ORIE Colloquium

Paul GlassermanColumbia University
Information-Driven Price and Volatility Cycles

Tuesday, November 13, 2018 - 4:15pm
Rhodes 253

Abstract: Information-Driven Price and Volatility Cycles How do small shocks get amplified into market crashes? We propose and analyze a dynamic model in which stock market prices and volatility shift between higher and lower levels based on changes in the information available to investors about future dividends. The model evolves through overlapping generations. In each generation, investors decide whether to acquire information at a cost. The precision of available information is subject to exogenous shocks; in addition, more information becomes available as more investors choose to become informed. The model gives rise to multiple fixed points for the fraction of informed investors, corresponding to different price and volatility regimes. Investors rationally anticipate potential transitions between regimes. We calibrate the model to historical data and find that the transitions can generate large price drops accompanied by large increases in volatility. This pattern may play a role in the onset of a financial crisis and in responses to changes in information disclosure. The model isolates the role of information dynamics in producing these effects. This is joint work with Harry Mamaysky and Yiwen Shen. Bio: Paul Glasserman is the Jack R. Anderson Professor of Business at Columbia Business School. In 2011-2012, he was on leave from Columbia and working at the Office of Financial Research in the U.S. Treasury Department, where he continues to serve as a part-time consultant on financial stability research. He also chairs the Financial and Business Analytics Center in Columbia's Data Science Institute. Paul's research interests include quantitative finance and other applications of stochastic models. His publications include the book Monte Carlo Methods in Financial Engineering, which received the 2006 Lanchester Prize and the 2005 I-Sim Outstanding Publication Award. Paul is also a past recipient of the Erlang Prize in Applied Probability and Risk Magazine's Quant of the Year Award.

Professor Glasserman's research and teaching address risk management, the pricing of derivative securities, Monte Carlo simulation, statistics and operations. Prior to joining Columbia, Glasserman was with Bell Laboratories; he has also held visiting positions at Princeton University, NYU, and the Federal Reserve Bank of New York.

Glasserman's publications include the book Monte Carlo Methods in Financial Engineering(Springer, 2004), which received the 2006 Lanchester Prize and the 2005 I-Sim Outsanding Publication Award. Glasserman is a past recipient of the National Young Investigator Award from the National Science Foundation (1994 - 99), IBM University Partnership Awards (1998 - 2001), the TIMS Outstanding Simulation Publication Award (1992), the Erlang Prize (1996), the IMS Medallion from the Institute of Mathematical Statistics (2006), and a fellowship from the FDIC Center for Financial Research (2004). He received the 2004 Wilmott Award for Cutting-Edge Research in Quantitative Finance and Risk Magazine's 2007 Quant of the Year Award. He was named an INFORMS Fellow in 2008. He is also a two-time recipient of the Dean's Award for Teaching Excellence (1994, 2000).

Glasserman serves on the editorial boards of Finance & Stochastics, Mathematical Finance, the Journal of Computational Finance, and the SIAM Journal on Financial Mathematics. He chairs the Education Committee of PRMIA, the Professional Risk Managers International Association.

Glasserman was senior vice dean of Columbia Business School in 2004-2008 and served as interim director of the Sanford C. Bernstein & Co. Center for Leadership and Ethics in 2005-2007.