15 March 2024
On 15 March 2024, Professor Elias Shiu Sai-wan, renowned actuarial science scholar and The Hang Seng University of Hong Kong (HSUHK) 2024 Honorary Doctorate recipient, delivered a lecture on the topic of “Interest Rate Risk Management – Extending Immunisation Theory”, as part of the University’s “Visionary Wisdom — HSUHK Honorary Doctorate Lecture Series”.
Professor Simon S M Ho, President of HSUHK delivered opening remarks, highlighting HSUHK’s Word of the Year, “Intelligence”, and noted that in an era of economic uncertainties, we should look to intelligent minds for wisdom. By posing the question “It is said that if you want to reduce risk, diversify. Is that notion still valid in today’s economic landscape?”, Professor Ho introduced the discussion for the Lecture.
Professor Elias Shiu began by explaining that he chose the aforementioned topic as the subject matter is close to his heart, given that his first job revolved around the topic of interest rate. He then introduced the roots of Immunisation Theory, and explained to the audience how the expression “there are no free lunches” takes on its own meaning in the world of insurance and interest rate.
In addition to sharing anecdotes from his time at Sunlife Insurance in Montreal, Canada, Professor Shiu explained the Redington Model, a method for managing interest rate risk which was proposed by distinguished British actuary, F M Redington, in the paper “Review of the Principles of Life-Office Valuations”, published in the Journal of the Institute of Actuaries in 1952. In this highly cited paper, Redington suggests the principle that there should be equal and parallel treatment in the valuation of assets and liabilities.
Professor Shiu also discussed the issue of asset/liability management, presented an extension of Redington’s theory, and presented a solution to the problem of interest rate risk management in the context of stochastic ordering, much to the delight of audience members.
He also recommended several books during his lecture, including Capital Ideas: The Improbable Origins of Modern Wall Street, and Against the Gods: The Remarkable Story of Risk by Peter L Bernstein, to students to further their knowledge in the fields of Actuarial Science.
Professor Shiu’s intricate explanations and the mathematical solutions inspired the audience members, and ended with a delightful networking session.
