We emphasize and encourage links between academic researchers and practitioners at financial institutions to bring theoretical techniques to bear on real-world issues.
We are focused on identifying the best solutions in global risk practices
The recent financial crisis reinforced the centrality of research in assessing, reporting, and mitigating risks in the financial services sector. From both macro and micro perspectives, our research programs deliver a wide range of insights to assist our members
Research Approach
We emphasise and build connections between academic researchers and industry practitioners at financial institutions to bring theoretical techniques to bear on real-world issues.
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.
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.
The Society of Actuaries (SOA) Climate and Environmental Sustainability Research Committee awarded Sally Shen, Research Associate, Global Risk Institute, first prize for her three page essay “What Makes Green Investment a Puzzle” in May 2019. This essay argues that the myth behind the motivation of green investment is driven by both unknown knowns and unknown unknowns.
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Emerging Risks
Our research team is tasked with identifying new and emerging insights to better understand risks and trends for the financial sector.
Climate change is a critical global concern that presents issues associated with warmer temperatures, increased water scarcity, and more frequent and severe weather events. All these factors can threaten the financial sector and the economic security...
Climate change is a critical global concern that presents issues associated with warmer temperatures, increased water scarcity, and more frequent and severe weather events. All these factors can threaten the financial sector and the economic security. The physical risks of climate change present a clear threat to operations, but new investment opportunities and product offerings are also needed to respond to the changing world needs.
GRI is engaged in expanding financial sectors understanding of climate-related risks and specifically in identifying proactive responses.
Cyber security practices and insights on latest methods are critical elements that need to be identified, studied and understood. Fraud, money laundering, tax evasion, terrorist financing as well as fraudulent insurance claims are just some of the criminal actions the sector must also be vigilant in opposing...
Cyber security practices and insights on latest methods are critical elements that need to be identified, studied and understood. Fraud, money laundering, tax evasion, terrorist financing as well as fraudulent insurance claims are just some of the criminal actions the sector must also be vigilant in opposing.
We expose our members to industry experts and equip them with knowledge to help them mitigate threats, identify consumer trends and capitalize on new opportunities in technology. GRI collaborates with authorities leading the charge in combating these activities to share their expertise with members to aid in developing their response capabilities as well as improving loss rates and operational efficiency.
Global affairs are in a state of disruptive transition. Trends like the growth of emerging economies, the rise of populism, and evolving security threats are increasing multipolarity in international relations, upsetting trade and investment flows, steering markets and shaping regulation...
Global affairs are in a state of disruptive transition. Trends like the growth of emerging economies, the rise of populism, and evolving security threats are increasing multipolarity in international relations, upsetting trade and investment flows, steering markets and shaping regulation. Multilateral organizations, national and sub-national governments and civil society groups often hold competing interests and objectives, and the relationships between these constituencies can shape the business environment in which financial institutions operate.
Collaborating with field specialists in industry and academia, GRI is committed to helping our members grapple with rising uncertainty in global politics and adapt risk management strategies in response to geopolitical developments.
Macroeconomic risk derives from the behaviour of industries and governments and the relationships between them rather than from individual companies. It concerns fiscal and monetary policies, trade and investment flows and political developments on a national and international scale, and the effects of these factors on financial portfolios and company valuations...
Macroeconomic risk derives from the behaviour of industries and governments and the relationships between them rather than from individual companies. It concerns fiscal and monetary policies, trade and investment flows and political developments on a national and international scale, and the effects of these factors on financial portfolios and company valuations. Intermediate variables of particular importance to macroeconomic risk include equities and commodities markets, business cycles, unemployment, inflation, interest rates, prices, and exports/imports.
GRI seeks to support our members as they refine and supplement existing risk management practices in response to changing macroeconomic conditions.
The 2008 financial crisis demonstrated how a seemingly delimited event can have consequences that span far beyond any one company or sector. When a large, interconnected organization fails or experiences significant disruption, a ripple effect can spread through the marketplace, destabilizing economies and causing entire industries to collapse.
The 2008 financial crisis demonstrated how a seemingly delimited event can have consequences that span far beyond any one company or sector. When a large, interconnected organization fails or experiences significant disruption, a ripple effect can spread through the marketplace, destabilizing economies and causing entire industries to collapse. It often behooves intervention on the part of governments and regulators to prevent further contagion and design policy responses that can avert or mitigate similar crises in the future. Organizational leaders must remain vigilant to anticipate and respond to financial instability and systemic phenomena, and GRI stands ready with information and support.
The corrective measures taken by public authorities to hedge against volatility or system failure can also be a source of concern in and of themselves for risk managers. Government oversight, compliance demands and ethical standards impose duties and obligations that financial institutions must satisfy. Failure to keep abreast of regulation and industry best practices can jeopardize a firm’s legal standing, reputation and earnings. GRI is further committed to helping our members improve processes, refine governance systems and build strategies to highlight the most salient regulatory risks.
All organizations are faced with risks that have the potential to negatively affect their business. Risk management practice in financial services focuses on identifying, measuring and analyzing risk to minimize negative impact...
All organizations are faced with risks that have the potential to negatively affect their business. Risk management practice in financial services focuses on identifying, measuring and analyzing risk to minimize negative impact.
GRI assists in first making sure members know what risks exist and promoting the best practices for handling those risks.
Technology disruptions to the financial sector have the potential to impact individuals, disrupt economies, and destabilize governments. Digitalization and technological advances are challenging the way financial institutions operate and creating new consumer expectations...
Technology disruptions to the financial sector have the potential to impact individuals, disrupt economies, and destabilize governments. Digitalization and technological advances are challenging the way financial institutions operate and creating new consumer expectations.
Financial institutions need to change and adapt in response to these expectations with alternative product offerings and services. GRI understands this demand to stay current and is dedicated to empowering our member institutions with the latest information to stay abreast on developing Fintech innovations; gaining insight on their capabilities, understand their risks and identify the opportunities.
Drivers of Successful Pension Investing: Lessons from the Canadian Model The classic model of pension investing faces bleak solvency and funding realities that foreshadow a precarious future and will likely result in defined-benefit (DB) plan obsolescence. Over the past forty years, two factors have seriously attenuated the sustainability of DB plans which provide retirees with… View Article
Decumulation Options for Employer Pension Plan Design: Theory to Practice For years, policymakers, employer pension plan sponsors, consulting professionals, financial advisors, and academics have focused on accumulating retirement wealth. But with Canadian baby boomers now entering retirement – with longer life expectancy, fewer anticipated sources of family support, and a greater dependency on private savings… View Article
Is the future of banking “Open”?: A case study on the strategic implications of open banking in Canada and the US Technological and digital innovation has often been credited for having significant strategic implications for firms by shifting the competitive landscape and changing the market dynamics in an industry (Porter, 1985). It is also believed… View Article
Designing Pension Plans for Fairness, Sustainability, and Transparency Inadequacy of pure DB and DC plans lead to the development of some hybrid pension designs. Popular examples include the DB-underpin (also known as floor offset), Cash Balance, and second-election options. However, many DB underpin plans have been wound up as the DB guarantee became too costly…. View Article
Digital currencies (DC) represent one of the most disruptive innovations ever in consumer finance, and the Wall Street Journal refers to” one of the most powerful innovations in finance in 500 years.” (Casey and Vigna, Jan. 23, 2015) DC have become the platform for a thriving community of venture-backed start-ups.
Valuation of Private Market Investments in Pension Fund Portfolios The private asset market has grown from a niche investment in the 1980s to a stand- alone asset class today. Pension funds are increasingly looking outside traditional stock and bond markets to find opportunities to maximize returns and deliver sustainable value. Large pension funds in Canada… View Article
1 April 2018 | Climate Change and Environmental Risks
Climate Extremes: Aging Dams and Failure Impacts Flood insurance has been one of the more challenging products to develop for the industry. Flood risk changes due to climate variations as well as land use change, including increasing development and exposure in areas “protected” by dams and levees. Further, in many cases, recognizing that this is… View Article
Cyber Resilience According to PricewaterhouseCoopers (2016), 61% of Canadian CEOs believe that cyber security is the biggest potential business threat to their organization’s growth prospects. A recent study by Scalar (2017) shows the negative impact of cyber attacks on productivity: in 2016, 53% of Canadian companies reported an incident that resulted in the loss of… View Article
Rotman FinHub LEAD RESEARCHER Andreas Park Andreas Park is an Associate Professor of Finance at the University of Toronto in the Department of Management at University of Toronto at Mississauga, with a cross appointment to the Finance area at Rotman. He has been a University of Toronto faculty member since 2003. His… View Article
2 May 2017 | Financial Stability and Regulatory Compliance
Systemic Risk Benchmarking Study (SRISK) The systemic risk measure (SRISK) originally proposed by Brownlees and Engle (2011), is defined as the expected capital shortfall of a firm conditional on a prolonged market decline. It is a function of a firm’s size, leverage, and risk and can be calculated using publicly available data. Weekly updates of… View Article
Hedging and Risk-Return Frontier in Insurance: an ALM Perspective Asset-Liability Management (ALM) attempts to manage the underlying risk from mismatches between assets and liabilities that arise from fluctuations in the financial landscape. This project creates an ALM strategy for insurance companies that will account for demographic and financial risk while controlling for model risk. This… View Article
13 June 2016 | Financial Stability and Regulatory Compliance
Short Selling Bans In both the 2008-09 crisis and the 2011-12 euro debt crisis, security regulators imposed short selling bans, targeting them mainly at financial institutions. This was motivated by the fear that a collapse in a bank’s stock price could lead them to experience funding problems which would trigger further price drops. Short-selling bans… View Article
Risk Management & Market Liquidity This project focuses on liquidity risk management and its integration with other types of risk, including market and credit risk, from two perspective. The first perspective is that of a financial institution. Here the researchers focus on incorporating liquidity risk in derivatives pricing models, funding value adjustment in derivatives valuation… View Article
13 June 2016 | Financial Stability and Regulatory Compliance
Optimality Criteria for Commodity Futures Margin Requirements Margin requirement is one of the most prolifically debated risk management methods for clearing houses. There are two main schools of thought for setting margin requirements: the prudential approach of Figlewski (1984) and Gay et al. (1986) which argues that the main purpose of margins is to cover… View Article
Optimal and Actual Asset Allocation Decisions in Protracted Low Interest Rate Periods The project conducts an empirical study of the aggregate asset allocation decisions of Canadian, UK and US life insurance companies and pension funds. The project addresses three questions: 1. When making asset allocation decisions, do institutional investors react to changing economic conditions, including… View Article
Low for Long This research analyses the response of pension funds to the prolonged low-interest rate environment. This was achieved by; Looking at what different pensions have actually done since 2008; Determining what the response should have been based on strategic asset allocation models that acknowledge possible changes in the interest rate regime; Examining the… View Article
Financial Systemic Risk: A Network Approach The Financial Systemic Risk project brought together 5 internationally known researchers to address foundational issues that must be resolved before we can fully understand what makes a resilient financial network. How can stability be measured and managed? How should banks be regulated, and what sticks and carrots should be… View Article
Behavioural Finance This project uses the tools of modern finance and risk management to measure and model environmental risks. Environmental risks can be thought of as long run risks which naturally influence portfolio decisions including insurance. This study examines publicly traded environmental portfolios and develops portfolios which will be published on the widely viewed and… View Article
13 June 2016 | Climate Change and Environmental Risks
Multi-Period MV Approach to Risk & Return in Climate Change Policy There is increasing public pressure on governments to commit to credible plans to reduce greenhouse gas emissions through carbon taxes, cap and trade or other regulatory systems. The responses of governments to climate change will have large impacts on the economy and on the… View Article
18 May 2016 | Climate Change and Environmental Risks
This project uses the tools of modern finance and risk management to measure and model environmental risks by examining publicly traded environmental portfolios.
