The joy of invention

The fiscal sciences have a long history of applying new mathematics to financial problems, from Pascal and Fermat’s creation of Probability Theory, to the use of Stochastic Calculus in the pricing of derivatives. Professor Miklos Vasarhelyi continues this tradition as KPMG Distinguished Professor of Accounting Information Systems at Rutgers University, and last week I was privileged to attend his overview of the use of modern mathematical and computational techniques in the staid world of auditing.

Of the many technologies that the professor discussed, my favourite was Process Mining. Although this is a relatively unsophisticated technique, it acknowledges that humans are not great at keeping processes well documented. Instead of relying on the correctness and completeness of written procedures, Process Mining extracts what really happened at a company from execution logs.

As well as being a great innovator, Professor Vasarhelyi is an entertaining speaker and he leavened the mathematical content with personal anecdotes, many of which concerned his daughter’s Oscar win as director of Free Solo, a fascinating and beautifully filmed documentary about Alex Honnold's ascent of El Capitan without ropes. I watched the film with my kids the other night and we were awestruck - am glad though that my children were horrified by the idea of climbing without safety equipment.

It’s great working for a company in which I can attend talks such as this. What really excites me at work, though, is the privilege of being in a team that is applying mathematics and technology in a new way to the study of systemic risk. Our innovation is a tool called Dynamic Risk Assessment, and it uses human input as the basis of mathematical models of risk networks from which the true risk exposure of an organisation can be understood.