Details of Grant 

EPSRC Reference:	GR/S83975/01
Title:	Price Dynamics under Aggregated Decision Making in Financial Markets with Uncertainty & External Constraints
Principal Investigator:	Danielsson, Dr J
Other Investigators:	Dasgupta, Professor A Shin, Professor H Zigrand, Dr JA
Researcher Co-Investigators:
Project Partners:	International Asset Management U B S Asset Management
Department:	Finance
Organisation:	London School of Economics & Pol Sci
Scheme:	Standard Research (Pre-FEC)
Starts:	01 July 2004	Ends:	30 September 2006	Value (£):	186,444
EPSRC Research Topic Classifications:	Mathematical Aspects of OR Statistics & Appl. Probability
EPSRC Industrial Sector Classifications:	Financial Services
Related Grants:
Panel History:
Summary on Grant Application Form
While the fields of statistical risk measurement (e.g. Value-at-Risk models) and the theory of endogenous risk have hitherto developed independently, integration between the two is a prerequisite for the development of successful third generation models. There are two families of drivers for observed adverse market feedback effects. The first family consists of current risk regulations and micro market structure requirements (marking-to-market). Second, strategic complements arising from asymmetric information and speculation (forecasting the forecasts of others, akin to the risk of bank runs) coordinate behaviour and lead to mutually reinforcing actions. We will exploit the natural synergies between these two families, while simultaneously developing structural models amenable to empirical estimation.We will robustly and efficiently calibrate our structural models to existing data to obtain an operational 3rd generation model that matches properties of observed asset price dynamics with a view to understanding systemic risk, improving upon current 2nd generation models by properly integrating endogenous risk. We further aim to identify conditions under which stylised market patterns observed in periods of turbulence (e.g. elevator-escalator patterns) can be generated. Finally, applications to asset allocation and derivatives pricing will be developed.
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Organisation Website:	http://www.lse.ac.uk