Measuring and Hedging Geopolitical Risk

  • Speaker
  • Robert F. Engle, Ph.D.Professor Emeritus of Finance, Stern School of Business, New York University
    Co-Director, NYU Stern Volatility and Risk Institute
Date & Time

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Some events can impact the volatilities of most assets, asset classes, sectors and countries, causing severe damage to investment portfolios. The magnitude of such shocks is defined as GEOVOL, which is a broad measure of geopolitical risk.

Robert Engle and his colleagues have introduced a statistical formulation of such events as common volatility innovations in both a multivariate volatility context and an asset pricing context. In this lecture, Engle will show that volatility shocks are correlated across assets even after extracting common factors. To measure GEOVOL, they propose a parameterization and simple but novel estimation strategy that delivers the magnitude of GEOVOL and its factor loadings on assets and factors. Simulations verify the statistical performance of the estimator and test to detect GEOVOL. Two empirical examples show the power of the methodology and indicate the events that have had the biggest impact on financial markets. The results are useful for portfolio optimization and risk forecasting.

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Entrance will not be granted without this documentation.
On-site registration will not be permitted. Walk-in entry will be denied.

About the Speaker

Engle is a professor emeritus of finance at the New York University Stern School of Business. He is the winner of the 2003 Nobel Prize in economics for his research on the concept of autoregressive conditional heteroskedasticity (ARCH). He developed this method for statistical modeling of time-varying volatility and demonstrated that these techniques accurately capture the properties of many time series. Professor Engle shared the prize with Clive W. J. Granger of the University of California, San Diego.

Engle is the director of the Volatility Institute at the Stern School at NYU. In this role, he has developed research tools to track risks in the global economy and make these publicly available on the V-LAB website. These measures include volatility, correlation, long-run value at risk and liquidity, updated daily for thousands of global financial assets.

Engle is a co-founding president of the Society for Financial Econometrics (SoFiE), a global non-profit organization housed at NYU. Before joining NYU Stern in 2000, he was chancellor’s associates professor and economics department chair at the University of California, San Diego, and Associate Professor of Economics at MIT. He is a member of the National Academy of Sciences.

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