UMN MCFAM Winter 2020 Newsletter

MCFAM Minnesota Center for Financial and Actuarial Mathematics 2019-2020 Newsletter

In this issue...

New Beginnings and Collaborations News from MCFAM Student Clubs New People at MCFAM MCFAM Student Research Groups Invited to Present at Major Conferences in 2019 Machine Learning (ML) Summer Camp for High School Students attracted more campers and sponsors in 2019 Donors Support New MCFAM Activities and Events MCFAM Distinguished Lectures Cover Leading Edge Topics in 2020

“New Beginnings and Collaborations�

In 2019 and continuing in 2020 we have created new endeavors and collaborations that make MCFAM stronger. We invite you to read about the activities as well as the alliances that shape them. From all of us at MCFAM, and in the spirit of these two proverbs below, we wish you a happy, productive new year of beginnings and collaborations in 2020!

"No River can return to its source, yet all rivers must have a beginning" (American Indian Proverb) "If you want to go fast, go alone. If you want to go far, go together."

(African Proverb)

Continuing Collaboration with Industry through Applied Courses and Workshops Actuarial and MFM alumni/current students share their experiences

http://www.math.umn.edu/mcfam/

News from MCFAM Student Clubs Actuary Club Takes on New Projects and Activities Nathan Steckman, (pictured left) 2019 President of Actuary Club, shared some new activities the organization focused on in the last year. “UMN’s Actuary Club is now a preferred club with Coaching Actuaries. We are developing a tutorial for our students using their tools and contributing to a blog on our experiences as actuarial students”.

The club is also starting to focus on building stronger social ties among its members. Lauren Verhulst the 2020 president (pictured right), is taking on this new aspect of the club. “Creating a stronger social environment among the members, beyond the internship and academic aspects, is very important. It really helps when you have such an intense major. Getting to know the people in your core area of study is fun, and can take some of the pressure off”. The club is going to continue doing Game Board/Study Nights. Other new aspects of the club in 2020 include creating a panel where students share their experiences on exam preparation, coursework and internship search.

They will also be hosting high school students taking AP classes at an Actuarial Club Meeting.

FMA – Update from the President FMA President Renchang Lu (pictured below) is happy with the large group of MFM (Master of Financial Mathematics) alumni and current MFM students who signed up to mentor the 2019 fall incoming class of MFM and FQF (Fundamentals of Quantitative Finance Post Baccalaureate Certificate) students: “The new students are pleased with the time that their mentors carve out for them and the mentors are excited to give back after benefitting from similar experiences”.

Many companies attended FMA meetings in fall 2019 to talk with students about their work. Examples include hedging at Allianz Investment Management, derivatives commodity trading at Cargill Risk Management and technical consulting at one of the world’s largest fintech firms, FIS Global. The FMA also led annual treks to both Chicago and New York City. In Chicago, they met with three local firms where MFM alumni work Geneva Trading, the CME Group and the Options Clearing Corporation (OCC). In New York City second year students attended the national financial mathematics career fair and had an alumni dinner with MFM, Math PhD, Actuarial, Computer Science and Statistics UMN alumni working at firms including Bloomberg, Facebook, Goldman Sachs, Citi, Amazon, startup Fintech firm dv01, UBS and Point72 Asset Management.

Cont.

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News from MCFAM Student Clubs cont.

MN Quants –Interdisciplinary Student Organization joins MCFAM MN Quants is a student group providing an environment for industry professionals and students to collaborate on quantitative finance and financial technology projects. It became part of the MCFAM in 2019. Since it started in 2016 MN Quants has grown, with support from the MFM program and Carlson Funds Enterprise (CFE). Like the interdisciplinary field of Quantitative Finance, the group includes graduate and undergraduate students from a variety of interdisciplinary majors: Financial Mathematics, Statistics, the Carlson School of Management, Engineering and Computer Science. Students in MN Quants are working with industry to collaborate on projects. A team of four MFM students in MN Quants built an application for Cargill to monitor trade details. The team created a dashboard charting volume and trade details from three major repositories of Over-The Counter derivatives on a real time basis.

Cargill was pleased with the results and commissioned them to complete integration into Cargill’s system. Current President of MN Quants, Jake Engelen, is working on identifying more opportunities with industry to carry out the organization’s mission of getting members to learn industry skills by developing quantitative finance analysis and technology for capital markets.

Photo above from left to right MN Quant members: Khoi Mai, Jacob Baier, Jake Engelen, and Renchang Lu

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New People at MCFAM Interview: Dr. Gary Hatfield, Full Time MCFAM Faculty Starting February 2020 We are pleased to welcome Gary Hatfield (pictured right) to MCFAM on a full time basis in early 2020. Gary has had a long-standing relationship with UMN’s School of Mathematics, has supported the MFM program since its inception in 2007 and MCFAM since it began in the summer of 2010. He brings his unique background in academia and industry as both an actuary and a financial quant to MCFAM. After spending 22 years in industry, mostly at Securian Financial, he is very excited to be coming back to academia on a full time basis. We caught up with Gary recently to interview him about his new job.

MCFAM: What are you looking forward to as your return full time to Academia?

Gary: Three things come to mind: Focusing on the many interesting research ideas that I have had to set aside over the years. In the business world, you prioritize those things that can create palpable value over shorter horizons; and there was never a shortage of things to prioritize on that front during my years at Securian. Now I can dive into some of the things that I think are important and potentially valuable, but am no longer constrained to focus on questions that have more immediate business impact. I have a list.

Working with students and teaching. Something I truly enjoy and I am excited to make that a core part of what I do on a daily basis.

To be honest, I am looking forward to NOT having days and weeks endlessly filled with meetings.

MCFAM: How will your work in industry inform what you do at MCFAM? Gary: I know what matters to industry. That may seem trivial, but when I left Academia, I was very naïve about how things work and what it takes to get things done. Over time, I developed a greater understanding that getting to a decision is not all like proving a theorem or making an airtight logical argument. It is also more than just the art of decision making with incomplete information. You have to be able to understand the motives of the various stakeholders and bring them along. There is so much more psychology and sociology involved than just knowing technical stuff and solving the science problem. I hope I can convey to students how important these “softer” elements are. At the same time, I will let them know that while they may be hopelessly naïve entering the business world (as I was), you can learn and adapt. Finally, I have developed a view that there is much too large of a gap between industry and academia in the actuarial world (less so in quant finance). I really hope I can find ways to better bridge this.

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MCFAM: What are the trends in our industries that are impacting our stakeholders - students, industry practitioners and the public? How do we need to respond?

Gary: I will caveat that I am not clairvoyant. Having said that, here are some important things we need to think about: Machine Learning and Data Science - They are the hot jobs de jour and we are seeing professional masters programs spring up all over the place. The techniques and tools will be affecting every business where there is data, and that is all of them. We must work hard to ensure that we prepare our students (actuaries and financial quants) to adapt and use these tools.

However, we must be careful not to copy these professional programs. We will not be playing to our strengths if we do that. The need for actuaries and financial quants is not going to go away - our role at MCFAM is to train students to meet the ever-changing issues and technologies that emerge on an on-going basis. Related to the above, Artificial Intelligence (AI) threatens to take many jobs as they exist today and “obsolete” them. The upshot is that successful professionals must be able to think in terms of context. You must be more than just a sum of techniques and tools that you have learned. You must learn how to learn and how to adapt.

Interdisciplinary, Interdisciplinary, Interdisciplinary, and Interdisciplinary! We must do away with artificial and no longer useful notions such as “that is math; this is biology, that other thing is engineering and they are mutually exclusive”. The very greatest innovations in the world today are happening when different disciplines cross artificial borders and cross-pollinate ideas and thinking. LaPlace, Newton, Des Cartes, Einstein, and many others did not think of themselves as exclusively anything. They just wanted to figure stuff out. We are all better off because of that. Imagine if Newton stopped developing Calculus because it was starting to not feel like Physics; or alternatively, if he did not go further with gravitation theory because it did not involve proving theorems and therefore it was not math. I presume he would have viewed such reasoning with great bafflement and disdain. In academia today, we need to make interdisciplinary work the norm.

Vern Nelson (pictured left) joined MCFAM in the fall of 2019. He teaches the yearlong preparatory mathematics sequence for the FQF and MFM programs. Vern has a Master in Financial Mathematics from Leeds University. His undergraduate degree is in Mathematics and Computer Science from the University of the West Indies where he also got his teaching diploma. He taught Mathematics for 5 years in St Lucia, and then migrated to the United Kingdom where he taught for 8 years before doing his graduate studies. After his MFM, he spent several years working at Towergate Insurance Company, initially as a Data Analyst, then as Data Manager. He moved to the United States to pursue an MA in Math Education at the University of Minnesota where his focus is on making Critical Mathematics have a more prominent role in the K-12 curriculum.

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New Student Research Groups Invited to Present at Major Conferences in 2019 Interdisciplinary MCFAM Student Research Team Presents at the 2019 Actuarial Research Conference (ARC) A team of actuarial and MFM students (Songyu Yang, Yifei Luo, Meggie Wen and Ameya Phadke) participated in a research project with MCFAM Faculty and an industry mentor on Indexed Universal Life (IUL) Insurance. The project was funded by a generous gift from Tonkagroup LLC. The team’s abstract was selected for presentation at the largest Actuarial Research Conference in North America-ARC. Their project taught them that IUL, developed to harness the power of equity market returns with downside protection, is currently illustrated using a static credited rate. This masks market return volatility inherent in its structure. In their research, the team modeled the pricing algorithms of major IUL products and applied scenario testing using Monte Carlo simulation of indices used in IUL products. They found that the statistical variance of indices leads to vastly different results than what is currently demonstrated in many cases, and this variance may cause the failure of the policy. Their research indicates a better method for demonstrating policy performance would be based on an outcome analysis rather than the static method currently in use.

See their ARC presentation here. Some of the same actuarial students and additional MFM students are working on the second phase of the research which deals with derivatives modeling. This research team has been invited to present their work at a Society of Actuaries (SOA) event in May 2020.

MCFAM Research Projects Presented Summer 2019 Two teams of MFM alumni engaged in research projects with one of their MFM instructors, John Dodson, during their last year of their MFM program. Their research abstracts were accepted for the SIAM Financial Engineering Conference in Toronto 2019, but they were not able to attend due to other commitments. As a result, the MFM Program held a MFM Research Seminar, on June 22, 2019. Current MFM students, alumni, faculty and mentors attended the lecture and gathered for a social hour on campus after the seminar.

See full presentations at these links: • •

Deviations from Lee Moment Formula for Options on Defaultable Underlyings Detecting Meyer Growth Options in Securities Options Prices

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Machine Learning (ML) Summer Camp for High School Students attracted more campers and sponsors in 2019 The Machine Learning Summer Camp for High School Students attracted more students in 2019, doubling the size of the camp versus 2018. As the exciting and growing field of machine learning (ML) becomes more mainstream, high school students are increasingly interested in the many ways they can apply ML to the world around them. In 2019 MCFAM began a collaboration with U of MN School of Statistics to develop the camp and help provide instruction during the summer. More corporate and individual sponsors also signed on to make sure all students had access to the camp by helping to subsidize a very low camp registration fee. Campers learned the basics of ML and worked on computer projects using Python programming language to analyze social network and other data found in their daily lives. They spent hours in the computer lab, applying ML algorithms introduced by camp instructors. Camper projects ranged from gender classification, using tweets, to handwritten digit recognition. Each day was rounded out with guest speakers from local and sponsoring companies. The campers told us they enjoyed connecting with other high school students who share the same interests. They said they were "intrigued by learning cool programming and math techniques that make a difference in the world". The new group of sponsors that funded and supported the camp are: Securian Financial, The Travelers Companies, Target, UMN School of Statistics, Juno, Jupitor Client for IOS, Nic Pifer, and Hartmut Durchschlag.

Donors Support New MCFAM Activities and Events We give thanks to the donors who have made generous contributions to MCFAM this year and in the past.

We could not have carried out the many program activities, research projects, actuarial exam reimbursements, workshops, and summer camps for Twin Cities high school students, without the generosity of the following people and organizations: Actuarial Program Support David Tuomala (Actuarial 1990) United Health Group Inc. (Match to employee contribution) Twin Cities Actuary Club Benevity Community Impact MFM Program Support Tony Luo (MFM 2012), Chen Zhang and Jingxian Li (MFM 2012 and 2013), Zhifang Li (MFM 2009), Mac Weng (MFM 2012), Soo Young Lee (MFM 2014), Yakai Huang (MFM 2017), Joseph Ogega (MFM 2018), Alex Ortan and Vincent Quenneville-Belair (Mathematics PhDs 2017 and 2015) Jessica Mitra, Securian Financial (Match to employee contribution)

MCFAM Fund for Excellence High School Machine Learning Summer Camp Hartmut Durchschlag (MFM-2010) Nic Pifer, Securian Financial, Travelers Companies Inc., Target.

Allianz Life of North America Fund for FM Exam Reimbursement Tonkagroup LLC Fund for MCFAM Scholarly Activities

Your contributions are key in helping MCFAM, its programs and educational activities remain relevant and high quality in our ever-changing fields of actuarial science and quantitative finance. To find out how you can conveniently and safely contribute to MCFAM and its programs go to Make a Gift.

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MCFAM Distinguished Lectures Cover Leading Edge Topics in 2020 We are pleased to announce the three renowned scholars and practitioners who will join us in 2020 for the MCFAM Distinguished Lecture Series. Their research interests and work cover important topics that are at the forefront of our times: (1) retirement strategies in the age of longevity, (2) how climate change is affecting the insurance and finance sectors and (3) trading clean electricity or using reinforced learing for algorithmic trading.

Mark your calendars now so you can attend their lectures.

April 24, 2020 Dr. Phelim Boyle: Phelim Boyle is an actuary whose seminal research work in finance and insurance has won international recognition. His topic for this lecture is “Age Matters”. “We show that older stocks tend to outperform younger stocks and discuss implications for equally weighted portfolio returns”.

September 30, 2020 Dr. Vijay Manghnani: Vijay Manghnani is the Head of PIMCO’s new Insurance Linked Securities (ILS) Fund and Chief Risk Officer of Newport Re. These roles and his doctoral studies in Oceanography and Meteorology are the background that will inform his lecture on some aspect of how climate change affects the financial system.

November 13, 2020 Dr. Sebastian Jaimungal: Sebastian Jaimungal’s research interests span Mathematical Finance, Financial Engineering and Actuarial Science. In particular he focuses on Mean Field Games, Machine Learning (Reinforced Learning as it relates to High Frequency Trading) and Commodity and Energy Markets (including Clean Electricity).

He will speak on a topic of his choice related to one of these research fields.

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Continuing Collaboration with Industry through Applied Courses and Workshops Both the Actuarial and the MFM programs are fortunate to have industry practitioners come back yearafter-year to participate in applied coursework and workshops such as the Actuarial Mathematics in Practice course (Math 4067W) and the annual MFM Winter Modeling Workshop.

Actuarial Mathematics in Practice includes three five-week modules led by actuaries from a variety of local insurance and consulting firms. Students work in teams to solve applied actuarial problems.

They get firsthand experience working with actuarial models from property casualty, life and health care insurance course modules.

They build teamwork skills, and enhance their written and oral communication capabilities. For the 2019-2020 academic year, students are working with the following companies: Travelers, Optum, Allianz Life Insurance of North America, Aon, Deloitte and Arch Insurance. Given the huge demand for employees with strong data analytics and modeling skills, Doreen Vesceilus, the instructor for Math 4067W, has introduced a new data analytics element into the course. The guest actuarial lecturers from the participating companies are helping in this effort. Each semester students will work on at least one or two problems involving data analytics. Aon, Allianz and Optum will all be posing data analytics problems to the students within their five-week modules.

The Annual MFM Modeling Workshop is an intensive 10-day event where students work in teams of up to five under the guidance of industry mentors. Through the years, mentors have brought forward projects that address new trends in the field. This year machine learning and data visualization are included in some of the workshop projects. On the first day of the workshop, mentors lay out the main components of their projects. Three days later, student teams are already giving presentations to their peers and the mentors outlining the progress on their projects and their next steps. A final presentation is given at the end of the 10 days and those presentations are posted on the Workshop website. Topics this year include Inflation Rate Curve Modeling, Machine Learning in Equity Classification, Modeling Mortgage and Prepayment Delinquency with Data Visualization and Alternative Risk Premiums in Commodities and Currencies. Read more here on this year’s workshop and its mentors.

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Actuarial and MFM alumni/current students share their experiences Katrisha Neisse - Actuary-Risk Management Life and Annuities Securian Financial Actuarial Class of 2012 Thanks to the well-developed curriculum, I finished all my VEE's and two actuarial exams while pursuing my degree. An academic advisor is always available to help you make important decisions regarding your course schedule. Now that I have several years of experience in hedging and risk management of variable and fixed income annuity blocks at Securian, I am really enjoying sharing my knowledge with students in our actuarial program at the U. I lead a 5 week module in the innovative Actuarial Mathematics in Practice course. It is great to come back to campus to work with new generations of actuarial students!

Jialing Cai - Quantitative Model Analyst, Credit Risk Model Validation - US Bank MFM Class of 2019 The MFM courses are practical, and there were many resources at my disposal to develop both the necessary quantitative finance knowledge and soft skills. I am currently working at U.S. Bank in Credit Risk Model Validation as a Quantitative Model Analyst for CCAR and CECL The coursework equipped me with advanced technical analytics for risk management and programming, that I need every day in my job.

The career support and networking skills were critical in helping me move outside my comfort zone.

Kennedy Minea - Investment Management Analyst, Allianz Investment Management (AIM) Actuarial Class of 2018 The Actuarial program is good at teaching students how to dig deeper to understand the theoretical math behind the formulas we use.

This provided me with strong analytical skills that has helped me be successful in my job on the asset liability management team at Allianz Investment Management (AIM). My advice to current students: Network like crazy. This, as well as internships, are the only ways you are going to have any idea what jobs are like in a certain team.

Joseph Ogega - Quantitative Risk Analyst, NextEra Energy, West Palm Beach, Florida MFM Class of 2017 I applied to the Financial Mathematics program because I wanted to learn more about mathematical applications for risk management practices in the financial industry. I started with the FQF and graduated with an MFM in two years. The alumni network was very helpful in career advising and job-hunting techniques. In my job at NextEra, I help with modeling and pricing wholesale electricity contracts. The knowledge I gained from the program in derivative pricing, volatility modeling and programming has been tremendously helpful in my job.

Cont.

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Alumni and Current Students cont.

Yunpeng Liu - Professional Services Technical Consultant (Associate) FIS Global MFM Class of 2018 I am a technical consultant for financial technology products. The rigorous curriculum of the MFM program helped me prepare for many important areas within the field of quantitative finance including risk management, financial software engineering, statistics, research, and modeling. Some MFM teachers are active practitioners in the finance industry so students get up-to-date insight on the market. The program offers a broad range of events and activities that helped me explore career paths and opened me up to a large network of support.

Michele Knudsen - Accounts Receivable C.H. Robinson Part-Time FQF Student I am a part time student in the FQF. The program caught my eye because I was looking for careers that would expand my mathematics and computer skills. FQF and MFM courses are held exclusively at night, so it also fit my schedule well. I work full time at C.H. Robinson in accounts receivable, but I hope to move into a new analytical group once I finish the MFM program. Learning about programming and different languages and databases in the Computation, Algorithms and Coding in Finance course has been helpful! Just the other day, I was able to use my knowledge to help a colleague.

Ryan Scharf - Anti-Money Laundering Investigator US Bank Actuarial Class of 2017 I’m currently working in Enterprise Financial Crime Compliance at U.S. Bank. This is a high growth area because financial institutions must ensure that their products are not being used to move funds from illegal activities. The Actuarial Program helped me prepare for this job because managing risk and making decisions based on several unknowns are the two constant themes with all of my projects. This risk management is the core of what I learned in the program. The skills and knowledge you obtain will help you succeed in any career; and knowing how to use tools such as Excel, SQL, VBA, and SAS - will make you a force to be reckoned with in most roles!

Alec McElhinny - Actuarial Class of 2021

I am a junior in the Actuarial program. I love math and it gives me goosebumps to apply advanced mathematics like the Black-Scholes model to insurance. The actuarial science professors are what make the UMN actuarial program outstanding and have been the most helpful part of the major for me. I am on the SOA track and specifically interested in the financial/ quantitative side of actuarial science.

The Twin Cities is a hub for many Fortune 500 companies: opportunities are everywhere for those willing to work.

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