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Risky Business

Tomasz R. Bielecki, Professor of Applied Mathematics and Director of the Master of Mathematical Finance Program

The whiteboard in Professor Tomasz R. Bielecki’s office is filled with the language of applied mathematics, line after line of hieroglyphic-like symbols, integrals, and formulas, some in dry-erase red, others in green or blue. He gestures to a private rear cubicle and says that one of his students is there, also working on advanced computations, while two others sit in the atrium of the John T. Rettaliata Engineering Center discussing equations in risk management—a field in which Bielecki is considered to be one of the world’s top authorities.

For the past 15 years, he has been intensely studying the mathematics of credit risk, specifically, the modeling and analysis of situations where one of the individuals or agencies involved in a contract (the counterparties), such as a bank or options underwriter, defaults and does not deliver what was stated in the contract.

“My work helps financial companies understand how to manage their credit-risk exposure, to price and hedge risks associated with credit derivatives such as credit-default swaps,” explains Bielecki, who co-wrote the monograph Credit Risk: Modelling, Valuation and Hedging, considered a seminal book on the subject. “Credit risk has to be looked at from the individual counterparty perspective and the perspective of the outside world because of the possible impact from defaults on the health of the entire economy. My research is also instrumental in the analysis and mitigation of systemic risk. The financial crisis of 2008 was caused in part by the economy’s inability to prevent systemic collapse.”

Bielecki says that to help avert another such crisis, central counterparty clearing houses have been created to separate and oversee counterparty actions. He is currently involved in analysis modeling of clearing house operations and along with his Illinois Tech colleague Igor Cialenco and former Ph.D. students Tao Chen, Ismail Iyigunler, and Rodrigo Rodriguez have pioneered the new theory of dynamic conic finance, which takes a deeper look at risk behavior of financial markets. For Bielecki, who has received numerous research grants from the National Science Foundation and Moody’s Investors Service and was recognized with the 2016 IIT Sigma Xi/IIT Award for senior faculty research, his most valuable gain had very little risk attached to it

“My greatest achievement continues to be educating and watching over generations of my students, so that they thrive in their careers and make a positive impact to their employers’ bottom line. I could count the number I’ve taught and mentored in the hundreds,” says Bielecki, who has also been on the faculties of the Warsaw School of Economics, the University of Kansas, the University of Illinois at Chicago, Northeastern Illinois University, and New York University. “Periodically I meet my former students at conferences and symposia and quite often receive heart-warming emails from those who have graduated many years ago. They reflect on the impact the Master of Mathematical Finance program has had on their lives, and I’m very humbled to be a part of that. As educators, we provide students with skills for life. We are always very proud when they succeed.”