Weidong Tian joined the Belk College of Business in 2008 from the University of Waterloo in Ontario, Canada, just as the financial crisis was occurring in the United States and affecting Charlotte’s biggest banks.
Tian is a professor of finance and distinguished professor of risk management and insurance. He is also the Master of Science in Mathematical Finance program director. He previously served as a visiting scholar at the Sloan School of Management at Massachusetts Institute of Technology.
You arrived in Charlotte at the beginning of the financial collapse. What lessons were learned from that time that are now taught in finance and risk management courses?
Actually, it was not a big surprise for me given my personal experience. I worked at Enron when the company filed for bankruptcy in 2001, at the time the largest bankruptcy in U.S. history. I saw dramatic changes to many big energy trading companies in Houston afterward. To some extent, the 2008 financial crisis for financial institutions resembles the crisis to the energy trading industry in 2001-2002; so it is interesting – though it might be not favorable, strictly speaking – to observe those crises and systematic risks persistently in industry. It has been an important topic for many researchers since 2008 to learn these lessons and how to avoid a financial crisis in the future. It also provides many good case studies of risk management. On a personal side, I wrote a few research articles to address the capital structure of Enron, and later I realized that some techniques developed in these papers can be applied to the studying of the systemic risk.
What brought you to the Belk College of Business?
There are a number of excellent colleagues in the Department of Finance who have strong quantitative expertise. It is hard to find such a group of researchers in another business school in the U.S. with capable quantitative skills who apply these skills to asset pricing, risk management, derivatives, real estate and insurance. Secondly, Charlotte is a financial center, and much of my research is inspired by real-world financial problems. Finally, the North Carolina weather was very appealing to me and my family when we discussed the opportunity on a January day in Canada.
Describe your major area of expertise.
My major area of expertise is asset pricing. In my early research, I worked on derivatives pricing, developing term structure models and credit risk models that can be applied directly to industry. I also wrote a couple of papers on portfolio allocations and optimal design of structured products. Later, I slightly shifted my focus on the asset pricing theory and its applications to risk management and corporate securities. Currently, I am interested in several important risk management topics such as model risk and systemic risk. I am interested in how to understand these risks and address the relevant asset pricing problems in the presence of model risk or systemic risk.
What research do you have in progress?
In the past several years, I have put a significant effort into understanding asset pricing theory with model risk. This topic is very important from both theoretical and practical perspectives since every model is virtually an approximation of the real world; thus, it is naturally subject to over-simplification. My purpose is to develop a ``no-arbitrage” approach for the model risk.
Tell me about your time as a visiting scholar at M.I.T.
I worked on several research topics with distinguished scholars at M.I.T. and in the greater Boston area. Specifically, two working papers were finished and two papers were published during that time period. I attended many academic seminars at M.I.T., Harvard and Boston universities and greatly benefited from discussions with many scholars. Importantly, I had a lot of thoughts on how to apply asset pricing theory into risk management, which has affected my research since then.