Community Research and Development Information Service - CORDIS

ERC

FiRM Result In Brief

Project ID: 228053
Funded under: FP7-IDEAS-ERC
Country: Switzerland

Innovative mathematical methods for financial risk management

Mathematical tools used in financial risk management are growing in importance, particularly after such events as the global financial crisis in 2009. An EU initiative introduced novel mathematical techniques to better cope with financial risk.
Innovative mathematical methods for financial risk management
Advanced quantitative methods are used to launch more sophisticated financial products. This requires the financial industry to carry out proper risk management practices. Such practices are considered all the more crucial in the wake of the financial crisis' risky loan methods.

In this context, the EU-funded FIRM (Mathematical methods for financial risk management) project aimed to develop mathematical techniques to measure and evaluate the financial risk of new instruments.

Project partners incorporated financial frictions such as liquidity and counter-party risk into risk measures previously developed without such frictions. They looked into the pros and cons of Nobel Memorial Prize in Economic Sciences laureate James Tobin's proposal to charge a very small percentage for every currency transaction. As such, researchers analysed small transaction costs, delivering suitable tools to measure such factors as the welfare impact of this tax.

To better understand model uncertainty and develop robust techniques for assessment and implementation, the FIRM team also analysed from a mathematical perspective the topic of robustness in economics by Nobel laureates Lars Peter Hansen and Thomas J. Sargent.

FIRM successfully developed innovative mathematical methods to analyse the impact of market frictions concerning risk management. It also helped to advance the financial mathematics domain, enabling researchers in maths, economics and finance to better tackle issues and questions that arise from financial risk and frictions.

Related information

Keywords

Mathematical methods, financial risk, risk management, FIRM, financial frictions
Record Number: 183108 / Last updated on: 2016-07-25
Domain: Industrial Technologies