PIMS Workshop on The Economics and Mathematics of Systemic Risk and the Financial Networks.

  • Start Date: 07/28/2014
  • End Date: 07/30/2014

University of British Columbia


Financial markets are not physical systems. The rules they operate are determined by regulation, and the operators try their best to influence and circumvent these regulations insofar as they thwart their own ends. Asset prices are modelled by stochastic processes, as if the randomness came from an outside source, but the markets themselves generate much of the noise. Risk is the downside of randomness. The program will focus on the way the markets generate and propagate risk, and what kind of regulation can mitigate it. 


Workshop Format

This workshop will feature approximately 15 speakers/ panelists. Presentations will be scheduled from 9am on Monday July 28 to 12  pm on Wednesday July 30. The afternoon of Wednesday July 30 will be reserved for panel discussions with representatives from the financial industry and regulators.  


Workshop Dinner

As part of the Sysyemic Risk workshop, a special dinner with officials from the Department of Finance Canada will take place on July 29th. Workshop participants are invited to attend and can RSVP and pay when registering for the workshop. Additional spaces will be open to the Finance and Academic community based on availability. Please RSVP and pay for the dinner (and conference) at the bottom of the page.


Invited Speakers and Panelists


  • Tobias Adrian (Federal Reserve Bank of New York) : Intermediary Leverage Cycles and Financial Stability
  • We present a theory of financial intermediary leverage cycles within a dynamic model of the macroeconomy. Intermediaries face risk-based funding constraints that give rise to procyclical leverage and a procyclical share of intermediated credit. The pricing of risk varies as a function of intermediary leverage, and asset return exposure to intermediary leverage shocks earns a positive risk premium. Relative to an economy with constant leverage, financial intermediaries generate higher consumption growth and lower consumption volatility in normal times, at the cost of endogenous systemic financial risk. The severity of systemic crisis depends on intermediaries’ leverage and net worth. Regulations that tighten funding constraints affect the systemic risk-return trade-off by lowering the likelihood of systemic crises at the cost of higher pricing of risk. (Joint work with Nina Boyarchenko - FRBNY)


  • Mark Flood (Office of Financial Research- OFR): Measuring Counterparty Networks
  • This paper examines the growing literature on counterparty networks in financial markets, and extracts a set of requirements that should be satisfied by a robust measurement framework.  In other words, how should we measure counterparty networks, if our aim is to support conveniently the broadest collection of useful analytical tools? We survey the implementation considerations in measuring counterparty networks and draw three broad conclusions. First, measurement of financial networks must be a supervisory exercise. Individual market participants naturally have a limited view of the network beyond their immediate counterparties. As (relatively) disinterested and legally empowered observers, supervisors can provide this potentially powerful perspective. Second, there is a network-system “duality” of modeling perspectives on the counterparty network. While researchers historically have concentrated on system-level characteristics—such  as liquidity, the price of risk, complexity, and stability—significant new transaction-level datasets are now appearing, permitting important new insights into the detailed inner workings of financial networks. Third, the current central challenge in measuring counterparty networks is to improve data capture and data modeling for financial contracts. Low-level details that populate transaction orders, trade confirmations, and other messages are highly standardized, but this level of formalization is only beginning to extend to higher-level abstractions. For example, the introduction of the legal entity identifier (LEI), which enables consistent and reliable node identification in the counterparty network, exemplifies the data infrastructure that has been missing at the systemic level. 


  • Tom Hurd  (McMaster University): Contagion channels for financial systemic risk
  • There are many distinct channels of systemic risk (SR) including correlated asset shocks, default contagion, funding liquidity contagion and market illiquidity effects. My talk will focus on computational methods, both Monte Carlo and analytic, for the contagion channels of SR that lead to cascading chains of defaulted and illiquid financial institutions. A number of deliberately simplified modelling frameworks, beginning with the Eisenberg-Noe 2001 model, aim to reveal pure contagion effects in isolation from other SR channels. It turns out there is a large amount of commonality amongst these contagion models, which means that similar computational algorithms work even as their financial mechanisms differ. Towards the end we will explore what can happen in networks when two separate contagion mechanisms intertwine to create a "double cascade".


  • Olivier Gossner (Paris School of Economics): Dynamic bank runs under public and private information
  • In a dynamic model of bank runs with public information, we show that agents tend to preempt runs, thus destabilizing the bank earlier than in static models. On the other hand, when information is private, agents believe that others have less extreme signals than their own, a phenomenon we call “mean reversion of beliefs”. This mitigates incentives to act on information, and makes the banks survive for much longer. (Joint work with Kyna Fong, Johannes Hörner and Yuliy Sannikov)


  • Matheus Grasselli  (McMaster University and Fields Institute): Asset price dynamics in a stock-flow consistent macroeconomic model
  • The currently dominant school of macroeconomic modelling - namely microfounded Dynamic Stochastic General Equilibrium (DSGE) - has a hard time dealing with even the most basic empirical facts pertaining financial markets. Its tenets include the role of financial intermediation as merely a way to channel household savings into investment by firms, the multiplier theory of money supply, and stable equilibria occasionally perturbed by exogenous shocks - none of which are remotely true in practice. In this talk I present a simple macroeconomic model for asset price dynamics based on Tobin's theory of investment and portfolio balances. The model incorporates realistic aspects of financial intermediation, including credit creation for both investment and speculative purposes, endogenous growth cycles, and Minskyan financial instability. 


  • Bernd Schwaab (European Central Bank): Conditional euro area sovereign default risk 
  • We propose an empirical framework to assess the likelihood of joint and conditional sovereign default from observed CDS prices. Our model is based on a dynamic skewed-t-distribution that captures all salient features of the data, including skewed and heavy-tailed changes in the price of CDS protection against sovereign default, as well as dynamic volatilities and correlations that ensure that uncertainty and risk dependence can increase in times of stress. We apply the framework to euro area sovereign CDS spreads during the euro area debt crisis. Our results reveal significant time-variation in distress dependence and spill-over effects for sovereign default risk. We investigate market perceptions of joint and conditional sovereign risk around announcements of Euro-system asset purchases programs, and document a strong impact on joint risk. (Joint work with André Lucas- University of Amsterdam, Xin Zhang- Sveriges Riksbank)


  • Agnès Sulem (INRIA Paris-Rocquencourt): Optimal Control of Interbank Contagion
  • We consider a financial network described as a weighted directed graph, in which nodes represent financial institutions and edges the exposures between them. Distress propagation in a financial system may be modeled as an epidemics on this graph. We study a preferred equity infusion government program set to mitigate interbank contagion. Financial institutions are prone to insolvency risk channeled through the network of interbank debt and to funding liquidity risk. When the government has complete information on interbank debt, the problem of quantifying the optimal amount of infusions can be expressed as a convex combinatorial optimization problem, tractable when the set of banks eligible for intervention (core banks) is sufficiently, yet realistically, small. The incomplete information case is studied by combining stochastic control theory with the random graph representation of the financial system. Finally we investigate a model in which funding liquidity is endogenous and depends on the way an institution is exposed to insolvency risk, through the financial network.  (Joint work with Andreea Minca, Cornell University)


  • Alireza Tahbaz-Salehi (Columbia University) : Systemic Risk and Stability in Financial Networks
  • We provide a framework for studying the relationship between the financial network architec- ture and the likelihood of systemic failures due to contagion of counterparty risk. We show that financial contagion exhibits a form of phase transition as the extent of interbank interconnectivity increases: as long as the magnitude and the number of negative shocks affecting financial institutions are sufficiently small, a more equal distribution of interbank obligations enhances the stability of the system. However, beyond a certain point, such dense interconnections start to serve as a mechanism for the propagation of shocks and lead to a more fragile financial system. Our results thus highlight the “robust-yet-fragile” nature of financial networks: the same features that make the system more resilient under certain conditions may function as significant sources of systemic risk and instability under another. (Joint work with Daron Acemoglu and Asuman Ozdaglar)


  • Xavier Vives (IESE Business School): Strategic Complementarity, Fragility, and Regulation 
  • Fragility is affected by how the balance sheet composition of financial intermediaries, the precision of information signals, and market stress parameters all influence the extent of strategic complementarity among investors’ strategies. A solvency and a liquidity ratio are required to control the likelihood of insolvency and illiquidity. The solvency requirement must be strengthened in the face of increased competition, whereas the liquidity requirement must be strengthened under more conservative fund managers and higher penalties for fire sales. Greater disclosure may aggravate fragility and require an increase in the liquidity ratio, so regulators should establish prudential and disclosure policies in tandem.


  • Marco Avellaneda (Courant Institute): TBA
  • Alejandro Jofre (University of Chile): TBA
  • Thaleia Zariphopoulou (University of Texas): TBA




  • Markus Brunnermeier (Princeton)
  • Christine Cumming (Federal Reserve Bank of New York
  • Joe Langsam (University of Maryland)
  • Andy Lo (Massachusetts Institute of Technology
  • Bernd Schwaab (European Central Bank




* Rene Carmona (Princeton University)

* Ivar Ekeland (Université Paris Dauphine)

* George Papanicolaou (Stanford University) 



VISITORS: a number of senior visitors will be in residence at PIMS during July 2014, including Ivar Ekeland and Jean Charles Rochet. There will be seminars and other activities during that month.


To register for the conference please do so at the bottom of this page.



Abstracts / Downloads / Reports: 
Other Information: 

Location: PIMS UBC: Earth Sciences Building



Participants can choose to stay off-campus or on-campus


Off Campus:

If you wish to be off campus with the opportunity to enjoy Downtown venues along Robson Street, please book at the Listel Hotel, Vancouver's most "art-full" hotel. The Listel  is our preferred off-campus hotel accommodation with good transit options to UBC. We have set aside a block of rooms at the Listel Hotel for conference attendees. Block rooms are available from July 27th to 30th (with the ability to book the same discount rate 3 days prior to and 3 days after the workshop). PIMS guests can also enjoy complementary wine tastings every evening between 5 and 6pm.


Reservations at the Listel: Participants should make their reservations with the following Group Code: PIMS14

Reservation Line: 1- 800-663-5491


Online atwww.thelistelhotel.com

Groupe Code: PIMS14

The cut off date for room reservations will be 13th July, 2014


On campus

If your primary consideration is proximity to the conference venue, then on-campus accommodations would be your best bet. Please visit St. John's College to make a reservation or call the reservations desk at 1- 604-822- 6522. Please metion the "PIMS Economics and Math Workshop" when making your booking.


You can also book the West Coast Suites, 1 Br or Studio Suites from UBC Conferences and Accommodation here.  


Summer School on Sytemic Risk: 

A Summer School on the same topic will be held prior on July 21- 25, 2014. Click here for more details



Please sign up with PIMS and then register for the Workshop at the bottom of this page: Registration is open to Academia and Industry participants. Partial lodging/ travel support will be available for selected academic participants. Details will be announced later.


Registration Fees:

Undergraduate, Graduate and Post Docs: $100

Faculty: $100

Industry: $500

Dinner *optional*: $50

Please note that a 5% GST will be included in the payment 



Travel documentation:

If you are an international participant and require a visa to attend this workshop, you can find relevant information here. Apply for your visa well in advance of your travel!







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