thesis topics 2012 bij Ortec-Finance
A career at Ortec Finance during your studies
Ortec Finance has always employed a large number of students. Some write their final thesis here, while others spend a couple of days a week working for us as assistants. Since students like you often contribute fresh insights and have a different perspective on the profession, we are very interested in learning from your ideas and suggestions.
Student Assistants
As an assistant, you will be given every opportunity to apply your knowledge in practice. At Ortec Finance, we make sure that you will never feel alone. You can count on the support and advice of your colleagues, all of whom are experts in the field of complex optimization issues in a variety of financial sectors. Highly qualified people who have been in your position themselves, will help you progress to the next level.
We invite applications from students with a strong interest in the financial world, in the following disciplines:
• Econometrics
• Computer Science
• Mathematics
There are also plenty of opportunities if your degree is in another technical discipline, so long as you have a strong interest in IT or mathematics.
Have we caught your attention and interest and are you available for at least 16 hours per week? Or are you interested in other vacancies? We invite you to send your application letter and CV to hr@ortec-finance.com or contact our HR Department at +31 10 700 50 00.
Thesis topics
For students looking to write their final thesis at Ortec Finance, we offer the following thesis topics.
1.
Title: ALM and Intergenerational Solidarity
Research area: meso, finance
Department: Pension Risk Management (PRM)
Description: One of the reasons of existence of pension funds is that they accommodate risk sharing between generations. Because the Dutch (second pillar) pension system is a system in which participants pay now to save for benefit payments in the future, by means of additional contributions, younger generations can help older generations. The other way around, older generations can help younger generations by giving up parts of the indexation compensation of their pension rights. In the past years, research effort has been put into quantifying the “value” of this type of solidarity. Furthermore, there are a number of developments in our society that put pressure on this type of solidarity. One of these is the rise of (collective) defined contribution schemes which transfer all the risk (but also the returns) onto the individuals. The objective of this project is to build on the research done on the value of the intergenerational solidarity and to place this in the light of recent social developments (ageing population, Pensioenakkoord).
Background information:
Boender, C.G.E., S. van Hoogdalem, R.M.A. Jansweijer en E. van Lochem (2000), “Intergenerationele Solidariteit en Individualiteit in de Tweede Pensioenpijler: Een Scenario-Analyse”, Wetenschappelijke Raad voor het Regeringsbeleid, Den Haag, rapport 114.
Boender, C.G.E., A.L. Bovenberg, S. van Hoogdalem and T.E. Nijman (2007), “Optimal risk-sharing in private and collective pension contracts”, in Costs and Benefits of Collective Pension Systems, edited by O.W. Steenbeek and S.G. van der Lecq.
2.
Title: Dynamic Life Cycle Investing
Research area: micro, finance
Department: Private Wealth Management
Description: Life cycle investment products are becoming more and more popular. This increased interest stems from new regulation (“Pensioenwet”), responsible investing (“zorgplicht”) and claims of recent years. However, in the advisory processes of individuals several aspects of life cycle investing are not taken into account properly yet. Instead it is often suggested as if one life cycle mix would be appropriate for all situations of individuals which is very likely not the case. One question is for example how the investment risk should be decreased exactly. Should this be done in a simple linear fashion, is this dependent on the remaining investment horizon, the initial asset allocation, etc.? Also, there is still little attention for cash flow aspects. What are for example the effects of lump sum investments or periodic investments? And what to think about the purposes on which the investment proceedings need to be spend at the end of the horizon? The objective of this project is to investigate how a dynamic life cycle investment strategy can be defined and to identify the key differences between a “standard” and a dynamic life cycle strategy.
Background information:
A.L. Bovenberg, R. Koijen, T.E. Nijman and C. Teulings (2007), “Saving and Investing over the Life Cycle and the role of Collective Pension Funds”, Netspar Panel Paper nr. 1.
Papers presented at the seminar “The Future of Life-Cycle Saving & Investing”, October 2006, Boston.
3.
Title: Finding approximating correlation matrices
Research area: (numerical) mathematics, statistics
Department: Research Center
Description: Correctly capturing correlations between financial and economic variables is of paramount importance for ALM analysis. In Ortec Finance’s scenario analysis applications we frequently encounter two questions involving correlation matrices:
1. For a given number of random variables, we know some of the correlations between the variables. We would like to find a full correlation matrix for the variables that agrees with the few correlations that we do know (assuming this exists).
2. As in the previous question, we are given some of the correlations between a number of variables (perhaps all), but these are contradictory in the sense that there is no correlation matrix that agrees with the correlations given. In this case we would like to find an approximating correlation matrix.
Currently we use some very simple solutions for these issues, which should have quite some room for improvement. The aim of this project is to
- Make a literature survey of which methods are available in the literature
- Compare different methods, in particular in terms of speed of the algorithm and, in case of 2, the quality of approximation.
- Write implementations of the most efficient method(s)
- Optional: find a quick measure of ‘how far away the closest correlation matrix is’
This project seems to be most suited for a Bachelor or Master student in mathematics, though for a Master student this project might be too easy and or small, depending on the detail in which the project is carried out (e.g. the extent to which all methods are understood and if minor improvements are made). To be discussed with the student’s university.
Background information:
Higham, N.J.: Computing the nearest correlation matrix -a problem from finance. IMA Journal of Numerical Analysis 22 329-343 (2002)
http://eprints.ma.man.ac.uk/232/01/covered/MIMS_ep2006_70.pdf
Grubisic, Igor and Pietersz, Raoul, Efficient Rank Reduction of Correlation Matrices. ERIM Report Series Reference No. ERS-2005-009-F&A. http://ssrn.com/abstract=1097827
Mishra, S. K., Completing Correlation Matrices of Arbitrary Order by Differential Evolution Method of Global Optimization: A Fortran Program (March 5, 2007). Available at SSRN: http://ssrn.com/abstract=968373
C. Kahl, M. Günther, Complete the Correlation matrix, University of Wuppertal, Dept. Mathematics and ABN AMRO Financial markets, 2005, Submitted to SIAM Journal On Matrix Analysis and Applications,
http://www2.math.uni-wuppertal.de/~kahl/publications/CompleteTheCorrelat...
4.
Title: ALM and optimal leverage for housing associations
Research area: real estate, finance
Department: Real Estate Management
Description:
This project has a similar goal as Snellen’s thesis subject.
This project aims to give Dutch housing associations insight into the risks of financing real estate, and how these can be managed and possibly mitigated with a proper financing policy. This should result in strategic management advice regarding the efficient capital structure (specifically, the optimal amount of leverage). Financing is inefficient when higher returns can be realized at the same risk, when the risk can be lowered without reducing returns, or when higher returns are possible at lower risk.
The study is conducted exclusively from the perspective of the housing associations; the capital providers aims are not taken into account. A similar study has been performed by Snellen for office investments by commercial investors.
Background information:
Snellen J. (2011), Het effect van financiering op kantoorbeleggingen. Een Monte Carlo simulatie van de rendement-risicoverhouding bij het gebruik van vreemd vermogen, scriptie ASRE
5.
Title: Discount rate
Research area: real estate, finance
Department: Real Estate Management
Description:
In the Discounted Cash Flow (DCF) method, net present values of future cash flows are discounted against the discount rate. In Ortec Finance’s GO solution for monitoring and managing the finances of large real estate projects, the DCF method is used for investment analyses. The discount rate includes risk premiums added to a risk free rate to account for risks in cash flows.
Presently GO is mainly used by Dutch housing associations, who use a prescribed discount rate, but it is also useful for commercial investors. This project aims to investigate which discount rate is appropriate to use; several methods can be found in Lusht’s book. A related question is how an appropriate discount rate can be determined when cash flows are simulated from a probability model, rather than given as expected values. Which remaining risks should then be discounted against what premiums?
Background information:
Hungria-Garcia (2004), Property yields as tools for valuation analysis, Report 52, KTH.
Ling, D.C. (1992), Implementing Discounted Cash Flow Valuation Models: What is the Correct Discount Rate?, The Appraisal Journal, 267 – 274.
Lusht, K. M. (2001). Real Estate Valuation; Principles and Applications. KML Publishing, Pa
State College, Pa.Robicheck, A.A. and S.C. Myers (1966), Conceptual Problems in the Use of Risk-Adjusted Discount Rates, The Journal of Finance, Vol. 21(4), 727 – 730.
6.
Title: Factor-based attribution
Research area: Performance evaluation and attribution
Department: Investment Performance
Description: The performance of investor portfolios is usually measured by realized investment returns (which might be adjusted for risk). In addition, performance attribution is a set of techniques that performance analysts use to explain why a portfolio’s performance differed from the benchmark. Performance attribution and evaluation makes it possible to identify the strengths and weaknesses of the investment organization; the first step in managing performance.
One common approach is to use a factor-based attribution model. In such a model, the excess performance is related to a number of underlying factors through a linear regression. These models are used to explain the excess performance in terms of changes of the underlying factors. A well known method for factor based attribution, commonly used for equity portfolios is the Fama-French model.
The first objective of this project is to study and make an overview of the current literature on factor-based performance attribution. The second objective is to make an inventory of the factor-based performance attribution needs of our current client base and of potential new clients. For our (target) clients we are specifically interested in a factor based approach that explains the results by main economic factors that we also use in our ALM approach, like interest rates, inflation, currency, equity premium etc. The third objective is to research which factor-based performance attribution models fit well into the current ORTEC performance attribution framework.
7.
Title: Communication of Risk and Return
Research area: Human-Machine Communication
Department: Private Wealth Management
Description: Ortec Finance is a pioneer in making institutional ALM techniques available for advisors focused on private individuals. Private Wealth Managers strive for giving the best possible investment advice to their clients based on the client’s own, personal, financial goals. The decision making support of Private ALM is based on scenario analysis and advanced risk management techniques. The Ortec Finance methodology covers the entire advising process from the first assessment of the client’s needs to the optimized portfolio construction and asset allocation. The focus of Private ALM is to optimize the probability of reaching the client objectives whilst giving insight in risk and return as well as the development of the client’s wealth. Consequently, Private Wealth Managers are able to have meaningful conversations with the client on the risk and return development of their individual portfolio.
The objective of this project is to measure if the communication of (the output of) our solutions is effective and manages the expectations of the client. So, how do our customers use our software and what does this imply for the interfaces and presentation of the output. Do we use the right graphs to make better decisions? The second objective is to develop more intuitive presentations and interfaces for our Private ALM software. That is, the presentation of the three main dimensions of Private ALM – clients’ objectives, asset allocation and contributions (payments) made by the client – should be as simple and intuitive as possible. The presentations are used when the advisor is giving advice, but also during the monitoring to inform the clients in an effective way.
Background information:
Janssen, R.A.M. and R.G.J. van Beek. Scenario analysis: Necessary in the managing of expectations! Rotterdam: Ortec Finance.
8.
Title: Currency risks in emerging markets
Research area: Investments, currency
Department: Pension Risk Management (PRM)
Description: Pension funds invest an increasing amount of their assets in Emerging markets. We distinguish between investments in equities and bonds. The bond investments can be in local currencies as well as hard currencies (e.g. USD, Euro). Investments in emerging markets are accompanied by currency risk. Pension funds often hedge their currency risk in developed currencies, as the long term expected currency return is expected to be zero. Emerging markets currencies however are less liquid and therefore currency risk is more difficult to hedge. Moreover currencies are often increasing if emerging markets mature.
The main research question of this project is:
• Should emerging market currencies be hedged and to what extend?
Sub questions are:
• Is currency risk related to equity risk in emerging markets?
• What is the tail risk behavior of emerging markets currencies?
• What are the costs involved with hedging of emerging markets currencies (both in terms of interest rate differential and in terms of transaction costs)
• Do the interest rate parity and/or purchasing power parity hold for emerging markets currencies?
• Does the optimal allocation to emerging markets depend on the currency hedging strategy?
• Do the answers of these questions depend on the region or country?
Background information:
Ravi Bansal and Magnus Dahlquist (2000), The forward premium puzzle: different tales for developed and emerging economies
Kate Phylaktis and Fabiola Ravazzolo (2004), Currency risk in emerging equity markets
Jeffrey Frankel and Jumana Poonawala (2009), The Forward Market in Emerging Currencies: Less Biased than in Major Currencies