Dear students, faculty and staff,
Nazarbayev University Graduate School of Business invites you to Research Seminar “A Coherent Methodology for Economic Capital & Stress Testing” by Gavin Kretzschmar, Dean of International School of Economics (ISE) of Kazakh British University, Almaty
WHEN: Friday, September 7, 11:00 – 12:00
WHERE: Block C3 (GSB/GSPP Building), 3rd floor, Room 3015
ABSTRACT: Economic capital models and stress tests, potentially powerful tools for enterprise risk management (ERM), are referred to in the Bank of International Settlement Pillar 2 and also the Solvency II regulatory capital frameworks, but without actually offering methodological coherence. We argue that, to fulfill their purpose, economic capital models need to be fully integrated and go beyond the modular approaches that dominate Basel banking stress testing methodologies. In a modular approach capital is determined at business-unit or risk category level (e.g. market,credit and liquidity risk separately) and aggregated ex post by simple summation or correlation-adjusted summation. In the fully integrated approach, aggregationoccurs implicitly by relating all asset risk measures to a common set of fundamentalrisk drivers, without imposing correlation. We propose that calibrated economic scenario generation lies at the heart of a fully integrated approach to modelling the risks on the asset side of a firm’s balance sheet and discuss how stochastic scenario generation provides the ideal framework for exploring the diversification benefitsthat different business units (or asset classes) bring to an enterprise. We explain how this approach allows us to understand sources of tail risk and gives us a platformfor integrated stress testing, sensitivity analysis, and the allocation of capital to business units, enabling risk-adjusted performance comparisons.
SPEAKER: Professor Kretzschmar has enjoyed a Professorial as well senior executive banking career. His CV as a Professor encompasses a strong portfolio of 15 years of business leadership, consulting experience and executive team education for many top global and regional companies. Gavin has extensive CIS research experience, having served 7 of these 15 years as PricewaterhouseCoopers Professor and Chair in Kazakhstan. Currently, he is Dean of the LSE partner School – ISE – in Almaty Kazakhstan and Professor at EADA Business School Barcelona. Qualified as a Chartered Accountant, Professor Kretzschmar has a PhD in Finance from Edinburgh University, has served fourteen years as Finance Director at a top 100 global bank – including holding multiple Board positions as a Director. Directorship roles encompassed: financial reporting, business unit management and risk management. These senior finance sector roles enable Professor Kretzschmar to offer academic and professional insights into the very topical and relevant areas of: capital structuring, banking and risk. His specialty research areas include Corporate & structured finance, Investment banking and derivatives.