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Carlo Acerbi

Carlo Acerbi

Managing Director and Head of Risk Management Research

Carlo Acerbi is a managing director and Head of Risk Management Research. He focuses on risk management, risk regulation and instrument pricing. Previously, Carlo worked as a risk manager and financial engineer for several Italian banks and in McKinsey & Co.’s risk practice. Carlo received a Ph.D. in Theoretical Physics from the International School for Advanced Studies. He has taught advanced derivatives at Bocconi University, and is an Executive Fellow of the Essex Business School.

Research and Insights

Articles by Carlo Acerbi

    The coming wave of fund liquidity risk regulation

    Blog | Mar 7, 2018 | Carlo Acerbi

    Asset managers globally can no longer ignore fund liquidity risk management.

    Getting Ready for Liquidity Risk Management Rules

    Blog | Dec 14, 2017 | Carlo Acerbi

    The U.S. Securities and Exchange Commission’s liquidity rule is designed to protect investors from incurring significant transaction costs when the assets in their mutual funds are not liquid enough to sustain funds’ redemption policies.

    Adaptive Backtest for Expected Shortfall

    Report | Oct 18, 2017 | Carlo Acerbi , Balazs Szekely

    Expected Shortfall (ES) replaced Value at Risk (VaR) under the Basel Committee’s Minimum Capital Requirements for Market Risk in 2016. However, whether ES can be backtested is still an open and critical question. We have recently shown that ES can be only approximately backtested, because any ES backtest is sensitive to VaR predictions. This paper proposes a new ES backtest that has the minimum possible sensitivity to VaR predictions, which makes it an appropriate validation tool for ES-based...

    Keeping Indexes Investable in Evolving Markets

    Report | Mar 24, 2017 | Pavlo Taranenko , Sebastien Lieblich , Balazs Szekely , Carlo Acerbi

    Market liquidity around the globe has changed drastically over the past decade, due to a combination of regulatory, technological and investment changes. Relative trading volumes on many primary trading venues have dropped by about 50% since their peak in 2009. To ensure the investability and replicability of MSCI equity indexes, we regularly monitor the liquidity of index constituents, apply liquidity screening criteria and review index construction rules and liquidity measures. Methodology...

    Backtesting Year in Review - A look at 2016

    Report | Mar 3, 2017 | Carlo Acerbi , Balazs Szekely , Thomas Verbraken

    For the year ending December 31, 2016, we analyzed the 12-month risk forecast accuracy of four categories of simulation models available in RiskMetrics RiskManager: Monte Carlo, historical, filtered historical and weighted historical.

    Scenarios, Stress Tests and Strategies for Fourth Quarter 2016

    Report | Dec 8, 2016 | Thomas Verbraken , Carlo Acerbi , Raghu Suryanarayanan , Remy Briand

    A year marked by Brexit and Trump is ending with widespread uncertainty.

    How a Banking Crisis in Italy Could Impair European and Global Portfolios

    Blog | Nov 15, 2016 | Carlo Acerbi

    Markets fear that a defeat of constitutional reforms proposed in Italy’s Dec. 4 referendum would end the government of Prime Minister Matteo Renzi, who has promised to resign if they fail. The reforms aim to make it easier for governments to implement their programs. A failed referendum could produce political instability, which could complicate efforts to recapitalize the country’s struggling banks, impede the government’s ability to reform the economy for the long term and increase risk...

    The SEC’s New Liquidity Risk Rules: Now Comes the Challenge

    Blog | Nov 10, 2016 | Carlo Acerbi

    The U.S. Securities and Exchange Commission’s new liquidity rules mark the most ambitious ever initiative against investor dilution — the unfair costs an investor may suffer when assets are not liquid enough to meet redemption requests.

    How Low Interest Rates May Impact your Portfolio

    Blog | Oct 6, 2016 | Carlo Acerbi

    Slow growth and a shortage of safe assets have led major central banks to maintain monetary policies that include short-term interest rates near or below zero. The policies, which aim to encourage businesses and consumers to borrow and spend, have lowered bond yields, distorted yield curves, shifted the composition of central banks’ balance sheets toward riskier assets and sent savers in search of yield. The persistence of low growth and a lack of inflation also have led investors to wonder...

    Stress Testing Portfolios: Best Practices for Shockwave Propagation

    Report | Sep 19, 2016 | Balazs Szekely , Carlo Acerbi , Zsolt Simon , Thomas Verbraken

    Scenario propagation is the second stage of predictive stress testing practices, following scenario definition. This paper illustrates common pitfalls and suggests best practices for a robust propagation of the shockwave of a prospective scenario onto all relevant risk factors of a financial portfolio. The central observation: Risk managers must guard against “noise” in the predictions. Diagnostic statistics can reduce noise and ensure meaningful predictions. Key best practices include: the...

    Modeling Future Shocks: MSCI Best Practices for Predictive Stress Testing

    Report | Sep 19, 2016 | Thomas Verbraken , Carlo Acerbi

    The aftermath of the 2008 global financial crisis taught the risk industry that expert judgment and economic insight may help investors anticipate and avoid exposure to major financial downturns by using forward-looking models, such as predictive stress tests. But there is no consensus on how to create these scenarios. In this paper, we portray MSCI best practices for stress testing in a flowchart that guides risk managers through a series of steps that lead to a structured way of stress...

    Building Predictive Stress Tests: MSCI’s Best Practices

    Blog | Sep 19, 2016 | Carlo Acerbi

    Stress testing has experienced a resurgence of interest in the wake of the 2008 financial crisis. The lessons from that period, perhaps more than any previous one, taught the risk industry that expert judgment and economic insight may help investors anticipate and avoid exposure to major financial downturns by using forward-looking models.

    Backtesting Risk Models - August 2016

    Report | Aug 26, 2016 | Carlo Acerbi , Balazs Szekely , Thomas Verbraken

    For the July 2016 backtesting review, MSCI began by analyzing how each of four types of simulation models available in RiskMetrics RiskManager—Monte Carlo, historical, filtered historical and weighted historical—performed over the year ended June 30, 2016.

    Scenarios, Stress Tests and Strategies for Second Quarter 2016 - The Rise of Populism

    Report | Jul 14, 2016 | Raghu Suryanarayanan , Thomas Verbraken , Linda-Eling Lee , Carlo Acerbi , Manish Shakdwipee , Remy Briand

    The decision by a majority of U.K. voters to leave the European Union shines a light on fissures between perceived winners and losers from globalized markets and highlights for investors the importance of factoring the consequences of inequality and popular discontent into their views. The latest edition of MSCI’s “Scenarios, Stress Tests and Strategies” examines the potential impacts on institutional portfolios of a tide of populist sentiment across Europe and the U.S.

    Backtesting Year in Review - A Look at 2015

    Report | Feb 12, 2016 | Carlo Acerbi , Balazs Szekely , Thomas Verbraken

    For this year’s backtesting review, MSCI began by analyzing how each of four types of simulation models available in RiskMetrics RiskManager—Monte Carlo, historical, filtered historical and weighted historical—performed over the year ended December 31, 2015.

    Scenarios, Stress Tests and Strategies for 2016

    Report | Jan 19, 2016 | Raghu Suryanarayanan , Thomas Verbraken , Jesse Phillips , Roman Kouzmenko , Carlo Acerbi , Jahiz Barlas , Mehmet Bayraktar , Andrei Morozov , Remy Briand

    Heading into 2016, MSCI examined 12 stress points globally to be used in quantifying the effect on portfolios of a range of shifts in markets, liquidity and the macroeconomy. These stress points include the prospect of additional interest-rate hikes by the Federal Reserve, weakness in the eurozone and a deceleration in Chinese economic growth.

    Stress Testing a China Hard Landing

    Report | Oct 23, 2015 | Zsolt Simon , Raghu Suryanarayanan , Carlo Acerbi , Jahiz Barlas , Oleg Ruban , Thomas Verbraken

    The persistent decline in Chinese equities and commodity prices this summer renewed investor concerns about a possible economic hard landing in the Asian giant.

    Stress Testing a China Hard Landing

    Blog | Oct 22, 2015 | Carlo Acerbi

    The decline in Chinese equities and commodity prices this summer renewed investor concerns about a possible economic hard landing in the Asian giant. In particular, the 8.5% market plunge on August 24 spread fear into global markets that continues to this time.

    Backtesting Risk Models - Mid-Year

    Report | Sep 2, 2015 | Balazs Szekely , Carlo Acerbi , Thomas Verbraken

    Risk measures, such as Expected Shortfall and Value at Risk, are designed to calculate the risk of a portfolio. But different risk models may work better than others for different asset classes and in varying time horizons. The MSCI Model Scorecard provides an innovative tool designed to help select the best risk model in terms of Expected Shortfall (ES) and Value at Risk (VaR) predictivity.

    Backtesting Risk Models: What We Learned

    Blog | Aug 27, 2015 | Carlo Acerbi

    Risk measures, such as Expected Shortfall and Value at Risk, are designed to calculate the risk of a portfolio. But different risk models may work better than others for different asset classes and in varying time horizons. The MSCI Model Scorecard provides an innovative tool designed to help select the best risk model in terms of Expected Shortfall (ES) and Value at Risk (VaR) predictivity.

    Backtesting Expected Shortfall - A Practical Guide

    Report | Jul 22, 2015 | Balazs Szekely , Carlo Acerbi , Thomas Verbraken

    Expected shortfall (ES) has attracted controversy as a measure of a portfolio’s risk since it was introduced in 2001. One reason for this was that some critics suggested ES could not be backtested. Last year, however, MSCI proposed a way of backtesting expected shortfall. This development is especially important in the light of the Basel Committee on Banking Supervision’s recent decision to adopt ES in place of VaR. The ability to backtest expected shortfall also has broader...

    What If Greece Leaves the Euro?

    Report | Jun 30, 2015 | Zsolt Simon , Vivek Sridhar , Carlo Acerbi , Thomas Verbraken

    Stress Testing the Greek Exit Scenario Using MSCI RiskManager This Product Insight uses MSCI RiskManager to examine the potential effects of a Greek exit from the euro, explaining the detailed assumptions behind our stress test design. We make use of RiskManager's predictive stress test tool, which starts with user-defined hypothetical shocks on a few core risk factors (singled out as the drivers of the global crisis) then propagates shocks on all markets. In this current exercise, we employ...

    Measuring Liquidity Risk

    Blog | Apr 23, 2015 | Carlo Acerbi

    After the global financial crisis of 2008, investors and regulators realized that liquidity risk in multi-asset class portfolios could no longer be overlooked. Too many risk models had assumed ample funding and low trading costs, which contributed to the meltdown.

    Backtesting Expected Shortfall

    Blog | Mar 17, 2015 | Carlo Acerbi

    When RiskMetrics, now a part of MSCI, announced Value-at-Risk (VaR) as its stated measure of risk in 1996, it initiated an industry standard for institutional risk management that was quickly adopted by the Basel Committee on Banking Supervision for its internal capital adequacy models.

    Research Insight - Backtesting Expected Shortfall - December 2014

    Report | Dec 2, 2014 | Balazs Szekely , Carlo Acerbi

    In this white paper, we join the debate over Expected Shortfall versus VaR by introducing three model-independent, nonparametric back-test methodologies for Expected Shortfall, which we find more powerful than today's standard Basel VaR test. Our three Expected Shortfall back-test's generally require the storage of more information, but we find no conceptual limitations nor computational difficulties. In fact, one of the proposed back tests does not require any additional storage of data from...

    Intro to LiquidityMetrics

    Report | Jun 17, 2013 | Zsolt Szekeres , Carlo Acerbi

    This Research Insight introduces MSCI’s LiquidityMetrics, a suite of multi-asset class risk analytics for measuring and managing portfolio liquidity. The LiquidityMetrics framework is based on comprehensive descriptions of the liquidity of single assets, called Liquidity Surfaces, encompassing bid-ask spreads, market impact, trading immediacy, market depth and trading activity. In addition to position level liquidity profiling, LiquidityMetrics allows users to analyze portfolio liquidity in...

    Model Insight - The MSCI Bond Liquidity Measure (BLM) - Sep. 2012

    Report | Sep 28, 2012 | Dan Stefek , Zsolt Szekeres , Carlo Acerbi

    This Model Insight introduces the MSCI Bond Liquidity Measure (BLM), a model-based estimate of bond bid-ask spreads for a broad universe of quoted and non-quoted bonds. The BLM provides both a liquidity scoring metric and a way to quantify potential transaction costs. Applications of BLM include portfolio construction, risk control, risk limits, regulatory compliance, and liquidity provisioning.  Furthermore, BLM opens the way  for the consistent assessment of liquidity...