NYU's Volatility Institute Broadens Its Mandate

The Volatility Institute at New York University's Stern School of Business, founded in the aftermath of the 2008 financial crisis, has a new name - the Volatility and Risk Institute - signifying a focus beyond just financial risks.

The institute and its Volatility Laboratory, or V-Lab, are renowned for continuous measurements and forecasts of volatility in financial markets, among them the SRISK systemic risk analytics. Those indicators were developed under the guidance of Robert Engle, Michael Armellino Professor of Management and Financial Services at Stern and winner of the 2003 Nobel Prize in Economics.

The name change was announced in late October along with a mandate to facilitate, support and promote a broader range of research and interactions among scholars, business practitioners and policymakers.

The expanded institute now has co-directors: Engle, who was director of the Volatility Institute; and Richard Berner, professor of management practice. From 2013 to 2017, Berner was director of the Office of Financial Research, a Treasury Department unit that was created by the Dodd-Frank Act to support the multi-agency Financial Stability Oversight Council.

More Holistic View

Engle explained in an interview that the Volatility and Risk Institute “will be focusing on a much more holistic view of risk, one that includes several new classifications of risk that we have put into three silos - climate, cyber and geopolitical - along with the financial risks that we have always tackled.”

The research goal is to help both the private and public sectors make better and more informed decisions at a time of increasing systemic risk, taking into account the nature of and interplay among risks in the four “silos.”

“There are a lot of failures that you can see around the world today in terms of sensible decision-making,” Engle added. “If we can help to advance decision-making, it will be a good thing.”

He said that there is not yet an influx of funding to support the institute's bigger ambitions, but “we are hopeful that there will be money flowing in to advance our research agenda.”

Importance of Research

Berner, in a prepared statement, said, “Risk analysis and management are ever-changing, and the need for cutting-edge research across diverse risk areas is increasingly important for both policymakers and organization stakeholders.” He said the institute aims to play a role in contributing to and expanding the analytical and empirical frontier on these topics.

Engle pointed out that in addition to V-Lab's daily data postings, it has added measures of climate risk that it hopes to expand upon, along with readings of cyber and geopolitical risks.

Climate, cyber and geopolitical “were not on the table 10 or 20 years ago to the degree that we talk about them today,” Engle said, “but we think it's important to study them, as these are important risks that are influencing asset prices and market behaviors in lots of ways.”

Faculty Coordinators

The key initiatives will be led by “coordinators” from the NYU faculty: climate risk by Johannes Stroebel; cyber by Law School professor of practice Randal Milch; financial by Viral Acharya, who returned to Stern this year after a stint as deputy governor of the Reserve Bank of India; and geopolitical by Thomas Philippon, author of the recently published The Great Reversal: How America Gave Up on Free Markets.

Stern School dean Raghu Sundaram described the newly structured institute as “a dynamic interdisciplinary hub at NYU to bridge the conversation between academia and industry and to inspire novel research projects to address and manage the changing nature of risk facing today's global firms.”

In addition to a faculty advisory board on which multiple NYU schools are represented, the Volatility and Risk Institute has an 11-member external advisory board that includes chief risk officers Eileen Fahey of Fitch Group, Bennett Golub of BlackRock and Andrew Gray of Depository Trust & Clearing Corp.

Katherine Heires is a freelance business journalist and founder of MediaKat llc.