Emil N. Siriwardane - Faculty & Research - Harvard Business School
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Emil N. Siriwardane

Assistant Professor of Business Administration

Emil Siriwardane is an assistant professor of business administration in the Finance Unit. He teaches the Finance II course in the MBA required curriculum.

Professor Siriwardane’s research interests lie in asset pricing, the interplay between macroeconomics and finance, and financial intermediation. In recent work, he has studied how the risk-bearing capacity of large financial institutions impacts the pricing of credit risk in credit default swap markets.

Professor Siriwardane earned his PhD in finance from the Stern School of Business at New York University and a BSE in operations research and financial engineering from Princeton University.

Journal Articles
  1. Limited Investment Capital and Credit Spreads

    Emil N. Siriwardane

    Using proprietary credit default swap (CDS) data, I investigate how capital shocks at protection sellers impact pricing in the CDS market. Seller capital shocks—measured as CDS portfolio margin payments—account for 12% of the time-series variation in weekly spread changes, a significant amount given that standard credit factors account for 18% during my sample. In addition, seller shocks possess information for spreads that is independent of institution-wide measures of constraints. These findings imply a high degree of market segmentation and suggest that frictions within specialized financial institutions prevent capital from flowing into the market at shorter horizons.

    Keywords: credit risk; derivatives; capital markets; Credit Derivatives and Swaps; Capital Markets; Credit; Financial Institutions;


    Siriwardane, Emil N. "Limited Investment Capital and Credit Spreads." Journal of Finance (forthcoming).  View Details
  2. Structural GARCH: The Volatility-Leverage Connection

    Robert F. Engle and Emil N. Siriwardane

    During the financial crisis, financial firm leverage and volatility both rose dramatically. Consequently, institutions are being asked to reduce leverage in order to reduce risk, though the effectiveness depends upon the role of capital structure in volatility. To address this question, we build a statistical model of equity volatility that accounts for leverage. Our approach blends Merton’s insights on capital structure with traditional time-series models of volatility. Using our model we quantify how capital injections impact the risk of financial institutions and estimate firm-specific precautionary capital needs. In addition, the longstanding observation that volatility is more responsive to negative shocks than positive is shown to be less a consequence of actual leverage than it is of risk premiums.

    Keywords: Volatility; leverage; credit risk; crisis management; Equity; Volatility; Credit; Risk Management; Financial Crisis;


    Engle, Robert F., and Emil N. Siriwardane. "Structural GARCH: The Volatility-Leverage Connection." Review of Financial Studies 31, no. 2 (February 2018): 449–492.  View Details
  3. Scenario Generation for Long Run Interest Rate Risk Assessment

    Robert F. Engle, Guillaume Roussellet and Emil N. Siriwardane

    We propose a statistical model of the term structure of U.S. treasury yields tailored for long-term probability-based scenario generation and forecasts. Our model is easy to estimate and is able to simultaneously reproduce the positivity, persistence, and factor structure of the yield curve. Moreover, we incorporate heteroskedasticity and time-varying correlations across yields, both prevalent features of the data. The model also features a regime-switching short-rate model. We evaluate the out-of-sample performance of our model in terms of forecasting ability and coverage properties and find that it improves on the standard Diebold and Li model.

    Keywords: interest rates; Forecasting; risk management; stress testing; Interest Rates; Forecasting and Prediction; Risk Management; United States;


    Engle, Robert F., Guillaume Roussellet, and Emil N. Siriwardane. "Scenario Generation for Long Run Interest Rate Risk Assessment." Special Issue on Theoretical and Financial Econometrics: Essays in Honor of C. Gourieroux. Journal of Econometrics 201, no. 2 (December 2017): 333–347.  View Details
Working Papers
  1. A Measure of Risk Appetite for the Macroeconomy

    Carolin E. Pflueger, Emil Siriwardane and Adi Sunderam

    We document a strong and robust positive relationship between real rates and the contemporaneous valuation of volatile stocks, which we contend measures the economy’s risk appetite. Our novel proxy for risk appetite explains 41% of the variation in the one-year real rate since 1970, while the valuation of the aggregate stock market explains just 1%. In addition, the real rate forecasts returns on volatile stocks, confirming our interpretation that changes in risk appetite drive the real rate. Increases in our measure of risk appetite are followed by a boom in investment and output.

    Keywords: Interest Rates; Investment Return; Stocks; Valuation; Economy; Risk and Uncertainty; Measurement and Metrics;


    Pflueger, Carolin E., Emil Siriwardane, and Adi Sunderam. "A Measure of Risk Appetite for the Macroeconomy." Harvard Business School Working Paper, No. 17-040, November 2016. (Revised June 2018. NBER Working Paper Series, No. 24529, April 2018)  View Details
  2. The Probability of Rare Disasters: Estimation and Implications

    Emil Siriwardane

    I analyze a rare disasters economy that yields a measure of the risk neutral probability of a macroeconomic disaster, p*t. A large panel of options data provides strong evidence that p*t is the single factor driving option-implied jump risk measures in the cross section of firms. This is a core assumption of the rare disasters paradigm. A number of empirical patterns further support the interpretation of p*t as the risk-neutral likelihood of a disaster. First, standard forecasting regressions reveal that increases in p*t lead to economic downturns. Second, disaster risk is priced in the cross section of U.S. equity returns. A zero-cost equity portfolio with exposure to disasters earns risk-adjusted returns of 7.6% per year. Finally, a calibrated version of the model reasonably matches the (i) sensitivity of the aggregate stock market to changes in the likelihood of a disaster and (ii) loss rates of disaster risky stocks during the 2008 financial crisis.

    Keywords: Financial Markets; Forecasting and Prediction; Financial Crisis; Macroeconomics;


    Siriwardane, Emil. "The Probability of Rare Disasters: Estimation and Implications." Harvard Business School Working Paper, No. 16-061, November 2015.  View Details
Cases and Teaching Materials
  1. Asset Allocation at the Cook County Pension Fund

    Emil Siriwardane, Juliane Begenau and Yuval Gonczarowski

    Nickol Hackett, chief investment officer of the Cook County Pension Fund, is responsible for investing the fund’s $9 billion worth of assets on behalf of the employees of Cook County, Illinois. Like many other defined-benefit pensions at the time, the Cook County pension faces a funding shortfall, meaning that the value of its assets is below the value of its future obligations to retirees. Hackett can invest in fixed income securities, public equities, and alternative assets such as hedge funds, real estate, or private equity. What are the costs and benefits of each asset class? Should the funding status of the pension impact the asset allocation process? How should Hackett invest in order to grow the value of the fund’s assets and secure the retirement benefits for thousands of Cook County’s employees?

    Keywords: Asset Management; Investment Funds; Financial Strategy; Decision Choices and Conditions;


    Siriwardane, Emil, Juliane Begenau, and Yuval Gonczarowski. "Asset Allocation at the Cook County Pension Fund." Harvard Business School Case 218-030, September 2017.  View Details