Excitation in Insurance and Finance
In this talk, Roger Laeven will discuss a class of models designed to capture the dynamics of financial returns and P&L’s, with periods of crises that are characterized by financial contagion. In the models, a jump in one region of the world or financial institution increases the intensity of jumps both in the same region or institution (self-excitation) as well as in other regions or institutions (cross-excitation), generating episodes of highly clustered jumps across world markets or institutions that mimic the observed features of the data. Estimation and testing procedures for these models are briefly discussed. The models are directly amenable to a wide variety of quantitative risk management applications such as measuring market stress, CDS and derivative pricing, and portfolio choice. A few illustrations of such applications will be provided.
Registration from 15:30. Parkings are available near the NBB (e.g. Q-Park Pacheco)