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for Mathematical Finance events the year of Tuesday, January 1, 2019.

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Tuesday, April 16, 2019

3:00 pm in 245 Altgeld Hall,Tuesday, April 16, 2019

An Integrated Approach to Measuring Asset and Liability Risks in Financial Institutions

George Zanjani (Professor of Finance and the Frank Park Samford Chair of Insurance, University of Alabama)

Abstract: Risk measurement models for financial institutions typically focus on the net portfolio position and thus ignore distinctions between 1) assets and liabilities and 2) uncollateralized and collateralized liabilities. However, these distinctions are economically important. Liability risks affect the total amount of claims on the institution, while asset risks affect the amount available for claimants. Collateralization also affects the amounts recovered by different classes of claimants. We analyze a model of a financial institution with risky assets and liabilities, with potentially varying levels of collateralization across liabilities, showing that correct economic risk capital allocation requires complete segregation of asset, uncollateralized liability, and collateralized liability risks, with different risk measures for each. Our numerical analyses suggest that the conventional approach frequently yields over-investment in risky assets.

Bio: George Zanjani is Professor of Finance and the Frank Park Samford Chair of Insurance at the University of Alabama. Previously, he served as the inaugural holder of the AAMGA Distinguished Chair in Risk Management and Insurance and an associate professor in the RMI Department of Georgia State University. Prior to his career in academia, he served as an economist at the Federal Reserve Bank of New York (2000–2008) specializing in policy work relating to insurance issues in the broader financial system. During his tenure at the Bank, he served on working groups formed by the Committee on the Global Financial System and the Presidential Working Group on Financial Markets. He also worked as an actuary at Fireman’s Fund Insurance Companies (1990–1994), focusing on commercial insurance pricing and heading the firm’s workers’ compensation actuarial unit in 1994.

Dr. Zanjani's published or forthcoming work includes insurance papers in the American Economic Review, Insurance: Mathematics and Economics, the Journal of Financial Economics, the Journal of Public Economics, the Journal of Risk and Insurance, Management Science, and the North American Actuarial Journal. He has served on working groups formed by the Committee on the Global Financial System (on global savings and asset allocation) and the Presidential Working Group on Financial Markets (terrorism insurance).

Dr. Zanjani is an Associate of the Casualty Actuarial Society. He earned his A.B./B.S. in Economics and Biology from Stanford University and holds a Ph.D. in Economics from the University of Chicago. He served as the President of both the American Risk and Insurance Association and the Risk Theory Society.