"Financial System 2.0: New Approaches to Measuring and Managing Systemic Risk" PIIRS GSR Public Lecture with Andrew Lo
Abstract: Financial markets have undergone a remarkable transformation over the past two decades due to advances in technology. These advances include faster and cheaper computers, greater connectivity among market participants, big data analytics, more sophisticated trading algorithms, and the emergence of digital "crypto" currencies. The benefits of such financial technology are clear: lower transaction costs, faster executions, and greater liquidity. However, like any other kind of technology, financial technology may have unintended consequences such as "Flash Crashes" where extreme price swings occur over the course of minutes and then inexplicably recover. These challenges are symptoms of a larger problem--human error in the face of increasing complexity. As technology becomes more varied and sophisticated, the potential for system-wide failure grows combinatorially. In his talk, Professor Lo will review some of these technological pitfalls, how they arise, and then describe new approaches to addressing these challenges, including the use of ideas from evolutionary biology and ecology. Bio: Andrew W. Lo is the Charles E. and Susan T. Harris Professor of Finance and the Director of the Laboratory for Financial Engineering at the MIT Sloan School of Management