MIT finance professor, Andrew Lo, is working with banking regulators at the Office of the Comptroller of the Currency, an arm of the Treasury Department, to help build quantitative tools to find potential credit risk in the banking industry, starting with the mortgage market. The efforts of Lo, a pioneer in his field, are part of an unprecedented push at the OCC to embrace quantitative analysis. The regulator is building models, hiring financial engineers - known on Wall Street as "quants" or "strats"- and questioning banks to a far greater degree than it ever has before.
With rising interest rates hurting bond prices, investors and financial advisers are scrambling for other options to provide stability to their portfolios. Some of them have turned to "alternative" funds, many of which claim to offer bond-like stability without exposure to interest-rate rises. Alternative funds use hedge-fund-like strategies to try to capture returns that aren't tied to broad markets. Some funds use options to limit their market exposure, for example, or place bets that certain stocks will drop in value. Professor Andrew Lo comments on the use of alternative funds.
Economists and financiers are thinking creatively about investing in cancer research, in desperate need of funding. Earlier this week, some of America's top cancer doctors convened in Boston for some intensive brainstorming about future research into the disease. But this particular gathering, organized by the MIT Sloan School of Management and known as CanceRX, featured a novel twist: next to the oncologists, there were renowned economists such as Andrew Lo and Robert Merton. More unusual still, there were bankers and financiers too.