nekst

Volume 19, fourth edition, June 2011

Black-Scholes Model in Context

Interview Robert C. Merton

Special

Origins of the Black-Scholes Model

KPMG

Preface
CO LO P H O N
Nekst is the quar ter ly m a g a z i n e of Ass et | Eco nome t r ic s 2011 Cor re sp ondence Asset | Econometr ics Til burg Universit y R oom E 110 P. O. B ox 90153 5000 LE Tilburg Tel ep ho ne : 013 466 27 47 in fo@Asset-Eco nome t r ics.n l w w w. Asse t-Eco nome t r ic s.n l Editori al s t af f G eer t Alk e ma R ol an d Da a me n Tim o D e ist B ar t K ruize Patr ick Kuijpers El ske Leena a rs Pieter Platteel Cor n Ruwa a rd M ar l ie s Ve ene s S an der Vrome n Fan g Qi Wu Contribut ions Petra Alk ema G us tavo Alme ida M ar l een Ba lver t Jor is Blo nk O til ia B oldea Stp h anie va n Bre da Dan ille va n Da len Joh an Gra a fla nd Joep He ndr ik s G ijs Ja nssen Wil l em J ong en Joep O lde J uninck Wil b er t K istema k er M ar jole in K ro o n Cas Lu ijten M ich ie l M att hijsse n R obb er t va n O o sten Wh itn ey Pat t ina ja Sjor s R e uteling sperg e r Han s S chuma che r B ar t va n S chuppe n Jan in k e Tol Printin g Oran ge bo o k w w w. ora ng e bo o k .nl Circ ulati on 700

G o o dbye First Page

With the exams out of the way for most and the sun peeking through the clouds at full strength every now and then, summer is in the air. To accompany you on holiday to a faraway country, or perhaps a closer destination, we have a shiny Nekst 4 for you to take along.

Of course, that will not be the only thing you can take with you. We are pleased to present you the fourth edition of the Summer Photo Contest, on which you can find more information on one of the last pages of this edition. Also check the midpage to see what else you can use the cute little Asset | Econometrics magnets for. And for those of you who remain here and want to attend some of the TIK-week activities, it may be interesting to see what the programme of the new TIK-week looks like. You can read about that in our special concerning the changes in the TIK-week programme. The highlight of this edition, however, is definitely the interview with Professor Robert C. Merton. Some of you may know him as the winner of the Nobel Prize in Economics, and we managed to have a talk with him about his prize-winning formula, the Black-Scholes formula, which third year students may recognize from the course Quantitative Finance. To find out more about the formula and how it came to be, have a look at the special on this formula, also located in this Nekst, right next to the interview. To take this interview, we had a video conference with the famed professor, and another hot topic of this Nekst is the discussion about video lectures: should lectures be filmed and put on Blackboard? Find out the opinions of several students in our opinion poll. Furthermore, I would like to take this opportunity to thank my fellow committee for the efforts they have put into these four editions of Nekst. Although times were hard every now and then, we delivered four good magazines and I, for one, am most satisfied. Yes, fellow reader, Nekst 4 also means that this is my final preface and goodbye as the editor-in-chief. Although I have enjoyed it very much, it is time for me to make way for my successor. Corn Ruwaard, I wish you and your future committee the best of luck next year and congratulate you on achieving this wonderful position as editor-in-chief. Finally, I would like to thank you, the reader, for sticking with me to the end and faithfully reading Nekst this year. Should you ever miss reading my prefaces, do not hesitate to nudge me and I will gladly comply to your request and once again pick up my pen, or laptop.

Fang Qi Wu
Editor-in-chief

Nekst 4 - June 2011

Table of Con
A d V E r T i S E M E N T S A r T i C L E S KPMG AEGON APG Optiver Duisenberg School of Finance Flow Traders Ortec Finance Towers Watson PGGM DONG Energy La Poubelle NIBC Cover 04 12 26 30 38 42 50 54 60 Cover Cover
Preface From the Board The Father of Maarten Meeuwis Family Day Column Otilia Boldea Scientific Article Kempen & Co Opinion Poll Living in Lodges Ball Day Course Excursion Ernst & Young Secret Activity Column Johan Graafland Economic Business Weeks Tilburg Asset Pub Quiz Former Active Members Activity Business Interview Optiver Committee Profile 01 05 06 08 09 10 13 14 16 17 18 19 20 22 23 24 27

Nekst x - Month year

ntents
16
Active Members Weekend Econometric Challenge Tilburg Freshmen Activity Special: Black-Scholes Formula Interview Robert C. Merton Carnaval Volleyball Tournament & Pre-Carnaval Party Course Excursion CPB The Teacher: Bertrand Melenberg Scientific Article Towers Watson Activity & Lecture Drink Exchange Report Special: TIK-week The Passion of Dmitriy Silov Football Tournament & Announcement Drink Graduates & Planning Puzzle & Summer Photo Contest Quatsch 28 34 35 36 40 44 45 46 48 51 52 56 58 61 62 63 64

28

46

52
Nekst 4 - June 2011 3

AEGON

dear M emb ers,

FrOM THE BOArd

As the summer approaches, the temperature rises in the Esplanade-building. The lack of air conditioning now and then drains the productivity in E109 and E110, so the board members are glad that at the end of the year being a board member does not require as much efforts as it did when one of our associations many great activities was about to take place.
With the end of our year on the board in sight it is time to look back and recall a few remarkable events of this year full of experiences. To start my walk down memory lane I recall a rather uncomfortable, though sociable weekend in April. The discomfort was caused by showering with cold water, sleeping in a thing which is an in-between of a bunk bed and a hammock and going out to some kind of discount disco. Even worse, this weekend is full of traditions from which most concern the chairmen of the different committees and the associations chairman (yours truly) in particular. Chairmen are flipped around on their mattresses and I even had to clean the toilets on the last day. The observant reader will have noticed that I am referring to the yearly Active Members Weekend, which clarifies the sociable part of the weekend. Despite the shortage of comfort, this weekend was the moment for our active members to gather and have a nice weekend together. After almost an entire academic year of hard working in one - or sometimes even more - of our committees, the active members of Asset | Econometrics deserved to have some time off. The committee did a great job in organising the weekend and everybody enjoyed it a lot. Even I, in spite of the above mentioned traditions. And now, with a new board getting ready to take over, the end is really getting close at high speed. Considering the pace at which the months of our board year until now went by, September will probably be there before we will notice. And then, after the traditional replacement ceremony at the General Members Meeting, five illustrious board members of Asset | Econometrics will be missed in the Esplanade-building. A new board will be on our seats, and I hope that they will have a year as great as we had. I hope their plans, ambitions and dreams come true in a year they will probably never forget. At least I will never forget this wonderful year which I experienced together with my fellow board members. Every day has been special, inspiring and surprising and none of them have been the same. Now it is time for us to move on, try to pick up studying again and find ourselves new challenges. I wish you all the most splendid summer holidays you have ever had, after which you will hopefully be able to make a flying start the next academic year. On behalf of the board, Bart van Schuppen Chairman Asset | Econometrics 2010-2011

Name: Bar t van S c hup pe n Position: C hair ma n Asset | Econome t r i c s 2010-20 1 1

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THE FATHEr OF MAArTEN MEEUWiS

A r eal Econometric Family

For this edition of the father of, your interviewers went to Best, where the Meeuwis family lives. it has become a very special interview, because the father and mother of Maarten, who are called Pieter and ine, were studying econometrics when TEV, nowadays known as Asset | Econometrics, was founded.
We were so nervous for the interview that we accidentally got off the train in Boxtel already. Luckily there was another train going to Best fifteen minutes later, where Maarten was already waiting for us. Maarten lives close to the train station, so after only five minutes we arrived at the place to be. When we came in, we were welcomed by Maartens parents. They had prepared the interview very well: they had even searched the loft to find all the old TEV-stuff from their student days. Studying at university Pieter Meeuwis was born in Oirschot on 3 May 1959. He lived there until he was 18 years old and started living in lodges to study in Tilburg. He grew up with two brothers and one sister. The family business was a furniture company, but Pieter would not take over the business, because he had other plans. He wanted to study econometrics in Tilburg. He was the only one in the family who studied at university. Despite the distance being minimal, Pieter started living in lodges from the beginning of his studies. Back then almost everyone started living in lodges right away. Another dream of Pieter was to make a business of repairing bicycles, but for some reason it did not work out. He still likes working on his bicycle. Girlfriend In Tilburg, Pieter met the love of his live, Ine. In fact, she started the same study programme in the same year as Pieter, namely econometrics. They had even been in the same mentor group during the introduction. Ine was born in Rosmalen on 2 May 1960. She was one of the two girls that started econometrics in 1978. Pieter was very lucky, because there were 60 to 70 boys that started in the same year, so he had a lot of competition. After six months of studying, the relationship between Pieter and Ine was a fact. This was around the same time when TEV was founded. So we can say that Pieter and Ine have been together for as long as Asset | Econometrics exists. Pieter finished his studies in eight years. It may sound like he was lazy and took twice as long to finish his studies than normal students, but back then the study programme for econometrics had a six year-duration. With all of the work he did besides his studies, for TEV and just the normal partying, eight years is a very good performance. Ine did not finish econometrics, but was still very involved with it. On the wedding, Prof. Dr. A.J.J. Talman was also present. You may know him from some of the courses he teaches in the econometrics programme. A lot of the family friends nowadays are also econometricians. Maarten came into sight On 20 April 1991, the lives of Pieter and Ine changed radically. Their first baby was born, Maarten. After his birth and some of the accompanying complications, doctors were afraid that Maarten would be a child that could not learn very fast and that his development would be slower than that of other normal kids. Maarten disagreed with this and he showed his parents very quickly that this was not the case. His development was even faster than that of other kids. At the age of three, he pointed at the clock on the wall and asked the teacher from kindergarten: Miss, it is ten oclock, do you not have to drink a cup of coffee right now? The teacher had never heard a kid ask this in kindergarten. The other kids could not even tell what time it was. Maarten was a lovely kid, the dream of every parent. The only thing Pieter thought of that could be annoying, was that Maarten always wanted to know everything. Even that is not a bad thing, however.

Name: Pi e te r M e e u wi s residence: B est

Name: M a a r te n M ee u w is Age: 20 Begin Studies: 2009

Nekst 4 - June 2011

Busy family Maarten grew up in a very busy family. The family consists of five members: Maarten, his parents and his two younger brothers, Luuk and Onno. The family is very much into sports: during the holidays the boys and their father biked together, while their mother was their backup. She drove the car and made sure everything went well. On vacations they also played a lot of football. Vacation was not the only time for sports, Maarten also practiced competitive swimming and tennis. Not only are they into sports, there are some musical talents within the family as well. Maarten, Onno and Luuk all play some instrument. Maarten plays the keyboard and the piano. Not only the kids are busy, Pieter also cannot sit still. He does a lot of things: he is active in politics, he helps out in a lot of committees and runs his own business. Maarten did not even know all of the committees his father was in: during the interview he discovered that his father was a member of committees he had never even heard of. Following the footsteps of his parents When we started talking about Maartens career, Pieter would not hold back. He is clearly very proud that his son has chosen the same study programme as he did. Maarten did not start living in lodges immediately, but when he did, Pieter was fine with it. Of course he misses his son, but he wants Maarten to have the time of his life in Tilburg. Most parents would have concerns about whether their kids pass all the courses. The only thing Pieter is worried about is that Maarten does not go out enough to have some fun during his studies. That Maarten is going to pass his courses, he knows for sure! Pieter is even prouder that Maarten became an active member of Asset |

Econometrics, the study association he was a board member of. When thinking about the future, Pieter could imagine Maarten doing anything: he could be a professor at a university, abroad or in the Netherlands, maybe a financial director. But one thing he knows for sure: Maarten will have a cute little family and will live happily. Perfect son-in-law When we talked about Pieter as a father-in-law, his modesty came up. He thought he was not the best father-in-law, but it was not up to him to decide. Maarten told us he would do pretty well. As a son-in-law Maarten is doing very well, according to Pieter. Maarten is very reliable, attractive and smart, and when he says he is going to do something, he does it: he never gives up. What more could a person wish for? The only thing he thinks Maarten is missing, is that he is too modest. He would like him to be a little bit more spontaneous.

Pieter has one advice for Maarten right now: Have a lot of fun during your studies. That you will succeed, I know, but it is also very important to have a really great time in Tilburg! This seems a good advice for everybody, and we will listen to it for sure! Text by: Marlies Veenes

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FAMiLy dAy

d ifferences: Busted or Confirmed?

The first discussions about the differences between the universities of Eindhoven and Tilburg started way before my brother Geert decided to study Econometrics in Tilburg. Our introduction weeks were totally different, which was the start of a never ending conflict.
According to Geert, the board of my study association Protagoras (Biomedical Engineering) should work just as hard as the board of Asset | Econometrics and, on the other hand, I was convinced that a study association should have his own bar on campus with a drink every Thursday. For this reason, Geert announced the Family Day about a year ago, when a new discussion about the Parents Evening and our Parents Day started. The event was planned on April Fools Day. After a check of the date with the board, all three of us confirmed our participation. The expectations were, naturally, very high. As always, the Dutch Railways let me down on my way to Tilburg. About half an hour late we arrived at Caf Jacks. A family photo was made we do not seem to look like each other, when I compare our photo to the photos of some other families and we were just in time for the opening by the chairman of the board: a small introduction to Asset | Econometrics and an overview of the rest of the evening. The diner was surprisingly good, even our little (or actually quite large) brother Henk was satisfied with the large bowl of French fries. Obviously, Geert and the other active members were in their natural habitat. A date with a fellow student was arranged for me beforehand and we should really meet Elske again and again. As a result the brothers and sisters were talking to each other and the active members were quite busy discussing the other brothers and sisters. The pub quiz rearranged this situation completely. All members of the group were suddenly important, since we had to combine our knowledge. The subjects of the questions were really diverse. We had to determine the flavours of three different mixed chips - I started with cheese-onion, so it was impossible for me to taste one of the other flavours -, we were supposed to know the Japanese word for a divine breeze and our mathematical skills were tested by a question about a farmer who had to buy three types of animals. The Asset | Econometrics round was not that easy, but quite informative. We played two good rounds with our group, but our knowledge of animal sounds was lacking, so we finally became third.

Name: Pe tra Al k e m a Age: 19 Studies: B i om e d ical E n gi n e e r in g

It was a good evening, with another association in another town. One could say that the differences between our associations are just other interpretations and expressions of the same. In the end, all students simply love activities by their association and late evenings with good friends. Nevertheless the discussions of the Alkema family will continue until the end of time... Once again, I would like to thank the board of Asset | Econometrics for the organisation of this evening. To pursue the subject, the board of my student music association in Eindhoven also decided to arrange a Family Day. Hopefully both of my brothers will join me again!

Nekst 4 - June 2011

Ant i-immig rat io n r hetoric and i t s i m p a c t s

COLUMN

Populist right-wing parties are gaining power all over Europe: the danish Peoples Party, the True Finns in Finland, the Hungarian Jobbik party, the dutch Party for Freedom, the italian Northern League, the Austrian Freedom party, the Sweden democrats and the National Front in France.
It is hard to hear, but also hard to avoid hearing their anti-immigrant slogans and policies. We cannot blame the media for broadcasting their anti-immigrant rhetoric. The media does not have much choice. The question is, why do we listen, and why, even among young, educated people, are these parties gaining popularity? Are immigrants really threatening our economic well-being? In general, migratory flows are determined by political, economic or social factors, such as flight from persecution or war, finding a better job and family reunification. Most subjects of the populist right-wing party leaders speeches are immigrants from nonEU member states who choose EU because of economic prosperity and political stability (see Eurostat, Europe in Figures 2010, pp. 188-198). In general, immigrants are viewed as resolving shortages in the labor market. There are many benefits that can occur as a result of inflow of immigrant workers for their country of destination. Immigrants, as well as domestic workers, can contribute to overall economic development, through paying taxes, financing pensions, establishing companies, taking jobs that domestic workers do not want or are unable to do. The usual immigrants from non-EU countries are younger than the average population and may help attenuate the problem of an aging population. In general, (legal) work can be very beneficial, and countries need to invest resources in the social and economic assimilation of their (legally) immigrant workers and their families, by helping them learn the language, etc. After all, if the immigrants stay in the destination country, it is beneficial for everyone if they are not isolated communities, but integrated citizens, if their children speak the local language well, have the same job opportunities as other citizens and do not remain unemployed, marginalized, etc. But this is not something that leaders of the populist right-wing parties would tell you. They claim that immigrants are bad for your economic well-being for at least three reasons. One, they believe that the culture and religion of these immigrants is inferior. In a globalized world, we cannot and should not be ready to believe this, but even if some people did, it is hard to see how your economic wellbeing will be affected directly. Second, the likelihood that they will commit crimes is larger than for the average population. This is not an immigrant feature, it is an overall result of being jobless and marginalised, and it is something that we should avoid for everyone. Third, there are more and more immigrants coming. While it is true that immigration increased in EU, it is also true for any well-developed country where the language spoken is not too hard to learn. There is no evidence of invasions in the EU specifically here. As you see, this anti-immigrant rhetoric, targeted at non-EU immigrants that do not have political and/or social power to speak up, is either made to cover up for the consequences of the recent economic crisis or to gain popularity and more votes. However, such opinions can create tension between locals and immigrants, which, in the end, will not make anyone better off, either economically or socially.

Name: O t ilia B o l de a Position: Assistant Professo r

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How Company Characteristics Affect European Asset Managers results

SCiENTiFiC ArTiCLE KEMPEN & CO

research into the investment fund industry has traditionally concentrated on performance and its measurement or definition. Moreover, the focus has been almost exclusively on the US due to the size of the market. At the end of 2008, that markets net assets accounted for 56% of the fund industry worldwide.
However, Europe has significantly increased its market share over the past few years, and as of the end of 2008 it held 33% of the global market for investment funds. A relatively new research topic has also surfaced, namely the influence of the characteristics of asset managers on fund performance. This topic has already provided some interesting insights in the US market, but so far little research has focused on the European market. Kempen Capital Management therefore decided to conduct a study concerning the influence of the four main characteristics of asset managers on the performance of European investment funds: the shareholder structure (whether the asset manager is listed or not), the number of investment funds under management, the amount of assets under management and, finally, the asset managers focus. The latter is determined using the number of funds and the number of asset classes on offer. This study shows that focus has a positive effect on investment results and that independent (not listed) asset managers achieve better results. Rather surprisingly and in contrast to the US market, the size of the asset manager too has a positive influence on investment results. This, however, is largely due to the highly fragmented European market for investment funds. Growth of European market Over the past decade, the European market for investment funds has experienced enormous growth. In just 10 years, the net assets of European funds have doubled. Studies comparing the US and European markets point to some significant differences. Firstly, the number of funds on offer in Europe is many times higher than in the US (36,780 vs. 8,022 respectively as of the end of 2008). On average, however, funds are much smaller in Europe. To compare: whereas a European fund has an average of US$171 million under management, in the US this figure is as high as US$1,197 million. In general, it can be concluded that the European market is much more fragmented than the US, where the market is largely consolidated. Following, we will first look at the main findings of academic studies on the US asset management industry. Next, we will explain the results of our study of the European asset management industry. In the conclusion, we compare the two markets and identify potential trends in the European asset management industry. Academic study focused on the US Advantages for non - listed managers In the case of the US, research has shown that funds managed by non-listed, often employeeowned asset managers have often outperformed funds managed by listed asset managers. One explanation for this could be that listed asset managers and their shareholders have a relatively short-term focus rather than aiming at a solid long-term performance. The independent position of non-listed asset managers gives them the freedom to focus more on long-term performance, which leads to greater alignment of investor interests in the fund. Boutique versus supermarket In addition to asset managers shareholder structures, US studies have shown that the greater the number of funds on offer, the poorer the performance. The argument goes that so-called supermarket asset managers in the US, of which there are plenty, are more focused on increasing their assets under management than on achieving the best performance for their clients. These asset managers offer any type of fund in any kind of asset class they can sell, in contrast to what are known as boutique asset managers which concentrate on a limited number of niche strategies. Moreover, these so-called supermarket asset managers are said to offer a large number of

Name: Lo e s Wi n g e n s Function: Pro j e c t M a na g e r

10

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Figure 1: European investment Market Undertakings for Collective investment in Transferable Security directives (UCiTS)
funds in order to hide poorly-performing funds. Assets effect unclear in US As to the influence of the size of the assets under management held by an asset manager on fund performance the literature is undecided. Various studies have identified a positive effect on performance stemming from the size of the company. The source of this effect was mainly attributed to lower transaction costs as a result of economies of scale, higher lending fees and/or more resources for research and development. Other studies have demonstrated the complete opposite: a negative effect on fund performance arising from the size of the company due to the bureaucracy inherent to large companies and the liquidity and price impact of a large amount of assets under management. Focus equals result The degree of an asset managers focus depends on the number of funds it offers in a specific asset class, and the number of investment asset classes it covers. Research, again in the US, has shown that funds of companies with a clear focus have performed better than funds of more diversified asset managers. Focused companies can specialise in specific asset classes, resulting in higher quality products and lower costs. Slightly different picture in Europe Our research used data on about 5,100 registered open-end equity funds in Europe, with data over a period of at least five years between 1998 and 2008. And what does our study show? With respect to shareholder structure, the same results were found in Europe as in the US. In Europe, too, funds of nonlisted, independent asset managers have outperformed the funds of their listed colleagues. With respect to number of funds, in contrast to the US, however, in Europe a greater number of funds managed by a company results in better individual fund performance. Our study showed that over the past ten years the funds of asset managers with a relatively high number of funds under management performed better than those of companies with few funds under management. One explanation for this contrast with the US could be that the average fund size in the US is much larger than in Europe. It may be that in Europe some companies are simply too small in terms of number of funds, and therefore assets under management, to work efficiently and deliver a good performance. The argument that some fund managers are simply too small to work efficiently appears to be confirmed by the results obtained for the effect on fund performance of the size of the asset manager, measured in assets under management. This relationship was found to be a positive one. The funds of asset managers with a relatively large amount of assets under management have performed better than the funds of relatively small companies. Whereas this effect was still unclear for the US, here we find a significant positive effect. Finally, the study demonstrated that the extent of a managers focus has a positive effect on fund performance. This corresponds to US research results on this topic. In addition to the four company characteristics, the study also looked at the country of origin of the fund managers parent company. It is noticeable that over the past five years European funds offered by nonEuropean managers (chiefly from the US) generally outperformed the funds offered by European managers. Table 1 below summarises the findings for Europe compared to the US. room for growth while retaining focus In summary, over the past ten years the best characteristics for an asset manager in Europe to have were: not to be listed, to offer many funds with a large amount of assets under management and to apply a focused strategy. It is surprising that the results of the effect of the number of funds under management are the complete opposite of the results for the US. We also identify a clear positive effect for the size of the assets under management, while there is no unambiguous result for the US in this respect. This difference could be explained by the fact that the European asset management industry is more fragmented than its US counterpart. Where the US fund market has evolved over a longer period of time and has become largely consolidated, Europe still has many asset managers and funds with very few assets under management. The positive effect on fund performance of size (both in terms of number of funds and assets under management) of asset managers in our study appears to indicate that there is room for largescale consolidation among European asset managers and their funds. The result will be larger asset management companies. In growth among European asset managers, it should be taken into account that focus has a positive effect on the performance of individual funds. Growth via entering new categories or strategies is not necessarily the correct method. Moreover, the study also demonstrates that it is beneficial to retain independence and not opt for a listing.

Public vs. Private US Europe -

Number of Funds +

Assets Under Management +/+

Focus + +

Table 1: influence of Asset Managers Characteristics on Fund Performance

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11

APG

Video Lec tures: Needless or Useful?

OPiNiON POLL

Currently more and more lectures are being recorded and made available via Blackboard as so called video lectures. At least, this is the case for other study programmes at the moment. Should the university also make video lectures for econometrics courses? And could they replace some of the lectures or should they only be complementary? We have asked some econometricians about for opinion.
Koen Peters (First year student) I do not think the University should offer video lectures. Last year I was enrolled in Technical Mathematics at the TU/e and there they offered video lectures for most subjects. It can be useful to review parts of a lecture that was very hard to understand some weeks earlier, because especially in the first year you progress really fast. However, the problem with watching a video lecture is that you are probably watching it at home. I think I speak for everyone when I say that at home there is way too much distraction to actually concentrate on a lecture that you dozed off at in the first place. Because, let us be honest: if you are not following the lecture in person it is usually because you lack interest anyway. Therefore they should definitely not replace the current lectures. As for complementary lectures is that not what the tutorials are for? Maartje de ronde (Third year student) I can imagine that there are many students who would love having video lectures, especially when they are the same lectures as those that have already been taught. This means that you are more flexible to listen and look at a lecture whenever and where you want it. But I do not think you will learn as much fom it as from a normal lecture. There is no possibility to ask questions and a teacher cannot see if everybody understands what he is saying. Therefore I think it should never replace any of the normal lectures. Extra lectures will not harm the students, but I do not think it has more value than well written sheets. This would be a much cheaper possibility.

Joost van Sambeeck (Second year student) I have followed two courses where video lectureses were used; the Econometrics course Philosophy of the Economy and the course Accounting 1 from Business Economics. In my opinion it is not a good idea to replace lectures by video lecture, because you will not have the opportunity to ask questions immediately when the course material is not completely clear. It is a good idea to work out some exercises or old exams in a video lecture, because in this way you can follow everything step by step and this will give new insights. Another thing I have seen, is that an exam is worked out an hour after it has taken place, while students were listening at home behind their computers. You will learn a lot from this, because the exam is still fresh in your memory.

dennis Jaheruddin (Fourth year student) When thinking about video lectures, my mind instantly wanders to the time when I studied in Eindhoven. Some lectures were recorded but the quality was insufficient as it was impossible to read the blackboard. This could be overcome by technological development; however, other problems remain. Students that take the presence of video lectures into account tend to skip more lectures, and especially in the lower years they will forget to watch the video lecture afterwards. This may be considered a minor problem as it is ones own responsibility to attend lectures, but the next argument cannot be ignored so easily. When video lectures are available, good students are more reluctant to ask questions as they can go over the explanation again. As a result, difficult topics are now less clearly explained and the quality of the lecture decreases for everyone. Therefore I advise against the introduction of video lectures.

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13

Living With Friends

LiViNG iN LOdGES

On a stormy Thursday afternoon i headed to Fabrieksstraat 14 in the centre of Tilburg. There, Pieter and i would have an interview with two second year students, rutger and Matthijs, about living in lodges. After trying several of the doorbells present of which some appeared to be malfunctioning, the door was finally opened by rutger.
In the kitchen I found my fellow Nekst editor Pieter who was helping Matthijs prepare the dinner. The kitchen in the house is not very big, but big enough for a table and some chairs. In the morning, the kitchen is the place where Rutger and his housemates drink coffee before they leave for university or elsewhere. Matthijs is usually not out of bed yet, but he can hear the conversations since his room is directly above the kitchen and the house is quite thin-walled. Matthijs tells us with a big smile about what he sees as the highlight of living here: When I had only lived here for a few days, I brought a pretty girl home and in the morning, when we woke up, we heard someone in the kitchen say quite loudly: Matthijs has arranged a girl. You know, the one he wanted to arrange. Some minutes later my housemates knocked on my door saying: Matthijs, hurry up! Now it is our turn! I like these kind of pranks and the nice atmosphere in the house. From the kitchen you can go, via the scullery, to the backyard as well as to a bathroom. Rutger explains to us: In the morning everyone queues in front of this bathroom, since the other one upstairs is rather cold when someone uses the shower downstairs. There is another special thing about this bathroom: there are two big speakers to listen to the radio while having a shower. And, of course, to sing at the top of your voice while under the shower, Rutger tells us. The living room which can be entered from the backyard has a few couches and a big projector screen on the wall to watch films together. Matthijs room is on the first floor. The most special thing in his room is the toilet roll hanging next to his bed. It was installed by Matthijs housemates while he was partying in the city centre. The function of this toilet roll everyone can guess for himself. From Matthijs room you can enter the roof terrace. By far the most special thing on the flat roof is the rowing-boat that leaps out into the air. The front is a bit damaged by the last storm, but it has an important history. Matthijs explains: The founders of Fabras, our fraternity (Dutch: dispuut), had carried this boat for 5 kilometres on their backs, all the way from Vidar to the Fabrieksstraat. Rutgers room is at the street side of the house and is a bit larger than that of Matthijs. The only disadvantage is the thin wall with the room next door. He can hear everything and sometimes wakes up at night by the noise of his neighbour. Fabras Enough on what the house looks like: let us now turn to the people that live in it. Only members of the fraternity Fabras live in their house. Fabras is one of the mens fraternities of the Student Rowing Association Vidar. Fabras has 25 members at the moment of which 8 live in this house. Matthijs tells us: At the moment there are no first year

Name: M at th ij s M e ij e r Age: 20 Begin Studies: 2009 Address: Fa br i e k s s t raat 14 room Surface: 10 m Monthly rent: 2 3 5 eu ro s

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students living here, but only second year students and older. There is, however, not a strict hierarchy in the house. Everybody is equal. In some houses of fraternities you see that the first year students have to do all the unpleasant jobs. We just divide the unpleasant jobs among everyone equally. We have a weekly cleaning schedule which allocates a cleaning job to everyone. If you do not clean what you were supposed to, you have to pay ten Euros as a penalty. Rutger adds: Sometimes Matthijs deliberately chooses not to clean and just to pay the ten Euros, but most of the time everyone does what is asked of him and the schedule works fine. Every day someone prepares dinner and there is a list on which you can indicate whether you want to join dinner. Matthijs tells us that he does not eat at home often lately: I eat at my work or at Vidar most of the time. Every Wednesday evening the members of Fabras meet each other in Caf Jacks, and besides that they also go on holiday together each year. The odd jobs day (Dutch: klusdag) is one of the yearly highlights. Rutger says: It is hard to point out exactly what is so nice about those. I think it is just the atmosphere and the way you are working together to get things done; the fun that you have when you try to get a bookshelf level and then to conclude when you are done that it is still skewed. Living in Lodges On the question why they moved out of their parents home and started living in lodges, Rutger answers: I have three older brothers, who had already moved out, so in the last year of secondary school I was the only one that still lived at home. It was thus quite natural that I would move out of my parents home too. I started looking for a room and I found one in the south of Tilburg. It was a nice house, but it was not as sociable as here. When a room became available in this house, I moved. Matthijs also lived somewhere else first, namely in the north of Tilburg. It was a nice house and the housemates were nice, but when a room became available here, I

also moved, since I thought it would be even nicer over here. The surface of the room, however, was about three times bigger than my room now, but I do not regret my decision at all. Back then I lived with housemates, but now I live with friends! Matthijs decision for Econometrics in Tilburg is also quite a story: First I wanted to study Industrial Engineering in Eindhoven. Sjors, also a second year student that I know, because he went to the same secondary school, had the plan to go to the student for a day activity of Econometrics. I joined him just for fun, because I knew some girls here in Tilburg and I arranged with them to go out in the evening. I had no idea what Econometrics was about, but during the day we got a nice case in OR and I could easily solve it, whereas others had quite some trouble with it. So then I realised: this is what I should do. Later I went to student for a day in Enschede. The boy showed me his books which were quite sizeable and I thought: I do not want this. I thought that in Tilburg this would not be the case. This turned out to be a wrong image, but still I do not regret my decision to choose for Econometrics in Tilburg. Both Rutger and Matthijs are enjoying their student life very much. The atmosphere in the house and the friends are a life time memory. That conclusion ends the interview and we thank Rutger and Matthijs for the dinner and the interview. Text by: Roland Daamen

Name: Rutge r va n Alp he n Age: 20 Begin Studies: 2009 Address: Fab r ie ks s t ra at 1 4 room Surface: 12 m Monthly rent: 278 eu ro s

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15

Par tic ipatin g i s mo re imp or t a nt th a n w in n i n g !

BALL dAy

On Thursday 12 May it was time for the ball day. An afternoon filled with different kinds of ball sports and teams consisting of only econometricians, with a very nice barbecue afterwards. This already sounds like a good afternoon, but i have experienced it, and it was even better than expected.
The day started just after lunch at the sports centre of the university, where we would stay the rest of the afternoon. We started with a tiny warming-up, but why should we get tired before we had even started? It was much more important to talk about our lack of tactics. Our team consisted of Corn, Geert, Jasper, Rutger and I. So we thought we would have a chance in different kinds of sports, as we had tall, fast, energetic and motivated players. During the day we have played volleybal, football, basketball and knotsbal, this is a sport which looks like hockey, but instead of the stick you now have a club with soft material wrapped around the top. The goal is to score in the goal of the opponent. You had to achieve this without hitting your own team members or your opponent, which turned out to be hard for some people. This sport was very tiring when you played without any form of strategy, because you simply run around trying to hit the ball and hoping you are able to score. However, in this way we did win a match! While playing volleyball, some people developped new techniques and ways to play. But the matches were good, with some good rallies and people to show their volleyball skills. In our team it was very nice to see how much we improved in the second match compared to the first one. It made the second match much more fun to play and we were even able to build some nice attacks. But I have to admit that our opponents were much better, so they deserved to win. Halfway through the afternoon we had some time to catch our breath and drink some energy drink and eat an apple. We really needed this energy, because next up was basketball. Almost everyone had played it back in high school and luckily we had some tall players in our team that were able to score quite easily. During our first match three people managed to sprain their ankles in a timeframe of approximately one minute. Luckily no one got hurt badly, only one of us was unable to play the football match afterwards. The football matches were set up as a final and a match for the third and fourth place, and we had to play this last match because we had not performed very well during this afternoon. With our last bit of energy we started this football match, but I experienced the difference between playing indoor and outdoor soccer. Especially the fact that the right line is black is very confusing in my opinion. And it is far more intense than playing on the field! We lost this match too, so we ended being fourth out of the five teams. Now it was time to take a shower and get prepared for the barbecue, which was well deserved after this afternoon filled with sports. Here we chatted about the ball day for quite a while and afterwards we went to a pub to finish this nice day as it should: with some beer! All in all it was a very nice day, with the often heard sentence still holding: Participating is more important than winning!

Name: J a ni n k e To l Age: 18 Begin Studies: 2010

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This is the life!

COUrSE EXCUrSiON ErNST & yOUNG

Thursday 21 April, it promised to be a beautiful day. Not just because the sun decided to behave like it would in Southern Spain, but moreover because of the fact that for us a group of 40 students participating in the third years course Life insurance- (some) usually locked doors would open at the dutch head office of Ernst & young, Amsterdam.
Suited up, a little sweaty, but most importantlyfresh of mind we entered the door that could have handled the entrance of a giraffe. After a short welcome drink we moved to a room, which could be compared to a lecture room as we know it. That is, except for the leather chairs and air conditioning, but of course Tilburg University should be given the space to improve in the future. Well, back to reality. The official part of the day was opened by two junior consultants who each had their own specific field of expertise. Whereas the one mainly focused on the development of mortality patterns with a special focus on pension funds, the other had his focus on changing regulations (Solvency II) and the estimation of risks faced by insurers. The twohour lecture was divided into halves; each of the consultants got an equal part of the time pie. The first part showed some well-known classic graphs, not much deviating from pictures seen in class. However, the next graphs also showed another way of modeling changes in mortality rates per age group, which was found to be by colours. Colours from light to dark each coincided with a specific increase or decrease and in this way it became clear that a picture which looked like a horrible remake of Van Goghs sunflowers at best, quite properly described evolving maturity rates per age cohort. Part 1 finished and we, air-conditioning loving students, were sent off to have a short break in the sun. Part 2 did not focus as much on mortality profiles of participants, but it focused on the regulatory environment of an insurer and how to behave under these circumstances. A hot topic these days is the new regulatory framework that arises from Solvency II and this came into discussion. Given the regulations, insurers have to make estimations of their risks (asset risks, lapse risks, and many categories more). How to come to estimations, and why: that is a difficult process. However, we got a first glimpse at this world and that was well worth the trip. Some of our students even took the lecture to a higher level with a bright question here and there, after which we ended the formal part. Was there an informal part? Yes! The beautiful office served as an excellent basis to relax and evaluate after a warm day of actuarial science. The consultants and recruiters of Ernst & Young came by for a nice chat, and we finished the day with snacks and cold beers. At that moment, it was time to realise that the day had been more than interesting and that the end suited the feeling of happiness as well. Sun, Life Insurance and Heineken, what more could we ask for?

Name: M ichiel M at t hijs s e n Age: 23 Begin Studies: 2007

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SECrET ACTiViTy

The B est Combination of Alcohol and Sp or ts

Asset | Econometrics organised a secret activity for all of her members. The announcement said you needed some stamina, but the activity also had something to do with alcohol. My first guess was some kind of track, with funny drinking games along the way.
However, with such an announcement I should have known that the activity would be the best way to combine alcohol with sports, and that is, of course, beer cycling! We all gathered at the Esplanade-building in the afternoon. There were quite a lot of participants, with a good variation in students of all years. The beer cycles had been stationed at the back of Tilburg University. When we arrived, the participants were divided in three groups, each with their own cycling bar. beer, but they did not accept our offer. Alcohol did its work, and therefore it was time for a small toilet break. With less luggage and restored legs, we continued. The groups were tested again, this time in the form of a hill to overcome. With some great teamwork we could do the job. At our last stop the groups had to compete against each other in a whisper game. The team with the most correct words at the end of the line won. You could see that the game was not played completely fair, but no one really minded. And because students will always be students, the groups organised a beer race. During the last part of the route you could see that people were getting tired. But cheered on by their group, the three groups carried on. When we had finally arrived back at Tilburg University, you could see that some people had wet trousers smelling of alcohol. Although alcohol and cycling do not always work perfect together, you could see that everyone had enjoyed the trip. After helping to get the beer cycles back on the trailer wagon, everyone went home with a great smile on their face. I would like to thank the organization for this great activity, and may many more follow!

N a me : Sj o r s R eute l i n g s p e rg er Age: 19 Begin Studies: 2010

Unfortunately the temperature was not the most ideal, but the alcohol would keep us warm. The board of Asset | Econometrics took responsibility as the drivers of the big and crude vehicles. After some pushing to turn the bicycles 180 degrees, the tour around Tilburg could begin. A few metres later we already came to our first obstacle: we had to cross the road, make a sharp turn and enter the cycle track again. It took some time because the traffic lights turned red after each cycle. Although the drivers were not allowed to drink any alcohol, and took this restriction very serious, the mirrors on the side of the road were not safe for our big bicycles. This near-vandalism did not crush our moods, however, because after a few beer and some wine glasses, the bicycles turned into nice bars with fitting sing along songs. We were also provided with some real power food, such as crisps and cocktail nuts. When we made our first stop the three groups had to compete against one another in a music quiz. Of course the group consisting of males only were the winners of that quiz. After the quiz, we got back on the road. The three groups had a great pace, and I am not only talking about our cycling speed. We had much fun, which was also observed by a passing police car. We had some small talk with them while cycling on and offered them a

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Fair Comp ensation by i nsurer for Usur y?

COLUMN

One week ago i received a message from my insurer concerning the compensation they would offer for my savings product. One would expect that, after the credit crisis, insurers would be seriously motivated to pay due respect to their clients and treat them fairly. is the compensation my insurer offered me confirming this expectancy?
In order to judge for yourself, let me give you some details of the transfer and the history of this product. In 1997 I decided to start saving for the studies of my children and contacted the insurer. An adviser of the insurer personally visited me at home and advised a savings product. During 15 years, my monthly savings would be invested in stocks and that would produce the highest profit in the long run. I started with a monthly amount of 136. The insurer gave three examples of how my stock would grow to an end capital in 2010: at an annual profit rate of 9%, it would become 50.300; at 10% 54,700 and at 11% 59.500. Two years later I read in the newspaper that the savings product clients had to pay a substantial premium for life insurance. I was not aware that my product was linked to a life insurance and would not have wanted it all, if I had known. I called my insurance advisor, but heard that he had left the company. Then I decided to reduce my deposit to a minimum of 29 euro per month and just see what the end result would become. But what was this life insurance about? Recently I took a look at the details and it turned out that if I would die before 2005 the chance of this happening was extremely low at my age , my wife would receive my deposits including an annual interest rate of 4%. If I would die between 2005 and 2010, my wife would receive my deposit with an annual interest rate of about 1% per year. Is that not a marvellous insurance: just get back what you have paid anyway? But how costly was this worthless insurance? Only in 2007 did I receive from my insurer information on how high the premium for this life insurance was (what wonderful transparency). From my deposit in 2007 (only 272), 68,46 was paid for life insurance. That is approximately 25% of my deposit. Hence, I was investing in stocks with a huge albatross around my neck. Given this, it realising the profit rates of 9, 10 or 11%, communicated by the insurer at the start of my insurance, were completely unrealistic. By the way, over time my insurer started presenting other scenarios. For example, in 2004 it provided a pessimistic prospect with a growth rate of 2,1%. I was also told for the first time that these profit rates referred to gross profit rates, the net profit rates were substantially lower. In 2007 the pessimistic prospect was already reduced to -7,33%, in 2008 to -21,96% and in 2009 to -28,45%. Now my savings product is almost ending, I have recently checked the average profit rate. What is the outcome? Zero, zero nominally. If I had just put my money in a simple saving account, the revenue would have been about 30% higher. All profits on my savings product have disappeared into the pockets of the insurer. Last week, however, I received the news of the compensation. Given the fact that my insurer sold me products that did not fit my needs at all (lack of due care) and the incredible lack of transparency (only after 10 years was I informed about the insurance premium), indicating a deliberate effort to deceive the client, I would expect that a fair compensation would be something like 30%. Just the amount of money I would have saved if they had advised me a simple saving account. Guess what the compensation is? You will not believe it. It really is a joke: 0,178% of the stock value of my savings product. The lesson that you, as a student, may learn is: never think, as I did, that this unfair way of dealing by well known insurance companies, is not likely to happen. The compensation they offer indicates it is rather the other way around. So always be alert.

Name: Johan G ra a fl a n d Position: Full Profe s s o r

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19

ECONOMiC BUSiNESS WEEKS TiLBUrG

Tests, M&Ms and E levator Pitches

Being a last year student in the bachelor of econometrics, the end of my studies is coming soon. i still have to do a master for 18 months and then i will start working. An important question is, then, at what kind of company i want to work in the future.
The Economic Business Weeks Tilburg (EBT ) gives students the possibility to take a better look at different kinds of companies and what these companies have to offer. They do this in the form of all sor ts of activities so that you can get in touch with the companies. For some activities companies can select you, based on your curriculum vitae (CV ). Therefore, before the star t of the event, students have the oppor tunity to have their CV checked. A CV-specialist will give you hints to improve your CV. After this checking oppor tunity, there were some days left to subscribe for the CV-activities of the EBT. Ever y year the EBT star ts with an opening to kick off the event. During the first week there are activities such as training days, workshops in the assessment centre, the SME (Small and Medium Sized Entreprises) day, informal activities and a case day. During the second week one could attend company presentations, there was an entrepreneurship day and, to end it all, the EBT par ty. During this period there were also company dinners and speed date sessions one could go to. In the first week I took par t in some workshops by the assessment centre. This was a good preparation for applications for some companies. Some companies will ask you to do an assessment for your application. An assessment usually consists of a day in which you must, for example, do assignments in a group, some tests and have conversations with people. The assessment centre was located in the conference centre of the Willem II stadium. This is the stadium where games for the premium league were played last year and next year games of the Jupiler league will be played here. In the conference centre it was not ver y clear that we were in the football club of Willem II, until we went to the toilet. There were big towel holders with the logo of Willem II on them, thus reminding me I was in their building. The days star t, as is normal, with a cup of coffee or tea and with a nice biscuit. After that, someone from the committee tells you what to expect during the day and provides some impor tant information about the programme. After this shor t talk all students go to their first session of the day. The first session was called Doe - en denktests (doing and thinking tests). It was different from what you would have expected. When you see the name you would think that this is a ver y interactive session, but it was not. We had to listen to the company for a long time, but for tunately it was ver y interesting as well. They tell you what to expect during an assessment day and how companies choose a new employee, what methods they use to do so, etc. During this talk they gave you a lot of hints on how to prepare for such a day and how to behave during the day. After this first session lunch was ready in the Grand Caf of the Willem II stadium. It was a ver y nice lunch with both warm and cold food. For ever y student there was something he or she liked. During the lunch you could also go outside of the caf and have a nice view over the stadium. It was quite a nice sight for someone who has never been in a football stadium before.

Name: St p h a n i e va n B red a Age: 23 Begin Studies: 2007

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After the lunch the second session star ted. This session was called the group assignment. We received a small group assignment which could also have been given by a company during the assessment. We had to work together to get as many M&Ms as possible. There was a plate with 21 M&Ms on it and we had been divided into three groups. In each round the groups could choose to take zero, one, two or three M&Ms or to double the number of M&Ms on the plate. There was one moment in which you could confer with the other groups to determine an optimal tactic, but other than that you could only talk to the people in your own group. Therefore you had to trust the other groups to do what you agreed on during the conference. The first rounds went well, as all groups did what they agreed to do, but after some rounds groups star ted deviating to maximize their own profit. Therefore the number of M&Ms on the plate became less and less. At the end of the game the students enjoyed their M&Ms while the company representatives gave you feedback on how you worked in a group and what you could improve on. The third session of that day was the inter view. In this session you had to do an elevator pitch. An elevator pitch is a shor t talk about a cer tain product or organization. The group was split in two smaller groups, such that the first group listened to the pitches of the people in the second group. These students had to enter the room, one by one, and do their pitch. Your listener was standing at the other end of the room, so you had to walk some distance before giving your pitch. You saw that people felt uncomfor table while walking. Ever yone had to do the walk and the

pitch, and after wards you received feedback on your pitch. After the pitch there was some time left and they again reminded us with some useful hints. At the end of the day there was a nice drink, again in the Grand Caf of the Willem II stadium. The food and drinks were, as before, still fine. In the second week I went to the company presentation of Autoriteiten Financile Markten, better known as AFM. During the presentation the company gave me a good idea of itself and the working possibilities at this company. A company presentation is ver y interesting when you do not know at what kind of company you want to work. In this way you can look around to see what kind of companies there are. All in all, it was a ver y nice event and hopefully, it will help me when I have to do an assessment for a company

application or what I can expect at different companies. I think the EBT is a good event to look at the oppor tunities you have, for all kinds of studies, thus for econometrics students as well.

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ASSET PUB QUiZ

Uhm Could you rep eat that question?

On 30 March the Asset Pub quiz took place at caf Polly Magoo. The Asset Pub quiz is an annual event for those who demand the most of their brain, for people who know many useless facts about mingle-mangle. i was so fitting to this description that i joined a delegation of Asset | Econometrics members to participate in this quiz.
Before the quiz, a part of this delegation had a meeting to practice old pub quizzes, read many Wikipedia pages, hear each other out and also to watch the first half of the football match Netherlands Hungary, the latter being but a minor reason to meet. During the break of the match we hurried to Polly Magoo to see the second half of the match as well. After quite a spectacular game and a 5-3 victory for the Netherlands, the pub quiz could start with a great atmosphere. The pub quiz consists of different subjects and each subject had fifteen questions. The topics were sports, Tilburg, music, movies, Asset and general. While enjoying a golden drink from heaven, more commonly known as beer, we answered the questions. My hidden skill was that well hidden that it was completely useless for answering these questions. Probably the useless facts I know are not that useless, or I was having some kind of black out, but most of the questions were that difficult that I just kept silent. Most of my teammates suffered the same problem. During the topics sports, music and general we were able to collect some points, but during the other topics our answer sheet remained sort of empty. Questions such as What is the name of the man behind Zorro? and What do the Ms in M&Ms stand for? cost us our victory. Because of these questions and our lack of brains, both of the Asset | Econometrics teams that participated in the pub quiz were ranked in the lower regions. Once and for all I had to face the fact that I did not know enough nonsense, thus I came to the conclusion that I have to gain much more rubbish during my spare time if I want to have a little chance of winning the coveted Asset Pub Quiz Title. After this discovery we went to the Lamme Goedzak to forget our embarrassment.

Name: Wi l b e r t K i ste m ak e r Age: 21 Begin Studies: 2007

The reason I joined the Asset pub quiz is because I am a huge fan of knowing useless facts. Regularly I participate in some pub conversation and I love interrupting with a nonsensical, but true fact about the discussed topic. By the way, I do not only do this in pub conversations, but I like doing it in normal conversation as well. I thought the Asset pub quiz would be the ideal way to show everybody my hidden skill.

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Formerly Ac tive Friends and Tapas

FOrMEr ACTiVE MEMBErS ACTiViTy

On Saturday afternoon, 2 April, the sun was shining and i was walking around on Utrecht central station, because Asset | Econometrics had organised an activity for its former active members this evening, and i had subscribed. i had agreed on meeting up with another former active member at Utrecht central station.
Together with a few other former active members of the former Tilburgse Econometristen Vereniging (TEV), we would do a pre-meeting on Pius Square in Tilburg. I looked around and I saw Jens heading towards me, carrying two beers (how nice of him!). It was four oclock and off we went, taking the train to Tilburg, where we would see Maarten and Thijs at caf Brandpunt. It was a logical choice since they serve BaD-approved beer there. The sun was shining in Tilburg as well, so we decided to sit down outside and enjoy the remarkably good weather for the time of the year. It had been a long time for all of us, but it felt very familiar to be back in Tilburg again. After a few drinks, it was time to move on and go find FEMZ. Here we would participate in a tapas cooking workshop. When we arrived at FEMZ, the board members of Asset | Econometrics were waiting outside to give us a warm welcome. We went inside where a lot of former active members had already gathered for the day. It was nice to see all those familiar faces again, our old fellow students and, of course, the current board of Asset | Econometrics. Everybody had some time to catch up or to get to know each other while enjoying a typical Spanish drink: sangria. But not for long, if we wanted to enjoy some tapas we would have to make them ourselves, hence the word workshop. The recipes of various tapas were spread over several tables and in groups of three to four people we all started cooking enthusiastically. Each group had to prepare at least two different kinds of tapas. If we had any questions, the people of FEMZ were there to help. We made both cold and warm tapas using a variety of different techniques. After a good hour of cooking we were all hungry and exhausted, so it was time to eat. It appeared there was a chef hiding in each one of us. The tapas were delicious! The activity was concluded with a drink at the local pub Van Horen Zeggen, formerly known as Vagant. It was a nice and cosy pub, not too big and not too small. Traditionally, Asset | Econometrics offered a free barrel of beer. It gave everybody the opportunity to further catch up with each other. That is what a former active members activity is all about. As the evening went by, it was inevitable that more and more old friends had to say goodbye and return home. Although Jens was very eager to stay, eventually it was time to say goodbye for us as well. Unfortunately, that was not the end of it. We arrived at Tilburg Central Station around half past one, after having a quick snack at t Eindpunt. To our disappointment we had to wait more than half an hour before the train to Eindhoven arrived. And if that was not bad enough, in Eindhoven we had to wait one more hour for the connecting train to Utrecht to arrive. Finally, three hours after leaving pub Van Horen Zeggen we arrived at Utrecht central station. Sunday 3 April, five oclock in the morning. This time the moon was shining, we were almost home now. It was way too late, or should I say way too early? But, it was all worth it in the end, we had had a great day. We had felt like students again and that had felt good!

Name: Gijs Jans s e n Age: 28 Begin Studies: 2001

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BUSiNESS iNTErViEW OPTiVEr

O n the Ar t of Trading at O ptiver

Optiver started in 1986 as a market maker on the Amsterdam based European Options Exchange with a single floor trader. 25 years later, Optiver is one of the worlds leading liquidity providers with its main office based in Amsterdam.

Name: Pe te r St am Position: S c ree n Trad e r

As we reach our destination, Amsterdam-Zuid, we see a number of architectural beauties. One of these buildings is marked with the letters Atrium, the location of Optivers office. Upon arrival we ask for Peter Stam, a trader within Optiver and also our interviewee. The aforementioned employee arrives, introduces himself and gives us a tour around the building. The most impressive sight is the trading floor: we see a large number of workspaces next to one another, each equipped with six screens needed to monitor the prices of different options. After the tour we end up in the Optiver Plaza (lunchroom) where we ask Peter all kinds of questions about his job at Optiver. Hello Peter Stam My name is Peter Stam, a 29-year old graduate in Econometrics, with a master in Quantitative Finance and Actuarial Sciences. I am currently a screen trader at the fixed income department of Optiver. Peter reveals that he finished his studies at Tilburg University, and he is therefore also familiar with Asset | Econometrics, though under the name of Tilburgse Econometristen Vereniging. As a student he was an active member of TEV for a short while, where he frequently visited the activities and drinks; one of those activities being the National Econometricians Day (LED). It was during one of the LEDs that Peter encountered Optiver for the first time. Although he was not looking for a job at the time, Optivers company presentation sparked his interest and enthusiasm: the speaker spoke of ambition and competition, and did so in a swift manner. Peter: I was still busy studying back then, and by the time I had finished my studies I remembered how much Optiver had appealed to me and decided to apply for a job.

Hello Optiver What kind of company is Optiver exactly? Optiver is a trading company that deals with highly-automated electronic market making and arbitrage activities. It has three main offices in Amsterdam, Chicago and Sydney, with approximately 600 employees worldwide. Its most important task is pricing options and informing the market of these prices. With three main offices diversified on different continents, it is possible to trade 24 hours a day in different areas all over the world. Hello trader Naturally we are curious as to why Peter decided to apply for a job here. One of the main reasons is the fact that being a trader is stressful and requires agility, something which is possible at a young age. To illustrate this: the average employee age at Optiver is 29. Besides that, being able to see the results of your work directly and dealing with the core business of the company appealed to me: it is completely different from being, for example, a consultant, and I thought of this as a onetime opportunity. I just happened to have been in contact with a trader here at Optiver, who also studied at Tilburg University. He told me about Optiver, its working conditions and the general atmosphere and after hearing him I decided that this was what I wanted. I applied and after taking three tests on arithmetics and other important skills, I was invited for the job interviews. An hour after my interviews I received the call which informed me that I was offered a job. This last feat reflects on the way things work at Optiver: they do not mull endlessly over decisions but are quick and decisive in their way of working. As such, Optiver needs people with good analytical skills that are capable of thinking and reacting swiftly to new information. Therefore

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econometricians are very suitable employees, if interested in finance. A background in finance, however, is not obligatory: starting employees receive a three-week training about option trading and are then placed behind a so-called traineedesk for one or two months. During these months you learn the basics of trading through simulation and afterwards, you are assigned a desk next to a senior trader, so that he can walk you through the more advanced trading and you have the possibility to ask questions. When the senior is absent, you can take over his place, and if you do well enough,

Peter usually remains behind his desk. Peter: I do not want to miss out on any possible trading opportunities, so I stay at my desk to keep myself upto-date, because the American market opens in the afternoon. Around 17.30h I do some administrational tasks and at 18.00h we usually have a drink or stick around to play some table tennis or pool before going home. As the employees are all quite young, the atmosphere at Optiver is work hard/ play hard and everyone considers one another as friends. As a screen trader, Peter is mainly concerned with the correct pricing

a lot of traders leave Optiver after a while. Peter tells us that graduates start here at a young age and are ready for the next step at the age of 33 or 34. Depending on their function it is possible for traders to grow further within Optiver in a more strategic or market structure-oriented role. What will he do himself after this? He answers: As I graduated on an actuarial subject and have been a working student for an actuarial consultancy company during my studies, it is not hard to tell that I am interested in actuarial sciences as well, so that may be an option. After Optiver, I will definitely remain in the world of finance, though

I like dealing with the core business of the company

you will be rewarded with your own desk. As such, employees at Optiver are quickly confronted with a large responsibility: after all, they have to make important decisions for the company. Hello typical day For Peter, his working day starts somewhere between 7.30 and 8.00h. I read the morning news on what important events may have happened overnight or are about to come. Based on these events I think about the possible consequences for the market and change the option prices accordingly. At 8.45h there is a morning meeting in which we discuss our plans for the day and do some risk analysis. At 9.00h the market opens and the trading starts. In the afternoon the market is relatively quiet and there is time to have some lunch, although of options, but there is also another kind of trader: the wholesale trader. Their task is to gather information and deal with counterparties. One could see them as the medium between the outside world and the screen traders. As he said before, Peter works at the department of fixed income. We ask him whether he still uses the knowledge he attained during his studies. Peter: I am quite fascinated by the direct influence of macroeconomic decisions on option prices. To find the changes in fixed income caused by such decisions, I still have to apply the knowledge I have on models I was taught about in Quantitative Finance, Risk Theory and Asset Liability Management. Goodbye? As the average age is not that high at Optiver, it would seem obvious that perhaps as a strategic trader for a bank instead. But for now, I would not consider moving to another job. To conclude, Peter shares some thoughts: I started working here on the exact date the stock markets crashed, back in 2008. We experienced some chaotic and unpredictable times, but it was very interesting as a starting trader. I learned a lot and the knowledge I have gained remains very valuable to me. Text by: Patrick Kuijpers & Fang Qi Wu

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Optiver

Join the LE V T 2011!

COMMiTTEE PrOFiLE

At the beginning of every academic year, one of the six econometric study associations affiliated with LOES organises the National Econometrics Football Tournament (Landelijke Econometristen Voetbal Toernooi). This sports tournament will be organised by Asset | Econometrics this year, and will take place on 22 September 2011.
The LEVT committee is responsible for organising this tournament, which includes finding a good location for the tournament in which approximately 200 students will participate. Furthermore, the committee is responsible for arranging sponsoring, for example, the sponsoring on the football shirts of the participants. The other econometrics study associations also have to be informed about the developments of the LEVT. Another task that has to be done shortly before the activity takes place, is making a suitable match schedule. Being in this committee offers a nice opportunity to combine organising a sports activity, contacting other econometric study associations and contacting companies. associations, so this is very useful. And last but not least, I, Danille van Dalen, am the secretary of the committee. I will be responsible for the contact with the other associations and all the members, and, of course, also for the hidden words in the minutes of the meetings. It is time to tell you something about the activity itself and what the day will look like. From the start of the academic year, the LEVT committee is going to promote the activity and members of all six associations will have the opportunity to subscribe for this nice activity. Subscription is possible for teams that consist of about six members. On the morning the day will take place, the teams from all over the Netherlands will gather at the sports location. We can already tell you that this year the LEVT will take place at the amateur club of Willem II. The participants t-shirts will be distributed and the groupings in which your team is going to play will be announced. After some matches we will have lunch together. After this lunch the winners of the groups will play against each other and after the final we will know which team will have won the tournament. The losers of the groups will also play against each other, because obviously, no one wants to be last. After this consuming activity, it is time for some stomach filling by means of a nice barbecue. This day, in which students of different cities are integrated, will be closed with a drink at the sports location. A nice remark is that last year in Amsterdam, Asset | Econometrics almost won the tournament. Unfortunately, the organising association Kraket won the tournament. Of course, we hope that this year the organiser will also win the tournament, so we hope you will participate and help us to gain victory!

Name: Danille va n Dalen Age: 20 Begin Studies: 2009

Now I will introduce you to the members of the LEVT committee of this year. The chairman of the committee is Maarten Meeuwis. He will ensure that the committee members do their tasks and he will bring everything to a good end. Thijs Verhaegh fulfills the task of treasurer, he is responsible for the finance. Tess Beukers is in the position of external affairs, she is responsible for the sponsoring. The sponsoring is a very important thing for this event, so Tess is very busy contacting companies. Furthermore, Bart van Schuppen is the coordinator from the board. Since he is the chairman of our association, he has a lot of contact with the other econometric study

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ACTiVE MEMBErS WEEKENd

The reward for B eing an Ac tive M emb er

in the weekend of 15 till 17 April, the Active Members Weekend (AMW) took place. during the AMW, active members are thanked for their efforts at Asset | Econometrics. The tradition holds that everything about the AMW will be kept secret until the very last moment. Just like this time.
This year, there were more participants than during other years. With a total group of over 50 participants, which were divided over 8 teams, we started our journey to destination unknown. Before the AMW started, all teams had to choose a team name and a captain. I was lucky to be team captain of team 8 and we were called Infinitely Twisted (turn the 8 sideways to find out why). A very clever name thought up by Claudia and we got the maximum number of 8 points for that name, so thanks Claudia! Yes, as I said, we got points: during the whole weekend you could gain points with your team. So from that moment on, we knew we could win the competition. We started at Tilburg Central Station that afternoon. After the weekend bags were loaded into a van, we went bowling at bowling centre Dolfijn in Tilburg. Bowling is not a sport for our team, because of unknown reasons. After bowling, we finally went to our camp address, which was still destination unknown. But we soon ended up in Herkenbosch, a place near Roermond. It is a little village in Limburg, close to Germany. After waiting for the key for an hour or longer, we could go inside the building to choose our bed and, most importantly, to drink beer. I made one big mistake: the list of things of what we had to take with us had said to bring a bed sheet. Due to my poor English I brought an air mattress instead, which I found quite embarrassing, but enough about that fact. The Friday night cooking crew made spaghetti Bolognese. I loved that spaghetti, so can I get the recipe? After dinner, beer games had been scheduled. There were four games. Two teams had to compete against each other in every game. There was a drawing-game, a Ping-Pong game, a pentathlon and a beer race. The drawing game provided our first victory. After that we won the beer race, but the referee said we had to do the beer relay again. This was not an issue for our team, because we love drinking beer. Unfortunately we could not outdrink our opponents, but we did win the pentathlon. Thus we were satisfied, after winning two out of four games. The evening was not over yet, because there was one other activity to do: a beer cantus. Singing songs and drinking beer, I guess everybody knows what a beer cantus is. We sang mostly Dutch songs such as Ik wil je, Brabant and Je denkt maar dat je alles mag van mij. After each song, you had to sing the song of Trink, trink, brderlein trink before you started drinking beer. Pascal and I had to go to the toilet, which was not allowed during the cantus. So immediately after the last word of the song we started singing Trink, so that we would be finished earlier. And what was funniest of all, everybody followed us. Wilbert was clumsy and broke a glass. As a consequence he had to do an Ad Schoendum, which is drinking beer from a shoe. Well done Wilbert, we enjoyed watching you do an Ad Schoendum. After an evening full of beer, we

Name: Ca s Lu i j te n Age: 18 Begin Studies: 2010

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danced, talked and laughed. But after a while sleepiness took over, so I went to bed. Waking up the next morning, the first thing I did was checking our positions in the competition, which was second place. We, as team 8, were very happy with the second place, but we wanted to win. So we tried even harder today. We had breakfast at 8 oclock, with some lovely boiled eggs! Every team had a chore and our chore was cleaning up the breakfast on Saturday morning. Tired from our cleaning task and from our short sleep, we went to the next activity by bus. We drove through the landscape of Limburg to an outdoor centre. We were welcomed with a cup of coffee and a piece of pie (Dutch: vlaai). At the outdoor centre a morning and an afternoon activity had been scheduled. Our morning activity was divided into two parts: first up was wall climbing, afterwards we played archery. I had never done wall climbing before, so I did not know what to expect. Watching the first people getting up to the top and complaining about sore muscles afterwards, I was not confident. Halfway up, I could not get any higher and wanted to stop. But due to my team members, who supported me by yelling and shouting motivational words, I got to the top. We were very good at climbing, with a result of 4 out of 6 people of our team reaching the top. Our next activity was archery, which turned out to be another of our lesser sports. Some members of Infinitely Twisted could not hit the target, but we did what we could, so I was proud of our team nonetheless. Around noon we had lunch, with raisin bread, colored eggs, tea, coffee and much more. The sun was shining, so we ate outside and enjoyed the weather. Our afternoon activity was not that hard. We had to walk with a GPSsystem: you fill in coordinates and the GPS tells you in which direction and how many metres you have to walk. To find the right coordinates you had to answer some questions. We started off quite well and soon we had walked past the other team, who had started ten minutes earlier. While we were walking the GPS tour, we played the game Geocaching. Geocaching is a game where you hide and seek containers, called geocaches, anywhere in the world. A typical cache is a small waterproof container containing a logbook where the geocacher enters the date they found it and the container contains items (of little value) for trading. We also found a cache in which we found a train ticket, which we traded for a couple of musical points. When we were back at the outdoor centre, there were awards for the best teams. We had placed second of the three activities and had won a small cache, which we can now hide somewhere in the world! When we had returned to our camp address, we were hungry, so we had a barbecue. Dinner was again delicious and there was more than enough. After the barbecue, the scores were updated. To our surprise we had become first. That night, something special was about to happen: we would go to Germany! We were going to a club in Germany, called the Cheetah. I had never been there, but people said it was an amazing discotheque. Everybody did their hair and makeup, and off we went, in a disco bus equipped with a fogging machine and a strobe light. The atmosphere was very good, as we sang some songs in the bus before arrival. That night in the Cheetah was great: there was nice music, nice people and nice dancers. And not to forget: a woman with

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duisenberg School of Finance

enormous fake breasts. Drinks were very cheap, as almost everything cost one euro. All in all, it was a great night at the Cheetah. Back at our house, we chatted, played cards and drank. Some of us did strange things like doing a little dance and saying Jagermeister (the name of an alcoholic drink) or telling a story about Has en Grietje (instead of Hans en Grietje, English: Hansel and Gretel). And there were even people who liked playing a game called throwing yogurt, after which yogurt could be found everywhere, including the curtains. One thing marked that night: nobody went to sleep. Then they told me it was because there is a tradition on the Saturday night of the AMW: The tradition holds that every chairman of a committee can be turned over, while sleeping, by their committee members. Some of the chairmen were afraid to get turned: the result being that Teun slept next to Marleen, to protect Marleen from being turned. I slept next to Danille to protect her.

But Teun, you are a loser! Because when they were at our room to turn people, Teun left Marleens bed. Most of the people who were turned woke up. But the funniest is that some people continued sleeping after being turned, with the mattress on top of them. Speaking of sleeping: the brothers Van Oosten have taken pictures of sleeping people, and made a collage of these photos. Sunday morning it was time to pack our stuff and clean our house. Because we ended up first, we were lucky and we did not have to clean. Therefore we could enjoy the weather and play a card game. After everything had been cleaned, there was an award for the best team of the weekend. We, team 8, had all worn the same green, pink or orange sunglasses during the weekend and therefore we received extra points. However, we would also have won without the extra points, so we were the undisputed winners! Our prize consisted of items for in a swimming pool, like an inflatable

crocodile. This day was a relaxing day, because everybody had lost a lot of energy staying up and turning people. After the awards and after taking team pictures, we went to a swimming pool by bus. When they took our team picture, 2 out of 6 team members had already gone home, so our team picture was incomplete. While waiting for the bus to take us to the pool, we supported some passing cyclists by doing a wave. There were people on bikes who stopped, grabbed their camera and made a movie or took pictures while they cycled through our wave. In the swimming pool we were all tired, so most of us were busy occupying the whirlpool, and at one point we tried to get as many people in the whirlpool as possible, which was a lot of fun! Some members still feel like playing such a game After our swimming adventure, we went back to Tilburg, where, unfortunately, the weekend ended. I can say, on behalf of everybody who participated in this weekend, it was a very tiring, but above all wonderful weekend. AMW committee: thanks a lot! It was a weekend I will never forget! And last but not least I would like to thank my team: you were all great, because otherwise we would not have won!

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ECONOMETriC CHALLENGE TiLBUrG

How many challenges c an you stand?

On a sunny Tuesday morning, 3 May to be exact, i almost jumped out of bed, which is not often the case. This quick wake-up was due to me facing my first challenge of this day: being on time. i dressed up nicely, made some breakfast and eventually mounted my bike and headed to The Harmonie an exclusive location close to Tilburgs central station. ,
The reason for the quick wake-up, suit and location was the second, and main challenge of this day. It was time for the Econometric Challenge Tilburg (ECT ). When I arrived at The Harmonie I was welcomed by two members of the organising committee, Joep Olde Junick and Thomas Geelen. It turned out that I had withstood the first challenge of the day, being on time, quite well, as there was even some time left to have a cup of tea. I formed a group with Jeroen Dalderop and Damiaan Chen and we had subscribed for the case given by OC&C Strategy Consultants. Fortunately, we were also scheduled for this case. The other case was provided by Philips. At around 9:30h, after the chairman of the committee, Thomas Geelen, had officially opened the day, it was time to go to the first floor where the cases were given. OC&C started by giving a presentation about the company and particularly about the work and projects the company is involved in. After this presentation we had some brainstorm sessions regarding how one could make an issue tree, which is the core of the solution to any problem. At around 11:00h we were ready to start with the actual case. The CEO of a candy manufacturer told us, via a video conference, that his company was facing heavy competition. At the moment, the company was making a loss and the CEO did not see any way to turn this loss into a gain efficiently. We were provided with quite some information, both qualitative and quantitative, and the crusade to an answer took off. There was quite a lot off information present, so we started by discussing what our problem approach would be. This discussion was quite a tough one because I had the pleasure of being in a talented team where nobody hesitated to give his opinion. After this discussion we divided the problem into three parts, and every member got his own part for which he was responsible. At 13:00h it was time for lunch, a big variety of delicious bread rolls was waiting for some sixty hungry (double) junior consultants. By 14:00h it was time to get back to business again, we worked on the case for another two hours. By that time every group was supposed to have found some answers and presentations for the board of the candy company were scheduled. I believe it was around 17:30h when the last presentation was finished. Many, many ways were found which could turn the current loss into a nice profit. Work hard, play hard: it was time to finish the day with a drink. During this drink the winners were presented. It was a pity that after all the hard work my group did not see victory, nonetheless I would like to, again, congratulate the winning groups. Furthermore, I would like to congratulate the committee for organising this exquisite day. Although the ECT was already the second challenge of the day, it was not the last one. In the evening it was time for the annual beer race at Caf Van Horen Zeggen. Teams of four were formed and competition surged. I soon realised that I rather enjoy my beer for a bit longer than about 2.3457 seconds and perhaps that was one of the reasons that we did not end up in the final. Excusez-moi guys! Fortunately two teams could stand all the beer and did end up in the final. The winners of this final were awarded with free beer for the rest of the evening. It could not be any more appropriate, could it? How many challenges can you stand? On 3 May 2011 I proved that I can face at least 3 challenges, daily

Name: J oe p He n d r ik s Age: 20 Begin Studies: 2008

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A B anana, a d runk ard and romeo and Juliet

FrESHMEN ACTiViTy

Some people call it a game full of shame, others a game of dare. Some call it a game for students, others a game for fools. Some do not even call it a game, just entertainment. The game i am talking about is Crazy 88. The third freshmen activity took place on 19 April, and all students who gathered gathered in front of Caf Meesters.
Unfortunately, the turnout was a little bit disappointing, but it could not spoil the fun. Since the game leader had suffered a little delay, the participants drank a first beer at Caf Van Horen Zeggen to pass the time. After fifteen minutes, the game leader arrived and the rules of the game were explained. First of all, all students were divided in three groups and each group received a small bag with some chocolate candy for this evening, a video camera and a pen. The idea was that each group had to obtain as many points as possible by performing certain assignments. There were three types of assignments: assignments of 5 points, 10 points and 20 points. The more points you could get for the assignment, the more difficult the assignment was. Each group started with an assignment of 10 points. Every time before a group started an assignment, the assignment had to be announced in front of the camera. Then, the assignment itself also had to be filmed, which often led to hilarious images! After each completed assignment, the group could call the game master, which gave you a new assignment. The pen that each group had been given also had a purpose: each group had to try to obtain a product with the greatest possible value, just by exchanging this pen. Our first assignment was to throw an egg around 15 times. I offered myself as a volunteer for this assignment, so that I hopefully would not have to do some other (nasty) jobs. But it went wrong. Already at the second throw it went wrong, and my head was buried with the contents of the egg. Fortunately, the second attempt (with a boiled egg) succeeded, and we could continue with the next assignment. Throughout the whole evening we have done assignments, such as getting ten people into McDonalds or a tour of at least three minutes through the house of a stranger. This assignment was quite difficult, but eventually we found a slightly tipsy artist, holding a bottle of Heineken in his hand in the middle of the street, who gave us a tour through his work studio and spent many minutes talking about his passion. One of us also had to deepthroat a banana, and we performed a play at the central station of Tilburg. I think the security has never seen such a fantastic performance of Romeo and Juliet! Furthermore, we cleaned some windows, drank a beer in a female student house and members of our group were massaged by ten, sometimes very passionate, strangers. Halfway during the evening there was a little break with a drink and every group had to write a poem (or rap) about their assignments and traded items. These poems had to be performed at the end of the evening along with a presentation of your traded items, which eventually were very original: one group even had a toaster and a huge paving stone! The poems and raps were also very original and during the presentation everyone burst out laughing many times. Our group did not win, but it was a great and entertaining activity. Thank you Freshmen committee!

Name: Willem Jo n g e n Age: 19 Begin Studies: 2010

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SPECiAL

Th e O ri g i n s of th e B l a c k-S ch oles Formula

The Black-Scholes equation appears in a paper by Fischer Black and Myron Scholes that was published in 1973 in the Journal of Political Economy. Fischer Black has stated in a later publication that he had arrived at the equation already in 1969, but at the time was unable to solve it, even though he tried really hard.
He writes: I stared at the differential equation for many, many months. I made hundreds of silly mistakes that led me down blind alleys. Nothing worked. Fischer Black had come into economics from an unusual angle. He entered Harvard University in 1955 as a physics student, but switched to Applied Mathematics for his graduate programme. The PhD thesis that he completed in 1964 was on artificial intelligence, showing the design of a question answering machine. He subsequently joined the consulting firm Arthur D. Little, with the idea of helping businesses to make better use of their computers. It was there that he became interested in portfolio management and started reading the works of people such as Jack Treynor, one of the early proponents of the Capital Asset Pricing Model. Treynor had published a paper in 1965 in the Harvard Business Review, in which he argued that there should be an adjustment for risk in assessing the performance of portfolio managers, since, due to the presence of a risk premium, more risky portfolios will on average have better returns than less risky portfolios. Fischer Black liked the cruel truth, as he called it, that higher average return only comes at the expense of higher risk. He tried to apply the idea in several areas that interested him, such as monetary theory, business cycles, and the pricing of options and warrants. Warrants are financial instruments that are similar to options: they give the right, during a certain period, to buy a given number of units of stock of a certain company at a stated price. The difference is that warrants are issued by the same company that also issues the underlying stock, whereas options are traded on an exchange. For the purpose of pricing, however, this is inessential. During the 1960s warrants were more liquidly traded than options, so that papers discussing the pricing of such instruments were usually stated in terms of warrants rather than options. Among those who were interested in finding option pricing formulas was Paul Samuelson, one of the great minds of the 20th century, who in 1970 became the first American to receive the Nobel Prize in Economics. Samuelson had done a bit of trading in warrants on a private account already since 1950, without making a lot of money though. Around 1952 he became aware of the work of the French trader and mathematician Louis Bachelier, who had connected the theory of Brownian motion with financial markets in his thesis presented at the Sorbonne in Paris in the year 1900. Even earlier, in 1880, the Danish actuary Thorvald Thiele published a paper on the least-squares method in which the stochastic process appears that we now call the Wiener process or Brownian motion. Bachelier, however, was not aware of this work and developed the theory completely by himself, including the connection to partial differential equations which was to be rediscovered, again independently, in 1905 by none other than Albert Einstein. Options were traded at the Bourse at the time, and Bachelier derived an option pricing formula. It was not only the option pricing formula that drew Samuelsons attention, but also the mathematical setting that Bachelier had used. Samuelson noted that the Brownian motion process as used by Bachelier (also known as arithmetic Brownian motion) would not be suitable as a model for stock prices, since it may well take negative values. Famously commenting that a stock might double or halve at commensurable odds, Samuelson proposed a model in which the logarithms of stock prices

Name: H a ns S c humac h e r Position: Full Pro fe s s o r

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follow a Brownian motion process, rather than the prices themselves. Thus appeared the geometric Brownian as a model for stock prices. Nowadays this model is usually referred to as the BlackScholes model, since it serves as the basis for the Black-Scholes equation and the Black-Scholes formula for option prices, but it would actually be more appropriate to refer to it as the BachelierSamuelson model, since it arose as Samuelsons modification of Bacheliers original proposal for the modeling of stock prices. We can then still abbreviate it as the BS model. The theory of Brownian motion was

made mathematically rigorous in the 1930s by Norbert Wiener, and during the 1940s and 1950s the theory was expanded to a great extent by Kiyoshi It, who developed a stochastic calculus that could be used, for instance, to formulate stochastic differential equations. Samuelson, not feeling quite confident in the use of the new calculus himself, wrote a paper on the pricing of warrants in 1965 in collaboration with Henry McKean, his colleague from the MIT mathematics department who in the same year published a book on diffusion processes jointly with It. Despite the strong mathematical foundation, the pricing formula that Samuelson

obtained in this paper was still not satisfactory, since it contained some undetermined parameters. In the 1960s, several other pricing formulas were proposed, however, they all suffered from the same problem. Samuelson was well aware of the deficits of his formula. Looking for someone who could support him in the further mathematical developments that would be needed, he was happy to notice among the participants in his graduate course in 1967 a student who had just come in from California Institute of Technology as a result of a switch from applied mathematics to economics.

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Flow Traders

In the spring, Samuelson hired the student, whose name was Robert C. Merton, as his research assistant, and in the summer he proposed that they would write a joint paper on the pricing of options. The paper appeared in 1969; it eliminated the undetermined parameters of Samuelsons earlier paper, but only at the expense of invoking an explicit description of the preferences of agents by means of utility functions. In October 1968, when Samuelson was announced to deliver the main lecture at the inaugural session of the MITHarvard Joint Seminar in Mathematical Economics, he surprised the luminaries in his audience by instead giving the floor to his 24-year-old PhD student, in order to present their joint paper on option pricing. Merton later recalled that this experience at once cured him from any trepidation for audiences. Myron Scholes arrived in the Boston area in the fall of 1968 as a starting assistant professor at MITs Sloan School of Management, having just completed a PhD at the University of Chicago under the direction of Merton Miller. One of the people he made contact with in his new environment was Fischer Black, who was a regular visitor at Franco Modiglianis Tuesday night finance seminars at MIT, and whose office at Arthur D. Little was located close to the MIT campus. When Wells Fargo, one of the most innovative banks at the time, offered Scholes a consulting position, he suggested that they would hire Fischer Black as well. As a result Black and Scholes came to meet regularly, be it no longer at Arthur D. Little but rather at Blacks own consulting practice which he had started after quitting his job at ADL. The two men talked about many things, but not about options at first. Then, sometime in 1969, Black showed the equation he had derived to Scholes, and discussed with him the remarkable

fact that the expected return on the underlying stock plays no role in it. From this observation, they concluded that candidate solutions to the equation might be found from simplified versions of the option pricing formulas that were already around in the literature. And indeed, working from a formula that was developed by a Yale University graduate student, they arrived at the solution. They had found an option pricing formula that, unlike its competitors, was stated directly in terms of observable quantities. Fischer Black had arrived at his option pricing equation through an application of CAPM. When Bob Merton came to know about the equation, following a presentation by Scholes at the second Wells Fargo Conference on Capital Market Theory in July 1970, he was skeptical. He could not believe that a static theory like CAPM could be reasonably combined with a theory of continuous or near-continuous trading. Thinking about it some more, he found a different argument leading to the same equation. On a Saturday afternoon in August, he made a phone call to Scholes and said: You are right. As they say: the rest is history. Black and Scholes wrote their paper on the option pricing formula and submitted it to the Journal of Political Economy where it was promptly rejected, without even being sent out for review. Subsequently, they sent their paper to the Review of Economics and Statistics, only to have it returned in the same way. At that point, Scholes former PhD advisor Merton Miller and his colleague Eugene Fama stepped in: they convinced the editors of JPE that the paper might be worthwhile after all. The paper was accepted subject to revision in August 1971, and it finally appeared in 1973, as it happened one month after the Chicago Board Options Exchange had opened for business.

Soon, the Wall Street Journal would carry advertisements for calculators with the Black-Scholes formula built in. The main argument presented for the Black-Scholes equation in the 1973 paper is the one that was provided by Merton. Blacks original argument is given as an alternative derivation. Merton provides yet another derivation in a paper published in 1977, which is only for the better, since the argument as used in the 1973 paper would be considered rather dubious by current standards. Major steps towards the completion of the theory were taken by Michael Harrison together with David Kreps in 1979 and together with Stanley Pliska in another paper published in 1981. In these papers one finds the notions of self-financing strategy and equivalent martingale measure that are lacking from the original option pricing papers, and that are essential for a full development of the theory even though Harrison and Kreps themselves refer to the EMM as a somewhat abstruse concept. Other researchers have expanded the theory further, both strengthening its foundations and extending widely its domain of applications. Fischer Black died of cancer in 1995. Myron Scholes and Robert Merton received the Nobel Prize in Economics in 1997. These three men have been pivotal in the development of a theory that has fundamentally transformed the world of finance. references Capital Ideas, by Peter L. Bernstein (The Free Press, New York, 1992) Fischer Black and the Revolutionary Idea of Finance, by Perry Mehrling (Wiley, Hoboken, NJ, 2005).

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iNTErViEW

The Black-S choles M o de l in Contex t

The Black-Scholes option pricing model, first published by Black and Scholes in 1973, has had a major impact on financial markets and option pricing. in 1997 Myron S. Scholes and robert C. Merton were awarded the Nobel Prize in economics for a new method to value derivatives Fischer Black would have shared the prize if he had still been alive at the time. .
Nekst has had an interview with Robert C. Merton, MIT Sloan School of Management Distinguished Professor of Finance, about the time that he worked on the proof of what is today known as the Black-Scholes model. Professor Schumacher kindly wrote an article about the origins of the Black-Scholes formula which can be found on pages 36-39. This article can be considered as background knowledge which can be useful when reading the interview with Robert Merton below. dynamic portfolio optimization. So that is the background. As I said, I was working on warrants and options, which we would now call derivatives, first with Paul and then on my own. In 1969 when I was finishing my degree to take a job in 1970, Franco Modigliani suggested to me that perhaps I would like to stay at MIT on the faculty at the Sloan School of Management. I found it very interesting since my research was going so well at MIT. So I went to see who the other Professors were and that is when I met Myron Scholes who was a young assistant professor from the University of Chicago. When I joined the Sloan faculty in the summer of 1970 I had discussions with him about what he was working on. He was mostly pursuing empirical work, but he also had this project with Fischer Black on option pricing. Gradually through time he told me what they were trying to do and the idea of employing a dynamic trading strategy to create a hedge portfolio to hedge out the risk of an option using the underlying stock and cash. Initially I was skeptical that they could get pricing to work this way, because options are nonlinear functions of the stock price. But then I put it into the context of the continuous-time, continuous-trading model that I had been using to model optimal dynamic portfolio strategies. When I tried their proposed hedging strategy in the context of my continuous-time technology I found out that it not only worked, in fact, it worked even better than they had thought. My contribution relative to theirs was that they had the idea of using a dynamic strategy to hedge the systematic (aka beta) risk of the option and, thereby derive a pricing formula based on the equilibrium CAPM. I was able to show, provided you could trade very frequently,

Name: Robert C. M e r to n Position: Distinguished Pro fe s s o r o f Fi na n ce

During the time that Fischer Black and Myron Scholes were working on their formula you started working in the same field. Later you found out what Black and Scholes were doing. Intense discussions on the model followed as Black and Scholes based their solution on the Capital Asset Pricing Model. How would you describe this time working with Black and Scholes and how did these discussions develop? Well as a bit of background, I was a graduate student at MIT and had basically lived in Paul Samuelsons office as his research assistant. In my first year he hired me and we did research together. Our first research paper was on the pricing of warrants, based on his earlier papers. I had been involved in trading of warrants, convertible bonds, and options in real-world markets. The other research problem I started to work on at that time which is relevant to where things went was lifetime consumption-portfolio optimization, how over a persons lifetime they would optimally consume and allocate their investments across risky assets and the riskfree asset through a lifetime in an uncertain world. I developed and published models on that problem and to do that I discovered a mathematical tool, It calculus, for modeling the actual sample paths that portfolios might follow, not just their expectations but their realizations. I used it to build models of a

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that you could essentially create a zero-total-risk portfolio that did not depend on any equilibrium model, but it depended on the much weaker condition of no arbitrage. Furthermore, since you can get rid of all the risk, you must have a portfolio strategy that exactly replicates the pay-off of the option. Fischer Black and Myron Scholes worked together and I worked by myself. Of course Myron Scholes and I were in the same department and we talked, but we never collaborated in the sense of sitting around a table with the three of us and having conversations on the modelling. It was more that we were working in parallel and it was Myron Scholes whom I talked with. It was a very magical time for doing finance research. This breakthrough opened the door to a vast cornucopia of research problems which could be solved with the replicating portfolio approach. I had the great good fortune to be at its beginning and to help develop some of this technology. There were new research papers to be written every day. During the period working on the BlackScholes model, what did an average day look like? I lived in an MIT apartment building 50 meters from my office and so I did all my work in the office. I worked on my research and I did teaching and wrote teaching notes. Some might call it work, but it was fun, it was exciting. You are trying to find the answers to puzzles and challenges. I would never get it out of my mind because I was always thinking there were more exciting things to discover. There were more interesting problems to work on than there was time to do so. I was not a workaholic; it was more that this was exciting and interesting. Who would not want to do it?

We have read that Black recalled: Though the search for the formula was an academic search for truth, we did try to use it to make money. Was this a real motive to work on the model, or was it simply a sidetrack? The direct answer is that making money was just a sidetrack. That said, I had always been involved in the market. I bought my first share of stock when I was ten years old and I used to trade the stock, OTC option, and convertible markets when I was a student at California Institute of Technology before I came to MIT. Markets opened at 9:30h in New York which was 6:30h in California, so I could trade them a couple of hours before going to classes. So I was very much involved in practice before I even studied economics. It was true that I did trade, but the prime motivation for working on the optionpricing problem was not to make money. It was an intellectually challenging problem, it was fun and interesting. For instance, it never occurred to us to keep our finding a secret and not put it in the public domain and publish it. Fischer Blacks remark was probably referring to one specific warrant trade that we did, which had an object lesson in it. You are responsible for labeling the BlackScholes model for the first time as to what it is called today. Black said on the paper he published with Scholes that It should probably be called the Black-MertonScholes paper. After helping them in

solving their problem of derivation, did you ever talk about this name with either Black or Scholes and to what degree do you see it as their intellectual property? The answer is, no, I never talked to them about it. First of all, I named it. It would be rather pretentious to name a model and put your own name on it, I think. They had the original idea of dynamic trading as a way to get to a solution. My contribution was to show that the whole idea of replication, the result, was much greater, more general and more robust than they had imagined. I did make a fundamental intellectual contribution, but the dynamic hedging approach certainly was their idea. When working on this model, did you at any point have the feeling that it would become one of the most well known models in finance and would earn you even the Nobel Prize in Economics? Well, I did not expect to win the Nobel Prize. I did know that it was a pretty neat piece of work. I never thought about it earning a Nobel Prize. With any singular prize there are going to be many more people who are fully qualified to get it than do. There is one Nobel Prize a year, sometimes they share it with two or at most three, and you have to be alive to get it. So when you think of the whole world and of new ideas coming along all the time, it is rather nave to think: I am going to get a Nobel Prize for that. Even if you believe that the work is of such quality and impact that you would qualify, the odds of you receiving it would still be rather low. If ever you would write an autobiography, where would you lay the focus on and in what perspective would you place the period of working on the Black-Scholes model? That is a fair question. It has always been a little bit uncomfortable for me to think about writing an autobiography, but if I were to write one, I think that it

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Ortec Finance

would be focused on the professional part of my life. So it would be a professional autobiography and not a personal one. There is no question that the period from the time I arrived at MIT and became engaged in the subject in an active way until the end of the 70s was an incredibly productive period. That part would be a very big part of my autobiography, because that set my whole mind in the way I would be going forward. I think I grew over the years and I expanded my interest to a broader set of financial research interests, but clearly the most important and intense period were those 10-12 years starting when I was a graduate student at MIT. Are there any persons you admire? If so, who and why? There are many people I admire along various dimensions. I hesitate to respond because I fear I might leave out those who I should mention, not because it is proper, but because they deserve to be. Obviously a very big impact on my professional life was Paul Samuelson. I was his student, he was my mentor, we were co-authors, and we were colleagues and friends for over forty years. My father was a very important influence on my intellectual life. In terms of impact, I would say my father and Paul Samuelson were the most influential. What advice would you like to give the students in econometrics at Tilburg University? There is a very exciting world of quantitative economics and finance out there with a great number of important-to-society and challenging

problems to solve. The combination of technology and mindset is having profound changes on how we do things. Having the quantitative skills and techniques is the way the world is going. It is not a question of whether you can be quantitative or not, you have no choice. The ability to use modeling is not an aside. You build models to implement solutions and then you monitor the models. It is a little bit like flying jet planes. They are going so fast that it is not possible for a human to directly fly the plane, but the human can monitor the computer models and override them when they make mistakes or are incapable of handling the situation. And that offers a good lesson for our field of finance. As a result of the crisis we hear much talk about good models and bad models. A good model or bad model is not well-defined. What is welldefined as good or bad is a model, the user of the model, and the application of the model; taken as a triplet. And that triplet is what has to be evaluated. A model in the hands of the right person can do great things; in the hands of the wrong persons it can do very poor things. I use the air plane pilot example as a metaphor for understanding this point. A good pilot is not Tom Cruise in Top Gun, a good pilot is a pilot who understands the computer model operating the plane so well that when he is working with the model, he knows when the model is outside the range of things that it can handle. Then a human being takes over because a human being is the best decision-maker we know for unstructured situations. That is more important than having

courage or physical prowess. Students need to think about the interfaces of their models. The models are not standalones, they are tools. They have to be crafted to meet the needs of the user and the application. Given the model, you need a properly trained user. You have to specify, it has to say: only a person who knows this should use this model. That is a very important element. We have read that you will never retire and today you still teach students and do research. What drives you to keep doing this and what is the main point of focus in your current research? Why would you ever want to retire from this? It is exciting, it is a global subject and it is high-tech. If you do it well it is not only intellectually challenging, but you can have a positive impact on potentially millions of people for decades. Right now, I am actually working on the practical implementation of my research on the next-generation retirement funding solution. In fact, I have been to Holland quite a bit to talk about it to the authorities and have implemented it there. One of the things I am also doing, and an important reason I came back to MIT, is working on a new teaching program, Master in Finance, to produce a much larger number of highly trained finance professionals. I want to flood the world, not just in the private sector, but in the public sector as well, with highly trained young people. That is what the answer to solve the financial challenges we currently face is going to take.

There is a very exciting world out there

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Tr y b efore you die!

VOLLEyBALL TOUrNAMENT

Probably all of you are already familiar with the main annual event of the southern parts of the Netherlands: carnival. This event, mostly celebrated in Noord-Brabant and Limburg, is meant for people of all ages, thus including students. Therefore the carnival volleyball tournament and the Asset pre-carnival party were organised, about which i will relate my experiences.
The day started as too many days do, with me getting up way too early in order to follow some lectures. I did not immediately know it was a special day, but slowly it occurred to me: tonight it is carnival! This, of course, greatly improved my mood, so by the time I was finished with my classes I was ready to party. Since carnival is not the same without the crazy costumes, I had to change before the tournament. After I put on my sisters bright pink reindeer pyjamas and Betty Boob T-shirt the first problem arose: due to technical difficulties with my shoes (the pink shoelaces would not fit) my outfit was not complete, but fortunately no one noticed. The first thing I noticed when I arrived at the sports centre was that everyone was dressed up in nice costumes, even the boring people from the north who do not even know carnival. Of course, there was also plenty of beer and carnival music available, so it promised to be a fun evening. After I met with the other members of my team it was time for our first match. We went to the field on which we had to play and reminded each other of the rules, after which the tournament really started for us. The matches were, of course, fun to play and sometimes even more fun to watch. This was because of the costumes, but also because, as the evening passed and the floor got more and more slippery due to spilled drinks, even standing up seemed to be a problem for some people. The last could also have been caused by the amount of alcohol consumed, but whatever the reason, it was fun to watch. Our team almost made it to the finals. There was only one small problem that kept us from the championship: we did not win enough games. During the games we also made some small mistakes like allowing the other team to win a series of more than fifteen points during their service and playing the ball away from the net instead of over it, but that could have happened to anyone. Because we did not even make it to the quarter finals, I left early in order to go to the pre-carnival party. The Asset pre-carnival party was one of the few pre-carnival activities that evening in Tilburg. While I walked from the car park to caf Polly Magoo where the party would take place, I saw almost no one dressed up for carnival. Luckily this changed as soon as I arrived at the party. At the Polly everyone was dressed up and the party was in full swing. Of course, here there was plenty of carnival music and beer, although the free barrels were already empty by the time I had arrived. All in all, there was a great ambiance during both the volleyball tournament and the party, and everyone had lots of fun. When I had to go home I was understandably upset, but since I had classes the next morning there was nothing that could be done about it. One last piece of advice from me: participate in the carnival activities next year, you will not regret it!

Name: Joep Olde J un i c k Age: 20 Begin Studies: 2009

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Econometrics 1 in Prac tice

COUrSE EXCUrSiON CPB

Halfway the second semester on a Thursday afternoon, the Netherlands Bureau for Eocnomic Policy Analysis (CPB) was so kind to have us students over to tell us something about working there. A course excursion to The Hague for the course Econometrics 1 was born and a lot of students participated to see where econometric models become reality.
After a long train trip we arrived at the oldfashioned, but grand office of the CPB where we were welcomed with some coffee and tea before the body of the course excursion started. The afternoon consisted of three parts, namely: introduction of the CPB, the models that are used and how they are applied and lastly, with the gained knowledge the students were to solve an actual case. The introduction of the CPB was quite elaborate, but very clear. It was also quite realistic since it contained many of todays numbers on the Dutch government policy. The drawback was, however, because so much time was spent on the current situation, that the models behind the predictions were only mentioned by name; SAFFIER, MIMIC, etc. were not explained. Of course it is not possible explain such complex models completely, but I would have appreciated it if more courserelated content had been treated. rise in inflation, because of recent oil supply shocks. By being provided with some output from the SAFFIER II model we could see what measures had what kind of effect on certain parameters, like interest and unemployment levels. I can speak for several others when I say the assignment was not very difficult once you understood the point. This was, in my opinion caused by the large connection with economics from secondary school. Your intuition would confirm that higher oil price would cause inflation. Another note on the case was its unrealistic assumption of linearity of measures: any linear combination of measures would have the same effect as the linear combination of the effects of these measures separately. As for myself, I cannot believe that the negative of a measure would have exactly the same opposite effects. Since nearly all solutions used these linear combinations I doubt the credibility of the advised measures. But in the end, the afternoon gave me a good impression on the way a huge excel file, produced by the models created at CPB, was used to argue for certain measures in the Second Chamber and dealt with hot topics. The afternoon ended with a few drinks and snacks which had been very well taken care of by the CPB, I shall not forget the cold fresh orange juice together with the wraps served. I did leave early since I had other things to attend to, but the atmosphere was nice when leaving the room and saying goodbye to all.

Na me: Jor is Blo n k Age: 18 Begin Studies: 2009

For the case at the end of the excursion we were to find a proposal on how to prevent a further

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Q uar ter of a Centur y M an not P lanning to Leave S o o n

THE TEACHEr

For the last edition of this years Nekst, we decided to interview a long tenured professor. We meet up with the Program director of the MSc Economics and Finance of Aging, among many other things, Prof. dr. B. Melenberg.

Name: B er t ra n d M e le n b e rg Position: Full Pro fe s s o r

An easy choice Professor Melenberg was born in 1961 in Emmen. Despite childhood dreams of being a railroad engineer, it was clear to him in his last year of high school that he was going to study econometrics. About his choice he remarks: In high school we had an economics teacher who stimulated everyone that liked mathematics and economics to study Econometrics. Professor Melenberg was sold after visiting an open day, but looked at some accounting studies as well as he was advised to do this by his parents. His final choice speaks for itself: I do not think I have to explain a reader of Nekst why I chose this beautiful study. Being from Drenthe, the choice for Groningen was purely a practical one. It was a great time because you learn so many things, aside from studying as well. Back then, there was no Econometrics & Operational Research as we know it now. His study was called General Econometrics. I loved Econometrics right away, although it was quite a shock when we started mathematics. I remember we joined the physicists for our Mathematical Analysis lectures. With all these epsilons and deltas it was so different from what we had seen in high school. Although professor Melenberg was not an active member of the study association, he did occasionally join trips or activities. He had some jobs during this period, such as in a hospital, but nothing study related because this was not very common during that time. He finished his studies cum laude after five years. Comfortable in Tilburg After his studies, he preferred to stay connected to a university but did not stay put in Groningen. I could not stay in Groningen due to a lack of space. I had been student assistant for two people who are professors now, who were to graduate under supervision of Arie Kapteyn. They knew that he was still looking for someone to join his group in Tilburg. I also had an opportunity to become a

PhD-student at the VU in Amsterdam, but almost everybody advised me to go to Tilburg. And so he did, joining Arie Kapteyn as a contract researcher. Because it was not entirely what he had expected, Arie Kapteyn and Theo Nijman applied for an NWO (Netherlands Organisation for Scientific Research) grant for professor Melenberg and reeled it in. From there he went from PhD-student to full professor in Econometrics and Finance capping a 25 year tenure at Tilburg University. A multitude of walks Part of the reason for working at the University for so long, is that he has found his wife in colleague Anja De Waegenaere at the Econometrics department. They live in a home between the university and the Bredaseweg, which is at walking distance from the University. During the day he often goes back home, but not to have lunch. We have a dog and it needs to be walked at least three times a day, so it comes in handy that we live close by. In our free time we like taking walks or enjoying the comfort of our own backyard. We do not really go out on exotic trips to Indonesia or something like that. Together they discuss research and many other things. They do some research together as well such as on longevity risk, and supervise some PhD-students. Doing research together is a lot of fun, but of course it is also possible that we do not agree on certain topics, he adds with a smile. We obviously take our work home because it is natural. Every other couple will talk about their jobs at home, it just so happened we work at the same place. Mixing it up is the key Applied Econometrics is the mainstay of professor Melenbergs work, so it is hard for him to say what the most important developments are in his field, because it is so general. For example, he teamed up with colleagues professor Magnus and Chris Muris to estimate a simplified climate model

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Bertrand Melenbergs choices:

Bert or Ernie? B er t Education or research? R esearc h Computer or Pen and Paper? Com p ute r Theory or Practice? Prac t ice Student or Scientist? St ud ent Tilburg or Groningen? Tilb urg Calculator or Mental Arithmetic? M ent al a r i t h me t i c Pension or insurance? Pension Carnival or Christmas? C hr ist m a s

using econometric models. I think we got some good results, so now we hope they will put it to good use in the climate world. Something that keeps him going is his hunger to know more and more, illustrated by piles of paperwork on and around his desk. During my studies I got the idea that I started to understand certain things, but that turned out to be quite deceiving. I work here five days a week. When there is a lot of work to be done I work some more. When my duties are a bit less I work a lot. Research is something that keeps him busy day and night: If you like what you are doing, you automatically start investing more time in it. When you are doing research it always keeps you busy, whether you are at work or at home. The thing he enjoys most is the combination of tasks. Research is a lot of fun, but it is also a lot of fun to educate the next generation. Working with econometricians is especially a thrill because I can relate to them; every formula given is one too little. Besides that I like having the opportunity to improve certain things if possible being a program director.

Track between Tilburg and Groningen Though professor Melenberg likes mixing it up when it comes to his tasks, he has never left the University for a change of scenery. There have been opportunities to work somewhere else but due to circumstances I have stayed at Tilburg University. Working at a bank or other company is not something he aspires because you lose some of the freedom as a researcher. At a university you can do research on what you wish, whereas at a company you do research on what the company finds interesting. Besides that, there is another aspect: I do not think I would be able to be a fulltime researcher. I enjoy the combination of being an educator, researcher and program director. It is the combination that makes it a lot of fun. There are a lot of jobs I would like to try, but if I had to choose again I would end up where I am now. Perhaps being a railroad engineer between Tilburg and Groningen would be interesting for a change! Text by: Corn Ruwaard

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Why yo ung Peop le Should J oin i n t h e Pension S chem es debate

SCiENTiFiC ArTiCLE TOWErS WATSON

Most young adults have an inadequate understanding of how pension schemes are
Pension agreement: Employer and employee representatives concluded the pension agreement just before the elections in June 2010. The government is not obliged to adopt the agreement but social pressure to do so is enormous. The pension agreement includes the condition that the retirement age should depend on life expectancy, which shifts the risk of long life expectancy from the pension fund to the participants.

funded. A lot is asked of them in the name of solidarity, without them being asked what they think about it. This article makes clear that it would be advisable for young people to participate more emphatically in the pensions debate.
Everyone knows that pensions are important. It would be difficult for employees to bear the risks associated with old age, occupational disability and death as individuals. That is the purpose of insurance policies, in which the risks are shared according to the principles of actuarial mathematics. Pensions involve more than just insurance techniques. Consider the benefits of a group scheme for example. Sharing the costs of administration and asset management with a large group creates a higher value for each euro paid in pension contributions. It also creates solidarity. Solidarity means that income is transferred from one group to another. This article specifically examines the solidarity between young people and old people. This type of solidarity occurs in almost all group pension schemes and very few young people ask any questions about it in practice. The question is whether they ought to. Judge for yourself. Many group pension schemes are funded on the basis of a flat-rate premium. A flatrate premium is a premium derived from a fixed percentage of the basis of the premium calculation, which is independent of the age of the individual employee. The premium is based on the weighted average age in the group of participants who pay premiums. Consequently, the premium an employer pays for an older employee on a given wage is the same as that for a younger employee, and the employees own contributions are age-independent. On an actuarial basis, the flat-rate premium for a young person is higher than necessary for the pension entitlement of the young person concerned. The reverse is true in the case of an older employee. It is a fact that everyone grows old and benefits from the system, is it not? That would be true if you always remained in such a pension scheme but that is increasingly not the case. If you change jobs and start working in a scheme that lacks that solidarity, you only have contributed. The same applies if you no longer participate in the labour market or become self-employed. Moreover, cutbacks are made in pension schemes over time. In your time as a contributor you contribute towards a more luxurious scheme than that which you receive. The past provides ample evidence of this. You contribute towards schemes for a final salary pension, early retirement pension, and prepension without being eligible for it yourself. This type of solidarity continues in entire business sectors in the Netherlands, through the company pension funds. Consequently, businesses with a relatively young workforce (perhaps young business start-ups) are contributing towards businesses with a relatively old workforce. Is this idea still justifiable in 2011? The principle of the flat-rate premium was maintained in the Pension Agreement signed by employer and employee representatives on 4 June 2010. Therefore, young people continue to pay for elderly people. The Goudswaard Committee, which advised the Minister Donner on the pension systems sustainability, recommended that this question be examined thoroughly. Employer and employee representatives have acted hardly at all on this advice. As mentioned, questions arise about solidarity of this kind on account of increased labour mobility. That is, of course, unless you believe that this type of solidarity is acceptable for idealistic reasons, as do many older trade union members and representatives, who are less mobile in the labour market. Employer and employee representatives want to make the date on which the pension commences dependent on the change in life expectancy. If everyone lives longer than

Flat-rate premium: A flat-rate premium is a premium derived from a fixed percentage of the basis of the premium calculation, which is independent of the age of the individual employees.

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expected, the retirement age will be adjusted automatically. The expectation is that old people who are close to retirement age will not be affected. Naturally, people who have already retired will also be unaffected because a pension that has already been paid for cannot be taken away. However, the entitlements of the young people will be set at the new retirement age, with retroactive effect. This reduces the value of the pension entitlements of young people. This places leverage on the solidarity from young to old. Is that a good idea? Another component of the Pension Agreement is that state pension benefits will be linked to wage developments. This is not the case at present. Consequently, the state pension will increase at a faster rate. Because state pension benefits are funded on the basis of apportionment, the bill is expected to be paid mainly by working people. The question is whether this is fair. Social insurance costs have to come down to ensure that the Netherlands is not priced out of the market, vis--vis competing countries. Employer and employee representatives also assume that certain cutbacks in pension schemes will not lead to a lower premium. The savings are supposed to be deposited in the pension fund, so that the indexation capacity can be increased. This is a saving at the expense of working people which will largely benefit non-working pension fund participants. Have young people been asked specifically whether they agree to this? When pension schemes become cheaper, it would be reasonable for the pay bargaining range to benefit working people, without any shift to elderly people. It should be remembered that the pension schemes of many elderly people were previously much more favourable than those of today. There are good reasons why the present generation of retirees are on average better off than working people. This is partly because of the favourable tax regime for elderly people. There is an observable trend towards replacing defined benefit schemes with defined contribution schemes. On the grounds of tax legislation, premiums paid by and for employees

are graduated. The premium percentage that is permitted to be paid increases in accordance with the increase in the age category. Elderly people therefore get a higher premium than young people, even if their job and salary are the same. This is a permitted form of age discrimination. Nevertheless, it is discrimination. In many other countries with defined contribution schemes, an equal percentage of the basis of the premium calculation has to be paid by everyone to prevent discrimination and agerelated, graduated schemes are prohibited. In the Netherlands, the legislator in fact prescribes a form of solidarity. Is there nothing that can be done about this? In any event, nothing can be done if young people do not make themselves heard. We all have to work longer because people are living considerably longer than when the pension system was designed. If, soon, we all have to work to the age of 67, it is important to ensure that elderly people do not become unnecessarily unattractive for the labour market. Pension accrual for elderly people is expensive, and high pension contributions specifically for elderly people will squeeze them out of the labour market. In my opinion, the solution is not that elderly people should be made artificially cheaper at the expense of young people. It would therefore perhaps be better to spread the costs of pension accrual over employees careers more evenly. This would give young people more than they get now and elderly people somewhat less. A group scheme is important to keep pensions affordable. Group members are stronger collectively and pension funds, of companies or otherwise, can play an important role in this. But that has to be on the basis of complete transparency about the costs and performance of pension fund administrators. No unnecessary complexity please, but simplicity, efficiency and predictability. Todays students have the wonderful task of putting their own mark on this in the future. There is ample scope to work on innovation and plenty to think about. Text by: Towers Watson

defined benefit scheme: The defined benefit scheme is the most common type of pension in the Netherlands; the scheme is based on the benefit being guaranteed and the premium that has to be paid for it may fluctuate. The risk is often borne entirely by the pension fund. defined contribution scheme: Defined contribution schemes are on the rise in the Netherlands; these schemes are based on the premium being agreed in advance, for a number of years, and the resulting benefit may fluctuate. The benefit actually depends on the investment return and the interest rate. The risk therefore shifts to the participant.

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Towers Watson

Co cktails at Havana
ACTiViTy & LECTUrE driNK

What is a better place to enjoy a cocktail than at a pub based on the capital of Cuba, caf Havana? And even better, get the chance to make them yourself? On 5 April, Asset | Econometrics organised an evening with cocktail workshops in combination with a nice dinner and a lecture by Micompany.
At half past seven, we were expected to be at caf Havana. The theme of the night was Hawaii. To contribute to this theme, Hawaiian flower necklaces were handed out at the entrance of caf Havana. Even though I do not like themes, it looked good to see everyone wearing the necklace. People found a place to sit and started chatting with their friends. After everyone had arrived, dinner was served, while chatting was continued. When we had finished our nice dinner, it was time for the cocktail workshop. After chairs and tables had been moved, the workshops could start. The group was split in two, and our group started with a cocktail named Azurro. First a woman showed us how to do it, and then we were allowed to try it ourselves. After the first two people had made their cocktail, it was my turn. The cocktail was a combination of Safari, Pisang Ambon, Blue Curacao and pineapple-juice. With some help, and a lot of giggling, it even turned out being a not so bad tasting cocktail. Now it was time for the next cocktail, the wellknown Mojito. Because we were running out of time, we had to make them in groups of two. I watched as my group mate followed the instructions. Meanwhile we hummed the well known Mojito song known from the television advertisement. Sugar, mint, and of course, not to forget, rum! A slice of lime on top, and there it was, our Mojito. After taking a sip, we were really surprised. After the Azurro had been really sweet, this tasted completely different. Even though you had to add a lot of sugar to it, it was not sweet at all. We decided we liked the Azurro better. Because we were already about an hour behind on schedule, we did not have time to completely finish our Mojito. We grabbed our stuff and started our way to the pub Van Horen Zeggen. Here, two employees of MIcompany were already waiting for us. To get to know MIcompany better, they had set up a game with questions. They handed out caps. To choose one of the two answers to the questions, you had to put your cap on or leave it off. At the end of the questions, three people were left. A last question was asked, and the person with an answer closed to the solution, would win. Marlies won, and they handed her the book Freakonomics. The lecture was actually pretty interesting. A lot of econometricians work at their company. Besides this, they have something called MIacademy. With this, employees get the chance to continue learning while already working. After the lecture ended, it was possible to ask the employees of MIcompany questions, while we all enjoyed a nice drink. To conclude, it was a nice evening.

Name: M ar jolei n K ro o n Age: 20 Begin Studies: 2009

Whether it was the alcohol or the excitement, as time passed, ice cubes and liquids started being forgotten. Cocktails turned out being blue instead of green. But nevertheless, they still tasted good. Before we knew it, our glasses were empty.

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51

EXCHANGE rEPOrT

UvT S een by the O ther Side

i was in a decision process, tough call which university to choose to go on Erasmus Exchange program to. in the midst of the brainstorming the word criteria was crucial. Academic reputation, quality of education, professorssuggestions, location of the country, culture embedded within the society, entertainment, networking potential, etc. My conclusion was Tilburg University.
Soon I, Gustavo Nunes de Almeida, student of Economics (3rd year Bachelor), 20 years old, packed my stuff and arrived at Tilburg for the Spring Semester 2010-2011. ESN and the International Programmes Office jointly provided us the best welcome events, including a presentation by the Rector Magnificus, Prof. Dr. Philip Eijlander, walks around the campus, language and cultural workshops, IT help, sports divulgation, City Hall reception, Beer Cantus, Welcome Weekend, and more. The beginning was exceeding my expectations: so many activities, effort and care to receive and integrate the exchange students in the city of Tilburg and in the social life here. update my agenda and Tuesday evenings and Wednesday afternoons were designated to leisure. Everything started with a dinner with the respective ESN group (an average of 12 students and 3 ESN mentors), where a couple of students had the opportunity to show their national cocina (English: kitchen) and cooking skills - sorry, I just love this Spanish word - and finally LG time with the whole ESN group! Funny to remember all the music, smiles, love, drinks, behaviors, moods and disguises on those nights! I got used to it (did I create a routine?) and took advantage to know as much people as possible,

Name: G u s t avo Alm e i d a Age: 20 Begin Studies: 2008

Tilburg was my home

The classes started and there was time to make the right choices in terms of courses. The available set is so huge (counting all University Schools) that one might get lost. Best strategy taken was to be present in all the first classes of the courses that raised my interest. My mind cleared up the goals, issues and tools applied in each courses, so the decision became easier. I decided to take a mixture of Statistics applied to Business Decisions with Interdisciplinary Economics and Functional Business Administration (mainly, the International Entrepreneurship provided by Brabant Center of Entrepreneurship (BCE) for foreign students). But it was not only the school activities that started, but also the ESN events! Tuesday nights at de Lamme Goedzak (LG) with weekly themes drove us to enhance the friendship ties and to unforgettable memories. I created a routine: Monday and Tuesday afternoon were designated to study and to plan what to do during the semester (always following the sacred ESN calendar) and enjoy my time as much as possible. It started feeling so good walking out home, riding a bike while it was raining through the cold weather, see the famous Tilburg spinning house, the colourful and beautiful tallest building and the futuristic campus. The Tilburg University campus is one of the attractions. It is extensive, with green spots, a nice entrance building with a big scoreboard highlighting Tilburg University (like a strong brand in Times Square), good distribution of departments, lots of space, a fantastic forest, a nice library and modern architecture. When I look at the Academia Building or the Cobbenhagen Building, it makes me wonder wheter we are at Tilburg University or at Technical University of Eindhoven because of the complexity of the building (who did not ever get lost in the C Building?). Actually, I started feeling home. Tilburg was my home, ESN and the exchange students were my

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family from then on. Unfortunately I was not in one of the Professor Verbernelaan flats, which terribly upsets me, but the time spent there hanging around satisfied me enough. It looked like an American academic residential with all the students close to each others, strengthening what makes us a team. Parties, discussions, music sessions, dinners, meetings, movies: everything was present according to students desires. Carnival arrived and again the celebration had me impressed. I thought that we, Portuguese, celebrate the Carnival as hell to be akin to our Brazilian brothers, but the Dutch are far ahead. Parades, great disguises, parties and concerts all over Tilburg! Impossible not to be delighted! But the best of it was Maastricht. ESN gathered a big group and off we went. Bring your booze and your friends, Maastricht will be epic. I saw the best dresses, the best parade, happiness and statues. I was dressed like a painter, others were football players, animals, kings, devils, jokers, wizards, warriors, hunters, and so on. March was the assignment month. People started studying more for midterms or spending more time in the library researching material to do essays. In my case, I had to write one paper about sovereign risk between U.S.A. and Greece and an assignment about a marketing research project for a company. Very helpful were the IT services at the university, specially the Thomson Reuteurs DataStream and SPSS. The grades were highly positive and the confidence for the rest of the semester increased. Time to celebrate, with the perfect timing: ESN Birthday one might ask why I am returning constantly to the ESN but they were the ones that guided

us all over the semester. The best metaphor is a car. ESN was the producer of the car, the students the drivers! The official set of events consisted of the Lustrum Week and the emphasis was on a symposium about sustainable consumption, a beer cantus, a special dinner, Dance around the World and the magnificent karaoke session. Again every event was extremely well organised, dynamic and memorable. To prove the strength of the ESN in the entertainment industry in Tilburg the locations for these events were La Vida, Caf Phillip and Caf Extase: top quality pubs in town. The biggest national event passed by as well, Queens Day. Our first surprise was that it is not the Queen Beatrixs birthday but the birthday of her mother, Queen Juliana. A second surprise was the coincidence of the wedding of the British Royal family (one day before) with queens day. The third surprise was how Amsterdam unbelievably celebrates the event. It is an orange sea of happy people celebrating a

monarchic regime. The event itself was brilliant and unique, but I was expecting more involvement of the royal family. I know that there was an attempt to murder the Queen a couple of years ago but still an emblematic ride around the capital by the queen would make it even more special for tourists and the population. It was the last month of classes and of official activities. I forgot school for a moment and focused on the preparation of the final gala, a summary of the semester, how fruitful it had been for me. Starting with the final gala, it took place in an extraordinary boat near downtown the Partyboat Albatross and all the participants were rigorously dressed, some with more or less detail but still nice outfits. Champagne and snacks were served, entry photos taken, the dance floor prepared, awards distributed (for the king, queen, pornstar, best mentor, best couple and alcoholic of the semester) and lots of kisses and hugs of goodbye. The party started with a good

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53

PGGM

environment but ended with a sad one, with the possibility of not seeing each other again in life and the sense of a unique exchange period! What about the courses and education level here? I had wonderful lectures here, I met great professors and I saw a very strong and compact organisation at Tilburg University. Firstly, the facilities of the university are splendid, with lots of computers and a well spread, great variety of buildings (each one with a certain purpose), good class room conditions, big auditoriums, centre of research and meeting rooms. I am aware now that Tilburg works intensively to develop a burly cohesion between students. All the Asset departments and student associations make the campus and students extracurricular value more vivid and important, respectively. All the support for students is provided. I tried a

student psychologist myself with the Student Desk Service and the session was very insightful to solve some time management problems (is the problem purely cultural-Mediterranean or can be fixed?). Other relevant events that I participated in were the masters presentations, the Food for Thought of Asset and the Entrepreneurship Day of the Economics Business weeks Tilburg (EBT ), with extremely interesting enterprises presentations and workshops (on decision-making). The University not only made me study, but also learn, share and experience, and that is, in my opinion, the correct path for a higher educational system. I would like to finalise with two remarkable proceedings: the lunchreadings of BCE and the International Entrepreneurship course. For the ones that have a desire to be entrepreneurs these two events contributed a lot to that goal. The lunch-readings were a more practical approach and

exemplification of real life cases and the International Entrepreneurship course gave me the tools to come out with business ideas, elaborations of business plans and improvement of soft skills like presenting, negotiating, listening and talking. There was a genius class about creativity with professor Kees van Overveld which reminded me of the importance of ideas and critical spirit in every aspect of life. To conclude, the general appreciation of this exchange program and to put it in a framework - was high education quality, strong academic organisation, student focus, a very academic and international city (Tilburg), great performance of the exchange coordinators and associations (mainly ESN and ICONN), wonderful journeys and parties, increasing of the networking contacts, sharing of other cultures, establishment of relationships that last for life. I feel intellectually taller with this exchange programme! Acknowledgments: I would like to congratulate and say thanks to our Exchange coordinators, Tilburg University, Student Desk Service, the professors, Library services, Asset, ESN, ICONN, BCE, ABC and others for the dedication around two concepts: education and growth. I will bring ideas and keep in touch with this fabulous academic world. The last paragraph goes to the country. Holland was such a warm, receptive, secure, pleasant, challenging and constructive country for me and all the exchange students (I guess I can talk on their behalf ). This country taught me a lot and my attitude adapted and changed towards a better person. Thanks Holland and Tilburg University for this amazing inner development!

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SPECiAL TiK-WEEK

i ntro duc tion renewed

Ask a random person who has participated in Tilburgs introduction period about their opinion on it, and you will most likely get an answer that implies awesomeness. Nevertheless, it was decided that the time for change had arrived, resulting in a new plan for our beloved introduction. Why is that? and What will change? you might wonder. Being a , TiK-father-to-be myself, i also had these questions and thus i figured it was time for some research .
First of all, let us refresh our memories and have a look at the old programme. Like most faculties, the Tilburg School of Economics and Management (TiSEM), formerly known as the FEB, organised an introduction camp for all of their students, known as the MAKcamp, which refers to the TiSEM mentorship system: MAK. For most of us, this was the first time meeting our fellow freshmen, which was pretty much the whole reason for the camp. Thus the content mostly concerned having fun. Roughly one and a half week later it was time for the main event: the TIK-week. Monday was a registration day, and it consisted of arranging matters for the rest of your studies as well as for the rest of the week. Then at around six oclock in the evening there was a barbecue, you learnt the TIK-dance and later on there was an opening party in pop-stage 013. Tuesday started off with a hypnosis show with an information market afterwards, Wednesday was the well known game day in the Leijpark, Thursdays most notable activity was the famous beer cantus and on Friday everyone could get some well deserved rest at swimming pool Stappegoor. The programmes on these four days continued at one of the student associations from around four oclock in the afternoon and in the evenings various activities were scheduled such as the sports night of Pendragon, a pub-crawl and as a finale on Friday night we were treated with another party at 013. Furthermore, there was a special week for international students called the Welcome Week, which consisted of both administrative and social activities. Critique This brings us to one of the main reasons for the changes: integration. It will have eluded no one that the university has been focusing more and more on internationalisation. Just think of the increasing amount of usage of English on campus or the renaming of UvT to Tilburg University. Furthermore, as it turns out by results of the ISB, the International Sounding Board, foreign students would strongly prefer a better integration with the Dutch students. The main idea is that cooperation between the two parties will improve the educational level and getting to know each other early on is an important step in this process. Secondly, there are the content-related critiques. Originally, the first TIK-week in 1981 focused on introducing freshmen to life as a student in Tilburg, not only with respect to the social aspect, but to the educational and administrative aspects as well. As years have gone by -lwast years TIK-week was the thirtieththe TIK contents have strayed from that vision bit by bit, as the amount of sociable activities kept increasing, at the cost of the informative parts. Various instances, like the Office of Student Affairs and the International Office, argue that by now, the TIKweek is more about drinking beer than it is about preparing for the next stage in a persons life, and therefore they want to revive the original vision to some extent. In 2009, these and some other, smaller reasons led to the start of deliberation about reorganising the introduction period between various stakeholders, such as Fontys, the various faculties, the international office, the union of student associations, SOTS, and the municipality of Tilburg. The results What you are probably most curious about, are the adaptations themselves. To deal with the integration problems, several major changes were made to the planning of the introduction period as a whole. As you should have guessed by now, international students and Dutch students will form mixed groups and experience the same introduction period. Furthermore, to avoid to some extent ending up with two subgroups within the groups, everyone will start their introduction at the same

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moment: the first day of the TIK-week. This resulted in the cancellation of the faculty introduction camps and the cancellation of the Welcome Week as well. Other reasons for this decision are the fact that the introduction period as it is now is considered as being too long, and the fact that the faculty camps would most likely not be able to deal with the increased number of participants. Furthermore, because international students will not arrive in Tilburg long before the start of the academic year, the TIK-week will take place during the week right before the start of the lectures on Monday, the 29th of August. Up until now, however, there used to be one last free week between the TIK-week and the start of the academic year, of which, amongst others, student associations gladly took advantage in order to have an introduction period of their own. Now, these camps will take place during the weekends in September. One last remark: only the students that are here on exchange will be placed in separate groups, as their TIK-week schedule will differ from the normal TIK-week on some points. To deal with the content related problems, several changes have been made as well, of which the introduction of two so-called SIDs, Study Introduction Days are the most notable. Whereas in previous years all informative matters were included in the Monday programme, Tuesday and Thursday will now cover this part and more of the same, from ten in the morning till four oclock in the afternoon. Tuesday will focus primarily on informing the students on their studies and study associations, while Thursday will be about getting to know the campus. The information market, which used to be on Tuesday, has therefore now been rescheduled to Mondays afternoon, after the significantly shorter

subscription procedure in the morning. For the same reason Thursdays beer cantus will, as of this year, take place in the afternoon on Friday, after having had the chance to relax at the pool, it will serve as the final activity of the week. Although TiSEM students have to attend both SIDs, this does not apply for all students, as they will be faculty or study specific. Therefore, there will be an alternative programme on these days, consisting of, amongst others, the hypnosis show. Furthermore, the pubbreakfasts will be no more, although this change has already been made before TIK-week 2010. Apparently, they have never been part of the TIKweek, but an initiative of the pubowners themselves. Instead, the TIK will organise a collective breakfast itself. Also, the pub-crawl will be cancelled; the opening party will not only be held at the 013, but at the MIDI theatre as well; and I*ESN, the International Erasmus Student Network, will be included as one of the four student associations that will take care of the late afternoon programme.

The Verdict Many of you will probably say that the old TIK-week was fine as it was, and better perhaps than the new one will be. However, when you look closely, you see that apart from a lot of rescheduling, not that much has changed. Even though I would probably root for the return of the faculty introduction camps, pretty much all of the best elements of the TIKweek itself are still there. There has been no significant change in the number of mentor subscriptions and the number of participants will probably be much higher, as there are now up to two mandatory days and the event is now open to all students. You also might need to consider the fact that most of the new students are unaware of the slightly more fun-focused introduction period of the old days, and thus will not mind. However, we can argue all we want, but before we can call a verdict we will have to experience it for ourselves, and I, for one, am looking forward to it. Text by: Sander Vromen

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Te a c h i n g M i c ro s o f t Wi n d ows to e l d e rl y p e o ple
THE PASSiON OF dMiTriy SiLOV

you may know the problem too: your grandparents buy a computer to send emails and perhaps to even buy things in web stores, but after buying one they do not know how to operate their computer and you end up writing letters and still sending them by post.
In this case, the generation gap is clearly visible, which is annoying to most young people. However, one of our fellow econometricians now has a solution to this problem. Sander and I met Dmitriy on a slightly overcast afternoon at the terrace of Grand Caf Esplanade. We started chatting sociably and I quickly noticed his passion for entrepreneurship. He really likes having his own business and he talks very passionately about this. Dimitriy is currently doing the Outreaching programme, a programme offered by the university as an extension to the normal study programme for students that are interested in more than just their own study. In these classes, the students also receive courses in entrepreneurship, and that helped too, but most knowledge was gained and confirmed in practice. Dapo, which is the name of the company, is currently doing very well. The word Dapo comes from the initials of Dmitriy, combined with the first two letters of Marcs last name Poel. Courses normally take four hours, and the guys do about two courses per week on average. Dmitriy notes that usually they stay for a longer period of time, just to have a nice chat, have a cup of tea and make sure that people understand the full contents of the course. The courses are always given at the place of the participant, so the mostly elderly people do not have to go to some other location. This also works very well for the promotion. Dmitriy did some courses in a flat for seniors, and since the participants were very enthusiastic, they encouraged other people to take the course as well. This resulted in so much demand for the computer courses that Dmitriy and Marc could not handle them all and they were forced to actually start making plannings for more than one week ahead. Participants pay for the courses by a normal bank transaction. Dimitriy does not like giving exact numbers, but they do make some money with it. They are working on a website and that will be their only fixed cost, they always meet in pubs or each others lodges, so they do not need an office or something like that. Current and future Due to some personal

Name: D mi tr i y S i l ov Age: 20 Begin Studies: 2009

Getting Started Dmitriy and his companion met each other at their former job, a company employing people to sell subscriptions of newspapers in the street. Due to the economic crisis the subscriptions were not sold quickly, so while having a break, Dmitriy and his companion Marc decided to start their own business. They came up with the idea because a friend was a technician installing tvs in peoples homes. He mentioned that, especially elderly people, had problems installing and using their computer. Marc is a student in ICT-security so he knows a lot about computers; Dmitriy is more the communicator of the two, so they decided the two of them would form a dream team. They started their company, providing courses in the use of Excel, Word and internet in general. There was no need for large investments in money, but they wrote the course books for their courses themselves, and that took a lot of time. An average course book contains about 35 pages, but Dmitriy confides us that they used the course notes for the freshmen course ICT-skills as inspiration for their course book for Excel. They do not use professional advices like the ones given by consultants or certain departments of the university like the Brabant Centre of Entrepreneurship, as they prefer to look things up themselves. Furthermore,

problems

Marc

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products instead of the services Dmitriy is currently providing. They are looking for variations of existing products, but Dmitriy does not want to say more about this. He is not sure yet about his future plans regarding econometrics. First of all, he will finish the bachelor programme, of course, but which master will follow is yet to be decided. After that, Dimitriy may want to pursue an academic career, starting as a PhDstudent, or perhaps work in the field of consultancy. Starting your own business Dimitriy has some tips for people who may want to start their own business. First of all, it is important to be extremely friendly to your customers, especially when providing a service. The proper start of Dapo was mainly because of the face-to-face promotion in the flat for seniors where Dmitriy delivered their first courses. This is one of the best ways of promotion, it is free and very active, but you have to deliver a very good service or product before people start talking about it and recommending your product. Secondly, especially if you just start up the company, it is all about trust. You have to be able to trust your fellow entrepreneurs completely or otherwise things will definitely go wrong. And to conclude, you must not be afraid to take the first step, this is sometimes not even the hardest one, but people are sometimes far too afraid to take that first step. It is like a quote from Winnie-the-Pooh: You cannot always sit in your corner of the forest and wait for people to come to you... you have to go to them sometimes. And with that very applicable advice, we say goodbye to Dimitriy. Text by: Pieter Platteel

encountered the past time, the company is currently not very active in business. Dmitriy also has to spend time on other things such as his studies and his girlfriend. Currently they are busy trying to get their company registered officially as a personen vennootschap equivalent to the English partnership, within the Chamber of Commerce. The quantity of the demand is something Dimitriy surprised, the demand is larger than he had expected. For this reason, Marc and Dmitriy are looking forward to expand the company and to hire some personnel. In this way, Marc and Dmitriy could focus on the company in general, its finances and the marketing, and the employees can take care of the courses. However, hiring employees requires a lot of paperwork to be done for the tax services and this is kind of a hurdle. The company currently operates only in Eindhoven and its surrounding, but perhaps in the future this will be expanded to include Tilburg as well. For the future Dimitriy wants to expand the company by hiring about six

students. Another possibility Dmitriy and Marc are currently investigating in is cooperation with Guideon, a company in Amsterdam that arranges technicians for certain installation jobs. But nothing is sure, Dimitriy also notes that it is also a possibility that in some time they sell Dapo to invest the profits in another company. Personal experience and future plans Dmitriys parents really encourage their sons business. Dmitriy says about this: My parents really stimulate me when I undertake things next to my studies, of course, given the fact that I pass my studies, but that is going rather well. Dmitriy really is a true entrepreneur: besides taking exams he is also working on something that may become a new company. He is working with second years Misha van Beek and two other guys on starting out a new business. They will decide this summer on the several options they have. Their company will probably have something to do with websites and more commercial

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dONG Energy

Fo otball and B oard revelations

FOOTBALL TOUrNAMENT & driNK

The set of activities of Asset | Econometrics is surely not complete without the super exciting annual football tournament. At 12.30h all highly trained teams gathered for the battle that would not soon be forgotten. Green, red, pink and even rainbow teams warmed themselves up at the sidelines of the field.
Multiple teams had their own t-shirts made, and one team even managed to increase their team spirit to an unbelievable level with beautiful golden ribbons. The preparations for the Asset | Econometrics football tournament were amazing this year. Not only the outfits of our members were stunning, the ambiance was also great when lunch was served by the organisation of this day, the Drinks & Activities committee. But that should be no surprise if you had seen the delicious chocolate cookies that had been included in the lunch. After some very clear instructions to the team leaders all football players moved to their fields to play the pool rounds. Pools of three teams had to face each other and losing was no option since only the two best teams would go to the quarter finals. Everyone was shaking from excitement when Ad blew his whistle and the games started. For hours not only active, but also a lot of regular members ran, fall, got up, ran again, shot, missed, shouted, shot again, scored and celebrated. But no hostility was shown at any field. Everyone had come to have a good time at the fields in the nice weather. So that was what they did. But not only at the fields was the spirit at a very high level: audience had gathered at the sidelines to motivate the players in the field. After a very exciting final, which resulted in a 2-1 for team Zaes, the barbecue was lightened to enjoy some delicious pieces of meat. I think everyone was almost as excited as during the final and the announcement of the new Asset | Econometrics board, when there seemed to be no meat left. But when four fully loaded plates showed op from the kitchen you could hear a sigh of relief through the whole association. With the announcement drink in mind, everyone was considering the possible board candidates. Who were going to be on the board next year? Were they at among us at this moment? Probably, maybe someone who is acting nervous? Who is acting strange? Hey, I heard you are joining the board next year! Nice, which function do you have? This was a commonly used trick to check the others reaction. When everyone had gathered at caf Qwibus to hear the news, everyone knew it would only be a matter of minutes now. Free drinks flowed continuously and the ambiance was perfect when the board started the movie in which the candidate board would be revealed. This movie was incredibly original and funny. The board had done a great job. A voiceover of Gooische Vrouwen was the result. One of the husbands cried because he had to study economics now, because econometrics had been too difficult for him. And one by one the candidate board was revealed. I was up first as I turned out to become the new internal affairs. Yes, for me there was no guessing who the candidate board would become. I only had to hide my own identity, which turned out to be really difficult, by the way. After me, the external affairs could come forward, Wilbert. The treasurer, who would that be? It was Jasper, who had expected that? For secretary, Fang Qi entered the stage. But who was going to be the chairman next year? Janneke! Unbelievable, you should have seen the faces of her friends, which she had told nothing. An amazing day and evening, which was enjoyable for everyone. Is Asset | Econometrics not a great association?

Name: R obber t va n O osten Age: 20 Begin Studies: 2008

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G raduates
TO CONCLUdE

Over the past months, the following econometricians obtained their Masters degree. Asset | Econometrics would like to congratulate:

Name: Title: Supervisors:

Rens Nissen How to share the pain of the pension crisis? Prof. Dr J.M. Schumacher, Prof. Dr T.E. Nijman Danille Besouw Optimization of aluminium coils ordering process for Fuji Film manufacturing Europe Dr Ir J. Ashayeri. Dr R.C.M. Brekelmans Stefan Cardon The Synergy of Two Neighbours Networks Estimated Without Solving VRP Prof. Dr G. Kant, Dr Ir J. Ashayeri Medzhnun Mustafa Product Market Competition: A Real Options Approach Prof. Dr P.M. Kort, M. Della Seta Anouk Rennen Increasing Life Expectancy at Pension Funds Dr R.J. Mahieu, Prof. Dr B. Melenberg

Name: Title:

Supervisors: Name: Title: Supervisors: Name: Title: Supervisors: Name: Title: Supervisors: Name: Title:

Remco van Amelsfoort On the Subject of Differentiating Mortality on Marital State and Stochastic Projection into the Future Dr G. Nieuwenhuis, Dr R. van den Akker Yorick Stoepker Logistic Optimization at Zuid-Nederland Venlo Prof. Dr G. Kant, Drs. J.J.M. Braat Olaf Lagerwerf Network Optimization of Forward/Reverse Logistics with Location & Inventory Decisions Dr Ir J. Ashayeri, Dr R.C.M. Brekelmans Inge Pulles On Modelling the Term Insurance Market Using Premium Attractiveness Data Dr F.C. Drost, Dr P. Cizek

Fact: Name: N a me Title: Fact: Supervisors: Stud i e s Fact: Title: Ag e Supervisors:

Name:

Supervisors: Name: Title: Supervisors:

Agenda
Thursday 30 June Cycling dinner On Thursday 30 June, a cycling dinner will be organised. In small groups we will cross the city to enjoy different courses of dinner at different places. Tuesday 30 August GMM & Drink On Tuesday 30 August the General Members Meeting will take place. During the General Members Meeting the activities and policy of the past year are discussed. Also the realisation of the budget will be presented. Furthermore, the new board will be installed and will present its policy and budget. Afterwards, there will be a drink at Caf Van Horen Zeggen. Wednesday 7 September Introduction Activity Every year an introduction activity is organised for the freshmen. This activity is organised at the start of the academic year for freshmen to get to know each other and to get to know Asset | Econometrics. Next to that, they can get to know the active members, since the active members are volunteering during the day, and thus, they will be able to see what it is like to be an active member. During this day the participants are divided in groups, which compete against each other in a game. The day will end with a barbecue to which the freshmen and the active members are invited.

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H igh S cho ol O nce Again

PUZZLE

Though high school seems quite far off for some of you, Nekst thought it would be good to refresh your skills in the field of algebra and geometry. Therefore we present you with some puzzles which require your skills in these fields to solve them.
1. Of three real numbers a, b and c it is known that: Please send your solutions to Nekst@ Asset-Econometrics. nl before 1 September 2011. The previous puzzle, the arranging of train carriages, apparently was too hard and was therefore not solved by any reader. Therefore we encourage you to lay hands on this one! For the winner of this puzzle, a crate of beer or a pie (Dutch: vlaai) will be waiting. Good luck!

a+b+c=3 a + b + c = 9 a + b + c = 24 Calculate a + b + c. 2. ABC is a triangle with altitude h. M is the centre of the circle and R is the radius of the circumscribed circle. We will denote this as circle(M,R). Circle(A,R) and circle(B,R) intersect in the points M and F, circle(A,R) and circle(C,R) intersect in the points M and E, circle(B,R) and circle(C,R) intersect in the points M and D. Prove the following: a. The points D, E and F are on circle(H,R). b. The area consisting of circle(H,R) without the three ellipses formed by the arcs MD, ME and MF (the white surface in the figure) is equal to two times the area of triangle ABC.

M agnets on Holiday
room E110. The most original photo will win a pie (dutch: vlaai) or a crate of beer.
The rules are simple: send us a photo that shows both you and the Asset | Econometrics magnet to Nekst@Asset-Econometrics. nl. The submission deadline is 1 September, 2011. Several submissions will be published in the first Nekst of next year. rules for entry - Entries must be received before 1 September 2011 via Nekst@ Asset-Econometrics.nl. - Entries should show both the Asset | Econometrics magnet and the person who enters the contest.

SUMMEr PHOTO CONTEST

Nekst is, once again, excited to announce the Asset | Econometrics photo contest. This fourth edition will gather photos from all over the world of you and the frivolous Asset | Econometrics magnet, which you can pick up at

- It is forbidden to edit your submission with Photoshop or any other photo-editing software. - All Asset | Econometrics members and members of the Department of Econometrics and Operations Research may join the competition. - Entries will be assessed on originality by this years and next years editors-in-chief. - No correspondence will be entered into. - Entering a submission to this competition constitutes acceptance of the rules.

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Q uatsch!
rEMArKABLE QUOTES

Over the past few months the editorial staff of Nekst received many quotes that relate to the study of Econometrics and to the activities organised by Asset | Econometrics. Therefore we present to you a well-filled page with some striking and funny quotes! Please mail all remarkable quotes you have heard to Nekst@AssetEconometrics.nl!
English quotes A supervisor during the exam of Integral Theory: Does anyone not understand Dutch? Someone raises his hand. Okay, then I will continue in bad English. dutch quotes Frederik Vermeulen tijdens een college Inleiding Econometrie: Potentile misdadigers zijn geaborteerd door de econometrie. Danille van Dalen: En keer oneindig is n toch? Want n keer n keer n keer n is ook n. Bart Kruize op het moment dat hij een enkelblessure heeft: Ik ga misschien wel naar Student Sounds. Oh wacht! Ik kan helemaal niet staan. Joep Hendriks tijdens een vergadering van de Symposium commissie: Dat is niet zon klinkende naam, maar als Ab Klink al komt heb je toch al een klinkende naam. Men nadert een T-splitsing. Janinke Tol: Dan moeten we hier of naar links, of naar rechts! Danille van Dalen: Ik heb ovenhandschoenen maar die doen het niet. Joep Hendriks wanneer hij een plaatje ziet van een stethoscoop: Dat is zon mooie horoscoop! Ad van Herpen na de Besturen Integratie Dag (BID): Na relationele overweging hebben Bart van Schuppen en ik samen besloten om toch de laatste trein naar huis te nemen. Erwin van Oosten tijdens een vergadering van de Introduction Activity als het over spellen gaat: Get the picture is geen bestaand spel dus heb ik het met pen opgeschreven. Maarten Meeuwis: Als ik mezelf was, zou ik niet eens gaan. Geert Alkema: We gaan boogschutten. Danille van Dalen: Ik weet waar de International Business Tour heengaat, Istanbul! Waar ligt dat eigenlijk? Iemand heeft overgegeven. Marleen Balvert: Wie was het? Jasper Koops: Er stond geen naam bij. Bart van Schuppen: Ga je slapen of ga je naar bed? Geert Alkema: Je kunt ook alleen frisbeen. Janinke Tol: Ja, met een boomerang! Rutger van Alphen over het Active Members Weekend: Je had er ook bij moeten vertellen dat ik dronken zou worden. Maartje de Ronde heeft het over een legging: Ik noem het een lek ding. Dieuwertje Verdouw: Oh, ik dacht dat het zon ding met witte vleugeltjes was. Jeroen Dalderop over het drinkgedrag van Timo Deist wat betreft koffie: Ja, hij eet een cacaoboom per dag! Nienke Marcus: Het tweede menu is voor de halve prijs. Anniek Joosten: Dus als we er drie kopen krijgen we er eentje gratis. Has van Vlokhoven: Wat deed je dan bij de Active Members Day? Dieuwertje Verdouw: Daar heb ik een keer de begroting gemaakt. Has: En hoe heet dat dan? Dieuwertje: Actuaris! Sanne van Helvert tijdens een vergadering van de Study Tour wanneer we het hebben over het contact met een bedrijf in Istanbul: Waar zit dat bedrijf dan? Marleen Veldhuijzen wanneer ze een InDesign bestand wil exporteren: Kun jij even helpen met het exploiteren? Dieuwertje Verdouw: Je kunt ook op huwelijksreis zonder te trouwen. Senna Jansing: Hoe werkt dat, een miniveld bij tennis? Danille van Dalen: Gewoon, je speelt op een half veld. Senna: Huh, maar dan heb je toch helemaal geen net?

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La Poubelle

NiBC