Thursday, February 27, 2014

SPOOCs: SPecialized Open Online Courses

MOOCs, Massive Open Online Courses, are the most talked about innovation in higher education in a long time.  Clearly they have the potential to offer education at a lower cost than traditional a University-taught course.  They also have, so far, found very limited successes:  Reported drop out rates are often over 90%, they do not capture the socialization component of University education and they are seen as an existential threat by some academics. 

At the other end of the spectrum, I think the SPOOC market is ready to take off.  John Cochrane has recently run a Ph.D. level course in asset pricing on Coursera.  I am certain that I would participated in Cochrane’s course were it available in 1999/2000.  Unfortunately I only had the non-dynamic paper version of a precursor to Cochrane’s course – first as a pre-print PDF and later in hard back.  See here for some analysis and a discussion of the challenges of the course – the comments are also worth reading.

This method of teaching and general communication could do wonders for bright Ph.D. students across the globe.  Some Finance Departments and Business Schools are large enough that they can regularly offer highly specialized courses in areas such as Theoretical or Empirical Market Microstructure.  Most others only offer these courses if they have faculty – permanent or visiting – with some spare teaching capacity and have sufficient students in a cohort to justify the expense. On the other hand, there are regularly first-rate courses taught in the area by field leading academics like Maureen O’Hara, Hank Bessembinder or Terrence Hendershot.  The obvious solution is to match supply with demand.

These courses will never be Massive – the material is simply too difficult and specialized for most students, even many finance or economics Ph.D. students.  On the other hand, they could provide a much richer foundation and increasing breadth to students studying outside of the select Universities with with largest programs.  I would expect that the participation rates would also be much higher than the typical MOOC since students will have more realistic expectations both of the course and of the effort required for success.  The economies of scale will

The SoFiE Summer School

This leads to the natural question as to whether the SoFiE summer school should consider the SPOOC model. 

Preparing the course is a non-trivial endeavor, and I would suspect that it could not be executed this year.  However, the type of material – cutting edge – and the professors giving the course – first rate – are key building blocks for successful SPOOCs.  And if a fully open course is not possibly, it may still be possible to offer the content to SoFiE members, including (especially) student members.

Note: The summer-school-as-a-SPOOC is pure conjecture at this point.  I have not discussed the topic with the SoFiE leadership or the course teachers.

Tuesday, February 25, 2014

SoFiE Conference Announcement: Systemic Risk and Financial Regulation

SoFiE is sponsoring a conference on systemic risk and regulation.

Date: July 3rd & 4th 2014
Location: Banque de France, Conference Center, Paris, France

Topics include:
  • Systemic risk measures
  • Stress testing
  • Counterparty risk
  • Modeling the interaction between macro-economy and financial regulation
  • Networks
  • Contagion

Keynote Speakers

Darrell Duffie (Stanford) and Robert Engle (NYU)

Program Chairs

O. de Bandt, C. Gouriéroux, J.S. Mésonnier, E. Renault


Papers can only be submitted electronically via e-mail to, with the subject line “BdF ACPR SoFiE Systemic Risk Submission” and must consist of a single PDF file. No other formats will be accepted. Submissions must be received by March, 28th 2014.

Local Organizers

J.C. Héam (, J.P. Renne (jean-paul.renne@banque- and M.C. Petit-Djemad (

Data silos and the regulatory burden

Carol Clark at the Chicago Fed has recently written about some of the issues surrounding high-speed trading.  Three of the five policy questions have important, unanswered econometrics issues:
  • Are market participants underpricing the risks of HST?
  • Do they have real-time controls to they need to manage these risks?
  • Do regulators have the proper incentives and tools to identify and control market manipulation?
Two of these three are basic questions about risk, which is arguably the fundamental question underlying much of financial econometrics. The final question does not directly require risk measurement but it does require econometric tools to identify market manipulation.
I don’t think that many would quibble that these are important questions that need answers.  Unfortunately many of these are unanswerable using market data.  For example, it is possibly to characterize the short term risk of an asset price using a wide range of volatility or other measures.  It is not, however, possible to determine whether the episodes were characterized by unusual HST activity. 

Regulatory Burden and Risk

Currently only regulators have access to data at the granularity that is required to answer these questions.  This data is usually considered highly proprietary since studying it requires some forms of trader identification, which may, for example, allow proprietary trading algorithms to be reverse engineered.  This leaves the entire burden of addressing these challenging questions up to the regulators, who are often stretched dealing with more mundane tasks (e.g. Dodd-Frank rule writing). 
On occasion, this data has been shared using various arrangements to permit outsiders access.  Most recently, this has not gone well.  The ambiguity surrounding the data, even for a visiting academic, creates a non-trivial risk: the more interesting the research, the less likely it is publishable.

Creative Solutions Needed

Simply releasing the raw data will clearly never satisfy all parties.  However, there are a number of solutions which could be used to improve access:
  • Scramble trader identification information on a fixed schedule.  If traders have id \(0,...,n_i\), then each day \(i\) they are randomly reinitialized from the same set.  This would make it more difficult to reverse engineer since it is non-trivial to splice together data.
  • Add a rule-based flag for HST trader-initiated trade.  This could be computed by the regulator based on some guidelines about what is a HST file (order rate, cancellation ate, resting time, net position, end-of-day position).  This would make it impossible to study individual trader activity, but would allow the higher-level questions to be addressed.

Wednesday, February 5, 2014

SoFiE Summer School

The 2014 SoFiE summer school has just been announced, and will be on The Econometrics of Option Pricing.  Eric Renault and Patrick Gagliardini will co-teach the course, and will be covering topics including:
  • Stochastic volatility in option pricing
  • Non-linear State-Space models
  • Generalized Method of Moments (GMM) with latent variables
  • Indirect Inference and Implied-States GMM
  • Nonparametric fitting of  the implied volatility surface
  • High-frequency data and option pricing.
  • The Extended Method of Moments (XMM)
  • Volatility risk premium and long memory in volatility
  • VIX computation and methods for American options
This looks like a great course and both Eric and Patrick are world-leading experts on these (and other) topics.

The course is open to students and new faculty, as well as Ph.D.-level practitioners.  It is free for academics, and there is a modest charge for others - although travel is not covered.

Applications, including a CV and a half-page statement explaining how the applicant would course would benefit, should be send to (including the words Summer School in the subject box). 

See the course website for more information.