Anatomy of a Bubble: Lessons from the Credit Crisis

Anatomy of a Bubble
Reported by
Alan Dove

Posted December 12, 2008


At a November 6, 2008, meeting at the Academy, a panel of quantitative finance professionals dissected the current disaster in global markets and discussed some dramatic steps that might be necessary to fix it. They noted that the crisis largely stemmed from a lack of transparency and oversight of highly leveraged investing, which touched off a chain reaction of failures. Other factors that played a role were the expansion of the market's reach through global insurance and mortgage markets, which made local disasters more survivable, but also made national and even global disasters more likely.

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Petter Kolm, PhD

Courant Institute of Mathematical Sciences, New York University
e-mail | web site

Petter Kolm joined the Courant Institute of Mathematical Sciences as a clinical associate professor of mathematics and as the deputy director of the Mathematics in Finance MS Program in 2007. Previously, he worked as a financial consultant in New York City and in the Quantitative Strategies Group at Goldman Sachs Asset Management. He holds a PhD in mathematics from Yale University, an MPhil in applied mathematics from the Royal Institute of Technology in Stockholm, and an MS in mathematics from ETH Zürich.

Kolm coauthored the books Financial Modeling of the Equity Market: From CAPM to Cointegration (Wiley, 2006), Trends in Quantitative Finance (CFA Research Institute, 2006), and Robust Portfolio Management and Optimization (Wiley, 2007). Financial Modeling of the Equity Markets was among the "Top 10 Technical Books" selected by Financial Engineering News in 2006.

Kolm's research interests include delegated portfolio management, financial econometrics, quantitative trading strategies, risk management, and robust optimal portfolio strategies. He is a member of the editorial board of the Journal of Portfolio Management.

Bjorn Flesaker, PhD

e-mail | web site

Bjorn Flesaker is a senior quant at Bloomberg, where his current research is focused on the pricing and risk management of credit derivatives. Prior to this, he spent more than a decade managing quant, analytics, and technology groups for a number of financial institutions, including Merrill Lynch, Bear Stearns, MBIA, and Morgan Stanley. He holds a PhD in finance from the University of California, Berkeley, and he served on the finance faculty of the University of Illinois at Urbana–Champaign.

Stephen Figlewski, PhD

Stern School of Business, New York University
e-mail | web site

Stephen Figlewski is a professor of finance at the New York University Leonard N. Stern School of Business, where he has been since 1976. He holds a BA in economics from Princeton University and a PhD in economics from the Massachusetts Institute of Technology. He has published extensively in academic journals, especially in the area of financial futures and options. He is the founding editor of The Journal of Derivatives and an associate editor for several other journals. He also edits the Financial Economics Network's two "Derivatives" series published over the Internet. He is the director of the NASDAQ Derivatives Research Project, a research initiative at the Stern School that supports applied and theoretical research on derivatives and promotes intellectual interchange between academics and practitioners in derivatives, risk management, and financial engineering.

Figlewski has also spent time on Wall Street. He recently returned to NYU after a leave of absence spent working on margin setting for credit-sensitive securities at Citigroup. Previously, he has been a vice president at the First Boston Corporation, in charge of research on equity derivative products, and was at one time a member of the New York Futures Exchange and a competitive options trader at the New York Stock Exchange.

Alan Dove
Alan Dove is a science writer and reporter for Nature Medicine, Nature Biotechnology, and Bioscience Technology. He also teaches at the NYU School of Journalism, and blogs at http://dovdox.com.