Kay Giesecke Assistant Professor Office: Terman 414 | Phone: 650-723-9265 | Fax: 650-723-1614 Email: giesecke @ stanford.edu

Research

My research concerns the design, implementation, and testing of probabilistic models for financial risk. This is an interdisciplinary subject that draws on finance, probability, stochastic processes, statistics, numerical analysis and computer science. Research in this area is important since it has the potential to affect the way risk is measured and managed in the economy. My results are currently being applied throughout the financial industry: at banks and investment firms, by asset managers and insurance companies, and by regulatory authorities that oversee national and global financial markets.

At present, the financial industry and its regulators are especially concerned about credit risk. This is the distribution of financial losses due to changes in the credit quality of a counterparty to a financial agreement. Credit risk pervades virtually all financial transactions. At its core is the probability of a default, which is an event resulting from a complex decision process. This process is affected by the intricate web of business relations between firms, and in turn, the default decision of a single firm affects the entire web. It follows that the default of one entity cannot be considered in isolation. Thus, credit research necessarily incorporates a broad set of topics:

• Forecasting of individual defaults,
• Valuation of credit sensitive securities such as bonds, stocks and derivatives that are used to hedge against credit risk,
• Quantification of credit risk aggregated among the positions of a security portfolio held by financial firms,
• Simulation of dependent default events and losses, and
• Statistical testing of models for dependent defaults.

Current credit research initiatives are described on the website of my research group CreditLab.