Research

Financial markets are a human construct with their own complex “natural” phenomena. The primary buy/sell inputs driving a market are not only in opposition to each other, but operate in a system constrained by regulatory checks. Understanding these complex relationships, in particular understanding the unstable regimes of any particular market in order to prevent occurrence, is a primary intellectual goal of financial research. As more complex and sophisticated new markets and individual instruments develop, existing financial models become obsolete; the financial models that assume perfect foresight and normal distributions are of little use in the current, fast-paced, round-the-clock, and increasingly globally inter-connected financial system in which multi-million dollar decisions are made in seconds and positions change in milliseconds under conditions of extreme uncertainty. In practice, investment strategies and risk analyses are developed under a Bayesian approach, in which “gut feeling” and “experience” are used as priori beliefs to modify the computational predictions of imperfect financial models and to utilize information gleaned empirically from data mining. The CF will provide a needed interdisciplinary research focus to address intellectual goals in two broad areas: investment and banking/regulation. Specific research topics will focus on high frequency trading, risk assessment and management, valuation of structural financial instruments, portfolio choice and optimization, asset liability management and insurance, banking, and regulation of financial institutions.