In the forum this week (just a selected subset)
- Practice exam scores https://forum.bionicturtle.com/threads/practice-exam-scores-and-actual-exam-result-pt-2.10307/
- [P1.T1] @emilioalzamora1 shows how covariance properties are applied when the investor’s portfolio contains the same assets as the market portfolio https://forum.bionicturtle.com/threads/p1-t1-elton_ch13-xlxm-capm-sml.10128/#post-49301 and also here http://trtl.bz/2p91RV6
- [P1.T1] Do we need to know Morningstar, actuarial, Modigliani, and Muralidhar RAPMs? https://forum.bionicturtle.com/threads/p1-t1-rapm-other-approaches.10405/
- [P1.T1] On why we really only want ex post (versus ex ante) Sharpe ratio https://forum.bionicturtle.com/threads/l1-t1-31-sharpe-treynor-jensens.3460/#post-49410
- [P1.T2] @emilioalzamora1 kicking off a discussion about the intercept term in an OLS regression https://forum.bionicturtle.com/thre...ercept-term-except-the-capm-definition.10407/
- [P1.T3] Cash flows in a cash-and-carry arbitrage http://trtl.bz/2p6SW9h
- [P1.T3] The relationship between commodity discount rate, growth rate and lease rate (thank you @gargi !) http://trtl.bz/2ozFTNg
- [P1.T4] What’s the difference between bootstrapping and retrieving the zero rate from the discount factor https://forum.bionicturtle.com/threads/bond-prices-and-spot-discount-factors.4734/#post-49286
- [P1.T4] The relationship between DV01 and dollar duration https://forum.bionicturtle.com/threads/p1-t4-17-effective-convexity-and-dv01.5524/#post-49247
- [P2.T5] @javierazores makes a super-smart correction to my question: it is perhaps counterintuitive, but shocking the 2-year par yield does impact the 30-year spot rate https://forum.bionicturtle.com/threads/l2-t5-34-key-rate-hedge.3469/#post-49376
- [P2.T5] More discussion on the particulars (e.g., error types) in VaR backtesting https://forum.bionicturtle.com/threads/bt-notes-on-backtesting-var.6615/
- [P2.T5] Which EVT approach is more likely to imply a loss of potentially useful data, GEV or POTS? https://forum.bionicturtle.com/threads/l2-t5-89-evt-gev-versus-pot.3865/
- [P2.T5] Gregory’s (modified by us a bit) visual of risk-neutral default probabilities is a good way to explain https://forum.bionicturtle.com/thre...ral-derivative-pricing.3553/page-2#post-49388
- [P2.T6] @irwinchung summarizes the effect of time to maturity on subordinated debt https://forum.bionicturtle.com/threads/effect-of-time-to-maturity-on-sub-bonds.10409/
- [P2.T6] What does Gregory mean by “where there is wrong-way (or right-way) risk, its magnitude will increase for a contract that has more out-of-the-money characteristics”? characteristicshttps://forum.bionicturtle.com/threads/p2-t6-419-wrong-way-counterparty-risk.7900/#post-49289
- [P2.T6] @matthew-graves explains how conditional expected exposure models wrong-way risk in the credit value adjustment (CVA) https://forum.bionicturtle.com/threads/expected-exposure-counter-party-pd.10394/#post-49308
- [P2.T6] Diving deep on Crouhy’s credit-linked note (CLN) example where investors fund $15.0 in credit risk of $105.0 notional https://forum.bionicturtle.com/threads/credit-linked-note.365/#post-49312 and also https://forum.bionicturtle.com/threads/understanding-credit-linked-notes.5779/page-2#post-49260
- [P2.T6] Credit exposure profiles https://forum.bionicturtle.com/threads/credit-exposure-profiles.10413/
- [P2.T8] Interpreting Bodie Kane on the particulars of geometric versus arithmetic average https://forum.bionicturtle.com/thre...ollar-weighted-returns.5529/page-2#post-49271
- [GARP PQ 2015.P2.2] Does the standardized approach for operational risk recognize diversification benefits? https://forum.bionicturtle.com/threads/garp-2015-p2-2.10328/
- [GARP PQ 2017.P2.76] Brilliant observation by @FrmL2_Aspirant: The practice paper makes a mistake when it uses cumulative PD as an input into the credit value adjustment (CVA); because it’s a summation, CVA wants the unconditional (aka, marginal) default probability https://forum.bionicturtle.com/threads/garp-2017-p2-76.10344/
- Slowdown in Borrowing Defies Easy Explanation https://www.wsj.com/articles/if-everyone-is-so-confident-why-arent-they-borrowing-1491901381
- What a New Glass-Steagall Wouldn’t Do https://www.bloomberg.com/view/articles/2017-04-17/what-glass-steagall-doesn-t-do
- In Farewell, Daniel Tarullo Offers Fixes on Bank Regulation https://www.nytimes.com/2017/04/14/business/dealbook/daniel-tarullo-bank-regulation.html
- Loan-Growth Slowdown Hurts Some Banks More than Others https://www.wsj.com/articles/loan-growth-slowdown-hurts-some-banks-more-than-others-1492100791
- New Law Compels Zimbabwe Banks to Accept Cows as Collateral https://www.bloomberg.com/news/arti...zimbabwe-banks-to-accept-cattle-as-collateral
- Basel IV: What’s next for banks? Implications of intermediate results of new regulatory rules for European banks (by McKinsey) http://www.mckinsey.com/business-functions/risk/our-insights/basel-iv-whats-next-for-european-banks Report is here http://trtl.bz/2oQD5Lu
- MiFID II: What’s Wrong with It? https://blogs.cfainstitute.org/investor/2017/04/11/mifid-ii-whats-wrong-with-it/ “The new legislation aims to address MiFID I’s shortcomings. The focus of regulation has expanded to include non-equity products, such as OTC derivatives, and will enforce conduct and client suitability rules on intermediaries. MiFID II recognizes new types of trading facilities, codifies product governance, and will require unprecedented levels of data recording.”
- Consolidated audit trail: The wait is over(Timeline for compliance with SEC Rule 613) by Deloitte http://trtl.bz/2po8PWs
- BIS: Global repo markets in transition post-crisis, regulatory changes and central bank stimulus: CGFS report https://www.bis.org/press/p170412.htm and Some striking admissions about repo markets from the BIS https://ftalphaville.ft.com/2017/04...g-admissions-about-repo-markets-from-the-bis/
- [Book review] Going Public by Norm Champ https://www.wsj.com/articles/preventing-the-next-madoff-1492366357 “While Going Public is primarily an eye-opening—if at times verbose and overly technical—memoir, it provides a readable account of how the SEC managed to turn itself around in the face of both external criticism and internal scrutiny.”
- China’s Trillion-Dollar Yuan Defense Puts Growth at Risk https://www.wsj.com/articles/chinas-crusade-to-prop-up-yuan-neglects-other-pressing-needs-1492107144
- Venezuela Staves Off Default, but Low Oil Prices Pose a Threat https://www.nytimes.com/2017/04/12/business/venezuela-oil-debt-payment.html
- [GARP] Introducing Event-Centric AI for Risk Management (A simple approach for developing practical implementations of artificial intelligence) http://trtl.bz/2oncXnM
- The Dark Secret at the Heart of AI https://www.technologyreview.com/s/604087/the-dark-secret-at-the-heart-of-ai/ “Already, mathematical models are being used to help determine who makes parole, who’s approved for a loan, and who gets hired for a job. If you could get access to these mathematical models, it would be possible to understand their reasoning. But banks, the military, employers, and others are now turning their attention to more complex machine-learning approaches that could make automated decision-making altogether inscrutable. Deep learning, the most common of these approaches, represents a fundamentally different way to program computers.”
- An Intelligence in Our Image (The Risks of Bias and Errors in Artificial) by RAND Corporation Intelligencehttps://www.rand.org/pubs/research_reports/RR1744.html
- How Failing to Develop a Disruption Model Can Kill Good Companies http://www.brinknews.com/how-failing-to-develop-a-disruption-model-can-kill-good-companies/ “About 70% of risk managers believe artificial intelligence (AI) represents a foundational change for their enterprise, yet only 15 percent of them are using it. More than 40 percent of risk managers believe AI’s significance is 1-3 years away, yet more than half of risk managers acknowledge having no plans to implement AI. Despite being in the business of risk, the majority has no risk mitigation plan for adoption or non-adoption.”
- Fired KPMG Audit Head: How Did Scott Marcello Fall From Grace? (Scott Marcello was supposed to be the man to redeem KPMG LLP’s audit business. Instead, the 54-year-old and other top partners became the center of a scandal that tarnished the firm’s reputation) https://www.wsj.com/articles/fired-kpmg-audit-head-how-did-scott-marcello-fall-from-grace-1492371198
- The new back office: inside Goldman Sachs’ Bangalore hub https://www.ft.com/content/6c1481ea-185d-11e7-9c35-0dd2cb31823a “Goldman now employs about 5,000 staff in Bangalore, 4,000 of them full-time, across almost every division of the bank, including revenue-generating front office roles … The evolution of Goldman’s presence in Bangalore is one example of how economics, technology and politics have shaped the back office over the past 15 years.”
- The quickening evolution of trading — in charts https://www.ft.com/content/77827a4c-1dfc-11e7-a454-ab04428977f9
- Now Anyone Can Invest in Startups—if They Have the Stomach for It (With equity crowdfunding, you can become an investor in the next big thing, or in flop after flop after flop) https://www.wsj.com/articles/now-an...upsif-they-have-the-stomach-for-it-1491735608
- Jeff Bezos’ Letter to Shareholders https://www.sec.gov/Archives/edgar/data/1018724/000119312517120198/d373368dex991.htm
- XL Catlin’s Emerging Risks Report (Q1, 2017) http://xlcatlin.com/fast-fast-forward/articles/emerging-risks-report_q1_2017 Geopolitical, e-Cigarettes, augmented/virtual reality and antimicrobial resistance
- What Does the GDPR Mean for Global Data Protection? (Infographic) https://digitalguardian.com/blog/what-does-gdpr-mean-global-data-protection-infographic
- A Decade Later: What The Virginia Tech Tragedy Taught Us About Active Assailant Prevention And Response http://trtl.bz/2oGjQDV
- IFRS 9: A silent revolution in banks’ business models http://www.mckinsey.com/business-fu...-a-silent-revolution-in-banks-business-models
- At Wells Fargo, Crushing Pressure and Lax Oversight Produced a Scandal https://www.nytimes.com/2017/04/10/business/dealbook/11wells-fargo-account-scandal.html “To make the sham accounts look legitimate, Wells Fargo bankers engaged in a practice called simulated funding, the board’s report said. This was an illegal sleight of hand in which an employee transferred funds from one customer account to another, sometimes unauthorized account (or deposited and withdrew the employee’s own funds) to make it appear that the second account had been funded by the customer.”
- Five damning revelations from Wells Fargo’s report https://www.ft.com/content/3de4cb5a-1e0b-11e7-a454-ab04428977f9
- Wells Fargo Fake Accounts Investigation Whitewashes Glaring Risk Management Failures (by Yves Smith at naked capitalism) http://trtl.bz/2oLMvbc “Even worse, the report proves the board’s negligence by indicating it had noticed a major deficiency, that control functions were reporting to unit/profit center managers like Tolstedt, in 2013, yet was leisurely about addressing it. Keep in mind that is exactly the same kind of deficient structure that led to the JP Morgan London Whale scandal. It is a basic risk management failure to have control staff report to profit center managers. In fact, they are designed to be for show only. Does anyone with an operating brain cell think someone would make their boss look bad?”
- Secret Recordings Play Role in SEC Probe of Insurer AmTrust https://www.wsj.com/articles/secret-recordings-play-role-in-sec-probe-of-insurer-amtrust-1491903011 “Unknown to the colleagues, the auditor was carrying a tiny recording device disguised as an ordinary Starbucks gift card, capturing every word for the Federal Bureau of Investigation … Before going to the government, the whistleblower—the former BDO auditor—joined forces in 2013 with a larger group that includes Harry Markopolos, a forensic accountant who warned the SEC about the Madoff scheme before it became public in late 2008. The Markopolos group hopes to profit by collecting a reward under the SEC’s Whistleblower Program, if the agency ever successfully brings legal action in the matter.”
- A Barclays exec who went to prison for LIBOR-rigging breaks his silence: Traders have been served up as fall guys to protect these more powerful senior bankers http://www.businessinsider.com/alex-pabon-interview-libor-fixing-2017-4
- United Airlines and how the ‘digital lynch mob’ is changing reputation risk for business http://www.polecat.com/blog/united-airlines-reputation-risk/
- @United: Do you have a reputational risk policy? http://www.iii.org/insuranceindustryblog/?p=4931 “While the social media firestorm following the forcible removal of a passenger from a United Airlines flight highlights the importance of crisis and reputation risk management, it also underscores the potential liability airlines face from balancing duties to their customers, employees and to shareholders.”
- [GARP] Lessons in the Dynamics of Risk and Uncertainty http://www.garp.org/#!/risk-intelligence/culture-governance/erm/a1Z40000003PVt8EAG
- Statistical Significance Is Overrated https://www.bloomberg.com/view/articles/2017-04-13/statistical-significance-is-overrated “First, statistical significance doesn’t tell you how strong an effect is … A second problem happens when people confuse statistical significance with explanatory power.”
- What Investors Need to Understand About Investment Return https://www.wsj.com/articles/what-investors-need-to-understand-about-investment-return-1491790501 The WSJ geeks out (a little) on geometric versus arithmetic average, and time-weighted versus dollar-weighted returns
- 40 Questions on Probability for data science https://www.analyticsvidhya.com/blo...probability-for-all-aspiring-data-scientists/ But his #2 is incorrect
- U.S. Treasury Has Switzerland in Its Sights https://www.bloomberg.com/news/arti...-u-s-treasury-s-list-in-possible-snb-headache “The U.S. department is required by law to report to Congress twice a year on whether its major trading partners are gaming their currencies. The latest report was issued Friday. Given its interventions and trade surplus, Switzerland got added to the watch list last year, and any country deemed to be engaging in unfair practices could face penalties.”
- ETFs Show Limits in World of Emerging-Market Bonds https://www.wsj.com/articles/etfs-show-limits-in-world-of-emerging-market-bonds-1492340452
- Revisiting Market Liquidity: The Case of U.S. Corporate Bonds http://www.moneyandbanking.com/comm...rket-liquidity-the-case-of-us-corporate-bonds
- For Oil’s Future, Peer Through the Hedges https://www.bloomberg.com/gadfly/articles/2017-04-13/for-oil-s-future-peer-through-the-hedges
- [BIS] Repo market functioning https://www.bis.org/publ/cgfs59.htm “Repo markets play a key role in facilitating the flow of cash and securities around the financial system. The CGFS Study Group on repo market functioning analysed changes in the availability and cost of repo financing, and how these affect the ability of repo markets to support the financial system, both in normal and stressed conditions. The Group focused on repo transactions backed by government bonds.”
- An Unusual Pattern Is Taking Hold in the Junk Bond Market http://blogs.wsj.com/moneybeat/2017/04/10/an-unusual-pattern-is-taking-hold-in-the-junk-bond-market/ “BB-rated junk bonds are now characterized by so-called negative convexity, suggesting that junk bonds become more rate-sensitive as rates rise and less rate-sensitive as rates fall. That’s something that head never happened until last fall. The upside-down condition is happening largely because many high-yield bonds now have provisions built into them to allow the issuer to redeem them early at a set price.”
- Duration bet is back in favour for bond investors (Duration of portfolios extended as fears for growth and inflation ease) https://www.ft.com/content/2f5deac2-1dba-11e7-a454-ab04428977f9
- Bonds Backed by Auto Loans Look Toxic https://www.bloomberg.com/view/articles/2017-04-12/bonds-backed-by-auto-loans-look-toxic
- All is Not Well in the World of Student Loans http://www.lendacademy.com/not-well-world-student-loans/
- Calpers Is Sick of Paying Too Much for Private Equity https://www.wsj.com/articles/calpers-is-sick-of-paying-too-much-for-private-equity-1492254008 “Private-equity returns were 12.3% in the 20 years ended June 30, 2015, but they would have been 19.3% without fees and costs.”
- The cost of California’s public pensions is rising fast. But efforts to fix the problem by ballot measure have fizzled http://www.latimes.com/projects/la-me-pension-crisis-initiatives/
- Yale Endowment Blasts Low-Fee Critics, Says Gains Would Lag https://www.bloomberg.com/news/arti...asts-low-fee-crusaders-says-returns-would-sag “Such [passive] strategies make sense for organizations lacking the resources and capabilities to pursue successful active management programs, a group that arguably includes a substantial majority of endowments and foundations,” according to the report. “However, Yale has demonstrated its ability to identify top-tier active managers that consistently generate better than-market returns, after considering performance fees.” Their annual report is here http://trtl.bz/yale-endowment-2016 and Yale's Faith Not Shaken by Stirring of Low Fees https://www.bloomberg.com/gadfly/ar...ment-faith-not-shaken-by-stirring-of-low-fees
- Vanguard Is Growing Faster Than Everybody Else Combined https://www.nytimes.com/2017/04/14/business/mutfund/vanguard-mutual-index-funds-growth.html and Why We [wealthfront] Avoid BlackRock ETFs https://blog.wealthfront.com/avoid-blackrock-etfs/
- Indexes Beat Stock Pickers Even Over 15 Years https://www.wsj.com/articles/indexes-beat-stock-pickers-even-over-15-years-1492039859 Yikes! “Among more than a dozen categories tracked, 95.4% of U.S. mid-cap funds, 93.2% of U.S. small-cap funds and 92.2% of U.S. large-cap funds trailed their respective benchmarks, according to the data.”
- Read With Caution When There's Money at Stake https://www.bloomberg.com/view/articles/2017-04-12/read-with-caution-when-there-s-money-at-stake
- Buyout Firms Are Magically -- and Legally -- Pumping Up Returns https://www.bloomberg.com/news/arti...-are-magically-and-legally-pumping-up-returns “TorreyCove Capital offered this scenario: Using investors’ money, a buyout fund puts in $100 million of equity to acquire a company for, say, $400 million. It sells the company six years later, at a price that almost doubles the value of the equity. Employing credit to delay investing for two years produces an IRR of 13.9 percent, compared with only 10.6 percent if the money had been invested at the start, TorreyCove calculated … A particular magnet of criticism is that IRRs can be rigged to push subpar funds above the 8 percent return threshold that typically triggers sizable incentive-fee payments to their managers.”
- [virtual currencies] People Love Talking About Bitcoin More Than Using It https://www.wsj.com/articles/people-love-talking-about-bitcoin-more-than-using-it-1491989403
- [virtual currencies] Global Cryptocurrency Benchmarking Study (Cambridge Judge Business School) http://trtl.bz/2oj0SR7
- [Negative policy rates] How big a problem is the zero lower bound on interest rates? (by Ben Bernanke) https://www.brookings.edu/blog/ben-...em-is-the-zero-lower-bound-on-interest-rates/
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