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Journal 35: Zicklin-Capco Institute Paper Series in Applied Finance

Issue 35 of The Capco Journal of Financial Transformation highlights many of the topics that were discussed - under the overarching theme of Applied Finance - at the Capco Institute conference held earlier this year in New York, in association with Baruch College’s Zicklin School of Business. The latest edition of the Capco Journal of Financial Transformation brings together a number of relevant contributions to two themes, systemic risk and interconnectedness. We hope that you enjoy reading the articles in this issue, and that you continue to support us by sending us your innovative ideas.

The relevance and awareness of systemic risk have grown significantly since seven credit events impacted financial institutions during the autumn of 2008 (Lehman, Fannie Mae & Freddie Mac, Washington Mutual and three Icelandic banks). Yet systemic risk remains an important notion that is still poorly understood from a quantitative point of view. The dynamics of dependency, or as it is more commonly called, “correlation”, are difficult to model in a satisfactory way. As a result, a good model of systemic risk has proven to be elusive.

The more general theme of interconnectedness in the financial markets remains fundamental, the more so since finance has become more global than regulation or sovereignty. As a result, regulation of financial markets worldwide continues to be difficult to implement. The need for effective global regulation has been heightened by the introduction of global instruments, such as ETFs, that allow investors worldwide to obtain exposure to a large variety of asset classes through very simple mechanisms. Increasing links between the political and financial arenas, fuelled by the sovereign crisis, are creating further levels of interconnectedness that are hardly “formulable” in a quantitative way.

We are again delighted that this latest issue of The Journal of Financial Transformation brings together a number of relevant contributions to these important themes from many different points of view, offering perspectives from both academia and industry.

Journal Articles