06 Feb 08

Professor Zhou will be using mathematical models to incoporate irrational behaviour into management strategies. Credit: ullsteinbild/TopFoto

Mathematics at Oxford University has been boosted by the appointment of Xunyu Zhou as Nomura Professor of Mathematical Finance. Professor Zhou is an expert in behavioural finance: examining why, for instance, city traders don’t always make rational decisions.

Professor Zhou will join the Nomura Centre of Mathematical Finance, which sits within the Oxford Centre for Industrial and Applied Mathematics (OCIAM). Much of his research focuses on how psychology and emotion affect the decision-making process in financial settings.

‘I became very interested in this area of research because of its interdisciplinary nature,’ said Professor Zhou. ‘It is fascinating to see how mathematical theory can bridge the gulf between finance and social science.’ An example of this is creating mathematical models to incorporate the behaviour of traders who do not act predictably or rationally in risk management strategies.

‘A lot of this comes down to measuring how human idiosyncrasies impact trading outcomes and building this into the creation of optimal asset portfolios,’ said Professor Zhou. ‘For instance, traders don’t always want to sell even when it would be rational to do so because it means admitting they have made a mistake. Financial markets are, after all, influenced by the actions of people and people aren’t always rational.’

Professor Zhou’s expertise will complement existing research at Oxford into such areas as credit contagion: how one company defaulting can create a ‘domino effect’ that damages a whole business sector, and the best way to value complex financial assets such as convertible bonds. ‘Professor Zhou’s appointment is great news for Oxford University and helps to build on our already excellent relationship with Nomura,’ said Professor Sam Howison, Director of OCIAM. ‘Nomura’s support for this position will help cement Oxford’s place as a world-leader in the development of this kind of mathematical core technology.’

Mr Reza Ghassemieh, head of quantitative research at Nomura, said: ‘We are very pleased to support Professor Zhou’s appointment. We are certain his research will make a valuable contribution to developing our quantitative research capability and product platforms.’

Professor Zhou joins the centre from the Department of Systems Engineering and Engineering Management at the Chinese University of Hong Kong. He is a Fellow of IEEE and a winner of the prestigious SIAM Outstanding Paper Prize.