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The FERG Newsletter
Volume #1
May 17, 1999
About The FERG
The Financial Engineering Research Group (FERG) at the University of Virginia is a focal point for research and development on
the modeling, risk management, and information technology aspects of credit and finance. The center promotes education in
financial engineering and the transfer of basic technology to interested companies. FERG draws on the expertise of consultants
in credit solicitation and management and in information technology.
The FERG encompasses a wide range of research interests that bear on financial engineering. Group projects are
supported by students from the departments of Systems Engineering, Computer Science, and Mathematics at the University of
Virginia. Representative areas include:
- Financial information technology
- Scoring models
- Data mining and fusion
- Intelligent decision systems
- Financial risk management
- Portfolio optimization
- Optimization and computational intelligence
Members
The FERG staff is comprised of faculty from the Department of Systems Engineering and the McIntire School of Commerce.
Currently, our research group has about (XX) people. The following are the major participants in FERG.
Peter Beling, Systems Engineering
Bill Scherer, Systems Engineering
Jim Lark, Systems Engineering
George Overstreet, Commerce
Randy Smith, Commerce
Recent Projects
FERG researchers specialize in engineering rapid-response solutions to real problems in credit and finance. Current and
recent projects that we have undertaken for industry include:
1) Mosaic Collateral Asset Management
Mosaic Technologies is sponsoring research on a system to help them evaluate the value of the technological and
intellectual assets of hi-tech start up companies. After determining a value for the new company, Mosaic can then make a
guarantee to the loaning bank to pay back a portion of the loan if the company goes bankrupt. In exchange for this guarantee,
Mosaic gets the rights to the technical and intellectual assets of the company.
2) Partners First
Credit Collections Systems- Credit card firms face surmounting losses due to the record increase in number of delinquent and
charged off accounts. This is forcing many companies to reexamine their collections systems. This research focuses on the
development of an optimal collections system for credit debt.
3) AMS
Mobile Loan Processing Environments American Management Systems is sponsoring research to design and implement a loan
processing application on palmtop computers for mobile bankers. The lending application is an automated system that is
accessible through a graphical user interface on the palmtop computers. Loan officers can enter data through the palmtops,
store the loan information to be processed at a server for a credit decision.
4) Diversifying Credit Union Membership
Credit Union XYZ is sponsoring a project that would help determine the best way to diversify their credit union membership in
order to help reduce their financial risk. Traditionally, credit unions served a certain type of customer such as teachers or
employees of a company. This caused the credit union to run into financial troubles if the industry took a downturn or if
employees of a company went on strike. Recently, credit unions have been allowed to serve any type of customer. This
enabled credit unions to choose customers in a way that reduced their financial risks.
5) Fair Isaac Online Scoring
6) Providian Credit Collections Process
The goal of this research was to develop a strategy for collecting on delinquent accounts that maximizes the return on
collections efforts in the secured credit card market.
7) Combination of Credit Scores
The typical lender has access to several different credit scores on an applicant. This study determines whether a more
accurate score can be obtained by combining credit scores from several different sources. It was found that by combining
scores it is possible to achieve an overall improvement of 3%- 5%.
8) Combination of Bureau Reports
News
Gift from SNL Securities valued at $1M
SNL Securities of Charlottesville gave UVA access to the financial information about banks, thrifts, insurance companies, and
financial services companies that are contained in their database. This data, which is extremely valuable for research,
would have otherwise cost $1M for UVA to purchase it. An example of a possible project is XXXX.
Financial Engineering Workshop
The systems engineering department at UVA is sponsoring a workshop on financial engineering topics August 7th – 10th 2000 in
Charlottesville. This is an exciting opportunity to learn new concepts and discuss ideas with some of the premier financial
engineers in the world. Some sample topics include: Derivatives pricing, arbitrage, credit scoring and evaluation, financial
services operations, stock selection, portfolio optimization, and financial information technology.
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