Five teams, one winner, multiple beneficiaries; the third annual Financial Mathematics Team Challenge at the University of Cape Town (UCT) – an intensive research marathon involving top financial maths students from three continents – has once again delivered quality solutions to some of the toughest challenges in the finance sector.
The event, hosted by AIFMRM’s research unit, the African Collaboration for Quantitative Finance and Risk Research (ACQuFRR) in association with University College London (UCL), saw teams of mixed masters and doctoral students taking on practical problems in an array of areas pertinent to the financial services industry post the financial crisis. According to Dr Andrea Macrina, Senior Lecturer at UCL and Adjunct Associate Professor at UCT, this is a one-of-a-kind competition that challenges the students to find workable solutions to issues that companies in the financial sector are genuinely interested in seeing resolved.
The participating universities this year were UCL, ETH Zürich, the University of Vienna, the University of Technology Sydney, the Université d’Évry-Val-d’Essonne in Paris, and UCT.
“The results of this challenge are, in a word, inspiring,” said Macrina. “The problems that they research might take the ordinary researcher perhaps a year to complete. What we do is to concentrate the collective effort of a group of people on each problem and have them dedicate 100% of their time to it over the two-week challenge. It is incredible what can be achieved in such a short period.”
A student from the University of Technology Sydney, Karol Gellert, shares this sentiment. “I am a part-time student and I currently work in the Australian banking sector. I can certainly see significant practical implications for the work being done in this challenge. The finance sector is in a phase right now where regulators are finally starting to formulate policies that will help to avert disasters like the 2008 market crash, but research like this is what we need to be able to test those policies and help to advance the industry,” he commented.
This year’s winning team worked on a problem related to “Model Risk” and produced a report which quantifies an aspect of this risk, something that has not been done before.
“All financial services companies use models for pricing and risk management, this exposes them to the risk that the model is ‘wrong’, which it almost always is,” explained AIFMRM Director, Associate Professor David Taylor. “The team explored one particular aspect of wrongness – the risk of recalibrating the model at various points in time. Model risk is currently a ‘hot’ topic because it is part of the Basel regulations, and companies must make capital provision for such a risk.”
Team leader Ralph Rudd said that he was immensely proud of his team. “Of all of the work I have been involved in since I started my studies, this is probably the work that I am by far the proudest of. The team was phenomenal, and this is the hardest any of us has ever worked.”
Professor Josef Teichmann of ETH Zürich said that participating in the challenge is good for students’ CVs, with recruiters already showing interest in the participants. “It is important to understand that it is a tremendous achievement for the students to make it to this challenge and we have already seen prospective employers take notice of these students almost immediately. This competition provides a framework for students to gain experience in teamwork, cooperation, managing projects, and gaining insight into real-world problems. All of these are qualities that are highly valued by employers in our sector. I see a lot of potential for this type of competition to be duplicated by other universities around the world,” he said.