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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.
Credit scoring, the process of estimating the risk of lending to consumers, has traditionally estimated the likelihood of default over a fixed period, usually 12 months. Research carried out at Southampton's School of Management has led to a gradual shift by many financial institutions in the UK and elsewhere towards an alternative method that estimates default over any period. This approach provides accurate risk estimates over any time period. It also allows for the inclusion in the "scorecard" of economic conditions and the lending rates charged — features whose absence from previous scorecards was identified as contributing to the sub-prime mortgage crisis.
LSE research on endogenous risk has had impact at both the macro and micro level. At the macro level, it provided input for the design of the counter-cyclical measures and systemic risk surcharges in the Basel III regulations in financial markets. It also provided a significant input to the G20 agenda on financial stability. At the micro level, the research has had a significant role in shaping the thinking and recommendations of the UK Foresight Report on "The Future of Computer Trading in Financial Markets". Through this, the work had a direct impact on Markets in Financial Instruments Directive (MiFID) II, the EU legislation that governs how EU financial service markets operate. The original EC proposal for trading halts in volatile markets — Minimum Resting Times (MRT) — to regulate high frequency trading was dropped and the Foresight proposal of time stamps based on synchronised atomic clocks across trading venues was adopted.
Research by Cathcart, McNeil (both Maxwell Institute) and Morrison (Barrie & Hibbert) during the period 2008-2012 has developed a methodology based on least squares Monte Carlo to value complex insurance liabilities and manage their risks. This methodology has been adopted by Barrie & Hibbert (B&H, part of Moody's Analytics) and has enabled the company to develop an internationally leading proposition for valuing insurance products. This has generated £2.5M in revenue since 2011, through implementation in 5 new products and use in 12 new consulting projects.
QRISK is a new algorithm which predicts an individual's risk of cardiovascular over 10 years. It was developed using the QResearch database and is in routine use across the NHS. It is included in national guidelines from NICE and the Department of Health and in the GP quality and outcomes framework. It is incorporated into > 90% of GP computer systems as well as pharmacy and secondary care systems. The web calculator has been used >500,000 times worldwide. ClinRisk Ltd was incorporated in 2008 to develop software to ensure the reliable widespread implementation of the QRISK algorithm into clinical practice.
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.
Researchers at Brunel developed a new algorithm for the computation of residual risk in industrial explosion protection (IEP) installations in collaboration with Kidde Plc, which later became a part of UTC Fire and Security (UTCFS), a 57.7 billion USD company. This was the first algorithm clearly quantifying the safety integrity level versus cost trade-off in buying an IEP for the process plant owners. As the cost of such an installation varies from £40,000 to £700,000, quantifying this trade-off was a real unmet user need. A commercial implementation of this algorithm by a UK-based software vendor Optirisk Systems is now being used by the 31 strong sales force of UTCFS worldwide, as their main tool for negotiating the sales of IEP installations.
Aston Business School has changed business activities of major reinsurance firms and awareness and understandings in the global reinsurance industry. It has done so by producing an integrated suite of strategy tools to support strategic positioning, relationship management and risk analysis and trading. Reinsurance firms have adopted these tools in their internal practices, for example, to increase premium income from target clients. The implementation of these tools was facilitated through 58 tailored reports to firms worldwide, 22 commissioned company-specific strategy workshops, targeted distribution of our industry reports, invited presentations at prestigious events, and training activities for reinsurance professionals.
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.
LSE research has become a focal point for understanding how the `crowding' effects of auditable targets can have unintended and often dysfunctional consequences for organisations and the public. The impact has two elements. First, challenging conventional wisdom and stimulating debate among stakeholders and practitioners in their search for best practice. The reach of this challenge has been global and across different fields, including accounting, risk management, public administration, social policy, education and psychiatry. Second, influencing actual changes to auditing and risk management policy and practice arising from these debates.