Morgan Stanley Awards Booth Student $25,000 Prize

A PhD candidate at Chicago Booth is the winner of Morgan Stanley's First Annual Prize for Excellence in Financial Markets.

A panel of judges awarded the $25,000 first prize to Nina Boyarchenko for her paper, "Ambiguity Shifts and the 2007 Financial Crisis."

Doctoral candidates from top universities around the world were invited to submit a paper on any topic in finance or financial economics by November 1, 2010.

"The Morgan Stanley Prize for Excellence in Financial Markets recognizes the critical importance of finance theory in improving our understanding of how financial markets work," said Jim Rosenthal, head of corporate strategy at Morgan Stanley.

"In establishing this award, we look to support thought leadership by honoring scholars who are making significant contributions to financial research. We congratulate and commend the finalists—particularly first-place winner Nina Boyarchenko—for their unique insights and their dedication to advancing this critical academic field."

Boyarchenko, a PhD candidate in finance and economics, said her 70-page paper argued that the observed sharp increases in credit default swap (CDS) spreads on financial institutions during the 2007–08 financial crisis can be explained using investors' aversion to unquantifiable risk.

"Focusing on investors that are pessimistic about the quality of both the signals that they observe and of the statistical models they use to evaluate future cash flows, I show that these investors set higher CDS spreads on average and, in particular, during periods of bad news," Boyarchenko said. "Estimating the parameters of my structural model, I find that the model is able to match the levels of CDS spreads during the crisis, as well as the pattern of changes in the equity prices during the same period."

Boyarchenko believes her paper won because "although it starts with a new theoretical model of CDS spreads, it goes on to show that the model is actually able to match observed levels of CDS spreads. Furthermore, this is the first paper—to my knowledge—to actually fully estimate this type of credit risk model."

Boyarchenko received her award during a special ceremony at Morgan Stanley's New York City headquarters on December 2.

"It was a little surreal since you had to go up in front of a whole room of practitioners to receive the award," she said. "It was fascinating to talk to people at Morgan Stanley during the reception about what sort of things they do."

Boyarchenko said the contest was advertised through the PhD offices at Booth and the University of Chicago Department of Economics. She started writing her paper at the end of June and worked on it for four months before submitting it to the competition.

Another Booth student, Michael Gofman, a PhD candidate in finance, was also recognized. He was named second runner-up in the contest and received a prize of $5,000. First runners-up each received a $10,000 prize. The other runners-up were:

• Johannes Ruf, PhD candidate in statistics, Columbia University: First runner-up;
• Howard Shek, PhD candidate in computational mathematics, Stanford University: First runner-up;
• Peter Lin, PhD candidate in applied mathematics and statistics, Johns Hopkins University: Second runner-up.

A distinguished panel of judges listed below selected the five finalists from the pool of applicants.

• Peter Carr, managing director at Morgan Stanley and executive director of the masters in mathematical finance program at New York University's Courant Institute;
• Dilip Madan, professor of finance at the University of Maryland's Robert H. Smith School of Business;
• Philip Protter, professor of operations research at Cornell University;
• Peter Muller, senior advisor of Morgan Stanley.

To learn more about the Morgan Stanley Prize for Excellence, visit www.morganstanley.com/about/careers/PrizeforExcellence.html.

—Mary Paleologos