Nancy Wallace (UC Berkeley): Convolutional Neural Networks and the Wildfire Risk of California Residential Real Estate

The Stanford AFTLab invites you to the AI & Big Data in Finance Research Forum (ABFR) webinar:

The webinar is on December 12, 9-10am Pacific Time (12-1pm ET)

Presenter: Nancy Wallace (UC Berkeley) 

Discussant: Maryam Farboodi (MIT)

Zoom webinar link:https://stanford.zoom.us/j/97630790824?pwd=kW8NR3q6ficRNwTVd1mUbMIQVLXaca.1

Webinar ID: 976 3079 0824

Passcode: 564136

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Title: Convolutional Neural Networks and the Wildfire Risk of California Residential Real Estate 

Authors: Paulo Issler (UC Berkeley), Richard Stanton (UC Berkeley), Nancy Wallace (UC Berkeley) and Yao Zhao (UC Berkeley)

Abstract:This paper uses spatiotemporal Convolutional Neural Networks (CNNs) to forecast wildfires across the state of California. CNNs capture both spatial and temporal dependencies and can identify correlations between neighboring data points in a time series. We find that CNN significantly outperforms logistic regression in estimating the likelihood of wildfire. Using our fire-likelihood estimates, we estimate expected annual fire-related property losses for each area, finding wide variation across areas and a total estimated expected loss for 2021 that closely matches the observed cost of fires that year. Finally, we discuss the implications of our results for the future prospects of the property and casualty insurance industry in California.

Bio of speaker:Nancy Wallace is a Professor of Finance and Real Estate and holds the Lisle and Roslyn Payne Chair in Real Estate and Capital Markets at the Haas School of Business, the University of California, Berkeley.  She is Chair of the Real Estate Group, Co-Chair of the Fisher Center for Real Estate and Urban Economics, and directs the Real Estate and Financial Markets Laboratory. She teaches asset-backed securitization, real estate investment analysis, real estate strategy, and real estate finance at Haas. Her research focus includes residential house price dynamics, mortgage contract design and pricing, securitization and asset backed security pricing and hedging, lease contract design and pricing, methods to underwrite energy efficiency in commercial mortgages, and valuation models for executive stock options.  She has served as a visiting scholar at the New York Federal Reserve Bank, the San Francisco Federal Reserve Bank, the Université de Cergy Pointoise, Centre de Recherche THEMA (Théorie Economique, Modélisation, et Applications), and the Stockholm School of Economics. Professor Wallace is a past President of the American Real Estate and Urban Economics Association and a past member of the AREUEA Board of Directors.  Professor Wallace served on the Financial Research Advisory Committee, Office of Financial Research, U.S. Treasury Department (2013-2016), the Model Validation Council (MVC) of the Federal Reserve System (2013-2016), and served as chair of the MVC 2015-2016.

Bio of discussant:Maryam Farboodi is the Jon D. Gruber Career Development Associate Professor and an Associate Professor of Finance at the MIT Sloan School of Management. Her research focuses on the economics of big data. She studies how big data technologies have changed trading strategies and financial outcomes, as well the consequences of the emergence of big data for technological growth in the real economy. She also works on developing methodologies to estimate the value of data. Furthermore, Farboodi studies intermediation and network formation among financial institutions, and the spillovers to the real economy. She is also interested in how information frictions shape the local and global economic cycles. Most recently, her research also focuses on understanding the covid-19 pandemic and associated policies. Previously, Farboodi was an Assistant Professor at the Bendheim Center for Finance at Princeton University. She holds a BSc in computer engineering from Sharif University of Technology, an MSc in computer science from the University of Maryland, College Park, and a joint PhD in financial economics from the Booth School of Business and the Department of Economics at the University of Chicago. She is the recipient of the 2024 Elaine Bennett Research Prize. Established in 1998, the Elaine Bennett Research Prize recognizes and honors outstanding research in any field of economics. Among her many honors are receiving the 2024 Sloan Research Fellowship from the Alfred P. Sloan Foundation and winning the 2019 Young Researcher Award from the SCOR-PSE Chair on Macroeconomic Risk. She is a Research Fellow at the National Bureau of Economic Research and at the Center for Economic and Policy Research.