"We need a vibrant OTC swaps market for the global economy, but there are systemic issues that need to be considered," says MIT Sloan Prof. Andrew Lo in a story on the methods big banks use to price over-the-counter derivatives, potentially to their own advantage...
When the rest of the world was busy buying second homes with no money down, MIT professor Andrew Lo was busy beating the drum over a coming financial crisis. For a while, he was playing to an empty room, but now his prescience makes him a voice of authority as we deal with the meltdown and its aftermath. Fortune recently spoke with Lo about the goods and bads of financial reform, how to prepare for calamities to come, and the "holy grail" of good regulation...
"Humans may be more sophisticated than animals, but we are nevertheless animals, subject to the same kind of forces that nature has built into all of creation," says MIT Sloan Prof. Andrew Lo of behavior affecting adaptive markets.
This story on a recent paper co-authored by MIT Sloan Prof. Andrew Lo describes his proposal for a five-tiered organization of uncertainty to more effectively understand and calculate risk in economic systems.
"What we thought was diversified became very highly correlated because of the global integration of the financial markets. Assets we thought were uncorrelated have moved together, so we have to be much more thoughtful about asset allocation," says MIT Sloan Prof. Andrew Lo.
"The traditional approach in stocks, bonds, and funds is no longer enough. To get by, you have to invest in currencies, commodities, real estate and private equity as well as in long and short strategies," says MIT Sloan Prof. Andrew Lo in this interview.
"Economics evolve, dictated by the behaviours of individuals, who learn from experience and positive feedback," explains MIT Sloan Prof. Andrew Lo in a story on the use of biological ecology principles in financial models.
"Maybe we should provide more government support for financial PhDs, as we already do for engineers, so the pay scales would seem less skewed and government service not look such a poor choice," says MIT Sloan Prof. Andrew Lo.