Shareowners need to get back in control over the corporations they own. Check out here for the organization I am supporting. The question is: how to shape a future in which excellent corporate governance is a prerequisite for any company to get funding and succeed?
I have just submitted a short research paper for this award. This was one of the opportunities to shape the future which James McRitchie suggested in his post. You can find the paper here. It is such a pity I was not able to invest more then a few hours in compiling it.
The aim of the paper is to create a bridge between the field of statistical modeling of extreme events (which is purely based on mathematics & probability theory) and the field of sustainable (or responsible) investments (which is largely considering business & economic reasoning as of now). A new quantitative measure for portfolio management in the framework of the classical modern portfolio theory (MPT) is explained and illustrated by a simple example. The aim of the measure is to enable easier integration of integrate environmental, social and governance (ESG) factors into the investment decision process. The measure is based on credit risk mathematics and enables quantification of the impact of global shocks affecting multiple asset classes (e.g. water shortages, strict environmental legislation, etc.).
Looks like you may have something great here but I need the comic book version. What does it all mean?
Thanks for your comments. I also wanted to write down a simpler version but not sure when I will come up to it. One common wisdom in finance is to diversify the portfolio (‘don’t put all your eggs in one basket’). A mathematical ‘proof’ for that is the modern portfolio theory. It is based in essence on the law of large numbers according to which the asset specific risk will disappear once the portfolio is diversified enough. Another (more recent) common wisdom is that investing responsibly improves the long-term prospects (‘do well by doing good’). My paper can be seen an attempt to build a mathematical ‘proof’ for that. Since the markets are efficient it makes no sense to try to model responsible investment in the (short-term) average returns or price volatilities. Instead lack of responsibility impacts the prospects of rare events to occur and burst the whole company or industry sector (examples for that include Enron 2001 and Tepco — Fukushima 2011). To model that we need to rely on the law of small numbers (extreme value mathematics).