Privacy-Preserving Methods for Sharing Financial Risk Exposures
- Abbe, Emmanuel A EPFL School of Communication and Computer Sciences, INR130 Station 14, Lausanne 1015, Switzerland.
- Khandani, Amir E MIT Laboratory for Financial Engineering, 100 Main Street, Cambridge, MA 02142.
- Lo, Andrew W MIT Sloan School of Management, Laboratory for Financial Engineering, CSAIL/EECS, and AlphaSimplex Group, 100 Main Street, Cambridge, MA 02142.
Published in:
- American Economic Review. - American Economic Association. - 2012, vol. 102, no. 3, p. 65-70
English
The financial industry relies on trade secrecy to protect its business processes and methods, which can obscure critical financial risk exposures from regulators and the public. Using results from cryptography, we develop computationally tractable protocols for sharing and aggregating such risk exposures that protect the privacy of all parties involved, without the need for trusted third parties. Financial institutions can share aggregate statistics such as Herfindahl indexes, variances, and correlations without revealing proprietary data. Potential applications include: privacy-preserving real-time indexes of bank capital and leverage ratios; monitoring delegated portfolio investments; financial audits; and public indexes of proprietary trading strategies.
- Language
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- English
- Open access status
- green
- Identifiers
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- DOI 10.1257/aer.102.3.65
- ISSN 0002-8282
- Persistent URL
- https://sonar.ch/global/documents/282146
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