Workshops

E1: Excess volatility revisited

Simple estimates of forecast interest rates and dividend growth, of the type used to estimate past expected equity premia, are used to estimate the level of UK stock market volatility implied by changes over time in investors’ estimates of fundamental value. There is a broad range of values for volatility that can be justified by changes in fundamental value estimated in this way, and actual market volatility is well within this range. So we do not view observed volatility as excessive.

Speaker: Andy Adams, University of Edinburgh Business School

E2: Characteristics of different risks

Categorising risks in a coherent manner sits at the heart of enterprise risk management, but ambiguities
abound: where does operational risk end and strategy risk begin? What constitutes liquidity risk?  How
should non-disclosure be treated?  This session will detail work on a standard system of risk classification
for the Actuarial Profession, what each risk entails, the overlaps between different risk types and how these
problems were resolved. It will be of interest to all those who are seeking to embed a coherent ERM
framework.

Speaker: Patrick Kelliher, Scottish Widows

E3: Extreme events:  robust portfolio construction in the presence of fat tails

Recent market events have highlighted once again the tendency for extreme events to occur more often than we might expect, or like. Yet properly handled, extreme events should also offer us attractive opportunities for profit. In this session we will explore:

• how to analyse fat-tailed behaviour, at a joint as well as at an individual return series level
• what causes extreme events and why they are so prevalent
• how active management can create ‘selection’ effects that may intrinsically foster fat-tailed behaviour
• how standard portfolio construction approaches can be modified to cater better for fat-tailed behaviour, tempered by appreciation of the intrinsic limits that exist on how reliable any such approaches might be

Speaker:  Malcolm Kemp, Nematrian