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Friday, April 28, 2023

Fourth Annual Volatility and Risk Institute Conference

Managing Compound Risks in a Polycrisis World

The Volatility and Risk Institute held its fourth annual conference on Friday, April 28, 2023 from 8:40am to 5:00pm EDT. The topic was "Managing Compound Risks in a Polycrisis World." The full conference program, theme, videos, and slides can be found below. 

8:00am: Registration opens
8:40am: Welcome remarks | Video
8:45am – 9:30am: Keynote with Tobias AdrianFinancial Counsellor and Director of the Monetary and Capital Markets Department,  International Monetary Fund - " Financial Stability amid High Inflation and Geopolitical Risks" | Video, Slides
9:35am – 10:15am: Robert Engle, Co-Director, Volatility and Risk Institute at NYU Stern - "Measuring Compound Risk in VLAB" | Video, Slides
10:15am – 10:30am: Refreshment Break

Session I: Analysis of Compound Risks

10:35am – 11:15am: René M. StulzEverett D. Reese Chair of Banking and Monetary Economics, The Ohio State University - “Radical Uncertainty and Polycrisis: Lessons for Risk Management" | Video, Slides
11:20am – 12:00pm: Til Schuermann, Partner and Co-Head of the Americas Finance, Risk and Public Policy, Oliver Wyman, Greg Hopper, Senior Fellow, Bank Policy Institute, and Greg Rattray, Partner/Co-Founder, Next Peak - "Stress Testing in a World of Compound Risks and Polycrises" | Slides

12:15pm – 1:30pm Lunch | KMC 5-50 
Fireside Chat with Mervyn King, former Governor, Bank of England (virtual) - What are the implications for global markets and economies and the lessons from history for these compound risks? | Video

Session II: Implications for Risk management and Policy

1:45pm – 2:45pm: Practitioner Panel | Video
Moderator: Richard Berner, Co-Director, Volatility and Risk Institute
Keishi Hotsuki Chief Risk Officer, Morgan Stanley
Eileen Fahey, Chief Risk Officer, Fitch Group
Timothy Cuddihy Managing Director and Group Chief Risk Officer, DTCC
Hendre Garbers, Senior Economist Macro Strategy, Swiss RE 

2:45pm – 3:10 pm: Refreshment Break

3:15pm – 4:15 pm: Policy panel 
Moderator: Viral V. Acharya, C.V. Starr Professor of Economics, NYU Stern
Darcy Bradbury, Managing Director, DE Shaw
Glenn Rudebusch, Senior Fellow, Brookings and Volatility and Risk Institute at NYU Stern
Donald Kohn Robert V. Roosa Chair in International Economics, Senior Fellow - Economic Studies, Brookings

4:15pm – 4:45pm: What’s next? - Richard Berner and Robert Engle, Co-Directors, Volatility and Risk Institute | Video

5:00pm – 6:00pm: Wine and Cheese Reception | KMC 5-50

Conference Theme

The near-simultaneous effects of the COVID pandemic, of climate-related risks, and of Russia’s invasion of Ukraine pose significant, new challenges to risk managers and policymakers globally. When concurrent, multiple shocks hit economies, firms, financial markets and societies, the combined impact can be far greater than the sum of its parts. That’s compound risk.  Because of the variety of risks present today, some observers have described our world as one of polycrisis.*   This conference proposes to examine the causes of compound risk, the consequences of compound risk and the management of compound risk by risk managers and policy makers. 

We propose to build on work in the risk areas that are our focus in the VRI -- climate-related, geopolitical, pandemic and macro/financial risks --  and explore whether the compounding of these risks together and/or the interplay among them requires new analytical approaches.

Each risk represents a potential extreme event that would have significant effects on the economic system or its components.  The probability that multiple shocks will occur is slight if they are really independent extreme events, but if they are causally related, the probability can be quite high.   Statistical measures such as tail dependence can be used to measure the likelihood that multiple extreme events will occur, generating compound risk.  A key research topic is to understand this causal structure of compound risks.  Historical data may cast light on this question but in our non-stationary environment, the future may differ from the past in important ways that should be discussed. 

A second research topic for the conference is measuring the consequences of compound risk.  Under what circumstances are the consequences of compound risk more than just the sum of the individual risks?  Can we develop analytical tools to measure such effects historically and use these to forecast future exposures?

A third topic is to study the management of these risks through portfolio choices, regulatory and macroeconomic policies, and governance structures.  Some risks can be avoided while others are best dealt with by ensuring resiliency.  Still others may be muted by regulation of sensitive sectors. 

* A global polycrisis occurs when crises in multiple global systems become causally entangled in ways that significantly degrade humanity’s prospects. These interacting crises produce harms greater than the sum of those the crises would produce in isolation, were their host systems not so deeply interconnected.
What is a global polycrisis?