Currency Hedging Strategy: An Empirical Study of Emerging Markets
27 September 2022 | Pension Hub
Currency Hedging Strategy: An Empirical Study of Emerging Markets Global Risk Institute Download the Executive Summary – PDF Version Download the Full Report – PDF Version
After the Storm: Natural Disasters and Bank Solvency
26 September 2022 | Pension Hub
After the Storm: Natural Disasters and Bank Solvency Mohammad Bitar, Nottingham University Business School, Jubilee Campus, Nottingham, United Kingdom Dieter Gramlich, Baden-Wuerttemberg Cooperative State University, Heidenheim, Germany Thomas Walker, John Molson School of Business, Concordia University, Montreal, Canada Yunfei Zhao, John Molson School of Business, Concordia University, Montreal, Canada Download the full paper – PDF… View Article
Governmental Responses and Firm Performance During the Pandemic: An Integrated Assessment
24 August 2022 | Geopolitical
Governmental Responses and Firm Performance During the Pandemic: An Integrated Assessment Edina Berlinger, Department of Finance, Corvinus University of Budapest, Hungary Dieter Gramlich, Baden-Wuerttemberg Cooperative State University Heidenheim (DHBW), Germany Thomas Walker, John Molson School of Business, Concordia University, Montreal, Canada Yunfei Zhao, John Molson School of Business, Concordia University Montreal, Canada Download the full paper -… View Article
Financial Innovation Series: Artificial Intelligence and Machine Learning: A Model Risk Management Perspective
23 August 2022 | Financial Stability and Regulatory Compliance
FINANCIAL INNOVATION SERIES: Artificial Intelligence and Machine Learning: A Model Risk Management Perspective Alexey Rubtsov, PhD, Senior Research Associate, Global Risk Institute Download the full Report – PDF Version INTRODUCTION The last decade has witnessed a large-scale adoption of Artificial Intelligence and Machine Learning (AI/ML) models in the financial sector. Although there are many benefits… View Article
Gamma and Vega Hedging Using Deep Distributional Reinforcement Learning
18 August 2022 | Technology Innovations
Gamma and Vega Hedging Using Deep Distributional Reinforcement Learning John Hull, Senior Fellow, GRI and Professor, Joseph L. Rotman, School of Management, University of Toronto Jay Cao, Jacky Chen, Soroush Farghadani, Zissis Poulos, Zeyu Wang, and Jun Yuan Joseph L. Rotman, School of Management, University of Toronto Download the full Report – PDF Version OVERVIEW:… View Article
Building Climate Resilience in Canada’s Pension Funds
21 July 2022 | Pension Hub
Building Climate Resilience in Canada’s Pension Funds K. Monohan, Smart Prosperity Institute A. Islam, Smart Prosperity Institute Download the full paper – PDF Version
Canada’s Pension System and Aging Population: 2021 Census Insights
17 June 2022 | Pension Industry
Canada’s Pension System and Aging Population: 2021 Census Insights Bruce Choy, Managing Director, Global Risk Institute Sally Shen, Research Associate, Global Risk Institute Download the full paper – PDF Version
The Top Three Trends Shaping the 2022 Proxy Season
7 June 2022 | Sustainable Finance and Climate Risk
The Top Three Trends Shaping the 2022 Proxy Season Alyson Slater, Senior Director, Sustainable Finance, GRI Yibo Bu, Climate Research Analyst, GRI Download the full Report – PDF Version ABOUT THIS ARTICLE: Proxy season casts a spotlight on key issues of growing importance to investors, and shareholder resolutions are a tool that continues to be… View Article
Five Futures of Currency: Fiat vs Credit, CBDC, Stablecoins, and Crypto
1 June 2022 | Technology Innovations
Five Futures of Currency: Fiat vs Credit, CBDC, Stablecoins, and Crypto Lois Tullo, Executive in Residence, Global Risk Institute Download the full Report – PDF Version EXECUTIVE SUMMARY What will the future of currency be in ten years? When looking forward towards a complex and volatile future influenced by changing technological, geopolitical, societal, economic, and… View Article
ISSB and SEC Put the Squeeze on Canada’s Climate Reporting Plans
12 May 2022 | Sustainable Finance and Climate Risk
ISSB and SEC Put the Squeeze on Canada’s Climate Reporting Plans Alyson Slater, Senior Director, Sustainable Finance, GRI Alexandria Fisher, Manager, Sustainable Finance, GRI Download the full Report – PDF Version ABOUT THIS REPORT: After two decades of multiple voluntary sustainability reporting frameworks gaining footholds in the market, the move toward global, mandatory, standardized reporting… View Article
Unwinding Pandemic Stimulus: The Bank of Canada’s Narrow Path to Successful Policy Normalization
6 May 2022 | Financial Stability and Regulatory Compliance
Unwinding Pandemic Stimulus: The Bank of Canada’s Narrow Path to Successful Policy Normalization James K. Stewart, Executive in Residence, Global Risk Institute Hugh O’Reilly, Executive in Residence, Global Risk Institute Victoria Guo, Director, Research, Global Risk Institute Download the Executive Summary – PDF Version Download the Executive Summary – PDF Version
World Economic Forum’s Global Risks Report 2022: The Canadian Perspective
5 May 2022 | Financial Stability and Regulatory Compliance
World Economic Forum’s Global Risks Report 2022: The Canadian Perspective Victoria Guo, Director, Research, Global Risk Institute Download the full Report – PDF Version Abstract The World Economic Forum published its Global Risks Report 2022 (the Report) in January, with the latest Global Risks Perception Survey (GRPS) results in fall 2021. The Report is based… View Article
The Impact of Cultural and Political Factors on the Spread and Macro-Economic Fallout of COVID-19
29 April 2022 | COVID-19
The Impact of Cultural and Political Factors on the Spread and Macro-Economic Fallout of COVID-19 Anup Basnet, University of Surrey, Guildford, United Kingdom Dieter Gramlich, Baden-Wuerttemberg Cooperative State University Heidenheim (DHBW), Germany Thomas Walker, John Molson School of Business, Concordia University, Montreal, Canada Download the full paper – PDF Version
How to Distinguish the Good from Greenwashing: Greenwashing Risk in the Canadian Market and Mitigation Measures for Financial Institutions
26 April 2022 | Sustainable Finance and Climate Risk
How to Distinguish the Good from Greenwashing: Greenwashing Risk in the Canadian Market and Mitigation Measures for Financial Institutions Alexandria Fisher, Manager, Sustainable Finance, Global Risk Institute Download the full Report – PDF Version INTRODUCTION Greenwashing happens when organizations promote environmental credentials for their products and services that are materially inflated or even in contradiction… View Article
Key Takeaways for the Financial Sector from Canada’s 2030 Emissions Reductions Plan
19 April 2022 | Sustainable Finance and Climate Risk
Key Takeaways for the Financial Sector from Canada’s 2030 Emissions Reductions Plan Alyson Slater, Senior Director, Sustainable Finance, GRI Yibo Bu, Climate Research Analyst, GRI Nan Ge, Research Associate, GRI Download the full Report – PDF Version ABOUT THIS REPORT: Attempting to avoid the worst physical impacts of climate change, many of Canada’s largest financial… View Article
Building Bridges: Using scientific information about the future of climate for asset-level financial risk assessment
5 April 2022 | Sustainable Finance and Climate Risk
Climate-related risks present profound challenges for financial decision-makers around the globe. In 2021 alone, the physical impacts of climate cost over US$280B (up from US$210B in 2020), and this number is expected to significantly rise over the coming decades.
Emerging Disruption: Buy Now Pay Later in Canada
21 March 2022 | Financial Stability and Regulatory Compliance
This report examines the potential of BNPL from a Canadian perspective. We introduce the current state of BNPL in Canada and the potential evolution pattern in the future. In addition, various risks associated with the BNPL disruption are discussed to help financial sector leaders better assess opportunities in the market.
Water Risk Modeling: A Framework and Guidance for the Financial Sector
9 March 2022 | Pension Hub
Water Risk Modeling: A Framework and Guidance for the Financial Sector Thomas Walker, Ph.D., Concordia University Dieter Gramlich, Ph.D., DHBW Heidenheim Adele Dumont-Bergeron, Concordia University Download the Executive Summary – PDF Version Download the full paper – PDF Version
FINANCIAL INNOVATION SERIES: Adversarial Machine Learning: Risks and Opportunities for Financial Institutions
7 March 2022 | Technology Innovations
FINANCIAL INNOVATION SERIES: Adversarial Machine Learning: Risks and Opportunities for Financial Institutions Alexey Rubtsov, PhD, Senior Research Associate, Global Risk Institute Download the full Report – PDF Version INTRODUCTION In a recent study, Microsoft found that 25 out of 28 firms surveyed did not have protections against the so-called adversarial attacks on their machine learning… View Article
Treading Water: Impact of Catastrophic Flooding on Canada’s Housing Market
15 February 2022 | Sustainable Finance and Climate Risk
Treading Water: Impact of Catastrophic Flooding on Canada’s Housing Market Kathryn Bakos, Director, Climate Finance and Science, Intact Centre on Climate Adaptation, University of Waterloo Dr. Blair Feltmate, Head, Intact Centre on Climate Adaptation, University of Waterloo Chris Chopik, Climate Risk, Energy Efficiency and Real Estate Cheryl Evans, Director, Flood and Wildfire Resilience, Intact Centre… View Article
2021-2022 Risk Outlook Survey
31 January 2022 | Risk Management Practices
This paper presents the results of the latest survey. Key findings on priority risk issues facing the Canadian financial system and its financial institutions are first discussed. It is followed by perceptions of our members on the global economic outlook. The report concludes with risk insights drawn from this year’s survey with which we aim to inspire our audience when thinking and planning forward.
Financing The Energy Transition: The Outlook for Cleantech in Canada
27 January 2022 | Sustainable Finance and Climate Risk
This report helps financial sector leaders develop a foundational understanding of cleantech. Getting to know this sector is key to assessing the risks and opportunities in the energy transition.
FINANCIAL INNOVATION SERIES – Reinforcement Learning: Risks and Challenges for Financial Institutions
25 January 2022 | Risk Management Practices
This paper addresses Reinforcement Learning (RL) in finance and discusses the implementation issues for financial institutions who want to employ RL in their business.
2021 Quantum Threat Timeline Report
24 January 2022 | Cyber security and Fraud
Computational problems, previously thought to be intractable by any reasonable means with potentially catastrophic consequences, are now challenges that can be solved by exploiting the mechanical properties of quantum computers.
US Federal Reserve Policy In Transition: Key Impacts for Canadian Fixed Income Markets
3 December 2021 | Financial Stability and Regulatory Compliance
US Federal Reserve Policy In Transition: Key Impacts for Canadian Fixed Income Markets James K. Stewart, Executive in Residence, Global Risk Institute Victoria Guo, Director Research, Global Risk Institute Download the full Executive Summary – PDF Version Download the full paper – PDF Version
Affordable Lifetime Pension Income for a Better Tomorrow: How we can address the $1.5 trillion decumulation disconnect in the Canadian retirement income system with Dynamic Pension pools
16 November 2021 | Pension Hub
The lack of an acceptable, readily available option to convert retirement savings into affordable monthly lifetime income is creating a dangerous disconnect in the Canadian retirement income system, and there is widespread concern that this will lead to increasing financial insecurity for a large portion of the elderly population.
Robo Advisors for Canadian Pension Participants
24 September 2021 | Pension Hub
Robo Advisors for Canadian Pension Participants Denis Latulippe, Laval University John A. Turner, Pension Policy Center Download the full paper – PDF Version Abstract Portfolio management has evolved. Robo advisors provide financial advice to clients who previously did not have access to such assistance because they lacked sufficient amounts of investible assets, and because they… View Article
Tax Incentives Deployed in Countries Leading the Fight Against Climate Change: How Does Canada Stack Up?
20 September 2021 | Sustainable Finance and Climate Risk
Climate change is an urgent and existential threat to humanity.
COVID-19 Deaths Linked to Restrictions Stringency Lag: A G7 and Global Analysis, Implications for Public Policy
14 September 2021 | COVID-19
The Delta plus and Lambda variants increased transmissibility and breakthrough cases has highlighting potential vaccine resistance. This increases the urgency for policymakers to understand and immediately enforce regulations through reducing the stringency lag of their policies.
TRANSITIONING FROM THE PANDEMIC: Towards a More Balanced Fiscal Policy
25 August 2021 | Financial Stability and Regulatory Compliance
As Canada’s COVID-19 vaccination rates achieve critical thresholds in mid 2021, fundamental changes in fiscal policy are recommended to boost the Canadian economy’s supply side and make governments’ demand-side support more effective.
CLIMATE-RELATED LEGAL RISKS FOR FINANCIAL INSTITUTIONS: Executive Brief
19 August 2021 | Risk Management Practices
This executive note briefly examines a number of different types of liabilities that may arise for financial institutions, provides illustrative case examples, and offers ideas for effective governance.
FINANCIAL INNOVATION SERIES – Machine Learning: Unsupervised Learning in Finance
31 May 2021 | Risk Management Practices
The last decade has witnessed a large-scale adoption of machine learning tools in finance. According to the latest report by Refinitiv, the number of data science teams in financial services firms have risen by more than 260 per cent since 2018 (see Refinitiv 2020).
Long-Term Thinking in Extraordinary Times: Macroeconomic Lessons from the Pandemic
15 April 2021 | Macroeconomic Risk
Examining Canada’s economic experience during the pandemic offers an opportunity to assess the fiscal and monetary policy lessons learned as of early 2021.
A Comparison of Pension Fund Regulation in Canada and the Netherlands
30 March 2021 | Pension Hub
This study compares two pension supervisory frameworks (the Dutch and Canadian framework) and examines which short-term and long-term regulations for occupational pension funds are best at maintaining a healthy financial situation for the fund and provides the best results for participants in terms of pension benefits.
Primer on Gross Debt/GDP Risk in the Shadow of COVID-19: Canada Joins Top Debtor Nations
26 March 2021 | Pandemic Response
As the gross debt/GDP ratio grows, Canada faces the risk of increased interest coverage payments leading to reduced future fiscal flexibility. An acknowledgement of this increased risk must be met with an understanding of a plan to build the economy and to pay down the deficit. This raises a number of issues that need to be debated to address the risks coming in the future.
Adapting to COVID-19: A Behavioural Lens on Financial Institution Resilience
19 March 2021 | Pandemic Response
With Canada now in its second year of living with COVID-19, the pandemic continues to pose ongoing and new challenges for financial institutions (FIs) in building resilience. Beyond unprecedented health, financial and economic risks, FIs face future challenges managing staff, operations and client relationships during the broader vaccine rollout.
Tax Incentives to Fight Climate Change
15 March 2021 | Sustainable Finance and Climate Risk
Climate change is not only a global existential challenge, but it is also a once-in-a-lifetime opportunity for Canada to develop leading-edge clean technology (cleantech) solutions for the world, create high-paying jobs and boost the Canadian economy.
GRI Quantum Risk Assessment Report
14 March 2021 | Cyber security and Fraud
A Resource Estimation Framework for Quantum Attacks Against Cryptographic Functions – Recent Developments Dr. Michele Mosca, Co-Founder, President and CEO, evolutionQ Inc. Dr. Vlad Gheorghiu, Co-Founder & CEO, softwareQ Inc. Download the full Summary – PDF Version Download the full Report – PDF Version
Forced Retirement Risk & Portfolio Choice
3 March 2021 | Pension Hub
Forced Retirement Risk & Portfolio Choice Guodong Chen, New York University at Shanghai Minjoon Lee, Carleton University Tong-yob Nam, U.S. Department of the Treasury Download the full paper – PDF Version Introduction Current literature on the effect of labor income on portfolio choice overlooks that workers face a risk of being forced to retire before… View Article
Fintech and the Retirement Savings System
3 March 2021 | Pension Hub
GRI Research Associate Sally Shen co-authored the paper Fintech and the Retirement Savings System which was published by the Society of Actuaries in January 2021.
Risk Sharing Pension Plans
3 March 2021 | Pension Hub
Risk Sharing Pension Plans Mary Hardy, University of Waterloo David Saunders, University of Waterloo Xiaobai Zhu, Southwestern University of Finance and Economics Download the full paper – PDF Version This project adapts results from theoretical, stylized work on pension design, to explore a form of Target Benefit (TB) plan that allows for structured, transparent intergenerational… View Article
Climate Risk Scenario Analysis: An Executive Primer
10 February 2021 | Sustainable Finance and Climate Risk
Climate change poses foreseeable physical and transition risks, but uncertainty remains in the magnitude of impact, timing, and policy pathways that will actually come to pass.
International Survey of Earthquake Insurance Guarantee Schemes
3 February 2021 | Financial Stability and Regulatory Compliance
Earthquakes can strike without warning near large population centres, threatening human life and inflicting massive physical and social damage. Low-probability, high-impact events of this kind can present unique challenges for risk management professionals.
Quantum Threat Timeline Report 2020
27 January 2021 | Cyber security and Fraud
We are pleased to provide an update to the first report issued in November 2019. This report documents a shift in the opinions from the last report due to the advances and changes in the quantum computing landscape.
Sustainable Finance and Climate Risk: Outlook for 2021
18 January 2021 | Sustainable Finance and Climate Risk
As we emerge from a year of unparalleled disruption, we look ahead to a 2021 that will continue to be shaped by the global pandemic, pressing human health issues, and the ensuing economic fallout. Many points of connection and comparison have been drawn between the pandemic and another external risk of global proportions – climate change. From big picture global forces right down to expected milestones in the Canadian financial sector, here are the trends that will shape the sustainable finance and climate risk agenda in 2021.
In Sickness and in Debt: The COVID-19 Impact on Sovereign Credit Risk
14 January 2021 | Macroeconomic Risk
The COVID-19 pandemic provides a unique setting in which to evaluate the importance of a country’s fiscal capacity in explaining the relation between economic growth shocks and sovereign default risk. For a sample of 30 developed countries, we find a positive and significant sensitivity of sovereign default risk to the intensity of the virus’ spread for fiscally constrained governments. Supporting the fiscal channel, we confirm the results for Eurozone countries and U.S. states, for which monetary policy can be held constant. Our analysis suggests that financial markets penalize sovereigns with low fiscal space, thereby impairing their resilience to external shocks.
Institutional Investors Find Alpha in Climate Risk Matrices: Global Survey Finds
9 December 2020 | Sustainable Finance and Climate Risk
This report that presents results of a global institutional investor survey focused on understanding the methods to assess physical climate risk, the extent of formal training on physical climate risk received by the Boards of Directors, C-Suite officers and portfolio managers, and the utility of Climate Risk Matrices to aid portfolio managers in investment decisions.
Climate-Related Financial Disclosure in the Canadian Financial Sector
18 November 2020 | Sustainable Finance and Climate Risk
This study examines trends in climate-related financial disclosure among 58 financial firms in Canada including banks, pensions, insurance, financial Crowns, and credit unions over three reporting cycles (2017, 2018, 2019). This study assesses progress toward alignment with the TCFD Recommendations, and by extension, provides some insight as to the state of climate risk governance and management among Canadian financial firms.
Fiscal Policy and the Economy’s Great Divide: Addressing the Income and Jobs Gap in the Traditional Economy
29 September 2020 | Pandemic Response
As Canada recovers in lopsided fashion from its historic economic contraction in the first half of 2020 (1H2020), the economic and social costs of the first-ever services-led recession are striking. The V-shaped recovery of equity and debt markets, and the surge in technology industries contrast starkly with the major income declines and job losses in much of the traditional economy. They make it essential to address the ongoing “Great Divide” among financial markets, technology sectors and most of the traditional economy.
FINANCIAL INNOVATION SERIES – Machine Learning: The Benefits and Pitfalls
21 August 2020 | Technology Innovations
This research report explains the tools commonly used in Machine Learning, identifies some of the challenges machine learning poses for financial institutions and formulates key questions that senior management should ask with respect to machine learning applications.
GRI Quantum Risk Assessment Report – Part 5
30 April 2020 | Cyber security and Fraud
The precise time at which our current systems will be vulnerable to systemic quantum attack depends on two key factors. Firstly, how large of a quantum computation is needed to break these systems, and secondly, how soon the required resources are available. In this report we focus on the first part.
Withstanding Cyber-Attacks: Cyber-Resilience Practices in the Financial Sector
30 April 2020 | Cyber security and Fraud
This research using qualitative data collected among a sample of 44 cyber security professionals from 28 financial sector organizations in 5 geographies describes the measures enabling cyber-resilience in the financial sector. The general objective is to learn from those who implement cyber-resilience on a daily basis what works, what does not, and what are their main constraints.
Factoring Climate Risk into Financial Valuation
10 March 2020 | Sustainable Finance and Climate Risk
The report “Factoring Climate Risk into Financial Valuation” shows how climate-related data can be used with existing valuation models to determine a company’s climate change risk exposure in financial terms. GRI has supported the development of this tool to help investors incorporate extreme weather risk into their decision-making. This framework will fill in data gaps that are crucial for effectively assessing risk.
Strategic Asset Allocation with Climate Change
13 November 2019 | Sustainable Finance and Climate Risk
We develop a top-down strategic pathway towards green investing and show that eco-investing should not be a puzzle or a sacrifice if investors consider the unknown impact of climate change on different asset classes.
Climate Change and Long-Run Discount Rates: Evidence from Real Estate
13 November 2019 | Sustainable Finance and Climate Risk
Robert Engle, statistician, winner of the 2003 Nobel Memorial Prize in Economic Sciences, and his team of researchers, undertook a project, in collaboration with GRI, to use the tools of modern finance and risk management to measure and model environmental risk. They have contributed significantly to the bourgeoning literature that studies how climate change affects asset markets and, in turn, how asset markets may affect the dynamics of climate change.
Assessing the Hazard and Exposure of Dams in the U.S.
13 November 2019 | Sustainable Finance and Climate Risk
Assessing the hazard and exposure of dams in the U.S. This report provides visibility as to the types of risks that could emerge and is an important read for investors, asset managers and insurance providers analyzing portfolio level risk.
Quantum Threat Timeline
3 October 2019 | Cyber security and Fraud
The ‘quantum race’ is on and the race course and timeline are partially unknown. The creation of a scalable, fault-tolerant quantum computer that poses a significant risk to cyber security may be closer than we think. Although quantum attacks are not here yet, critical decisions need to be made today in order to respond to these threats in the future.
The Cyber-Resilience of Financial Institutions: A preliminary working paper on significance and applicability of digital resilience
21 August 2019 | Cyber security and Fraud
Recent headlines about cyber-attacks and massive data breaches are revealing the fragility of the digital infrastructure and the impossibility of assuring the integrity of computer systems, even for organizations such as financial institutions that maintain the most mature cyber security programs.
Systemic Risk Driven Portfolio Selection
10 July 2019 | Financial Stability and Regulatory Compliance
The balance between risk and return has been at the center of portfolio construction methodologies. Although the asset allocation literature has primarily focused on a firm’s individual risk, the Global 2007-2009 financial crisis highlighted the importance of accounting for systemic events, i.e., extreme forms of risk that can have severe consequences on the financial system.
Tokenomics: When Tokens Beat Equity
10 July 2019 | Technology Innovations
To many financial industry insiders, tokens have no intrinsic merit and exist only as a way to evade regulations. We demonstrate that generic revenue-based token contracts are indeed economically inferior to equity and lead to over- or under-production.
Climate Extremes, Aging Dams & Levees and Cascading Failure Impacts
15 May 2019 | Sustainable Finance and Climate Risk
Nearly a third of the dams fail due to overtopping, an event whose likelihood increases as the potential for severe storms increases. Aging dams and levees, in combination with an increasing frequency of climate extremes pose an unprecedented risk to communities around the world. The financial risk associated with the failure of such assets is unmapped.
Robust Long-Term Interest Rate Risk Hedging in Incomplete Bond Markets
15 May 2019 | Pension Hub
This paper for the National Pension Hub develops a robust self-financing hedging portfolio to replicate the ultra-long dated (more than 30 years) liability in incomplete bond markets.
Hedging Climate Change News
15 April 2019 | Sustainable Finance and Climate Risk
The climate is changing, but there is substantial uncertainty around the exact climate trajectory and as well as the economic consequences of climate change. As a result, investors around the world have a huge demand for hedging themselves against the realizations of climate risk.
GRI Quantum Risk Assessment Report – Part 4
19 February 2019 | Cyber security and Fraud
Public-key cryptography, which underpins the security of most of the tools we rely on today including cloud computing, payment systems, the internet, and IoT, are all susceptible to being broken by quantum computers in the not-so-distant future.
The Belt and Road Initiative
4 February 2019 | Geopolitical
This “Belt and Road Initiative” (BRI) promises to link China to both neighbouring and distant regions along its southern and western frontiers through a mass infrastructure investment project, including roads, rail lines, ports, energy pipelines and digital networks. With a sum total of promised investments reaching $1 trillion (estimates vary), the BRI may be the most ambitious scheme of its kind ever attempted – 7 to 8 times larger than the $140 billion Marshall Plan that funded the reconstruction of Europe after the Second World War – and could take decades to fully complete.
Leverage to Meet the Pension Promise
24 January 2019 | Pension Hub
This article discusses use of leverage in the context of defined benefit pension plan investment. It defines the term leverage, discusses how leverage creates value using a simple one-period model and stylized market assumptions, examines risks associated with using leverage and reviews methods and best practices to mitigate and manage these risks.
GRI Quantum Risk Assessment Report – Part 3
16 January 2019 | Cyber security and Fraud
This publication provides an extension of our work on estimating the real-world effort it will take for a quantum computer to compromise symmetric cryptographic functions at the foundation of protecting our ICT infrastructure.
Reimagining “NAFTA 2.0”
6 December 2018 | Geopolitical
This report moves beyond traditional approaches to risk management in the financial services industry and focuses specifically on understanding political uncertainty. It uses the renegotiation of the North American Free Trade Agreement (NAFTA) as a case study to illustrate the value of social scientific theory when analyzing multilateral negotiations.
Back to the Future: 2007 to 2030
6 December 2018 | Risk Management Practices
Are Emerging risks foreshadowing a Systemic Risk Event? In this paper, we do a comparison of the GRAFT matrix over several years to gain insight into potential systemic changes that may be on the horizon.
Addressing Culture and its Associated Risks in Financial Institutions
19 November 2018 | Risk Management Practices
This article focuses on the challenge of changing organizational and sub-unit cultures to better manage the many forms of cultural risk (see sidebar) and thereby improve organizational performance. We propose that a focus on key character dimensions in all employees, but specifically those in risk leadership roles, will result in accelerated culture change, improved risk management and better organizational outcomes.
Innovation and Digitization in Credit
14 November 2018 | Technology Innovations
In this report, we draw from a wide range of sources to provide a comprehensive overview of the global digital lending landscape. We survey recent growth trends of peer-to-peer (P2P) and other forms of alternative lending that have been enabled by digitization, and compare and contrast the major digital lending markets around the world.
Climate games: Who’s on first? What’s on second?
15 October 2018 | Sustainable Finance and Climate Risk
In view of the recent turmoil caused by international trade negotiations, we can view climate change policy in a game theoretic setting. In other words, although the major players may benefit from global emission reduction, there is a natural tendency to engage in climate policy as a strategic game. In this report, we study three different climate change games and compare with the outcome of choices by a Social Planner.
Strategic interactions and uncertainty in decisions to curb greenhouse gas emissions
15 October 2018 | Sustainable Finance and Climate Risk
Climate change caused by human activity represents a particularly intractable tragedy of the commons, which can only be addressed by cooperative actions of individual decision makers at both national and regional levels.
Cost-Benefit Evaluation of Investments in Climate Change Abatement
25 September 2018 | Sustainable Finance and Climate Risk
Many of the costs associated with climate change, such as large-scale coastal flooding and long droughts, are predicted to occur decades or even centuries into the future. However, societies have to invest today in order to effectively mitigate and reduce these long-run risks.
FINANCIAL INNOVATION SERIES – Smart Contracts
13 September 2018 | Technology Innovations
In this paper we discuss smart contracts – computer programmes running on top of a blockchain. We start with some intuitive examples that demonstrate the concept of a smart contract and then consider the Ethereum platform, the most notable platform for decentralized applications. We also outline some applications of smart contracts and discuss associated risks.
Systemic Risk Measures & Portfolio Choice
27 August 2018 | Financial Stability and Regulatory Compliance
Since the last financial crisis, numerous attempts have been made to identify and measure the systemic risk of financial institutions. In this paper, we develop a framework for the optimal portfolio choice based on an exogenous systemic risk measure.
Discount Rate Regulation for Canadian Private Defined Benefit Pension Plans
19 June 2018 | Pension Hub
This paper proposes to use an ultimate forward rate (UFR) method to extrapolate the corporate yield. This is a subjective method that extrapolates the liquid market interest rates such that they converge in the long run to an unconditional ultimate forward rate.
Conflicted Advice About Portfolio Diversification
23 May 2018 | Risk Management Practices
Investors are often encouraged by financial advisors to “roll-over” their 401(k) into Individual Retirement Accounts (IRAs). This work investigates the soundness of this investment advice and analyzes the diversification of large 401(k)-type plans that offer five basic investment options.
18 April 2018 | Financial Stability and Regulatory Compliance
In this report the author provides the first comprehensive study of the collateral rule in the market of cleared credit default swaps by studying how margins depend on portfolio risks and market conditions, and what the implications are for theoretical models of collateral equilibrium.
The Case of Open Banking
18 April 2018 | Financial Stability and Regulatory Compliance
In this report the authors share their insights and identify some of the key changes and issues that the financial sector may be facing in the next few years as the use of open APIs becomes more ‘mainstream’.
National Approach to Cyber Intrusion
10 April 2018 | Cyber security and Fraud
This paper explores the national level cyber security infrastructure within Canada and the United Kingdom as it relate to financial services. While national priorities, timing, and approach will always vary to some extent, we believe it to be a fair comparison given both countries are described as the third and fourth largest cybersecurity innovation hubs in the world.
Robust Hedging in Incomplete Markets
22 March 2018 | Financial Stability and Regulatory Compliance
The research report discusses the development of a hedging strategy for fund manager who faces uncertainty about the expected return on the assets as well as uncertainty about the expected growth in liabilities.
GRAFT: Pension Case Study
22 March 2018 | Risk Management Practices
The Pension Case Study provides the overview of the concept of the Global Risk and Trends Framework (GRAFT). This report provides the process, implementation, and outputs of the GRAFT process.
FINANCIAL INNOVATION SERIES – An Overview of FinTech in Canada
9 March 2018 | Technology Innovations
REPORT – A comprehensive overview of Canada’s Fintech landscape, comparing Canada to other Fintech hubs in terms of funding, regulations, and collaborations; discussing the geographic and categorical distributions of Canadian FinTech firms; and listing key players in the Canadian FinTech space.
Post-Quantum Key Exchange for the Internet and the Open Quantum Safe Project
16 February 2018 | Cyber security and Fraud
Designing public key cryptosystems that resist attacks by quantum computers is an important area of current cryptographic research and standardization. To retain condentiality of today’s communications against future quantum computers, applications and protocols must begin exploring the use of quantum-resistant key exchange and encryption.
Mean Variance Approach to Environmental Risk
15 February 2018 | Sustainable Finance and Climate Risk
This research seeks to gain a better understanding of the impact strategic interaction and uncertainty have on our ability to make meaningful global reductions in greenhouse gas emissions.
Characteristics of Fixed Income Holdings of U.S. and Canadian Institutions in Low Interest Rate Periods
22 January 2018 | Macroeconomic Risk
The persistence of prolonged periods of low interest rates in developed economies such as Canada, the UK and the US has generated a lot of interest in its impact on asset allocation decisions of institutional investors.
GRAFT Case Study: Government of Canada
6 December 2017 | Risk Management Practices
GRAFT – The Global Risks and Trends Framework – is a new and innovative approach designed to help organizations identify, assess and respond to global risks and trends in order to avoid pitfalls that could threaten an organization’s long-term survival. This Government Case study provides the process, implementation, and outputs of GRAFT.
GRI Quantum Risk Assessment Report – Part 2
8 November 2017 | Cyber security and Fraud
This report, “A Resource Estimation Framework for Quantum Attacks Against Cryptographic Functions” provides our next update on our ongoing work related to estimating the real-world effort it will take for a quantum computer to compromise specific cryptographic functions at the foundation of protecting our ICT infrastructure.
GRAFT: A Global Risks and Trends Framework – Overview
16 October 2017 | Risk Management Practices
GRAFT – The Global Risks and Trends Framework – a new and innovative approach designed to help organizations identify, assess and respond to global risks and trends in order to avoid pitfalls that could threaten an organization’s long-term survival, or conversely to leverage for the benefit of the organization.
Confronting Deep and Persistent Climate Uncertainty
2 October 2017 | Sustainable Finance and Climate Risk
Confronting Deep and Persistent Climate Uncertainty Authors: Gernot Wagner and Richard J. Zeckhauser Abstract Deep-seated, persistent uncertainty is a pernicious feature of climate change. One key parameter, equilibrium climate sensitivity, has eluded almost all attempts to pin down more precisely than a ‘likely’ range that has stalled at 1.5–4.5°C for over thirty-five years. The marginal… View Article
Bail-ins and Bail-outs: Incentives, Connectivity, and Systemic Stability
6 September 2017 | Financial Stability and Regulatory Compliance
This paper develops a framework to analyze the consequences of alternative designs for interbank networks, in which a failure of one bank may lead to others.
A Parsimonious Parametric Model for Generating Margin Requirements for Futures
21 July 2017 | Financial Stability and Regulatory Compliance
Although regulatory rules for derivatives margin requirements have not yet been implemented they are currently under active discussion. In the USA, margins of derivative positions cleared by a central counter-party (CCP) must adhere to the 2010 Dodd-Frank Act, which reinforces the role of their supervision by the Securities Exchange Commission and the Commodity Futures Trading Commission. In Europe, EMIR regulations will require more stable margin requirements and an increased confidence level for CCP losses when a client defaults.
A Comparison of Survey and Incentivized-Based Risk Attitude Elicitation
10 July 2017 | Risk Management Practices
A Comparison of Survey and Incentivized-Based Risk Attitude ElicitationAuthors: Jim Engle-Warnick, Diego Pulido, and Marine de MontaignacRelated Project: Behavioral FinanceThe Global Risk Institute funded this research along with the preparation of this paper.Download Summary: EXECUTIVE SUMMARYOne of the duties of financial advisors is to assist investors with building a portfolio that fits their needs and preferences. An… View Article
GRI Quantum Risk Assessment Report – Part 1
11 May 2017 | Cyber security and Fraud
“A Resource Estimation Framework for Quantum Attacks Against Cryptographic Functions” provides an update on our ongoing work related to estimating the real-world effort it will take for a quantum computer to compromise specific cryptographic functions at the foundation of protecting our ICT infrastructure.
Incentives Behind Clearinghouse Default Waterfalls
11 May 2017 | Financial Stability and Regulatory Compliance
We study the incentives provided by the conventional clearinghouse default loss allocation mechanism via a theoretical model. The equilibrium solution to our model provides an analytical characterization of important layers of a clearinghouse’s loss-absorbing capital, systemic risk, and economic surplus from centrally cleared trading.
Managing Carbon Risk: A Look at Environmentally Conscious Indices
5 May 2017 | Sustainable Finance and Climate Risk
Increasingly, governments around the globe are implementing more stringent climate policies to help stimulate the transition to lower-carbon economies. This transition brings with it both risks and opportunities for the financial sector. In this study, we compare the carbon intensity and performance of ‘green’ equities portfolios (environmentally conscious indices) and traditional market portfolios (market indices).
Analysis of the SRISK Measure and Its Application to the Canadian Banking and Insurance Industries
2 May 2017 | Financial Stability and Regulatory Compliance
In this paper, we analyse, modify, and apply one of the most widely used measures of systemic risk, SRISK, developed by Brownlees and Engle (2016). The measure is defined as the expected capital shortfall of a firm conditional on a prolonged market decline. We argue that segregated funds, also known as separate accounts in the US, should be excluded from actuarial liabilities when SRISK is calculated for insurance companies
Illiquidity Premia in the Equity Option Market
21 February 2017 | Risk Management Practices
Illiquidity Premia in the Equity Option MarketRelated Project: Risk Management & Market LiquidityAuthors: Peter Christoffersen, Ruslan Goyenko, Kris Jacobs, and Mehdi Karoui .The Global Risk Institute funded this research along with the preparation of this paper. This paper is a summary of the larger research report“Illiquidity Premia in the Equity Option Market”.GRI members can download the full… View Article
Regulating Dark Trading: Order Flow Segmentation and Market Quality
23 January 2017 | Financial Stability and Regulatory Compliance
Dark trading and its regulation are critically important issues in modern markets, yet many questions about its impact remain unanswered. Regulators around the world are grappling to determine the most appropriate regulatory regime to ensure that they maximize the benefits associated with dark trading, whilst minimizing any potential costs.
Using the Hadoop Ecosystem to meet Basel 239 Requirements
14 November 2016 | Financial Stability and Regulatory Compliance
In this paper, we define the Hadoop ecosystem, its components, and how it can help with risk data aggregation and management holistically.
Pension Fund Asset Allocation and Liability Discount Rates
7 November 2016 | Pension Industry
This article explores the state of public defined programs across the United States, where the methodology for selecting a discount rate for the program’s liability is having significant implications for asset allocation and risk management.
Systemic Risk Survey
25 October 2016 | Financial Stability and Regulatory Compliance
Systemic Risk, Policies, & Data Needs. This research survey on Systemic Risk was funded by Global Risk Institute & lead by Agostino Capponi, PhD of Columbia University.
Finding the Optimal Pension Plan for Canadians: A DV/DC Hybrid
17 October 2016 | Pension Industry
This paper attempts to find a new retirement income model that minimises the risks for both sponsors and workers and maintains most of the strengths of both DB and DC pensions.
Optimal Delta Hedging for Options
21 September 2016 | Risk Management Practices
Delta hedging is an important way in which traders manage the risk in a portfolio of options. This article discusses those options.
Quantum Computing and Cyber-security
5 September 2016 | Cyber security and Fraud
Emerging quantum computing technologies threaten to undermine even the most sophisticated cybersecurity systems installed by businesses and governments
Investment Behaviour in the Laboratory
16 November 2015 | Risk Management Practices
Investment Behaviour in the Laboratory Related Project: Behavioural Finance Preliminary for GRI Working paper November 16, 2015 Abstract This paper is an experimental study of dynamic investment decisions. The goal of the experiment is to test theoretical predictions of the effect of human capital on investment. Subjects make repeated portfolio allocation decisions, allocating their money between… View Article
Funding Value Adjustments and Fair Value
15 November 2015 | Financial Stability and Regulatory Compliance
Valuing Derivatives: Funding Value Adjustments and Fair Value Related Project: Risk Management & Market Liquidity ABSTRACT The authors examine whether a bank should make a funding value adjustment (FVA) when valuing derivatives. They conclude that an FVA is justifiable only for the part of a company’s credit spread that does not reflect default risk. They… View Article