The 2012 TopQuants autumn workshop on “Current topics in modelling” took place on 21 November 2012 at the Ernst & Young headquarters inAmsterdam. The event format of two slots of five parallel sessions each was very similar to that of the 2011 TopQuants autumn workshop. The range of topics was even broader at this year’s event, attracting a total of approximately 160 quantitative finance professionals. Extra chairs had to be placed in order to accommodate all participants in the parallel sessions indicated as their first choice.

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TopQuants are very pleased that the programme and format of the event match so well with the interests of the Dutch quant community. Diederik Fokkema (E&Y and founding member of TopQuants) commented after the event: “I am extremely pleased with this turnout. I am grateful to our sponsor for allowing us to confirm so many registrations, even though we have put the capacity of the venue to somewhat of a stress test.”

After a short welcome note, the main part of the workshop started. Reflecting the TopQuants principle “by quants for quants”, the event offered parallel sessions with about ten speakers from banks, audit and consultancy firms as well as from academia. Topics ranged from overview presentations to more technical talks, spanning a broad spectrum – from the impact of regulation on the financial sector, industry surveys on counterparty risk, via curve building techniques and their implementation all the way to new models fresh from the desk of the academic researcher. Participants could attend two sessions. Many used this opportunity to combine an industrial survey presentation and a more technical talk, others picked both sessions from the same field.

Harmenjan Sijtsma (Rabobank International) talked about the Fundamental Review of the Trading Books, presenting in an interactive style and asking the audience for the opinion several times. Harmenjan thinks that new regulation will have a major impact on the market risk modelling within banks and expressed his concerns that increased regulatory capital requirements might reduce the willingness of financial institutions to provide loans to the market.

The event offered two presentations by representatives of large audit and financial consultancy companies. Paul Wessels and Jeroen Heijneman (both KPMG) talked about The impact of the accumulation of regulation on the Dutch banking sector. Frank de Jonghe and Siobhan Tipping (both E&Y) presented Market impressions on counterparty credit risk: from CVA over IMM to FVA. During the networking part, several participants commented positively on such overview presentations; one of them said: “I have worked for the same bank for several years and know how we approach these things. Now I have a better idea about how others look at this.”

Ever since the credit crunch, curve building has been a much-discussed topic in the quant community. It has also featured prominently at this year’s TopQuants autumn event, its various ramifications being touched on during several talks. The Ultimate Forward Rate – Background, Issues and Impact was presented by Roger Lord (Cardano), as his co-presenter Joeri Potters (also Cardano) could not attend the event. The Ultimate Forward Rate, ie. a method in which forward rates tend to a fixed forward rate, has been proposed in Solvency II. Roger discussed the pros and cons of this approach and its impact on the valuation of the long-term liabilities of insurance companies and pension funds, as well as some mathematical properties and curiosities of the proposed UFR curve. Ton Broekhuizen (NIBC) gave a very accessible introduction to Multiple discount and forward curves. Ton started by summarizing the pre-crisis, single-curve approach and then explained clearly how to generalize it to the multi-curve framework which has been emerging as a new industry practice for the pricing of interest-rate instruments since about 2008.

Funding costs is undoubtedly another topic which has received much attention among quants recently. Bert-Jan Nauta (Double Effect) addressed this in his presentation The Funding Value Adjustment – real or imaginary? Bert-Jan expressed his opinion that the FVA should not be included in the valuation of derivatives. He also gave a balanced overview in his talk by presenting the pros and cons of FVA and discussed the consequences of different modelling assumptions for funding costs.

Mikhail Voropaev (ING) talked about Analytical Credit VaR, presenting techniques for the fast and precise computation of credit portfolio VaR. Mikhail expressed his belief that such fast calculations and real-time loan pricing become more and more important in view of increasing regulation.

The more academic stream of the event featured two sessions, namely Ton Vorst (VU, Tinbergen, ABN AMRO) on Risk and Returns in Credits and Michael Schröder on Mechanisms for no-arbitrage term-structure modelling, with applications to interest-rates and realized variance. Both sessions were very popular with participants, attracting over 40 registrations each. Ton Vorst discussed the mathematical modelling behind the rating of CDOs, emphasizing the mechanism of credit quality and rating deterioration in individual CDO tranches. In his talk, Michael Schröder presented recently obtained research results on the construction of no-arbitrage term structures. His proposed methodology complies with stylized facts such as mean-reversion and positivity, and the rates thus constructed keep their tractability.

Following the by now well-established practice of TopQuants events, speakers and participants were offered complimentary drinks and a “walking dinner” after the parallel sessions and could continue their discussions in an informal setting. Several workshop participants have commented positively on this opportunity to meet in an informal setting with colleagues from other institutions and exchange ideas. One of the workshop participants commented: “In London, you can attend something like this almost every week. But in the Netherlands, the events organized by TopQuants are really unique!”

TopQuants acknowledge the generous sponsoring for this workshop received from Ernst & Young.

Everyone registered for this event will receive an electronic questionnaire. TopQuants will take the comments and feedback into account in the organization of future events. At the event, TopQuants have also announced plans to start a bi-annual newsletter. Watch the TopQuants webpage for more information about our activities in 2013!