Volatility and Risk Institute | Financial Risk

The Great Financial Crisis upended the complacency that financial risks were comprehensively well measured, well understood and risk assessment and management competently practiced. The Volatility Institute, predecessor of the VRI, and borne out of the crisis, has for a decade been at the forefront of developing new tools to measure and monitor new risks. However, new challenges for financial risk assessment and management continue to multiply: Courtesy of new data and technology, new financial products are emerging, the financial system, business models and policy responses to them are evolving, and with them, new risks are surfacing.

The Volatility and Risk Institute will continue the VI’s work to develop cutting-edge tools for financial risk assessment and will broaden its reach with research into the interaction of nonfinancial with financial risks. Research on the financial implications of climate-related, cyber and geopolitical risk already do or will appear in VLAB daily updates. Like the VI, the VRI will collaborate with students, faculty and practitioners to produce and share this research.

Our latest research on Financial Risk

• Acharya, Viral, "Quest for Restoring Financial Stability in India", SAGE India Publishing, July 2020.
• Acharya, Viral, Bjorn Imbierowicz, Sascha Steffen and Daniel Teichmann. “Does the Lack of Financial Stability Impair the Transmission of Monetary Policy?” November 2015, revised November 2019, forthcoming, Journal of Financial Economics.
• Acharya, Viral and Arvind Krishnamurthy. "Capital Flow Management with Multiple Instruments," 2019, Central Banking, Analysis, and Economic Policies Book Series, in: Álvaro Aguirre & Markus Brunnermeier & Diego Saravia (ed.), Monetary Policy and Financial Stability: Transmission Mechanisms and Policy Implications, Edition 1, Volume 26, Chapter 6, pages 169-203, Central Bank of Chile.
• Acharya, Viral and Lasse Pedersen, “Economics with Market Liquidity Risk,” forthcoming, Critical Financial Review.
• Acharya, Viral, Tim Eisert, Christian Eufinger, and Christian Hirsch, “Whatever It Takes: The Real Effects of Unconventional Monetary Policy,” Review of Financial Studies, 2019, 32(9): 3366-3411.
• Acharya, Viral, Tim Eisert, Christian Eufinger, and Christian Hirsch, “Real Effects of the Sovereign Debt Crises in Europe: Evidence from Syndicated Loans,” Review of Financial Studies, 2018, 31(8), 2855-2896.
• Acharya, Viral, Aaditya Iyer, and Rangarajan Sundaram. “Risk-Sharing and the Creation of Systemic Risk,” Working Paper, 2016.
• Adler, Barry, "The Creditors’ Bargain Revisited," 166 U. Pa. L. Rev. 1853 (2018)
• Adler, Barry and George Triantis, "Debt Priority and Options in Bankruptcy: A Policy Intervention," 91 Am. Bankr. L.J. 563 (2017)
• Altman, Edward I., Maurizio Esentato, and Gabriele Sabato. "Assessing the credit worthiness of Italian SMEs and mini-bond issuers." Global Finance Journal 43 (2020): 100450.
• Altman, Edward, and Małgorzata Iwanicz‐Drozdowska, Erkki K. Laitinen, and Arto Suvas, “Financial Distress Prediction in an International Context: A Review and Empirical Analysis of Altman’s Z-Score Model,” Journal of International Financial Management and Accounting, 2016.
• Altman, Edward and Egon Kalotay, “Is the Benign Credit Cycle Over?” Economics and Business Review, No. 3, 2016.
• Berner, Richard, “The Macroprudential Toolkit,” in Hartmann, P., H. Huang and D. Schoenmaker (eds.) (2018), The Changing Fortunes of Central Banking, Cambridge University Press, Cambridge, UK.
• Berner, Richard and Kathryn Judge, “The Data Standardization Challenge,” in Systemic Risk in the Financial Sector: Ten Years After the Great Crash, edited by Douglas W. Arner, Emilios Avgouleas, Danny Busch and Steven L. Schwarcz (CIGI Press, 2019)
• Berner, Richard, Kermit Schoenholtz, and Lawrence White, “Lowering the bar on financial regulation is fraught with risk,” American Banker, June 27, 2019.
• Berner, Richard, Kermit Schoenholtz, and Lawrence White, “Here’s how the SEC should decide if companies should report earnings only every 6 months,” MarketWatch, March 16, 2019.
• Carr, Peter and Liuren Wu, "Option Profit and Loss Attribution and Pricing: A New Framework", Journal of Finance, August 2020.
• Carr, Peter and with L. Wu and Z. Zhang, “Using Machine Learning to Predict Realized Variance,” Journal Of Investment Management, Vol. 18, No. 2, (2020), pp. 1–16
• Carr, Peter and Andrey Itkin, “Model-free backward and forward PDEs for implied volatility,” The Journal of Derivatives, forthcoming.
• Carr, Peter and Andrey Itkin, “Geometric Local Variance Gamma Model,” The Journal of Derivatives, Winter 2019, 27 (2) 7-30.
• Carr, Peter and Andrey Itkin, “ADOL - Markovian approximation of rough lognormal model,” Risk, Nov. 2019.
• Dhar, Vasant, and Haoyuan Yu, “Model Variance in Machine Learning,” forthcoming, Journal of Investment Management.
• Dhar, Vasant, Tomer Geva, Gal Oestreicher-Singer, and Arun Sundararajan, “Prediction in Economic Networks,” Information Systems Research, Volume 25, Issue 2, June 2014.
• Dhar, Vasant, “Prediction and Data Science,” Communications of the ACM, volume 56, number 12, December 2013.
• Engle, Robert, with Ahmet K. Karagozoglu, Asger Lunde, and Martin Klint Hansen, “News and Idiosyncratic Volatility: The Public Information Processing Hypothesis,” forthcoming in Journal of Financial Econometrics.
• Engle, Robert, with Cavit Pakel, Neil Shephard, Kevin Sheppard, “Fitting Vast Dimensional Time-Varying Covariance Models,” Journal of Business & Economic Statistics (2020), 1-17.
• Engle, Robert, and Tianyue Ruan. "Measuring the probability of a financial crisis." Proceedings of the National Academy of Sciences 116.37 (2019): 18341-18346.
• Engle, Robert, “Systemic Risk 10 Years Later,” Annual Review of Financial Economics (2018), Vol. 10:125-152.
• Engle, Robert, and Christian Brownlees, “SRISK: A Conditional Capital Shortfall Index for Systemic Risk Measurement,” Review of Financial Studies (2017), Volume 30, Issue 1, Pages 48-79.
• Halaburda, Hanna, and Neil Gandal, “Can We Predict the Winner in a Market with Network Effects? Competition in Cryptocurrency Market,” Games 2016, 7(3), 16.
• Halaburda, Hanna, Mikołaj Jan Piskorski, and Pınar Yıldırım. "Competing by Restricting Choice: The Case of Matching Platforms," Management Science 64, no. 8 (2017): 3574-3594.
• King, Lord Mervyn, and John Kay, Radical Uncertainty: Decision-making beyond the Numbers, W.W. Norton 2020.
• King, Lord Mervyn, The End of Alchemy: Money, Banking and the Future of the Global Economy, W.W Norton and Company Inc., 2016.
• Kolm, Petter and Du, Jiayi, Muyang Jin, Gordon Ritter, Yixuan Wang, and Bofei Zhang, "Deep Reinforcement Learning for Option Replication and Hedging." The Journal of Financial Data Science (2020).
• Kolm, Petter and Gordon Ritter, “Dynamic Replication and Hedging: A Reinforcement Learning Approach,” The Journal of Financial Data Science. Winter 2019, 1 (1) 159-171.
• Kolm, Petter and Gordon Ritter, “On the Bayesian Interpretation of Black-Litterman” European Journal of Operational Research, Volume 258, Issue 2, 16 April 2017, Pages 564-572.
• Kolm, Petter and Gordon Ritter, “Multiperiod Portfolio Selection and Bayesian Dynamic Models” Risk, Vol. 28, Issue 3, p 50-54, March 2015.
• Lipshitz, Clive and Ingo Walter, "Bridging the Gaps - Public Pension Funds and Infrastructure Finance,” New York; AZ-GIAS, 2019.
• Miller, Geoffrey Parsons, “The Law of Governance, Risk Management, and Compliance” (Wolters Kluwer 3d ed., 2020; 2d., 2017; 1st ed., 2014).
• Miller, Geoffrey Parsons, “Trust, Risk, and Moral Hazard in Financial Markets” (Il Mulino 2011).
• Miller, Geoffrey Parsons, “The Rise of Risk Management: An Essay in Honor of Peter Nobel,” in Peter Sester, ed., Liber Amicorum Peter Nobel (2015).
• Philippon, Thomas, Viral Acharya, Lasse Pedersen, and Matthew Richardson “Measuring Systemic Risk,” Review of Financial Studies, 2017.
• Richardson, Matthew, "Regulating Wall Street: The Dodd-Frank Act," Economic Perspectives, Federal Reserve Bank of Chicago, 2012, 36: 85-97.
• Schoenholtz, Kermit, Stephen Cecchetti, Michael Feroli, Peter Hooper, and Anil Kashyap, "Deflating Inflation Expectations: The Implications of Inflation's Simple Dynamics". Presented at the US Monetary Policy Forum (March 2017).
• Stroebel, Johannes with Michael Bailey, Drew Johnston, Theresa Kuchler, Dominic Russel, and Bogdan State. “The Determinants of Social Connectedness in Europe,” Forthcoming at Social Informatics, 2020.
• Stroebel, Johannes with Michael Bailey, Patrick Farrell, and Theresa Kuchler. “Social Connectedness in Urban Areas,” Journal of Urban Economics, 118 (103264), July 2020.
• Subrahmanyam Marti with P. Augustin. “Informed Options Trading before Corporate Announcements,” Annual Review of Financial Economics, 2020, forthcoming.
• Subrahmanyam Marti with with P. Augustin, M. Brenner and J. Hu. "Are Corporate Spin-offs Prone to Insider Trading?” Critical Finance Review, 2020, forthcoming.
• Subrahmanyam, Marti with Viral Acharya, J. Huang, and Raghu Sundaram. "Costly Financing, Optimal Payout Policies and the Valuation of Corporate Debt," in M. Crouhy, Galai, D. and Wiener, Z. (eds.)  Contingent Claims Analysis in Corporate Finance, World Scientific, 2019.
• Subrahmanyam, Marti, with Patrick Augustin and Menachem Brenner. "Informed Options Trading Prior to Takeover Announcements: Insider Trading?” Management Science, May 2019.
• Subrahmanyam, Marti, with Patrick Augustin. “Informed Options Trading before Corporate Announcements,” Annual Review of Financial Economics, 2020, forthcoming.
• Subrahmanyam, Marti, with Patrick Augustin and Menachem Brenner and J. Hu, "Are Corporate Spin-offs Prone to Insider Trading?” Critical Finance Review, 2020, forthcoming.
• Walter, Ingo, “Reputational Risk in Large International Banks,” in Federal Reserve Bank of Chicago, Regulatory Issues in Large International Banks (Cambridge, MIT Press, 2017).
• White, Lawrence J. "A “primarily property” presumption is—still—really needed for the IP/antitrust interface." Review of Industrial Organization 56, no. 4 (2020): 715-737
• White, Lawrence J., and Howard Esaki, “Rating Mortgage-Backed Securities: How to End the Race to the Bottom,” Milken Institute Review, Third Quarter 2017.
• White, Lawrence, Matthew Richardson and Stijn Van Nieuwerburgh, “What to Do about the GSEs?” Annual Review of Financial Economics, 2017.
• Whitelaw, Robert, and Carpenter, Jennifer N., Fangzhou Lu, "The real value of China’s stock market." Journal of Financial Economics (2020).
• Whitelaw, Robert, and Turan Bali, and Nusret Cakici, “Hybrid Tail Risk and Expected Stock Returns: When Does the Tail Wag the Dog?”, 2014, Review of Asset Pricing Studies, Vol. 4, No. 2, pp. 206-246.
• Xu, Yuqian, Lingjiong Zhu, and Michael Pinedo, "Operational Risk Management - A Stochastic Control Framework with Preventive and Corrective Controls" forthcoming, Operations Research.
• Zin, Stanley, David K. Backus, and Axelle Ferriere, “Risk and Ambiguity in Models of Business Cycles,” Journal of Monetary Economics, January 2015 (Carnegie Rochester Conference on Public Policy).