IDSS Workshop on Data, Analytics, and Risk in Finance

This workshop focused on opportunities for big data and predictive analytics in finance and economics, including new approaches to modeling, measuring, and understanding risk.

• Read the summary report (pdf)
• Watch the videos
• Check out the reading list

Overview

Technological advancements have transformed financial markets into increasingly complex and dynamic systems. Organizations including banks, asset management firms, information technology firms, and regulatory agencies are all: increasingly interconnected; managing transactions at sub-millisecond time scales; and generating, storing, and managing masses of data. This creates challenges and opportunities when it comes to understanding and managing risk in financial systems — for example: How can we leverage big data to develop better analytical methods for predicting bubbles and collapses in financial systems? Can we use data to map and model interconnections across financials systems toward better understanding systemic risk and how disruptions propagate? What are the opportunities for creating new financial forecasting tools and risk metrics?

This workshop brought together stakeholders from across industry, government and academia to discuss these opportunities and priorities for research and innovation in this area. The workshop focused on the following:

• priorities for financial firms and regulators in assessing and managing risk;
• opportunities for big data and machine learning in better understanding behavior and modeling the interconnections and complex dynamics in financial systems;
• using statistical models and algorithms to improve decision-making and design policies;
• novel applications for emerging technologies, including blockchain and encryption techniques;
• applying new techniques to enable data sharing while managing privacy;
• opportunities to collaborate on developing resources, open source tools and platforms, and new predictive analytic metrics that enable a deeper understanding of risk and new approaches to monitoring risk and improving stability in financial markets.

Invited participants brought perspectives from across disciplines including finance, economics, statistics and data science, and social sciences. We used this workshop to explore innovative ideas at the intersection of these fields and generate an output document that summarizes challenges and priorities for research.

Agenda and Videos

Opening Remarks

Introductory remarks: Professor Munzer Dahleh, Director of IDSS and Elizabeth Bruce, Executive Director, IDSS

Session 1: Financial Systems: Risk and Resiliency

This session focused on understanding risk and resiliency in financial systems — key challenges and new opportunities. Issues of systemic risk, interconnections, and interdependencies across global financial networks and what is important for the future stability of these systems.

 

Introduction to Panel by Professor Asu Ozdaglar (Director, LIDS)

 

“Systemic Risk” by Professor Daron Acemoglu (Department of Economics, MIT)

 

VIDEO NOT AVAILABLE
“Big data challenges and opportunities in financial stability monitoring” by Dr. Mark Flood (Office of Financial Research)

 

“Five Questions about Systemic Risk” by Professor Simon Johnson (Sloan, MIT)

 

“Why did we get it wrong? Subprime was small” by Dr. Paul Willen (Federal Reserve Bank of Boston)

 

First Moderated Discussion

 

 

“Analyzing Systemic Risk” by Dr. Stephen Malinak (Thomson Reuters)

 

“Risk Management for Asset Managers” by Mr. Paul Wojcik (T. Rowe Price)

 

Second Moderated Discussion

 

Third Moderated Discussion

 

Session 3

Introduction to Panel Discussion by Professor John Guttag, MIT CSAIL

 

 

“Trading Bitcoins” Professor Devavrat Shah (LIDS, MIT)

 

“Enterprise Platforms” Peter Ferns (Goldman Sachs)

 

Dr. Jake Xia, Chief Risk Officer, Harvard Management Company

 

Closing Remarks by Professor Munther Dahleh (IDSS, MIT)

Reading List

In preparing for the “Data, Analytics, and Risk in Finance” workshop, we compiled a sampling of papers and articles that provide opinions and perspectives on research, trends and innovation in this area — including articles published by some of our invited speakers.

1. “A new approach to financial regulation“, Simon Levin and Andrew Lo, PCAS (2015)
2. “Survey of Systemic Risk Analytics”, Andrew W. Lo and Mark D. Flood
3. “Big data challenges and opportunities in financial stability monitoring” Flood, Jagadish, and Raschid
4. “The Application of Visual Analytics to Financial Stability Monitoring” OFR Working Paper 2014-02c, Mark D. Flood, Victoria L. Lemieux, Margaret Varga, and B.L. William Wong
5. “Contract as Automaton: The Computational Representation of Financial Agreements”, OFR Working Paper 2015-04, Mark D. Flood and Oliver R. Goodenough
6. “The Network Origins of Large Economic Downturns”, Daron Acemoglu, Asuman Ozdaglar, and Alireza Tahbaz-Salehi
7. “Bayesian Regression and Bitcoin”, Devavrat Shah and Kang Zhang
8. “MIT’s Bitcoin-inspired ‘Enigma’ Lets Computers Mine Encrypted Data”, Wired Magazine, Sandy Pentland’s group.
9. “Systemic risk in banking ecosystems”, Andrew G. Haldane & Robert M. May, Nature (2011)
10. “Systemic Risk and Stability in Financial Networks” American Economic Review, vol. 105, no. 2, pp. 564-608, 2015. Daron Acemoglu, Asuman Ozdaglar, Alireza Tahbaz-Salehi,
11. “Andrew Lo on Volatility, Trend Following, and Why Traditional Financial Advice Is Incomplete”, Journal of Financial Planning, March 2016
12. “Money Walks: Implicit Mobility Behavior and Financial Well-Being” Vivek Kumar Singh, Burcin Bozkaya, Alex Pentland
13. “Rethinking the Financial Network” speech given by Andrew G Haldane, Executive Director, Financial Stability, Bank of England at the Financial Student Association, Amsterdam 28 April 2009