Who We Are
The Center for Analytical Finance (CAFIN) is a group of researchers whose aim is to solve real-world problems of finance in a globalized financial system. In order to do so, CAFIN seeks to produce cutting edge research with practical applications in the area of finance and financial markets focusing primarily on three critical areas:
• Systemic Risk: the idea that risks can build up in the financial system leading the whole economy to collapse.
• Market Design: the construction and implementation of rules, platforms, and institutions in which assets are traded.
• Financial Access: the availability of quality financial services for households, companies and countries.
CAFIN, launched on July 1, 2013, is affiliated with the Department of Economics of the University of California, Santa Cruz (UCSC), which has been ranked sixth in the world among academic departments in international finance. The Department also houses a pioneering group of researchers in behavioral economics and finance. CAFIN will also draw strongly from UCSC’s Department of Applied Mathematics and Statistics, home of some of the world’s leading researchers in Bayesian statistical analysis and the modeling of complex, dynamic systems. CAFIN brings together these researchers with practitioners and policymakers to give solutions regarding risk management, robust tools for financial decision-making and policymaking.
CAFIN thanks the Division of Social Sciences at the University of California, Santa Cruz for providing seed funding.
The Grand Challenge
In our view, three critical areas (Systemic Risk, Financial Innovation, and Financial Access) cover the most urgent issues in the realm of finance and financial markets faced by both advanced and emerging economies. We see the analysis of these three areas of finance as representing a concerted attack on the fundamental problems of economic systems in the post-crisis world. The approach and role of CAFIN is to tackle these problems as a unified “Grand Challenge” for the modern global economy.
This is the most prominent issue to surface from the global financial crisis and possibly the most under-appreciated risk related to climate change and climate change mitigation policies.
Topics of interest to CAFIN members include conceptual and empirical modeling of systemic risk, techniques of risk management, early warning systems, pricing of climate-related risks, special characteristics of the banking sector, appropriate regulatory responses, the “too big to fail” problem, and differences across systemic scales (national, regional and global).
The level of financial innovation that occurred during the last several years outstripped the ability of market institutions to create efficient trading platforms for these products. This fact is one of the contributing factors to the global financial crisis of 2008-09. Even in the case of traditional financial assets, technological change has put stresses on existing market institutions.
Topics of interest to CAFIN researchers in this area include blockchain, cryptocurrencies, market design, green finance, high frequency trading, circuit breakers, dark pools, disclosure rules, margin and collateral requirements, and pricing rules.
Financial access cuts across a deep set of issues, getting to the heart of how capitalism works. Lack of financial inclusion within and across countries was brought to the front of policy issues by the COVID-19 crisis. Financial innovations have a potential to ease the problem, but also carry a risk of exacerbating them.
Topics of interest to CAFIN members in the area of financial access include small business finance, crowd funding, internet-based IPOs that bypass investment banks, mobile banking, and microfinance. Many of these issues involve the use of technology for more efficient financial intermediation, and intersect with issues of market design, while being informed by regulatory perspectives of systemic risk.