact Type

Economic

Research Subject Area(s)

Economics: Applied Economics
Commerce, Management, Tourism and Services: Banking, Finance and Investment

Credit risk modelling

Summary of the impact

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.

Submitting Institution

King's College London

Unit of Assessment

Mathematical Sciences

Summary Impact Type

Economic

Research Subject Area(s)

Mathematical Sciences: Statistics
Economics: Econometrics
Commerce, Management, Tourism and Services: Banking, Finance and Investment

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