Nobel Prize Winner Markowitz of UC San Diego Recommends Economic Solutions at INFORMS Annual Meeting

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Ashley Smith
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SAN DIEGO, CA, October 1, 2009 – University of California San Diego Adjunct Professor Harry M. Markowitz, whose seminal work in portfolio theory led to his receiving the John von Neumann Theory Prize in 1989 and the Nobel Prize in Economics the following year, will discuss the current economic crisis and recommended solutions at the annual meeting of the Institute for Operations Research and the Management Sciences (INFORMS®).

C San Diego Adjunct Professor Harry M. Markowitz, whose seminal work in portfolio theory led to his receiving the John von Neumann Theory Prize in 1989 and the Nobel Prize in Economics in 1990, will discuss the current economic crisis and recommended solutions at the annual meeting of the Institute for Operations Research and the Management Sciences (INFORMS®).

The INFORMS annual meeting takes place at the San Diego Convention Center and the Hilton San Diego from Sunday, October 11 - Wednesday, October 14. Some 4,000 experts in analytics, operations research, and applied math are expected to attend.

Event: Workshop on the Economy (Portfolio Theory versus Financial Engineering and Their Roles in Financial Crises) with Dr. Harry M. Markowitz

Date: Monday, October 12

Time: 8-9:30 AM

Place: Hilton San Diego, Room 504

Portfolio Theory teaches how and why to diversify. It also teaches the trade-off between risk and return. Financial engineering tries to mitigate risk – or at least shift it to willing and able holders of risk - by the construction of new and sometimes complex financial instruments. The talk compares the performance of each approach in the recent and two prior financial crises.

In a related article, “Proposals Concerning the Current Financial Crisis,” that was published by the CFA Institute, Prof. Markowitz wrote that pressure that was applied by Congress on Fannie Mae to support low-income housing is a basic cause of the current financial crisis in the United States. He also cited the lack of transparency among complicated financial products like collateralized mortgage obligations (CMOs),collateralized debt obligations (CDOs), and credit default swaps (CDSs), writing of a continuing threat to the health of the financial system.

In the article, which touches on the paper that he is presenting at the INFORMS annual meeting in San Diego, Prof. Markowitz recommends that the federal government take four important remedial steps:

  1. Take a census of institutions that own investment instruments like CMOs, CDOs, and CDSs.
  2. Calculate the direct and indirect exposure/risk of each investment instrument.
  3. Aggregate these exposures into meaningful categories, for example by zip code and late payment history. The instrument/investment should be analyzed to reveal, for example, the degree of leveraging.
  4. Disseminate the information to stockholders, regulators, academics, and others.

Operations research, also known as analytics, is the application of advanced analytical methods to help make better decisions. Information about the field, often referred to as analytics, is at www.scienceofbetter.org.

Additional information about the conference is at www.informs.org.

About INFORMS

The Institute for Operations Research and the Management Sciences (INFORMS®) is an international scientific society with 10,000 members, including Nobel Prize laureates, dedicated to applying scientific methods to help improve decision-making, management, and operations. Members of INFORMS work in business, government, and academia. They are represented in fields as diverse as airlines, health care, law enforcement, the military, financial engineering, and telecommunications. The INFORMS website is www.informs.org. More information about operations research is at www.scienceofbetter.org.

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