Anna Obizhaeva participated in the 15th Anniversary Russia Risk Conference which took place on October’30 in Moscow. Speakers discussed the most recent methods, approaches, and innovations in risk management.
Speaking at a session on financial markets, Professor told about three different concepts of value of securities and explained how liquidity relates to them. According to her, the fundamental (theoretical) value of an asset is an unobservable estimate, which could be calculated if an endless amount of social resources were directed to the study of the asset. At the same time, the market (fair) price is formed on the basis of the balance between demand and supply of market participants, many of which try to determine the value of asset and trade based on their needs, available data and models. "The market price usually fluctuates around its fundamental value, and it is the best estimate for the fundamental value of an asset. But this is relevant for ideal markets only, that is when traders don't consider different risks and their own influence on prices. The economic value for a security holder may significantly differ from its market price. For instance, in the event of a possible default of a counterparty, the trader shouldn't expect to receive payments under the contract as it is possible that the partner will not be able to fulfill his obligations completely. To consider these scenarios, various adjustments to credit risks, funding and liquidity were introduced. The process of such calculations is associated with several conceptual and practical problems", – Anna said.
Further, Anna Obizhaeva elaborated on the details of calculations of adjustments related to liquidity. Using real cases, she showed how scientific knowledge on transaction costs could help more accurately calculate these parameters.
In conclusion, Professor pointed out that such adjustments shouldn’t be used by banks to lower regulatory capital or justify additional costs to customers. This problem would disappear when transferring trade derivatives to more transparent centralized platforms.
Russia Risc Conference brought together more than 400 professionals. Heads of risk management of financial institutions and related industry practitioners shared their experience and best practices in credit, market and operational risk management. Among key speakers were representatives of the Central Bank of Russia, leading commercial banks as well as scientific and analytical institutions.
More details on the presentation can be found in the interview.