In our FRM Forum (forum activity continues to grow, this is a small subset of some shares from the last week)
- You probably know we publish a *new* practice question every Monday and Thursday here in the forum, before we bundle them up into Practice Question set and upload the PDF the Study Planner. See Today's Daily Question at https://forum.bionicturtle.com/forums/todays-daily-questions.53/ We alternate Part 1 and Part 2. With respect to Topic 1, we are about halfway through a brand new global review of the Foundations topic (P1.T1). With respect to Topic 2, last week we finished questions for he the new T7 Crouhy chapters (model risk and RAROC); this week we start a new sequence on Hull's Fundamental Review of the Trading Book (FRTB)
- Discussion on Financial Implications of the Brexit https://forum.bionicturtle.com/threads/financial-implications-of-the-brexit.9652/
- @arkabose wanted to understand Gregory’s derivation of normal expected exposure (explored in question T6.411, see http://trtl.bz/T6-411-EE-derivation) and he got a great answer on stackexchange: http://math.stackexchange.com/quest...uble-understanding-the-output-of-the-integral
- @seidu points to http://www.globalcustodian.com/Mark...ing-may-re-incentivise-bilateral-derivatives/ from forum thread http://trtl.bz/2biQcwt. Here is the source at http://trtl.bz/OFR-central-clearing-not-advantageand here is the actual paper http://trtl.bz/OFR-OTC-reform
- @seidu posted some great shares, including: 2016 wide stress test results https://forum.bionicturtle.com/threads/2016-wide-stress-test-results.9740/; VAR versus expected shortfall https://forum.bionicturtle.com/thre...d-shortfall-why-priips-has-got-it-wrong.9745/; BoE researchers outline risk of collateral collapse (In stress periods, collateral chains could break) https://forum.bionicturtle.com/thre...-risk-of-collateral-collapse.9753/#post-44339
- @Dr. Jayanthi Sankaran shares ‘Risk-Based’ Capital Is Far Too Risky https://forum.bionicturtle.com/thre...why-risk-based-capital-is-far-too-risky.9758/
- @stevenhingis recommends an online financial modeling course https://forum.bionicturtle.com/threads/financial-modeling.9613/page-2#post-44167
- Bond Markets are Growing Ever More Bizarre http://www.wsj.com/articles/bond-markets-growing-ever-more-bizarre-1470834433 "A traditional zero-coupon bond is sold at a deep discount to face value ... The new mutation still pays no interest. But buyers get no uplift over time either because, with yields in negative territory, these securities are being priced at more than face value. The pull to par has become a drag: a buy-and-hold investor is guaranteed to lose money, even before taking inflation into account. The only way to make money is to find another buyer willing to pay a higher price—but that implies a bigger loss down the road."
- Bond Funds Turn to Emerging Markets http://www.wsj.com/articles/bond-funds-turn-to-emerging-markets-1471198010 “Many global bond managers are also turning to emerging markets because a number of their institutional clients, including some pension funds and insurance companies, have restrictions on how much of their money can be invested in debt with negative yields. These investors need cash to meet ongoing liabilities and want income-producing investments.”
- Falling Rates Create Bond-Call Frenzy (recall callable bonds have negative convexity at low yields) http://www.wsj.com/articles/falling-rates-create-bond-call-frenzy-1470671759 “Calls are growing more popular throughout the bond market. Mr. Pace said 59% of GSE debt sold in the last quarter of 2015 already has been called. Global corporate issuers have called more than $300 billion, including roughly $90 billion in U.S. corporate bonds, according to Performance Trust.”
- Are Negative Rates Backfiring? (398 comments!) http://www.wsj.com/articles/are-negative-rates-backfiring-heres-some-early-evidence-1470677642 "Some economists now believe negative rates can have an unintended psychological effect by communicating fear over the growth outlook and the central bank’s ability to manage it."
- Textbook Failure: Why Rate Cuts Have Stopped Working on Currencies http://www.wsj.com/articles/textboo...have-stopped-working-on-currencies-1470918053 "In theory, loosening monetary policy should lower a currency’s value, but this year the opposite has been happening"
- Interest rates are a spent economic force https://www.ft.com/content/b9c48db8-6075-11e6-ae3f-77baadeb1c93 “The core profitmaking business of banks is maturity transformation, whereby banks fund themselves with short-term deposits and make longer-term loans. Bank profitability is typically determined by the difference between the interest rates they pay on deposits and receive on loans. If lending rates fall further than deposit rates, this model is challenged. Negative interest rates are even more pernicious, with banks reluctant to deduct interest charges for fear customers will respond by withdrawing cash.”
- Preferred Stock: This Crazy Market Warps Another Asset http://blogs.wsj.com/moneybeat/2016/08/12/preferred-stock-this-crazy-market-warps-another-asset/ “To see why overheating could be a risk, it helps to understand more about how preferred stocks work. If a company goes into bankruptcy, preferred shareholders have a higher claim on any remaining assets than the common shareholders do … But preferred investors also have a lower claim on a company’s assets than bondholders do, and there’s no guarantee that a company won’t skip a dividend. Preferred investors, unlike holders of common stock, don’t participate on the upside if a company grows more profitable. So preferred stocks tend to offer returns similar to those of bonds, at a level of risk that can approximate that of stocks.”
- Everything You Need to Know About Negative Rates http://www.wsj.com/articles/everything-you-need-to-know-about-negative-rates-1456700481
- How over 2 feet of rain caused historic flooding in Louisiana in less than 72 hours http://trtl.bz/how-2feet-caused-flooding “The disaster was caused by two weather-related features — extreme humidity and near-stationary low pressure that hovered over the Gulf Coast for days.” This was published just BEFORE the floods The U.S. coast is in an unprecedented hurricane drought — why this is terrifying http://trtl.bz/terrifying-drought
- Why the Louisiana Flood Happened, And 4 Other Things to Know (The Weather Channel) http://trtl.bz/why-LA-flood-happened
- America’s Latest 500-Year Rainstorm Is Underway Right Now in Louisiana http://trtl.bz/pac-standard-la-flooding “The NWS [National Weather Service] maintains a statistical database used to calculate the annual exceedance probability of a given rainfall event — basically, the expected frequency this event would occur in any given year. Today’s rainstorm in Louisiana is at least the eighth 500-year rainfall event across America in little more than a year.”
- Many in flood zones don't carry flood insurance http://www.marketplace.org/2016/08/05/world/many-flood-zones-dont-carry-flood-insurance
- Climate Change and Housing: Will a Rising Tide Sink all Homes? http://www.zillow.com/research/climate-change-underwater-homes-12890/
- Political Risk Insurance on the Rise http://trtl.bz/garp-political-risk-insurance links to this primer http://globalriskinsights.com/2016/02/a-primer-on-political-risk-insurance/
- Why Some Life Insurance Premiums Are Skyrocketing http://www.nytimes.com/2016/08/14/business/why-some-life-insurance-premiums-are-skyrocketing.html “In particular, companies that sell policies that run for decades, like life and long-term care insurance, face a twofold challenge: how to fund policies that were sold back when their actuaries couldn’t envision a world of interest rates below 8 percent, and what to sell now, when those same actuaries can’t envision an appreciable rise in rates anytime soon.”
- The rejuvenation of insurance https://www.weforum.org/agenda/2016/08/the-rejuvenation-of-insurance-this-is-why-it-matters
- Experimental Capitalism: Accommodating Trial and Error in Risk Management http://trtl.bz/garp-experimental-capitalism Third in an excellent series on disruption
- China’s Next-Generation CDS: Improving Market Growth and Safety via Standardization http://trtl.bz/2bwzBJw “The first generation of credit derivative instruments included a product alteration that was once hailed as an innovation, but China’s second-generation CDS marks a welcome return to an international CDS standard feature … CRM’s one-to-one linkage with the underlying obligation clearly hampers product standardization, as well as credit curve construction. Moreover, the fragmentation poses major problems for market participants and regulators. Dealers need efficient hedging mechanisms for intermediating transactions. The one-to-many feature in international standard CDS is compatible with the standardization, connectedness and economy of scale that facilitate efficient hedging within a CDS family."
- Stress Test Analysis: The Trouble with Attempting to Predict the Future (Precisely) http://trtl.bz/2bgUIh6 “Taken together, what do these two concurrent events [Fed’s CCAR results and Brexit] say about the ability of US banks to predict the future and prepare for it? First and foremost, they indicate the need for additional scenario analysis beyond the Fed’s small set of “deterministic” scenarios (i.e., baseline, adverse and severely adverse). Market disruptions can be driven by a host of real or imagined threats. If they were not nearly impossible to predict, they would not be “shocks.”
- PIMCO’s 3Q16 Putting Markets in Perspective https://www.pimco.com/pmip/ 16-page summary is here http://trtl.bz/PIMCO-3Q16
- Exclusive: Wall St. banks ask Fed for five more years to comply with Volcker rule http://www.reuters.com/article/us-usa-fed-volcker-exclusive-idUSKCN10M2E4?il=0
- The New Wall Street: Even Big Banks Want Help Navigating Markets http://www.bloomberg.com/news/artic...t-even-big-banks-want-help-navigating-markets “Welcome to the new Wall Street. In this neighborhood, a group of smaller, nimble firms have leveraged cutting-edge technology to emerge as the preferred purveyors of trading systems that make it easier and cheaper to buy and sell currencies, Treasuries and fixed income assets.”
- Virtu Never Loses (Well, Almost Never) http://www.bloomberg.com/news/featu...s-well-almost-never-in-quest-to-upend-markets
- The Dirty Little Secret of Finance: Asymmetric Information http://www.bloomberg.com/view/artic...ttle-secret-of-finance-asymmetric-information
- Frequently asked questions on the revised Pillar 3 disclosure requirements https://www.bis.org/bcbs/publ/d376.htm (highly technical, beyond anything you will see on the FRM exam)
- Low long-term interest rates as a global phenomenon https://www.bis.org/publ/work574.htm "This paper compares how interest rates in advanced economies and in emerging economies are conditioned by two global benchmarks – the Federal funds rate at the short end and the world real interest rate at the long end."
- The future of financial infrastructure: An ambitious look at how blockchain can reshape financial services https://www.weforum.org/reports/the...how-blockchain-can-reshape-financial-services Here is the 130-page report http://trtl.bz/WEF-blockchain
- A Taxonomy For Alternative Data https://www.quandl.com/blog/taxonomy-alternative-data
- Lending Club results reveal pain of governance scandal https://www.ft.com/content/b07242bc-5db6-11e6-bb77-a121aa8abd95
- Today We Launch Mathematica Version 11! http://blog.wolfram.com/2016/08/08/today-we-launch-version-11/
- As Forecasts Go, You Can Bet on Monte Carlo (From Super Bowls to hurricanes, this simulation method helps predict them all) http://www.wsj.com/articles/as-forecasts-go-you-can-bet-on-monte-carlo-1470994203 About this David wrote, "Simulation is ascendant. Monte Carlo Simulation (MCS) is already a key component of personal financial planning. Certain financial risk applications virtually *require* MCS; e.g., quantifying counterparty credit exposure via modern CVA pretty much needs an MCS approach. Big data and powerful-but-usable tools such as the R language (and Excel, of course) enable exploration of scenarios in ways unavailable to traditional analytics. MCS is a natural best-fit for many risk problems and we can expect to see more of it. I recommend building your skills accordingly.”
- What’s So Significant About [statistical] Significance? https://www.farnamstreetblog.com/2016/08/null-hypothesis-statistical-significance/ "But numerical and scale-based thinking, indispensable for anyone looking to not be a sucker, tells us that we must distinguish between small and meaningless effects (like the connection between almost all individual foods and cancer so far) and real ones (like the connection between smoking and lung cancer)."
- CVA models may miss half of true default risk http://www.risk.net/risk/news/2467802/cva-models-may-miss-half-of-true-default-risk
- Modern slavery constitutes the biggest reputational risk to emerge over recent years, according to Verisk Maplecroft https://www.maplecroft.com/modern-day-slavery-forced-labour-human-rights
- Many Countries Sink or Swim on Commodity Prices—and on Orders from China https://www.stlouisfed.org/publicat...-on-commodity-prices-and-on-orders-from-china
- Venezuela’s death spiral is getting worse https://www.washingtonpost.com/news...in-a-death-spiral-and-its-only-getting-worse/
- Whistleblowers Are Poised to Collect $100 Million (Madoff tipster Markopolos is in position to get cut of awards tied to State Street, Bank of New York Mellon cases) http://www.wsj.com/articles/tipsters-are-poised-for-big-payouts-1470783626
- Barclays Agrees to Settle Libor-Rigging Inquiry for $100 Million http://www.nytimes.com/2016/08/09/b...le-libor-rigging-inquiry-for-100-million.html
- Reaction: Jesse Livermore – Boy Plunger by Joshua Brown http://thereformedbroker.com/2016/08/11/reaction-jesse-livermore-boy-plunger/
- Greek Crisis, the Book. Or Actually Several of Them http://www.nytimes.com/2016/08/11/b...sis-the-book-or-actually-several-of-them.html “The history of Greece in the eurozone is by no means complete, and the latest financial rescue package is still being worked out. But the accounts do offer up a number of piquant revelations on that nation’s crisis, including outright policy mistakes, dubious conduct, personal agendas and tragedies … Without question though, the most comprehensive examination has been a series of papers put out as a report by the International Monetary Fund’s internal watchdog — the Independent Evaluation Office.”
- Systemic Risk and Risk Management: Overview and Approach by Joseph Calandro http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2815616
- Why Does Idiosyncratic Risk Increase with Market Risk? http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2816138 Rene Stulz is one of the authors.
- A Gentle Introduction to Default Risk and Counterparty Credit Modelling http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2816355
- Comprehensive Guide to Financial Statement Analysis / Ratio Analysis http://www.wallstreetmojo.com/financial-statement-analysis-ratio-analysis-guide/ About this, David wrote, "I am really impressed by this epic tutorial on financial statement analysis! It is visually appealing and he's even got a Risk Analysis section; e.g., External Liquidity Risk. Best of all: he sends you the spreadsheet (.xlsx, solved and unsolved) so you can see the calculations in action using Colgate Palmolive (ticker CL)"
- A Beginner’s Dictionary of Venture Capital https://mattermark.com/venture-capital-dictionary/
- PwC sued for $5.5bn over mortgage underwriter TBW’s collapse https://www.ft.com/content/45972b24-60d1-11e6-ae3f-77baadeb1c93 “Since the financial crisis, banks have paid out hundreds of billions of dollars in settlements while other services companies, such as credit rating agencies, have had to dig deep for payouts. But there have only been a handful of significant cases involving audit firms, which have argued they cannot be held liable for missing signs of fraud.”
- Pursue the Common Ground in Effective Operational Risk Management and Operational Excellence http://www.industryweek.com/lean-si...al-risk-management-and-operational-excellence “Companies have had success adopting what DuPont Sustainable Solutions (DSS) refers to as a differentiated risk approach. (Figure 1) This strategy ensures that appropriate effort and resources are expended based on the specific risk profile of the industry and business in which a company operates.”
- Home Equity Loans Come Back to Haunt Borrowers, Banks (The cost of home equity lines of credit taken out before the housing bust is rising. That is leading to missed payments) http://www.wsj.com/articles/home-equity-loans-come-back-to-haunt-borrowers-banks-1470933020
- The Strange Brain of the World’s Greatest Solo Climber (Alex Honnold doesn’t experience fear like the rest of us) http://nautil.us/issue/39/sport/the-strange-brain-of-the-worlds-greatest-solo-climber
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