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s a world-leading financial center building on a rich history, Switzerland’s financial sector has A the natural ambition of housing a world-leading research and training center in banking and finance.

The Swiss Finance Institute is the product of this ambition. Established at the initiative of the Swiss Bankers Association, it is a private foundation created in January 2006 with the support of the Swiss banking and finance community and SWX together with the Swiss Confederation, the Swiss National Science Foundation and several Swiss universities with the aim of advancing research activities in finance and executive education in the banking and finance sector. The Swiss Finance Institute encompasses two pre-existing foundations: the International Center for Financial Asset Management and Engineering (FAME) and the Swiss Banking School. This merger has led to the creation of one of the major European providers of research, doctoral training and advanced executive education in banking and finance.

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Word from the Board

The beginning of an exciting journey!

The Swiss Finance Institute started operating on Several important publications in top journals have January 1, 2006. The official launch was preceded by been recorded in 2006 or are forthcoming. The first an intense activity throughout 2005 culminating with SFI financed research project has been launched. The 3 Foundation Board "pre-meetings" in the Fall and the first SFI Annual Meeting has taken place in Zurich in signature of MOU's with the future university partners. the presence of Federal Councilor Couchepin. Finally, some 580 participants have attended one or several SFI Where do we stand 12 months later? This activity Executive Education courses. report provides the anwers. The Swiss Finance Institute is alive and well. Two of the 3 pre-existing foundations, This intense activity is the first step of an ambitious FAME and the Swiss Banking School, have been build-up. The goal of the Swiss Finance Institute is officially merged. Formal Cooperation Agreements to become, in partnership with Swiss universities and have been signed with 5 university partners leading to with all the actors of the Swiss Financial Center, a major the creation of 3 SFI regional centers in Zurich, actor on the worldwide scene of Research, PhD train- Lugano and the Léman area. A Cooperation ing and Executive Education in Banking and Finance. Agreement with FinRisk and the Swiss National Year 1 has served to optimize the trajectory towards this Science Foundation has been signed. The two main ambitious objective. We believe the ship is on course. advisory bodies, a Scientific Council and an Executive Exciting new developments are expected in 2007 and Education Advisory Board, have been nominated the first visible fruits of a remarkable country-wide and are at work since early in the year. An ambitious effort are within reach. Executive Education strategy has been elaborated, approved and is being implemented. The first SFI At the end of this first year, we would like to extend chair professor has been nominated and has started our warmest gratitude to all of you in the universities, his mandate while 40 professors in place in partner in the federal government and in the industry who universities have joined the Swiss Finance Institute have made the Swiss Finance Institute a thriving reality Faculty. The SFI PhD program is up and running. and very concretely to all Foundation Board members Research activities have led to the first 39 research and to the Swiss Bankers' Association for their unfailing papers published, in collaboration with FinRisk, on support. the Social Science Research Network.

Olivier Steimer Jean-Pierre Danthine Chairman of the Foundation Board Managing Director

From left to right: Michael Jensen, Professor at Harvard Business School, Jean-Pierre Danthine, Managing Director of the Swiss Finance Institute, Pascal Couchepin, Federal Councilor, Olivier Steimer, Chairman of the Board of the Swiss Finance Institute, Pierre Mirabaud, President of the Swiss Bankers’ Association AR-SFI_pour net 27.6.2007 11:56 Page 6

The Swiss Finance Institute Faculty

The Swiss Finance Institute will be defined first and foremost 2006 by its faculty constituted in collaboration with its partner Swiss Finance Institute Faculty universities. The plan is for the Institute's Faculty to count more than 50 professors with about 30 positions being opened or Giovanni Barone-Adesi reallocated within the next five years. Alessandro Beber Tony Berrada Between January and December 2006, the Swiss Finance Institute Marc Chesney was fortunate to obtain the official participation of the Universities Fulvio Corsi of Lugano, Lausanne, Geneva and Zurich as well as EPFL to its Jean-Pierre Danthine ambitious project through the signature of Cooperation Agreements Enrico De Giorgi defining the terms of the collaboration and the commitments of all François Degeorge parties. It was expected that the ETHZ would join early in 2007 Bernard Dumas (as of 1.9.06) while discussions with the University of St-Gallen are still ongoing. Pierre-André Dumont This legal activity led to the creation of three Swiss Finance Institute Daniela Fabbri regional Centers: SFI-Léman, SFI-Lugano and SFI-Zurich headed Patrick Gagliardini by Professors Bernard Dumas, Giovanni Barone-Adesi and Rajna Fausto Galli Gibson, respectively. Hans Geiger Rajna Gibson At the individual level, 40 professors located across these three Manfred Gilli centers decided to join and contribute to the Swiss Finance Institute. Michel Habib Thorsten Hens Martin Hoesli Most importantly the action of the Swiss Finance Institute will be manifest Julien Hugonnier through the support it will provide to its partner universities in the process of Jean Imbs hiring new researchers of worldwide reputation and/or with the highest prospects. Eric Jondeau A first very significant step in this direction was made with the hiring of Jean Lefoll Prof. Bernard Dumas by the University of Lausanne, where he holds a Swiss Markus Leippold Finance Institute Senior Chair since September 1, 2006. Bernard Dumas was for- Henri Loubergé merly Professor at INSEAD, at HEC (Paris) and at The Wharton School of the Erwan Morellec University of Pennsylvania. He has been a Member of the Board of the American Eric Nowak Finance Association, is a Research Associate of NBER and a Research Fellow of Claudio Ortelli CEPR. Professor Dumas is Associate Editor of the «Journal of Finance» and Marc Paolella several academic journals and is a former co-editor of the “Review of Financial Michael Rockinger Studies”. He specializes in international finance and finance theory in continu- Olivier Scaillet ous time. He received his Master of Science and PhD from Columbia University, Enrique Schroth New York. Norman Schürhoff Pascal St-Amour Paolo Vanini The intellectual life of the SFI regional centers will also be stimulated Rudolf Volkart via the temporary hiring of Visiting Professors. Professor Peter Alexander Wagner Bossaerts, of the California Institute of Technology, was the first Swiss Mei Wang Finance Institute Visiting Professor to be nominated. He has been at Lucy White the University of Lausanne since July 2006 and is expected to remain Alexandre Ziegler there for the entire 2006-2007 academic year. Professor Bossaerts is a specialist of experimental and neuro-finance. Among other activities he gave a public lecture in Geneva reported in the Knowledge Transfer pages of the present report.

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Publish or Perish!

2006 Swiss Finance Institute Publication Awards

It is expected that the mark of the Swiss Finance "The Economic Consequences of Institute will be felt very quickly via an acceleration of Increased Disclosure: Evidence from publications by affiliated researchers in top academic International Cross-Listings", journals, i.e., those journals that historically have been published in the Journal of Financial first in promoting the ideas that have changed financial Economics, by Carolina Salva practices. (with Warren B. Bailey and Andrew G. Karolyi). In our first year of operations, we inaugurated the Swiss Finance Institute Research Paper series within "Can Information Heterogeneity the Social Science Research Network (SSRN), a Explain the Exchange Rate Determination Puzzle?", published collaborative project with FinRisk. The decision to work in the American Economic Review, by with SSRN should lead to the widest dissemination of Philippe Bacchetta (with Eric Van the research output of FinRisk and SFI researchers and Wincoop) to a high international visibility for our Institute. Thirty-nine research papers were placed into the series "Innovation, Differentiation and the in 2006. A complete list of these papers is available Choice of an Underwriter: Evidence on pages 22-24. from Equity-Linked Securities", published in the Review of Financial More mature research output is typically disseminated Studies, by Enrique Schroth. through academic journals and exceptionally in books. In 2006 SFI researchers have had their research pub- "Crises and Capital Requirements in lished or accepted for future publication in prestigious Banking", published in the American journals such as the Journal of Finance, the Review of Economic Review, by Lucy White Financial Studies, the Journal of Financial Economics, the (with Alan D. Morrison). American Economic Review, the Journal of Business and other high level journals. The 2006 and forthcoming "The Dynamics of Mergers and list of publications by SFI researchers is compiled Acquisitions", published in the Journal in pp 18-21. of Financial Economics, by Erwan Morellec (with Alexei Zhdanov). As part of a program started by its predecessor, "On the Debt Capacity of Growth the International Center FAME, publications in the Options", published in the Journal most prestigious journals having appeared between of Business, by Erwan Morellec September 2005 to August 2006 journals were (with Michael J. Barclay Clifford distinguished with a SFI Publication Award at the W. Smith, Jr.). 2006 Annual Meeting of the Swiss Finance Institute. "Firm Value and Managerial Incentives: A Stochastic Frontier Approach", published in the Journal of Business, by Michel A. Habib (with Ljungqvist Alexander).

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The Swiss Finance Institute Research Partner: NCCR Finrisk

Based on the FINRISK/SFI cooperation agreement, • Empirical Corporate Finance, an active collaboration between both entities has been Michel Habib (Zurich) installed during 2006. Most recently, this cooperation • Corporate Finance Theory, has led to the constitution of a new FINRISK research Erwan Morellec (Lausanne) project, which is fully financed by SFI. In the following, • Linear and Nonlinear Factor Models for Finance, we list the major joint activities by FINRISK and SFI Christian Gourieroux (Paris, Toronto) during the reporting period. • Advanced Topics in Econometrics, Christian Gourieroux (Paris, Toronto) • Behavioural Portfolio Theory, Launching of the first SFI funded FINRISK research Enrico De Giorgi (Lugano) project, headed by SFI professor Bernard Dumas • Fundamentals of Commodities-The Particular Case of Energy Commodities, In September 2006, the FINRISK director invited any Helyette Geman (Paris) faculty member at Swiss Universities to submit a pro- • Topics in Macroeconometrics, posal for a new research project in the areas of Asset Paolo Paruolo (Italy) Pricing/Corporate Finance/Financial Intermediation. • Advanced Financial Decision Making and Asset Pricing, The FINRISK international scientific council (ISC) Fabio Trojani (St Gallen) evaluated the four submitted proposals at its November meeting and, on the basis of scientific merits, selected The Fifth Swiss Doctoral Workshop in Finance was the project proposed by SFI professor Bernard Dumas organized on June 12-13, 2006 at the Study Centre focusing on “Equilibrium Asset Pricing”. Gerzensee joint with SFI. More than 20 doctoral For detailed information on this project see: students from the network institutions presented their www.nccr finrisk.unizh.ch/project.php?pid=10. current research. Each paper was discussed by another doctoral student before René Stulz (Ohio), Jerome The selected new project will start as of January 2007. Detemple (Boston) as well as other professors from It received an initial endowment of SFr. 320’000 per FINRISK provided their comments. The workshop year. As for any FINRISK project, the annual budget was sponsored by the foundation of the Study Center may change over time, based on outcome of the Gerzensee. For the full program see: periodical assessment by the ISC. www.nccr-finrisk.unizh.ch/archives/education/phd-work- shop06.htm. Given the high quality of all submitted proposals, the ISC also decided to match the SFI initiative and to immediately re-launch a second call for a new FINRISK provides support to SFI research papers series FINRISK research project under SNSF funding in early 2007. In June 2006, the Swiss Finance Institute launched a new Research Paper Series (SFI-RPS) together with its research partner, the NCCR FINRISK. This new series FINRISK and SFI promote doctoral education in is published on the SSRN website: finance in Switzerland www.ssrn.com/link/swiss-finance-institute.html. FINRISK and SFI agreed to equally share the publication costs. The following doctoral courses in finance have been In turn, any FINRISK Working Paper can be included jointly organized by FINRISK and SFI in 2006. into the Swiss Finance Institute Research Paper Series. They are offered to all doctoral students from (Papers submitted by doctoral students or PostDocs Swiss Universities (for further details see: require a formal SFI-RPS publication approval from the www.nccr-finrisk.unizh.ch/courses.php?year=2006). respective supervisor.) See pages 22-23-24 for the complete listing of the 2006 research papers in the series.

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The Swiss Finance Institute PhD Program in Finance

Launched in autumn 2006, the Swiss Finance Institute The SFI PhD program is placed under the twin scientif- PhD Program in Finance is targeted towards the ic supervision of the Swiss National Science Foundation pursuit of academic excellence. It aims at providing an FinRisk Review Panel and the SFI Scientific Council. intellectual environment and a curriculum comparable For a thesis to qualify a Swiss Finance Institute thesis, with the top PhD programs in Europe and North the thesis jury should count at least one Swiss Finance America. The PhD program operates at the three Institute-chaired professor or Swiss Finance Institute Swiss Finance Institute campuses in Geneva/Lausanne Fellow; the thesis supervisor should be a Faculty (Léman), Lugano and Zurich under a strong collabora- member of Swiss Finance Institute; if at all possible the tion with the NCCR FinRisk (see previous page). thesis jury should include a SFI Faculty member from another Swiss Finance Institute Center than the Center The curriculum comprises two phases: one preparatory with which the PhD student is affiliated. year of intensive coursework followed by three years of advanced studies and research. The Program covers a As it is the objective of the Swiss Finance Institute wide range of subjects including Economics, Financial to have students closely linked with research, the Swiss Economics, Corporate Finance, Mathematical Finance, Finance Institute proposes PhD students a travel budg- and Econometrics. There is a clear focus on the et of up to CHF 1’000 per academic year to encourage mathematical foundations of Finance and all courses students to present their research in professional are taught by internationally renowned academics from association meetings. Switzerland, Europe, and North America. The Program offers the ideal framework for successful and inspiring PhD students with academic ambitions are encouraged PhD studies in Finance. to spend an extended visit abroad in a top department under the pre-arranged supervision of a researcher Building on and strengthening the existing programs interested in the PhD student’s research through a pro- offered by the Swiss Finance Institute's partner universi- gram of advanced doctoral grants. Under certain con- ties in Geneva/Lausanne (Léman), Lugano and ditions, the Swiss Finance Institute can award financial Zurich, the Swiss Finance Institute is already one of the support of up to CHF 40'000 to aid the PhD candidates largest such programs in the world with 65 students in going abroad. enrolled across the 3 Competence Centers including 18 new students who joined the program at the beginning of 2006/2007 academic year.

1st Swiss Finance Institute Doctoral Award

The first Swiss Finance Institute doctoral award was awarded to Maria Cecilia Bustamante, University of Lausanne and SFI PhD student, for her paper entitled "The Dynamics of Going Public", presented at the Swiss Doctoral Workshop in Finance. The 2006 workshop was organized by the Swiss Finance Institute and SFI research partner FinRisk on June 12-13 at the Study Centre Gerzensee with 21 papers being presented by doctoral students from all-over Switzerland. The nominating committee, composed of René Stulz (Ohio State University) and Jérôme Detemple (Boston University), selected 3 papers for consideration. The other nominated papers were those of two other Swiss Finance Institute PhD students, Bogdan Stacescu, University of Zurich, and Benedetto Raccuglia, University of Lausanne. The jury, formed of Giovanni Barone-Adesi (University of Lugano), Rajna Gibson (University of Zurich) and Henri Loubergé (University of Geneva), unanimously designated the winning entry.

The award was given at the first Swiss Finance Institute Annual Meeting on November 14, 2006.

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Executive Education

The first year of Executive Education at the Swiss Key figures for the Swiss Finance Institute Finance Institute has turned into a resounding success: Executive Education in 2006 In its initial year SFI Executive Education offered 30 courses for 640 participants from all over the world! • In its initial year the SFI offered 30 courses for a total of Three quarters of the participants of our international 44 week of Executive Education: programs came from outside of Switzerland, represent- > 19 courses in advanced finance for a total of ing 40 different nationalities, demonstrating the inter- 23 weeks national recognition of our programs! > 11 courses in bank management for a total of 21 weeks Executive Education is where the intellectual capital of • Over 640 participants took one or more of the Institute's the Swiss Finance Institute can have the most immedi- courses; 156 graduated from one of its diploma courses! ate impact on the finance industry. Executive • In the SFI international programs more than 75% Education can short-cut the normal diffusion of new of participants came from outside of Switzerland, knowledge which takes place through young graduates representing 40 different nationalities and PhDs joining the industry. However, this requires that research results are conveyed in a palatable and practically useful form. And this is where SFI Executive Education wants to excel on an international level! By combining existing forces, the Swiss Finance The fact that SFI can look back on 25 years of experi- Institute was able to dramatically kick-start this roll-out ence in finance executive education, and 20 years in process: In Finance a wide roster of 18 one-week cours- bank management executive education through its es was offered, plus a 5-week immersion Certificate predecessor organisations is a sound basis to build on. Program in Financial Asset Management and Engineering (FAME); in bank management 5 open To achieve this goal the Swiss Finance Institute has enrolment bank management courses for executives developed a clear and focused, but also very ambitious, were held, plus the 5-week SFI Advanced Executive strategy for its Executive Education offering: Program and the 7-week, two-year SFI Executive Program, in addition to SFI contributing to two Master • It will concentrate exclusively on advanced graduate programs in partnership with Universities overseas. On level finance courses on the one hand, and on bank an international graduate level in Banking and management courses for executives on the other Finance, this is already one of the broadest offerings in hand. the world! • In both areas the Swiss Finance Institute will offer open-enrolment programs on a graduate level, as The strategy of SFI Executive Education requires SFI to well as Diploma and Master Programs with highly augment these programs with selected Executive selective admittance. Master degree programs, ideally in co-operation with • With a few exceptions, all programs will be aimed at Swiss and international universities. In this way the a global audience, so as to foster the exchange of Swiss Finance Institute will become similar to a ideas on the foremost frontiers of knowledge and Graduate Business School, with degree programs, a experience. PhD Program, and Research. Extensive preparatory work has been done in 2006 and discussions held with The strategy comes with a clear roll-out plan which is various universities with the goal of launching the first currently being implemented. Executive Master Degree programs later in 2007.

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The Executive Education offering: Finance

In Finance, the focus of the Swiss Finance Institute in Lausanne by a mixture of international professors Executive Education is on teaching state of the art and practitioners, and 28 participants joined this pro- finance for experienced practitioners. The main gram from 18 countries of Europe, Asia and Africa. emphasis is placed on selecting outstanding teachers: To guarantee a deep insight into the topic we look for a Finance Courses for Central Bankers with the Study world renowned researcher; to ensure that what is Center Gerzensee taught is relevant and applicable for the practitioner, we The Study Center Gerzensee and the Swiss Finance look for a teacher with extensive industry insights; and Institute jointly organize finance courses for central to ensure that our participants truly benefit from the bankers. Some of these courses provide an overview of experience we look for outstanding teaching abilities. recent developments in quantitative finance that are relevant for researchers from these organizations, other These rare people are sought from all over the courses address new developments in financial markets world - and have turned out to be renowned professors and financial theory for the benefit of central bank such as, Frank Diebold from Wharton, Yacine Ait- economists. All of these courses are by invitation only. Sahalia from Princeton, Stephen Schaefer from LBS, René Stulz from Ohio State University, Michael Brandt from Duke University, Richard Levich from New York The Executive Education offering: University. They are joined in their courses by selected Bank Management practitioners who are chosen for their experience in dealing with the challenges of day to day operational In Bank Management, the focus of the Swiss Finance implementation. Institute is on providing insights bearing on the key trends for the finance industry, both on a strategic and The participants themselves are seniors in their fields, on an operational level. The concepts underlying these looking to update and further enhance their under- trends are presented by academics selected for their standing. They join the finance courses of the Swiss extensive industry exposure, and their understanding Finance Institute from all over the world, as depicted of the implications for the finance industry. Senior by the pie chart below: executives are invited to present their institution’s reac- tion to these developments: the strategic responses to the strategic challenges on one level, and the state of the art implementation of new operational techniques on the other. Finally, the carefully selected participants are of the highest calibre, ensuring a critical discussion of the presented ideas among peers.

Seminars in Bank Management In 2006 the Swiss Finance Institute organized five nation- The Geneva Executive Courses in Finance al and international seminars with 108 participants. The 18 courses in advanced finance are grouped into The most prestigious of these seminars is the five-day what we call the Geneva Executive Courses in Finance, International Private Banking Retreat for Managing since that is where they take place. These courses are Directors. In 2006 this seminar addressed the strategic on graduate level, and introduce the latest insights into developments in Private Banking and Wealth Manage- the application of finance, with each course focusing ment for the 8th time, with worldwide participation. on a specific topic: Fixed Income, Asset Allocation, or Risk Management, to name a few. They typically last SFI Executive Program and SFI Advanced Executive one week. - In 2006 259 participants elected one or Program in Bank Management more of these courses. These two German part-time bank management programs gathered 185 participants in 2006. Certificate in Financial Asset Management and The aim of these programs is to develop a broadened Engineering (FAME) understanding of the finance industry, and thereby FAME is an intensive 5-week immersion program into achieve an improved quality of decision-making and a the state-of-the-art techniques and practices applied in superior ability to interact with colleagues from other asset management and financial engineering. Taught business areas.

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The SFI Executive Program is 7 week- long spread over Alumni Association a two year period. It is aimed at young Vice Presidents; the SFI Advanced Executive Program consists of 25 days spread over one year, and is aimed at Senior Vice The Swiss Finance Institute Alumni Association Presidents and Executive Directors. Both are compara- took over from the former Swiss Banking School ble in style to a shortened MBA program, with Alumni Association on April 28, 2006. In the extensive use of cases, class discussions, and group past graduates of the Executive Program, the presentations to incorporate the experience of the Advanced Executive Program and the widely diverse participants. Both programs utilize about International Wealth Management Executive a dozen professors selected from Swiss and foreign MBA were eligible to join. As a new development universities, each of them responsible to lead one the SFIAA was opened to the graduates of the specific subject. Up to eighty senior executives join for Certificate in Financial Asset Management and special presentations and in-depth discussions. Engineering (FAME). There are currently over 1.200 members in SFIAA, with 119 new members Master Programs in 2006. The 4th Cycle of the International Wealth Management Executive MBA (IWEMBA) drew to a close in October 2006 with 18 participants receiving their MBA from the The Swiss Finance Institute Alumni Association University of Geneva and their Executive MBA from the promotes Tepper School of Business of Carnegie Mellon • networking among its members University. The Swiss Finance Institute is a partner in • further education of its members by means this unique program, which however will not be contin- of seminars and lectures (in collaboration ued in its current format. Instead work is well under with the Swiss Finance Institute) way for a new Executive MBA in Bank Management, • contributing to the ongoing improvement which will have a much wider reach. of the Swiss Finance Institute

The Swiss Finance Institute also organizes a two-week In addition to an annual meeting of members, Swiss module for the Master in Wealth Management the Swiss Finance Institute Alumni Association offered by the Singapore Management University, with and the Swiss Finance Institute jointly organize the Wealth Management Institute as the third partner. the Alumni Luncheons with prominent guest The Swiss module was held for the 2nd time in 2006, speakers as well as the SFIAA Golf Trophy in with 44 participants from Singapore and SE-Asia. the Fall.

Participants Executive Education courses 2006 Alumni Luncheon in 2006 28.04.2006 Finance Herbert J. Scheidt, CEO Bank Vontobel, Zurich Geneva Courses 259 04.07.2006 FAME Certificate 28 Marco Föllmi, Swiss National Bank, Geneva 01.09.2006 Bank Management Dr. Eugen Haltiner, President of the Swiss Federal Banking Seminars 106 Banking Commission (EBK), Berne SFI Executive Programs and 28.11.2006 Advanced Executive Programs 185 Pierre Chappaz, President of the Société Wikio Master Programs 62 01.12.2006 Prof. Jean-Pierre Danthine, Managing Director Total 640 of the Swiss Finance Institute, Zurich

For a complete list of the Executive Education courses offered by the Swiss Finance Institute in 2006 see pages 25-27.

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Knowledge Transfer at the Swiss Finance Institute

“Top financial services depend on top innovation based on fundamental research and on a deep cultural and historical understanding. The Swiss Finance Institute is an instrument devoted to promote this very objective. As a result of the alliance between the National Competence Center for Research “FinRisk” and the Swiss Bankers Association, the Swiss Finance Institute is also an outstanding example of an efficient cooperation between the private sector and academia.” Pascal Couchepin, Federal Councilor, at the 2006 SFI Annual Meeting

A number of activities fostering scientific exchanges Neuro-Finance And How The Brain Perceives between academic researchers, researchers affiliated with Financial Risk financial institutions and practitioners are planned by the Swiss Finance Institute. In this inaugural year, the main Knowledge Transfer activity was the successful offering Prof. Peter Bossaerts, Caltech and Swiss Finance of the first Swiss Finance Institute 1st Annual Meeting Institute Visiting Professor, presented research on November 14, 2006 at SWX in Zurich. findings at a Swiss Finance Institute event in Geneva on October 10, 2006. Approximately 130 participants attended this exploration of the physi- The Swiss Finance Institute Annual Meeting was a full ological processes taking place in the brain when day of activities and exchanges masterly planned by exposed to financial risk. Finance has always Paolo Vannini, Head of Knowledge Transfer at Swiss treated humans as black boxes, whereby behavioral Finance Institute and FinRisk. A rich menu of topics rules are either imposed by decision theory was proposed under the headings of fundamental (neoclassical finance) or derived from observation research, knowledge transfer and executive education of actual or hypothetical choice (behavioral with contributions by Swiss and foreign academics as finance). In contrast, neuro-finance attempts to well as financial professionals. Federal Councilor Pascal understand behavior by examining the physiologi- Couchepin, Switzerland’s Home Affairs Minister, cal processes in the human brain when exposed addressed the meeting on the theme of “Finance, to financial risk. The talk illustrated this point Research and Culture”. with the recent discovery that the brain analyzes monetary gambles by separately encoding their The conference began with two parallel sessions: expected payoff and the payoff variance (even a fundamental research session with academics from when subjects have never heard of these concepts). the Universities of Zurich and St. Gallen and the As such, the brain uses the same inputs as London Business School covering asset management Markowitz' portfolio theory. This is in sharp and a knowledge transfer session with experts from contrast with economics (which includes Prospect Credit Suisse, UBS and the Cantonal Bank of Zurich Theory), which represents desirability of gambles devoted to new developments in real estate markets. through scores on a single-dimensional utility At a second session in the afternoon, three world scale. renowned academics presented their recent research while an Executive Education session focused on recent The Swiss Finance Institute may also support on trends in asset management, structured products and a small scale events organized by neighbouring corporate banking. institutes provided they are in line with its own objectives. In 2006, the Swiss Finance Institute The conference concluded with a plenary session in provided material support for the organization of troduced by Olivier Steimer, Chairman of the Swiss the 2nd ZURICH WEALTH FORUM in Zurich Finance Institute’s Foundation Board. Nobel Laureate (September). It also joined FinRisk in supporting Rolf Zinkernagel, Michael Jensen, Professor of finance financially the organization by the Institut für at Harvard Business School, and Jean-Pierre Danthine, Finanzmanagement at the Universität Bern of a Managing Director of the Swiss Finance Institute conference on the theme Corporate Governance in debated on the theme «Catching up with the Leaders Family/Unlisted Firms, on June 15-17, 2006, in Financial research». in Thun.

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Structure and Overseeing Bodies

Foundation Board

Executive Education Scientific Council Advisory Board

Managing Director Prof. Jean-Pierre Danthine

COO Secretary General Dr. Harry Hürzeler Anita Belitz-Krasniqi

Director PhD program Knowledge Transfer Director of Executive Director of Research SFI - Léman Working Group Working Group Education Prof. Rajna Gibson Prof. B. Dumas Prof. Erwan Morellec Dr. Paolo Vanini Dr. Harry Hürzeler

Director SFI - Lugano Prof. G. Barone-Adesi FinRisk Scientific SNF Council Review Panel Director SFI - Zürich Prof. R. Gibson

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The Foundation Board of the Swiss Finance Institute is its main governing body. It includes representatives of its 12 founding members as well as 3 representatives of its academic regional centers. The Foundation Board is advised by the Scientific Council (SC) on matters of scientific content and by the Executive Education Advisory Board (EEAB) on matters of Executive Education.

Foundation Board

The Foundation Board members represent the entire finance and banking community in Switzerland, both locally and internationally.

Swiss Finance Institute Foundation Board - December 2006

Chair Dr. Charles Kleiber Mr. Olivier Steimer * State Secretary, State Secretariat for Education and Chairman of the Board of Directors Research, Berne – as representative of the Federal Banque Cantonale Vaudoise, Lausanne Government of Switzerland

Deputy chair Prof. Dr. Piero Martinoli Dr. Ulrich Körner ** President, University of Lugano, representing the CEO Credit Suisse Switzerland, Zurich Swiss Finance Institute Lugano Center

Dr. Marcel Rohner ** Mr. Patrick Odier Chairman & CEO Global Wealth Management Managing Partner, Lombard Odier Darier Hentsch & Deputy CEO UBS AG, Zurich & Cie, Geneva - as representative of the Swiss Private Bankers Association Members Mr. Raymond J. Baer Dr. Urs P. Roth Chairman of the Board, Julius Baer Holding Ltd., CEO, Swiss Bankers Association, Basle Zurich - as representative of the Association of Swiss Commercial and Investment Banks in Switzerland Dr. Pierin Vincenz CEO, Raiffeisen Group Switzerland, St. Gall Mr. Antonio Foglia Chairman of the Executive Committee, Banca del Prof. Dr. Jacques Weber Ceresio, Lugano – as representative of the Ticino Rector, University of Geneva, representing the Bankers Association Swiss Finance Institute Léman Center

Prof. Dr. Peter Gomez Prof. Dr. Hans Weder Chairman of the Board, SWX Group Rector, University of Zurich, representing the Swiss Finance Institute Zurich Center. Dr. Alfredo Gysi CEO, BSI SA, Lugano – as representative of the Association of Foreign Banks in Switzerland The Swiss Finance Institute gratefully acknowledges the participation of Prof. Baggiolini and Hurst during the Dr. Philipp Halbherr preparatory period and the first part of 2006 as repre- CFO, Cantonal Bank of Zurich, Zurich sentatives of SFI-Lugano and SFI-Léman respectively.

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Scientific Council The members of the Executive Education Advisory Board are The Swiss Finance Institute Scientific Council (SC) counts 5 international experts nominated as a result Chair of a wide consultation with its university partners with Urs Hofmann * the aim at arriving at a broad consensus on the repre- Chief Learning Officer, Head CS Business School, sentation in the SC of the Swiss Finance Institute main Credit Suisse fields of research: financial mathematics, financial econometrics, investments, and corporate finance. Members The Foundation Board of the Swiss Finance Institute Peter Angehrn has committed to make decisions with scientific Managing Director, Head Business Faculty, content exclusively under the recommendation of its Credit Suisse Scientific Council. The Swiss Finance Institute is very fortunate to have been able to secure the enthusiastic Prof. Dr. René Capitelli support of 5 internationally reknown experts under Managing Director, Head Business Support, the chairmanship of: UBS AG and University of Basel

Prof. René Stulz Curdin Duschletta Fisher College of Business, Ohio State University. Managing Director, UBS AG

The other members of the SC are: Per Etholm Managing Director, Citigroup Prof. Tim Bollerslev Fuqua School of Business, Duke University Prof. Dr. Rudolf Grünig University of Fribourg Prof. Patrick Bolton Columbia Business School, Columbia University Dr. Jürg Gutzwiler CEO and Member of the Executive Board, Prof. Michael Brennan RBA-Holding Anderson School of Management, UCLA Prof. Dr. Alfred Mettler Prof. Ioannis Karatzas Georgia State University Dept of Mathematics, Columbia University Dr. Martin Moehrle The cooperation agreement with the Swiss Finance Chief Learning Officer, Deutsche Bank AG Institute and the Swiss National Science Foundation indicates that the International Scientific Council of Maxime Morand FinRisk is to act as the main supervisory body for all Head HR, Lombard Odier Darier Hentsch & Cie activities and funding falling under the heading of Project Research. Christoph Streule Member of the Executive Committee, HSBC Private Bank (Suisse) SA Executive Education Advisory Board Matthias Wirth * The Executive Education Advisory Board is the main Swiss Bankers Association supervisory body concerned with Executive Education. The Executive Education Advisory Board ensures that the Executive Education offering of the Swiss Finance Institute is of the highest quality, addresses the needs of the industry and is well coordinated with other initia- tives within Switzerland. * Executive Education Advisory Board Secretary

14 AR-SFI_pour net 27.6.2007 11:56 Page 17

2006 Facts & Figures

15 AR-SFI_pour net 27.6.2007 11:56 Page 18

Summary of 2006 financial accounts

Balance sheet as of December 31, 2006

31.12.2006 CHF

ASSETS

Current assets Cash and cash equivalents 2'471'940 Accounts receivable 78'569 Other receivables 80'077 Prepaid expenses and accrued income 263'452

Total current assets 2'894'037

Fixed assets Investment portfolios 42'179'111 Due from Securities Lending and Borrowing 10'345'212 Deposits 280 Office and IT equipment 47'402

Total fixed assets 52'572'005

TOTAL ASSETS 55'466'042

LIABILITIES AND FOUNDERS' EQUITY

Short-term liabilities Accounts payable 72'667 Other payables 188'220 Research accounts 85'417 Accrued expenses and deferred income 2'195'461 Long term loans founders 8'000'000

Total short-term liabilities 10'541'764

Founders' equity Foundation capital 15'000'000 Reserves 1'064'785 Retained earnings - As of January 1, 2006, from SFI donations and operations 18'728'941 - As of January 1, 2006, from the merger of SBS and FAME 5'970'724 24'699'665 Net result from donations and operations 2006 4'159'828

Total founders' equity 44'924'278

TOTAL LIABILITIES AND FOUNDERS' EQUITY 55'466'042

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Profit and loss statement for the period from January 1st to December 31, 2006

31.12.2006 CHF

EXECUTIVE EDUCATION COURSES

Income from Executive Education courses 6'130'584 Expenses from Excutive Education courses -3'274'946

Net result from courses before general expenses 2'855'638

RESEARCH, PHD AND KT

Expenses Research -913'463 Expenses Ph D Program -436'890 Income from Knowledge Transfer 23'353 Expenses from Knowledge Transfer -100'292 -76'939 Expenses Projects -88'714

Net result from Research, PhD and KT before general expenses -1'516'006

Net operating result before general expenses 1'339'632

GENERAL EXPENSES

Personnel -2'514'567 Other operating costs -736'223 Extraordinary start-up costs -1'499'326

Total general expenses -4'750'116

Net operating result -3'410'483

EXTRAORDINARY INCOME AND DONATIONS

Net extraordinary income 15'247 Donations 4'694'023

Total extraordinary income and donations 4'709'271

INCOME/EXPENSES ON INVESTMENTS

Total realized and unrealized gains on investments 3'011'662 Administration and bank fees -150'622

Total income/expenses on investments 2'861'040

RESULT FROM DONATIONS AND OPERATIONS OF 2006 4'159'828

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2006 and Forthcoming Publications in Academic Journals and Books

Professors Alessandro Beber and Michael W. November 2005, to appear in The Brandt, Journal of Monetary Equity Risk Premium, R. Mehra, Economics 53, 1997-2039, 2006. ed., North Holland Handbook of Philippe Bacchetta Finance Series, North Holland, Amsterdam, 2007. Can Information Heterogeneity Tony Berrada Explain the Exchange Rate Superneutrality, Danthine J.P., The Determination Puzzle?, Philippe Incomplete Information, New Palgrave Dictionary of Economics, Bacchetta and Eric van Wincoop, Heterogeneity and Asset Pricing, 2nd ed., S. Durlauf and L. Blume American Economic Review 96, Tony Berrada, Journal of Financial eds., Palgrave Macmillan, London, 552-576, 2006. Econometrics 4, 136-160, 2006. 2007.

Random Walk Expectations and Trading Volume and Intermediate Financial Theory, the Forward Discount Puzzle, Heterogeneous Preferences, Tony Danthine J.P. and J.B. Donaldson, Philippe Bacchetta and Eric van Berrada, Julien Hugonnier and 2nd ed, Japanese edition, 2007. Wincoop, American Economic Review, Marcel Rindisbacher, Journal of forthcoming. Financial Economics, forthcoming. François Degeorge Credit Migration and Derivatives Giovanni Barone-Adesi Pricing Using Copulas, Tony Analyst Hype in IPOs: Explaining Berrada, Debbie Dupuis, Eric the Popularity of Bookbuilding, Average Conditional Correlations Jacquier, Nicolas Papageorgiou François Degeorge, François and Tree Structures for Multivariate and Bruno Remillard, Journal of Derrien and Kent Womack, Review GARCH Models, Audrino F. and Computational Finance 10, 43-68, of Financial Studies, forthcoming. Barone-Adesi G., Journal of 2006. Forecasting 25, 579-600, 2006. Corporate Finance in Europe: A Survey, François Degeorge and A Dynamic model of expected Marc Chesney Ernst Maug, in Xavier Freixas, bond returns: a Functional Philipp Hartmann and Colin Gradient Descent Approach, American Parisian Options, Marc Mayers (eds.), Financial Markets and Audrino F.and Barone-Adesi G., Chesney and Laurent Gauthier, Institutions, Oxford: Oxford Computational Statistics and Data Finance and Stochastics 10, 475-506, University Press, forthcoming. Analysis 51, 2267-2277, 2006. 2006.

Cutting the Hedge, Barone-Adesi Enrico De Giorgi G. and Elliott R., Computational Jean-Pierre Danthine Economics, forthcoming. Computational Aspects of Efficiency Wages Revisited: The Prospect Theory with Asset Pricing Valuation of Derivatives Based on Internal Reference Perspective, Applications, Enrico De Giorgi, Single Factor Interest Rate Models’, Danthine, J.P. and André Kurmann, Thorsten Hens and Janos Mayer, Sorwar G., Barone-Adesi G. and Economics Letters 90, 278-284, 2006. Computational Economics, Allegretto W., The Global Finance forthcoming. Journal, forthcoming. Intangible Capital, Firm Valuation and Asset Pricing, Danthine, J.P. Second Order Stochastic and X. Jin, Economic Theory, Dominance, Reward-Risk Portfolio Alessandro Beber forthcoming. Selection and the CAPM, Enrico De Giorgi and Thierry Post, Journal of The Effect of Macroeconomic News Distribution Risk and Equity Financial and Quantitative Analysis, on Beliefs and Preferences: Returns, Danthine, J.P., J.B. forthcoming. Evidence from the Options Market, Donaldson and P. Siconolfi, mimeo,

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Making Prospect Theory Fit for Michel Habib Journal of Housing Economics 15, Finance, Enrico De Giorgi and 80-97, 2006. Thorsten Hens, Financial Markets The Role of Knowhow Acquisition and Portfolio Management 20(3), in the Formation and Duration of Monte Carlo simulations for real 339-360, 2006. Joint Ventures, Michel A. Habib estate valuation, Martin Hoesli, and Pierre Mella-Barral, Review of Elion Jani and André Bender, An Intensity Based Non-Parametric Financial Studies 20, 189-233, 2007. Journal of Property Investment and Default Model for Residential Finance 24, 102-122, 2006. Mortgage Portfolios, Jürg Burkhard and Enrico De Giorgi, Journal of Martin Hoesli Risk 8 (4), 57-95, 2006. Jean Imbs The inflation hedging characteristics of U.S. and U.K. investments: Growth and Volatility, Jean Imbs, Corsi Fulvio A multi-factor error correction Journal of Monetary Economics, approach, Martin Hoesli, Colin forthcoming. The Volatility of Realized Volatility, Lizieri and Bryan MacGregor, Fulvio Corsi, Stefan Mittnik, Journal of Real Estate Finance and The Real Effects of Financial Christian Pigorsch and Uta Economics, forthcoming. Integration, Jean Imbs, Journal of Pigorsch forthcoming in the International Economics, 68, 296-324, Special Issue of Econometric Reviews Securitized real estate and its link 2006. on Realized Volatility and Long with financial assets and real estate: Memory. An international analysis, Martin Review of Tornell and Hoesli and Camilo Serrano, Journal Westermann’s Boom Bust Cycles of Real Estate Literature, forthcoming. and Financial Liberalization, Rajna Gibson Jean Imbs, Journal of International Spatial dependence, housing Economics, forthcoming. Stock Market Performance and the submarkets, and house price Term Structure of Credit Spreads, prediction, Steven Bourassa, Eva Andryi Demchuk and Rajna Gibson, Cantoni and Martin Hoesli, Journal Eric Jondeau Journal of Quantitative Analysis, vol. of Real Estate Finance and Economics, 41, n°4, 863-887, Dec. 2006. forthcoming. Optimal Portfolio Allocation Under Higher Moments, Eric Jondeau Technical Analysis Compared to Debt-equity choice in Europe, and Michael Rockinger, European Mathematical Models Based Philippe Gaud, Martin Hoesli and Financial Management, 12(1), 29-55, Methods under Parameters André Bender, International 2006. Mis-Specification, Christophette Review of Financial Analysis, Blanchet-Scaillet, Awa Diop, Rajna forthcoming. The Copula-GARCH Model of Gibson, Denis Talay and Etienne Conditional Dependencies: An Tanré, The Journal of Banking and Real estate portfolio strategy and International Stock Market Finance, forthcoming 2007. product innovation in Europe, Application, Eric Jondeau and Martin Hoesli and Jon Lekander, Michael Rockinger, Journal of Financial Integration, Economic Journal of Property Investment and International Money and Finance, Instability and Trade Structure in Finance, forthcoming. 25(5), 827-853, 2006. Emerging Markets, Anthony Chambet and Rajna Gibson, House prices, fundamentals and Examining Bias in Estimators of Journal of International Money & bubbles, Angela Black, Patricia Linear Rational Expectations Finance, forthcoming 2008. Fraser and Martin Hoesli, Journal of Models under Misspecification, Business Finance and Accounting 33, Eric Jondeau and Hervé Le Bihan, The Style Consistency of Hedge 1535-1555, 2006. Journal of Econometrics, Funds, Rajna Gibson and Sébastien forthcoming. Gyger, Special Issue on Hedge Further evidence of the integration Funds, European Financial of securitized real estate and finan- Management, forthcoming 2007. cial assets, Séverine Cauchie and Markus Leippold Martin Hoesli, Journal of Property Model Risk for European-Style Research 23, 1-38, 2006. Learning and Asset Pricing under Stock Index Options, Ramo Gencay Uncertainty, Markus Leippold, and Rajna Gibson, The Journal IEEE A simple alternative house price Fabio Trojani and Paolo Vanini, Transactions on Neural Networks, vol. index method, Steven Bourassa, Review of Financial Studies, 18, 193-202, forthcoming 2007. Martin Hoesli and Jian Sun, forthcoming 2007.

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Multi-Currency Quadratic Model: Capital structure, credit risk, and for copulas with fixed smoothing Theory and Evidence, Markus macroeconomic conditions, Dirk parameters, Olivier Scaillet, Journal Leippold and Liuren Wu, Hackbarth, Jianjun Miao, and of Multivariate Analysis, 98, 533-543, Review of Finance 9, 1-38, 2007. Erwan Morellec, Journal of Financial 2007. Economics 82, 519-550, 2006. A Simple Model for Credit Theory and calibration of Swap Contagion, Markus Leippold, On the debt capacity of growth Market Models, Olivier Scaillet and Daniel Egloff and Paolo Vanini, options, Michael Barclay, Erwan S. Galluccio, Z. Huang and J.-M. Ly, Journal of Banking and Finance, Morellec, and Clifford W. Smith Jr, Mathematical Finance, 17, 111–141, forthcoming 2007. Journal of Business 79, 37-59, 2006. 2007.

Trend Derivatives: Pricing, The estimation of copulas: theory Hedging, and Application to Marc Paolella and practice, Olivier Scaillet and Executive Stock Options, Markus A. Charpentier and J.-D. Leippold and Jürg Syz, Journal Bias-Adjusted Estimation in the Fermanian, in Copulas: From theory Futures Markets 27 (2), 151-186, ARX(1) Model, S. Broda, K. to application in finance, Ed: Rank J., 2007. Carstensen and Marc Paolella, Risk Publications, London, Computational Statistics and Data Section2, 2007. Equilibrium Impacts of Value-at- Analysis, forthcoming 2007. Risk Regulation, Markus Leippold, Approximation and calibration of Fabio Trojani and Paolo Vanini, Saddlepoint Approximations for short-term implied volatilities under Journal of Economic Dynamics and the Doubly Noncentral t jump-diffusion stochastic volatility, Control 30, 1277-1313, 2006. Distribution, S. Broda and Marc Olivier Scaillet and A. Medvedev, Paolella, Computational Statistics and Review of Financial Studies, The Economic Benefit of Powerful Data Analysis 51, 2907-2918, 2007. forthcoming. Credit Scoring, Markus Leippold and Andreas Bloechlinger, Journal Accurate Value-at-Risk Forecasting A Kolmogorov-Smirnov type test for of Banking and Finance 30, 851-873, Based on the Normal-GARCH shortfall dominance against para- 2006. Model, C. Hartz, S. Mittnik and metric alternatives, Olivier Scaillet Marc Paolella, Computational and M. Denuit and A.C. Goderniaux, Optimal Credit Limit Management, Statistics and Data Analysis 51, Technometrics, forthcoming. Markus Leippold, Silvan Ebnoether 2295-2312, 2006. and Paolo Vanini, Journal of Banking Multivariate wavelet-based shape and Finance 30, 463-487, 2006. Modeling and Predicting Market preserving estimation for depend- Risk With Laplace-Gaussian Mixture ent observations, Olivier Scaillet Distributions, S. Mittnik, M. Haas and A. Cosma and R. von Sachs, Erwan Morellec and Marc Paolella, Applied Financial Bernoulli, forthcoming. Economics, 16, 1145-1162, 2006. Financing and takeovers, Erwan Linear-quadratic jump-diffusion Morellec and Alexei Zhdanov, Value-at-Risk Prediction: A models with application to stochas- Journal of Financial Economics, Comparison of Alternative tic volatility, Olivier Scaillet and forthcoming. Strategies, K. Kuester, S. Mittnik P. Cheng, Mathematical Finance, and Marc Paolella, Journal of forthcoming. Stock returns in mergers and Financial Econometrics, 4, 53-89, 2006. acquisitions, Dirk Hackbarth and Local multiplicative bias correction Erwan Morellec, Journal of Finance, for asymmetric kernel density forthcoming. Olivier Scaillet estimators, Olivier Scaillet and M. Hagmann, Journal of Econometrics, Agency conflicts and risk manage- A fast subsampling method for forthcoming. ment, Erwan Morellec and Clifford nonlinear dynamic models, Olivier W. Smith Jr, Review of Finance, Scaillet and H. Hong, Journal of forthcoming. Econometrics, 133, 557-578, 2006. Norman Schürhoff

Corporate control and real invest- Optimal asset management for pen- Financial Intermediation and the ment in incomplete markets, Julien sion funds, Olivier Scaillet and F. Costs of Trading in an Opaque Hugonnier and Erwan Morellec, Menoncin, Managerial Finance, 32, Market, Richard C. Green, Burton Journal of Economic Dynamics and 347-374, 2006. Hollifield, and Norman Schürhoff, Control, forthcoming. Review of Financial Studies, Kernel based goodness-of-fit tests forthcoming.

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Dealer Intermediation and Price Alexander Wagner PHD Students: Behavior in the Aftermarket for New Bond Issues, Richard C. Choosing (and reneging on) Laurent Barras Green, Burton Hollifield, and exchange rate regimes, Alberto Norman Schürhoff, Journal of Alesina and Alexander Wagner, International Conditional Asset Financial Economics, forthcoming. Journal of the European Economic Allocation under Specification Association, 4, 770-789, 2006. Uncertainty, Laurent Barras, Journal of Empirical Finance, forthcoming 07 Rudolf Volkart Screening budgets, Alexander Wagner, Nolan Miller, and Richard Corporate Finance. Grundlagen von Zeckhauser, Journal of Economic Jürg Burkhard Finanzierung und Investition, Rudolf Behavior and Organization, 61, Volkart, 2., vollständig überarbeit- 351-374, 2006. An intensity-based non-parametric ete und stark erweiterte Auflage, default model for residential Zürich 2006 (1250 S.) (Textbook) Using revealed preferences to infer mortgage portfolios, Jürg Burkhard environmental benefits, evidence and E. Di Giorgi, Journal of Risk, Wertorientierte Steuerpolitik, Rudolf from recreational fishing, Lori Vol. 8, No. 4. Volkart, 2. (vollständig aktualisierte Bennear, Robert Stavins, and und erweiterte) Auflage, Zürich Alexander Wagner, Journal of 2006 (130 S.) (Small Textbook) Regulatory Economics, 28, 157-179, Cissy Chen 2006. Equity Ownership in Switzerland A New Simulation Approach to the 2006, Teodoro Cocca, Rudolf LIBOR Market Model, Henry Volkart and Stefan Schmid, Lucy White Schellhorn and Zhihua Chen, Versus, Zurich 2006. Mathematical and Computer Modelling, Prudence in Bargaining: The Volume 44, Issues 3-4, 382-396, Value Reporting und aktive Investor effect of uncertainty on bargaining August 2006. Relations – Instrumente der outcomes, Lucy White, Games and Transparenzsteigerung, Philipp Ch. Economic Behavior, forthcoming. Gamper, Rudolf Volkart and Marisa Matthias Hagmann Wilde, Der Schweizer Treuhänder, Foreclosure with Incomplete 642-647, 2006. Information, Lucy White, Local Multiplicative Bias Correction Journal of Economics and Management for Asymmetric Kernel Density Finanzielle Unternehmensführung Strategy, forthcoming. Estimators, Matthias Hagmann aus der Sicht des Verwaltungsrats, and Olivier Scaillet, Journal of Thomas Vettiger and Rudolf Do vertical mergers facilitate Econometrics, forthcoming. Volkart, Der Schweizer Treuhänder, upstream collusion?, Lucy White 908-915, 2006. and Volker Nocke, American Economic Review, forthcoming. AR-SFI_pour net 27.6.2007 11:56 Page 24

Swiss Finance Institute Research Paper Series

The aim of the Swiss Finance Institute Research Paper Series is to disseminate original theoretical or empirical research with relevance to banking and finance. The series includes research contributions carried out at the Swiss Finance Institute and its research partner, the National Centre of Competence in Research "Financial Valuation and Risk Management" (NCCR FinRisk), by faculty, PhD students and affiliated researchers. Papers issued in 2006 in the Social Science Research Network Financial Economics Network. To access the Swiss Finance Institute Research Paper Series, please use the following link: http://www.ssrn.com/link/swiss-finance-institute.html

N°39 N°35 Geneva, HEC and Swiss Finance Pricing Interest Rate-Sensitive The Economic Value of Institute Credit Portfolio Derivatives Distributional Timing Philippe EHLERS, ETH Zurich, D- Eric JONDEAU, University of N°31 Math Lausanne and Swiss Finance The Determinants of Mutual Fund Philipp J. SCHONBUCHER, ETH Institute Performance: A Cross-Country Zurich, D-Math Michael ROCKINGER, University Study of Lausanne and Swiss Finance Miguel A. FERREIRA, ISCTE N°38 Institute Business School On the Evolution of Investment António F. MIGUEL, ISCTE Strategies and the Kelly Rule – A N°34 Business School Darwinian Approach Loyalty and Competence: Empirical Sofia RAMOS, ISCTE Business Terje LENSBERG, Norwegian Evidence from Public Agencies School School of Economics and Business Alexander F. WAGNER, University Administration of Zurich and Swiss Finance N°30 Klaus Reiner SCHENK-HOPPE, Institute Tikhonov Regularization for University of Leeds, Business Functional Minimum Distance School and School of Mathematics N°33 Estimators Robust Subsampling Patrick GAGLIARDINI, University N°37 Lorenzo CAMPONOVO, University of Lugano and Swiss Finance House Prices, Real Estate Returns, of Lugano Institute. and the Business Cycle Olivier SCAILLET, University of Olivier SCAILLET, University of Ivan JACCARD, Wharton School of Geneva and Swiss Finance Institute Geneva and Swiss Finance Institute Finance Fabio TROJANI, University of St. Gallen N°29 N°36 Manipulation in Money Markets Finance and Efficiency: Do Bank N°32 Christian EWERHART, IEW, Branching Regulations Matter? Local Transformation Kernel University of Zurich and NCCR Viral V. ACHARYA, London Density Estimation of Loss Nuno CASSOLA, European Central Business School & CEPR Distributions Bank Jean IMBS, University of Lausanne - Jim GUSTAFSSON, Codan Steen EJERSKOV, Danmarks HEC, CEPR & Swiss Finance Insurance and University of Nationalbank Institute Copenhagen Natacha VALLA, Banque de France Jason STURGESS, London Business Matthias A. HAGMANN, University School of Geneva, HEC and Concordia N°28 Advisors The Impact of News on Higher Jens Perch NIELSEN, Festina Lente Moments and University of Copenhagen Eric JONDEAU, University of Olivier SCAILLET, University of Lausanne and Swiss Finance

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Institute N°21 University and NBER Michael ROCKINGER, University Using Economic and Financial Philippe BACCHETTA, Study of Lausanne and Swiss Finance Information for Stock Selection Center Gerzensee, Swiss Finance Institute Ilir ROKO, University of Geneva Institute and CEPR Manfred GILLI, University of Romain RANCIERE, IMF Research N°27 Geneva and Swiss Finance Institute Department Portfolio Choice with Loss Kenneth ROGOFF, Harvard Aversion, Asymmetric Risk-Taking N°20 University and NBER Behavior and Segregation of House Prices and Bubbles in New Riskless Opportunities Zealand N°15 Martin VLCEK, Institute for Patricia FRASER, University of Predictability in Financial Empirical Research in Economics, Aberdeen Business School Markets:What Do Survey University of Zurich Martin HOESLI, University of Expectations Tell Us? Geneva, HEC and Swiss Finance Philippe BACCHETTA, Study N°26 Institute Center Gerzensee, University of An Econometric Analysis of Lynn Mc ALEVEY, University of Lausanne, Swiss Finance Institute Emission Trading Allowances Otago, Department of Finance and and CEPR Marc S. PAOLELLA, University of Quantitative Analysis Elmar MERTENS, Study Center Zurich and Swiss Finance Institute Gerzensee and University of Luca TASCHINI, University of N°19 Lausanne Zurich What Can Rational Investors Do Eric VAN WINCOOP, University of About Excessive Volatility and Virginia and NBER N°25 Sentiment Fluctuations? Insuring A Risky Investment Project Bernard DUMAS, INSEAD, N°14 Henri LOUBERGE, University of University of Pennsylvania (The Hedge Fund Indices for Retail Geneva and Swiss Finance Institute Wharton School), CEPR and NBER Investors: UCITS Eligible or not Richard WATT, University of Alexander KURSHEV, London Eligible? Canterbury Business School François-Serge LHABITANT, Raman UPPAL, London Business University of Lausanne, HEC and N°24 School and CEPR EDHEC Business School The Quality of Public Information and The Term Structure of Interest N°18 N° 13 Rates Intangible Capital, Corporate Running in the Family' The Frederik LUNDTOFTE, Swiss Valuation and Asset Pricing Evolution of Ownership,Control, Institute of Banking and Finance, Jean-Pierre DANTHINE, University and Performance in German University of St-Gallen of Lausanne, Swiss Finance Institute Familyowned Firms, 1903-2003 and CEPR Eric NOWAK, University of Lugano N°23 Xiangrong JIN, Hong Kong Olaf EHRHARDT, Humboldt- Expected Life-Time Utility and Monetary Authority Universitat zu Berlin Hedging Demands in a Partially Felix-Michael WEBER, Elephant Observable Economy N°17 Equity Frederik LUNDTOFTE, Swiss Corporate Finance in Europe: A Institute of Banking and Finance, Survey N° 12 University of St-Gallen Francois DEGEORGE, University of Unifications of Dual-Class Shares in Lugano and Swiss Finance Institute Germany Empirical Evidence on N°22 Ernst MAUG, School of Business the Effects of Related Changes in Financing and Takeovers Administration, University of Ownership Structure, Market Value, Erwan MORELLEC, University of Mannheim and Bid-Ask Spreads Lausanne, Swiss Finance Institute OLAF EHRHARDT , Humboldt- and CEPR N°16 Universitat zu Berlin Alexei ZHDANOV, School of Exchange Rate Volatility and ERIC NOWAK , University of Management, George Mason Productivity Growth: The Role of Lugano University Financial Development JAN KUKLINSKI , University of Philippe AGHION, Harvard Witten/Herdecke

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N° 11 N° 5 The (Ir)relevance of Disclosure of Model Combination and Stock Compliance with Corporate Return Predictability Governance Codes - Evidence from Matthias HAGMANN, University of the German Stock Market Geneva and Concordia Advisors Eric NOWAK, University of Lugano, Joachim LOEBB, University of Institute of Finance Zurich and Swiss Banking Institute Roland ROTT, Goethe University, Depatment of Finance N° 4 Till G. MAHR, KPMG Deutsche The Inflation Hedging Treuhand-Gesellschaft Characteristics of U.S. and U.K. Investments: a Multi-Factor Error N° 10 Correction Approach Why Do Stock Exchanges Martin HOESLI, University of Demutualize and Go Public? Geneva and University of Aberdeen Sofia Brito RAMOS, ISCTE and Business School CEMAF Colin LIZIERI, University of N° 9 Reading Business School Growth and Volatility Bryan MACGREGOR, University of Jean IMBS, University of Lausanne, Aberdeen Business School Swiss Finance Institute and CEPR N° 3 N° 8 The Overhang Hangover Approximation and Calibration of Jean IMBS, University of Lausanne, Short-Term Implied Volatilities Swiss Finance Institute and CEPR under Jump-Diffusion Stochastic Romain RANCIERE, CREI and IMF Volatility Alexey MEDVEDEV, University of N° 2 Geneva A Data-Driven Optimization Olivier SCAILLET, University of Heuristic for Downside Risk Geneva and Swiss Finance Institute Minimization Manfred GILLI, University of N° 7 Geneva Bounded Rationality and Asset Evis KELLEZI, Mirabaud & Cie Pricing Hilda HYSI, University of Geneva Tony BERRADA, University of Lausanne and Swiss Finance N° 1 Institute Stock Returns in Mergers and Acquisitions N° 6 Dirk HACKBARTH, Washington What Jump Process to Use to University Model S&P500 Returns? Erwan MORELLEC, University of Maria SEMENOVA, University of Lausanne, Swiss Finance Institute Lausanne and FAME and CEPR AR-SFI_pour net 27.6.2007 11:56 Page 27

Overview of courses offered in 2006 by the Swiss Finance Institute

Programs in Bank Management

April 2005 - October 2006 • Executive MBA in international Wealth Management

The Executive MBA in International Wealth Management is offered jointly with the University of Geneva and the Tepper Business School at Carnegie Mellon University. The program helps senior managers and senior advisors from Wealth Management to deepen both their understanding of the integrated advice required by sophisticated clients, as well as their understanding of how to manage the delivery of this advice.

March 27 - April 7, 2006 • Master of Science in Wealth Management, Swiss Study Block

The Swiss Finance Institute delivers the Swiss Study Block for this program of the Singapore Management University and the Wealth Management Institute of Singapore. This part-time program develops high potential Private Banking advisors and Asset Managers particularly for the Asian region.

March 2005 - December 2006 • Executive Program in Bank Management

The Executive Program combines solid knowledge and skills in management with practical know-how and insight into the functioning of the financial sector. It lasts a total of 7 weeks, spread over 16 months. This course is held predominantly in German.

February 2006 - November 2006 • Advanced Executive Program in Bank Management

The Advanced Executive Program helps senior executives from financial and related sectors to strengthen their management competences, to broaden their factual knowledge and to promote integrated thinking with respect to the current dramatic trends in the financial sector. The course comprises 10 modules, each lasting two and a half days. The course is held predominantly in German.

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Seminars in Bank Management

The following seminars last between 3 and 6 days and are aimed at Executives from clearly targeted segments. They are taught by a mixture of academics and senior practitioners.

• International Private Banking and Wealth Management Retreat Various Academics and CEOs from Private Banking

• Team Leader in Private Banking Peter Schuppli

• Credit Management Markus Heinzmann

• Corporate Finance Services for European and Swiss SMEs Eduardo Schindler

• International Wealth and Tax Planning Various Academics and experts from Wealth Planning

Programs in Finance

July 24 - August 25, 2006 Certificate in Financial Asset Management and Engineering

This 5-week immersion program offers intensive training in state-of-the-art techniques and practices of asset management and financial engineering. Focusing on applications with a view of achieving in-depth understanding of modern finance, the program provides a certification that is unique for its breadth, compactness and intellectual stimulation.

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Geneva Executive Courses in Finance

The Swiss Finance Institute offers one of the most extensive and thorough overviews of major developments in finance currently available. Known as the Geneva Executive Courses in Finance, this suite of independent courses is taught by world renowned experts, with each course typically lasting one week.

• Estimating and Forecasting Financial Market • Quantitative Approaches for Portfolio Management Volatility and Correlation François-Serge Lhabitant Tim Bollerslev • Integrated Risk Management • Interest-Rate Models: Theory and Practical René Stulz Applications Yacine Aït-Sahalia • Alternative Investments Thomas Schneeweis and Giovanni Beliossi • The Econometrics of Asset Allocation Michael W. Brandt • Performance Evaluation and Attribution Russ Wermers • Financial Engineering Salih Neftci • Modern Fixed Income and Inflation Linked Markets: Derivatives, Trading and Risk Management • Credit Risk Pricing, Management, and the use David Cox of Credit Derivatives Didier Cossin • Implementing Quantitative Techniques for Financial Markets • Exchange-Rate Economics and Forecasting David Cox Richard Levich • Real Estate Investment and Financing • Financial Econometrics and Forecasting Jörg Baumberger, Philippe Sormani, Martin Hoesli Francis X. Diebold and Olivier Scaillet

• Global Asset Allocation and Risk Budgeting • Behavioral Finance and Investment Strategy Philippe Jorion Werner De Bondt

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The Swiss Finance Institute gratefully acknowledges the precious support of its founding members: