Privacy-preserving methods for sharing financial risk exposures
EA Abbe, AE Khandani, AW Lo - American Economic Review, 2012 - aeaweb.org
EA Abbe, AE Khandani, AW Lo
American Economic Review, 2012•aeaweb.orgThe financial industry relies on trade secrecy to protect its business processes and methods,
which can obscure critical financial risk exposures from regulators and the public. Using
results from cryptography, we develop computationally tractable protocols for sharing and
aggregating such risk exposures that protect the privacy of all parties involved, without the
need for trusted third parties. Financial institutions can share aggregate statistics such as
Herfindahl indexes, variances, and correlations without revealing proprietary data. Potential …
which can obscure critical financial risk exposures from regulators and the public. Using
results from cryptography, we develop computationally tractable protocols for sharing and
aggregating such risk exposures that protect the privacy of all parties involved, without the
need for trusted third parties. Financial institutions can share aggregate statistics such as
Herfindahl indexes, variances, and correlations without revealing proprietary data. Potential …
Abstract
The financial industry relies on trade secrecy to protect its business processes and methods, which can obscure critical financial risk exposures from regulators and the public. Using results from cryptography, we develop computationally tractable protocols for sharing and aggregating such risk exposures that protect the privacy of all parties involved, without the need for trusted third parties. Financial institutions can share aggregate statistics such as Herfindahl indexes, variances, and correlations without revealing proprietary data. Potential applications include: privacy-preserving real-time indexes of bank capital and leverage ratios; monitoring delegated portfolio investments; financial audits; and public indexes of proprietary trading strategies.
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