Inaugural lecture explores the murky waters of financial modelling

In his inaugural lecture, Ioannis Kyriakou, Professor of Actuarial Finance at Bayes, delved into the issues of models, risk, and the problems facing banks and financial institutions.

As part of his ascension to the rank of professor, Ioannis Kyriakou was invited to give an inaugural lecture, reflecting on his research and career.

Held at Bayes on 5 June, this popular evening session began with a welcome from Professor André Spicer, Executive Dean of the Faculty of Management at Bayes, followed by a lecture from Professor Kyriakou.

A former Bayes student, Professor Kyriakou completed the BSc in Actuarial Science, followed by postgraduate and doctoral studies at LSE and Bayes. He worked in in a fixed-term role at Lloyd’s Treasury and Investment Management, before returning to Bayes as a Lecturer in 2011. Today he is the director of the world-renowned master’s degrees in Actuarial Science and Actuarial Management.

The problem with inadequate models

In his speech, Professor Kyriakou addressed the issues that inadequate models can cause; such as when companies in the finance sector rely too heavily on models that don’t successfully identify and evaluate risks.

Having strong analytical models can be a key tool in a finance company’s arsenal, but when these fail, the companies using them can face reputational damage in the market and sector, in addition to monetary losses.

In his welcome notes, Professor Spicer said: “A correctly specified model is essential. Today’s economy sees banks and financial institutions benefit from models, which spot, evaluate and minimise potential risks. These are expected to be robust features of any financial organisation’s framework, but like people, they are not foolproof.”

Professor Kyriakou commented:

“Drawing on my years of research experience, I was honoured to guide the audience through a compelling exploration of derivatives, model input uncertainty and calibration risk. The evening was a remarkable blend of intellectual rigor and heartfelt reflection, which I hope inspired and enlightened everyone present.”

Dr Russell Gerrard added: “Professor Kyriakou’s wide-ranging research covers many themes of substantial current interest. He chose to talk about aspects of model risk – an enterprise that uses a model to predict future performance. Many believe it has allowed sufficient margin for error but are unaware of potential risks if the model that has been fitted ceases to match the actual market performance. The talk was enjoyed by an audience that included some of Professor Kyriakou’s co-authors, students and former students, as well as colleagues from the rest of City and beyond.”

Giving thanks at the close of the evening, Professor Laura Ballotta, Professor in Mathematical Finance, said:

“I have known Professor Kyriakou for almost 20 years, first as a final year undergraduate student taking my module in Advanced Financial Economics on the BSc Actuarial Science, and then as one of my PhD students here at Bayes Business School.

“His innate curiosity and his inquisitive mind have always been his distinctive features, together with his enthusiasm, which can be infectious. Today he is a well-established researcher and respected expert in the field, and an outstanding lecturer to his students. I can certainly say I am a very proud PhD supervisor, and it is a privilege to be his colleague at Bayes Business School.”