Projects for Master theses
- Project #12: Understanding the
fundamentals of the US and European financial systems
understand liquidity, monetary base, funding and leverage
- look for
good and alternative measures
- discuss the central bank mechanisms
(including ad hoc like quantitative easing)
- look for feedback
- look for signatures of criticality
Cauwels Peter email@example.com - http://www.er.ethz.ch/people/cauwelsp
- Project #13: Statistical
analysis of civil
conflicts and wars
- Project #14: Agent-based
human cooperation in public good situations
- Project #15: Linking
stylized facts of financial stock markets: leverage effect, gain-loss
asymmetry and cross-sectional dependence of stock returns.
The goal is
to develop the theory and empirical tests of the gain-loss asymmetry, as
a result of the two other facts (leverage effect and
cross-correlations). The gain-loss asymmetry refers to the remarkable
observation that, for the S&P500, it takes typically 10 days to lose
5% but it takes 20 days to gain 5%.
- Project #16: PRECURSORS
OF HAPPINESS: The goal is to test the endo-exo theory that we have
developed elsewhere for commercial successes and to understand the power
law distribution of waiting times between cause and actions to the
dynamics of happiness!
Happy Is the Internet? http://sciencenow.sciencemag.org/cgi/content/full/2009/803/3
- Project #17: Empirical
punctuated evolution due to delayed carrying capacity in economics and
biology. For instance, use data on the five known
developments and mass
extinctions of biological species, data on successions of S-curves for
innovations, and so on.
This project is based on the paper: V.I.
Yukalov, E.P. Yukalova and D. Sornette, Punctuated Evolution due to
delayed Carrying Capacity, Physica D 238, 1752-1767 (2009) (http://arXiv.org./abs/0901.4714)
- Project #18: Assessment
prediction of oil peak, gold peak, copper peak and the fate of
civilization. Excluding soil and water, which allows us to
food, oil and gold must be the two most important minerals of our
present civilization and their production have spanned only a few
centuries, much shorter than western civilization. It is amazing to
think that we are presently at a key time (peak or plateau) of our
civilization in term of supply and most do not realize it. Paul Valery
wrote in 1931 "the time of a limited world begins". The master thesis
will consist in reviewing data provided by the ER chair and applying
different models to assess the different scenarios.
- Project #19: Analysis
of entertainment shoping on the internet. The project
aims at analyzing the bidding behavior in online "entertainment"
auctions. The dynamics of individual subjects up to groups of bidders
should be revealed and possible behavioral patterns be identified.
Furthermore the attraction- and bidding dynamics of specific
auctioneered producsts should be analyzed. Fluent English and good
knowledge in statistics, the Matlab programming language as well as SQL
is required. The project is based on data obtained from www.swoopo.com
- Project #20:
Real-time "paper-money" implementation of trading strategies using
reverse engineering of financial markets with Agent-Based Models (ABM)
Understanding, Testing and Ideally Extending / Evolving a
Trading Strategy based on Reverse Engineering Financial Markets with
Agent-Based Models (ABM)
- Getting to know the
concept of ABM and understanding their potential when used for reverse
engineering financial markets.
- Learning the fundamentals of genetic
algorithms (and similar evolutionary strategies).
- Getting familiar
with the online trading platform "Interactive Brokers" for performing
(automated) trading according to the stratgegy (paper trading and
optionally real trading).
- Developing and understanding of
strategies performance analysis and apply them for the developed
- Understanding C++ and A plus
knowing the boost library
- A plus: having experience in using
Interactive Brokers or similar trading platforms.
- Project #21:
Multiple Criteria Decision Analysis applied to the financial portfolio
The thesis will be based on the ELECTRE
and will apply thius method in the context of financial markets.
develop a robust and and efficient asset allocation methodology based
on multiple criteria. Another domain of application will be the
evaluation of real options for new projects.
ELECTRE is a family
of multi-criteria decision analysis
methods that originated in Europe in the mid-1960s. The acronym ELECTRE
ELimination Et Choix
Traduisant la REalité (ELimination
and Choice Expressing REality). The method was first proposed by Bernard
and his colleagues at SEMA consultancy company. A team at SEMA was
the concrete, multiple criteria, real-world problem of how firms could
on new activities and had encountered problems using a weighted sum
Bernard Roy was called in as a consultant and the group devised the
method. As it was first applied in 1965, the ELECTRE method was to
best action(s) from a given set of actions, but it was soon applied to
main problems: choosing, ranking and sorting. The method became more
known when a paper by B. Roy appeared in a French operations research
journal. It evolved into ELECTRE I (electre one) and the evolutions
continued with ELECTRE II, ELECTRE III, ELECTRE IV, ELECTRE IS and
(electre tree), to mention a few. Bernard Roy is widely recognized as
father of the ELECTRE method, which was one of the earliest approaches
is sometimes known as the French School of decision making. It is
classified as an "outranking method" of decision making.There are two
main parts to an ELECTRE application:
first, the construction of one or several outranking relations, which
comparing in a comprehensive way each pair of actions; second, an
procedure that elaborates on the recommendations obtained in the first
The nature of the recommendation depends on the problem being addressed:
choosing, ranking or sorting. Criteria in ELECTRE methods have two
sets of parameters: the importance coefficients and the veto thresholds.
Bernard (1968). "Classement et choix en présence de points de vue
multiples (la méthode ELECTRE)". La Revue d'Informatique et de Recherche
Opérationelle (RIRO) (8): 57-75.
José; Salvatore Greco, Matthias Ehrgott (2005). Multiple
Criteria Decision Analysis: State of the Art Surveys. New York:
Springer Science + Business Media, Inc. ISBN 0-387-23081-5.
- Project #22: Study of economic growth and of human footprint on the planet by night light from NASA for China, India and the US.
The goal is
to explore how satellite images of global night lights from the years 2001 to present can be used to estimate economic activity and human footprint at the sub-regional level in the US, India and China. The night lights based estimates of economic activity will then be spatially analyzed and compared with sub-regional economic indicators where available for selected years. A major research goal will be to quantify the rate of growth at the global and regional level, and relate with other economic and demographic variables. In this way, we would like to understand the spatio-temporal dynamica of human growth on the planet.
- Project #23: In macro-economics, modellers use essentially conditions of monotonous preferences and there are essentially four fundamental variables that macro-economists consider.
1) more wealth is better
2) less inequality is better
3) less inflation is better
4) less unemployment is better.
RESEARCH QUESTION: at the micro-economics level, we have shown that people are "disadvantageous inequity adverse" [1,2]. How does it renormalize into the adverse effect of INEQUALITY at the macro level? The research will consist in developing agent-based models with economic agents endowed with "disadvantageous inequity aversion" who compete for scarce resourdes in an economic set-up of production and consumption. As the agents see their wealths evolve and form a broad distribution of emergent inequalities, the question is to investigate what controls the growth of such inequalities and the macro-welfare associated with the level of inequality. Measures of macro-success will be used and novel ones will be developed if necessary.
 M. Hetzer and D. Sornette, The co-evolution of fairness preferences and altruistic punishment evolution & human behavior, submitted 9 September 2011 (http://www.ssrn.com/abstract=1468517)
 M. Hetzer and D. Sornette, A theory or evolution, fairness, and altruistic punishment (2011), submitted to Games and Economic Behavior, 13 September 2011
- Project #24: Comparison
with theory and insights from the empirical size distribution of banks
in the USA: small versus large banks and the economic meaning of
deviations from Zipf law.
A. Saichev, Y. Malevergne and D. Sornette, Theory of Zipf's Law and
beyond, Lecture Notes in Economics and Mathematical Systems, Volume 632,
Springer (November 2009), ISBN: 978-3-642-02945-5 (http://www.springer.com/series/300)
Y. Malevergne. A. Saichev and D. Sornette, Zipf's law and optimum
long-term growth, Journal of European Economic Association (JEEA)
(submitted 9 August 2011) (http://ssrn.com/abstract=1083962 and http://arxiv.org/abs/1012.0199)
"On the Size Distribution of Financial Institutions"
University of Wales System - Bangor University
LIU, University of Glasgow - Glasgow Business School
G. MCKILLOP, Queen's University Management School
O.S. WILSON, University of St. Andrews
study examines the firm size distribution of US financial institutions.
A truncated lognormal distribution describes the size distribution,
measured using assets data, of a large population of small,
community-based commercial banks. The size distribution of a smaller but
increasingly dominant cohort of large banks, which operate a
high-volume low-cost retail banking, exhibits power-law behavior. There
is a progressive increase in skewness over time, and Zipf's Law is
rejected as a descriptor of the size distribution in the upper tail. By
contrast, the asset size distribution of the population of credit unions
conforms closely to the lognormal distribution.
Maillart, D. Sornette, S. Spaeth and G. von Krogh, Empirical Tests of
Zipf's Law Mechanism In Open Source Linux Distribution, Physical Review
Letters 101, 218701 (2008) (http://arxiv.org/abs/0807.0014)
Zhang and Didier Sornette, Empirical Test of the Origin of Zipf's Law in
Growing Social Networks, Physica A 390, 4124-4130 (2011)
Ryohei Hisano and Didier Sornette, Predicted and verified evolution of
power-law exponent in product market, Phys. Rev. E (April 2011; revised
June 2011) (http://arxiv.org/abs/1101.5888)
- Project #25: Are
crises good for entrepreneurship?
Steve Jobs and Steve
Wozniak started Apple in 1976.
America was then at a low point, following the 1973-74 recession, the
embargo, the Watergate scandal, and the fall of Saigon. Other US
were started in bad times include General Electric, IBM,
Microsoft. Question: Do tough times beget a disproportionate number of
companies? If so, why?
"The crisis is a catalyst for change in the technological
environment. Things that we only gave half a thought to in the past
are suddenly being addressed very quickly." Many innovations are geared
optimizing processes and reducing non-personnel costs. Fundamental
also being broached: "Without innovating", said one manager "it won't
possible to prosper over the next few years". One characteristic shared
the companies surveyed is that none reduced spending on research and
development. On the contrary, some even increased it sharply because, as
another executive emphasized, "The capital market is looking longer term
least for now. The winners are making the most of the opportunities
from modified investor perspectives." [John Mauldin's report, 1 Dec
Study firm databases on firm creation rates and compare
with financial market conditions, economic conditions to test the
that crisis and recession times are indeed disruptive and create
to create the best and enduring companies.
In other words, is this true that there is an abnormal
number of great companies that are created in stressed times?
- Project #26: Liquidity risk
liquidity is a hard-to-quantify and often neglected financial risk. The
consequences, however, of a liquidity dry-up can have a dramatic impact
on the profit and loss account of a trading book. During the 2008
financial crisis, the combination of mark-to-market accounting and a
liquidity squeeze of structured credit products (like Asset Backed
Securities) created black holes in investment banks' balance sheets.
This mechanism was responsible for a rapid acceleration and a viral
spreading of the financial crisis. Regulators and politicians had to
handle this crisis with only very limited tools at hand. They fought the
symptoms, changing the rules Ad Hoc, by temporarily allowing a change
in accounting from mark-to-market to mark-to-model.
It is clear
that a much better understanding of liquidity risk is needed. We will
start this challenging research subject by analysing options bid-offer
spreads. We have seen that when options get more and more out of the
money the bid-offer spread actually explodes. The preliminary results
suggest that in an option trading book liquidity losses present a risk
comparable to the classical market risk (an adverse movement of the
underlying). However, where market risk can be hedged, liquidity risk
cannot (at least not in our current understanding).
risk research is a fairly new domain in finance. The results, however,
are very relevant and highly anticipated by the financial sector,
investment banks, regulators, central banks. The purpose of this
research subject is twofold:
1. Study the current state of affairs of liquidity risk research;
2. Create new models of liquidity risk based on an analysis of out-of-the money options.
Contact: Cauwels Peter (firstname.lastname@example.org)
- Project # 27: Transient memory of emerging markets
Financial time series are well known to exhibit a number of empirical
properties, one of the most important being the absence of linear
autocorrelations of returns. Uncorrelated returns ensure the absence of
arbitrage opportunities and therefore the efficiency of financial
markets. This property has been extensively tested over the last half
century. But while for US or Europe markets, the almost absence of
return correlations was consistently shown to be true, the results of
tests on emerging markets are controversial. The proposed project
consists in empirical testing of the presence of transient memory
effects in emergent markets. As the project heavily relies on data
analysis, good computational skills (knowledge of Matlab, Python ot R)
is mandatory for the candidate, as well as a good level of statistics.
- Project #28: Bubbles in social networks
has been recently a lot of enthusiasm towards social networks. In the
past year, companies like LinkedIn, Groupon, Zynga, Pandora and others
went through their IPO, reaching valuations of billions of USD. This is
only the beginning, since the social-network giant Facebook goes through
its IPO mid-May for a valuation, evaluated by many as of 15 May 2012,
of the order of 100 billion USD.
In a recent paper, Cauwels and
Sornette (2012) developed a methodology to value Facebook and Groupon.
They showed that both companies are vastly overvalued, perhaps by more
than a factor of three. Forró, Cauwels and Sornette (2012) extended the
valuation methodology to Zynga, a social-gaming company using Facebook
as a platform. The arrived at the conclusion that Zynga, just as
Facebook, was significantly overvalued.
These papers open the larger
question of knowing whether there is a bubble in the whole social
network sector. The aim of this project is to adapt/extend the
methodology developed by Cauwels and Sornette (2012) and Forró, Cauwels
and Sornette (2012) to value other social networking companies and offer
a valuation perspective of the social networking sector in general.
Cauwels P. and Sornette D., Quis Pendit Ipsa Pretia: Facebook Valuation
and Diagnostic of a Bubble Based on Nonlinear Demographic Dynamics. The
Journal of Portfolio Management, 38 (2), 56-66 (2012) (http://arxiv.org/pdf/1110.1319.pdf)
- Forró Z., Cauwels P., Sornette D., When games meet reality: is Zynga overvalued? 2012 (http://arxiv.org/pdf/1204.0350.pdf)
- Project #29: Is there a student loan bubble in the USA?
master thesis will draw from the vigorous research and many results
obtained within the Financial Crisis Observatory launched in August 2008
by the Chair of Entrepreneurial Risks. The project will consist in
looking for parallels and differences with housing bubbles, raising
- Are there subprime student loans?
- Government sponsored agencies?
- Role and impact of securization?
- What are the risks for the economy and the financial system?
- Project #30: BAD
(Financial Bubble Detector) Project: Feasibility Study
project aims lie on the effort of building a prototype software able to
analyze historical series of financial market data, to calibrate
different models, and to produce appropriate signals for bubble
In collaboration with INTESA SANPAOLO Bank, Milano
If interested in a project, please contact Prof. Dr. Didier Sornette
Chair of Entrepreneurial
Risks, ETH Zurich
SEC F 7
Scheuchzerstrasse 7, 8092 Zürich
Phone: +41 44 632 89 17