APL Colloquium

November 2, 2018

Colloquium Topic: Using Tools From Physics, Feynman, and Finance to Model Macrofinancial Risks in Economies

Starting with the Feynman-Kac equations for stochastic processes with various boundary conditions, very useful tools are used for valuation of financial instruments and valuation of balance sheets of interconnected sectors of an economy. Called Macrofinancial Risk Analysis this framework provides a new and powerful tools with which policymakers, risk experts and investors can analyze risk and vulnerability in economies, both emerging market and industrial. Using modern risk management and financial engineering techniques applied to the macroeconomy, an economic value can be placed on the risks posed by inter-linkages between sectors, the risk of default of different sectors on their outstanding debt obligations quantified, and the value ex-ante of guarantees to private sector entities by the government calculated. This talk will discuss the basic macroeconomic and financial models necessary to understand the framework, the core analytical tools, and more advanced contributions that will be of interest to researchers. This unique synthesis of ideas from finance and macroeconomics offers several original contributions to the theory of financial crises, to sovereign risk analysis as well as a range of new policy options for governments interested in achieving a better tradeoff between economic growth and macro risk. Cyber risk economic impacts to economies will also be mentioned.

Colloquium Speaker: Dale F. Gray

Dale Gray grew up in Denver Colorado, studied physics at Stanford, has a Masters degree in Geophysics from Stanford University and a PhD from MIT (joint degree between Earth and Planetary Sciences and Economics Department).  He worked as an Advisor to the Energy and Finance Ministers of Indonesia from 1981-84, worked at the World Bank from 1985-1995, IMF 1995-98, President of MFRISK working in NY for rating agencies, government agencies and banks/hedge funds from 2000-2005. He worked at the International Monetary Fund from 2005-2018.  He has over 60 published papers and book contributions and is co-author of the book “Macrofinancial Risk Analysis” with foreword by Nobel Prize winner Robert Merton. He has visited and applied his model of over 100 countries with special applications to Euro Area, US, Middle East, East Asia, and South America. Current interests are on cyber risk and quantum information/computing.