Financial Engineering Students Win Competition with Basel III Models

A diverse team of Berkeley-Haas Master of Financial Engineering (MFE) students from three countries and six professions bested 31 competitors to win the annual International Association of Financial Engineers competition.

The winning team, announced Feb. 7 in New York, consisted of Alfred Haohan Yuan (team captain), Lisa Yanfei Li, Allen Yan Wang, Yi Zhang, Shivesh Gupta, and Arnab Chakrabarti, all MFE 13. The team won $1,000 and an invitation to present its solution at a New York event of the International Association of Financial Engineers, the nonprofit professional society that sponsored the competition.

Berkeley-Haas MFE students have been the victors of the competition for each of the two years since its launch. This year the competition asked students to model the impact of Basel III regulations on the level of capital held by banks and suggest regulatory improvements. Basel III is the global regulatory framework governing how much leverage banks can employ, what level of equity capital banks need to support their leveraged portfolios, and the liquidity of their portfolio assets.

Students also had to apply their methodology to the 2007 subprime and 2010 Euro debt crises and detail how their improved regulation scheme would help to stabilize global financial system.

The Berkeley MFE team spent four weeks on its model while working in full-time internships in New York and San Francisco, relying on weekend conference calls to coordinate efforts. The students attributed their success to their MFE classes and their variety of backgrounds.

"This paper really was a combination of everything we learned in the MFE Program," says Haohan, who won the 2012 Morgan Stanley Prize for Excellence two months ago. "We were able to apply what we learned from several classes." Those classes included Optimization in Finance, Fixed Income, Financial Risk Management, Empirical Methods, and Credit Risk.

The students also brought diverse academic backgrounds to the team, including statistics, economics, electronic engineering, finance, mathematics, and computer science. "The wide variety helped us think about the same problem from different directions," says Gupta.

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