We are privileged to be joined by HBS Professor and Nobel Prize Winner Robert Merton 

OBSERVATIONS ON THE FINANCIAL CRISIS: Macro Financial Risk Propagation, Structural Risks, and Regulatory Recommendations

6pm Thursday, September 24
Rock Bottom Bewery, La Jolla/UTC
Private Upstairs Room
8980 Villa La Jolla Drive |  858.450.9277

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You don't need to be told that we are in a global financial crisis of a magnitude and scope not seen in nearly 80 years.  You may not, however, have given a lot of thought to the degree to which this can be attributed to the changes in the financial system brought about by financial innovation, derivatives and mathematical models.

For nearly four decades, financial innovation has been a central force driving the global financial system toward greater efficiency with considerable economic benefit having accrued from those changes.  The scientific breakthroughs in finance in this period both shaped, and were shaped by, the extraordinary innovations in finance practice that expanded opportunities for risk sharing, lowering transactions costs and reducing information and agency costs.

Today no major financial institution in the world, including central banks, can function without the computer-based mathematical models of modern financial science and the myriad of derivative contracts and markets used to extract price- and risk-discovery information as well as execute risk-transfer transactions.

Nobel Prize winner Prof. Robert Merton will analyze and offer observations on structural questions about the financial crisis:

• How does risk propagate so rapidly across the system
• Why do the reported losses in financial institutions continue and actually get larger, even though those institutions are largely in a static portfolio position and are not actively adding more risk?
• Is there a structural relationship between financial innovation and the risk of crisis?
• What are the implications of the inevitable incompleteness of all models: proprietary risk, accounting, and regulatory?
• What can be said at this point about institutional and needed regulatory changes?
• What will be the role of financial innovation in the future beyond the crisis?

Robert C. Merton's Biography

Robert C. Merton is the John and Natty McArthur University Professor at the Harvard Business School.  He is past President of the American Finance Association, a member of the National Academy of Sciences, and a fellow of the American Academy of Arts and Sciences.  In 1993, he received the inaugural Financial Engineer of the Year Award from the International Association of Financial Engineers.  In 1997, Professor Merton received the Alfred Nobel Memorial Prize in Economic Sciences with Myron Scholes for a new method to price derivative securities.

A former senior advisor to Salomon Inc. and J.P. Morgan and a co-founder and principal of Long-Term Capital Management, Professor Merton is currently the developer of SmartNest, a pension management system that addresses deficiencies associated with traditional defined-benefit and defined-contribution plans. 

Professor Merton holds a B.S. in Engineering Mathematics from Columbia University, an M.S. in Applied Mathematics from California Institute of Technology and a Ph.D. in Economics from Massachusetts Institute of Technology.  He holds honorary degrees from the University of Chicago, Claremont Graduate University, and seven foreign universities.
[http://www.people.hbs.edu/rmerton/]