In the forum this week (selected only)
- [P1.T3] More on cash-and-carry arbitrage http://trtl.bz/2p6SW9h
- [P1.T3] Callable convertible bond https://forum.bionicturtle.com/threads/callable-convertible-bond.10445/
- [P1.T3] Impact of loan losses on equity cushion https://forum.bionicturtle.com/threads/p1-t3-700-major-risks-faced-by-banks-hull.10232/#post-49903
- [P1.T4] Don’t forget that option deltas are asymptotic to zero, 1.0 and -1.0 such that deeply in-the-money or out-of-the-money deltas probably don’t need to be calculated https://forum.bionicturtle.com/thre...les-option-model-assumptions.4784/#post-49743
- [P1.T4] Thank you @emilioalzamora1 for yield curve developments https://forum.bionicturtle.com/threads/yield-curve-developments-some-theory.10446/
- [P1.T4] Hedging with DV01 is really hedging dollar durations (and DV01s are given per $100 face value) https://forum.bionicturtle.com/thre...n-dv01-or-effective-duration.5515/#post-49813
- [P2.T5] Jensen’s Inequality https://forum.bionicturtle.com/threads/jensens-inequality-formula.7411/#post-49731
- [P2.T5] Monotonicity (is a coherence property that) can be represented either by ρ(1) < ρ(2) if (L1 < L2); or ρ(Y) < ρ(X) if (X < Y) https://forum.bionicturtle.com/thre...otes-p2-t5-market-risk.8758/page-2#post-49705
- [P2.T5] My expected shortfall (ES) calculation mistake https://forum.bionicturtle.com/threads/calculating-expected-shortfall.10447/
- [P2.T5] Does yield increase necessarily lower duration? Smart observation by @dcalvo! https://forum.bionicturtle.com/thre...ty-yield-impacts-on-duration.3452/#post-49845
- [P2.T5] Hull says that funding cost is not relevant to project valuation http://trtl.bz/2pWh5xu
- [P2.T5] @Ashok has questions about VaR using MCS http://trtl.bz/2qQtLpO
- [P2.T6] EPE is aka bond-equivalent so its analog with respect to a bond is FV[par value of bond], or exposure at default (EAD) https://forum.bionicturtle.com/threads/gregory-notes-approximating-cva-spread-epe-5-of-what.10442/
- [P2.T6] Neither collateral nor guarantees eliminate credit analysis https://forum.bionicturtle.com/thre...nd-components-of-credit-risk.7634/#post-49764
- [P2.T6] A “perfect answer” given by @emilioalzamora1 when asked to clarify the second step in the Merton model https://forum.bionicturtle.com/threads/merton-model-a-summary-of-the-issues.5646/page-4#post-49865
- [P2.T6] Basel defines credit value at risk (CVaR) differently than Malz https://forum.bionicturtle.com/threads/p-2-credit-var.10200/#post-48169
- [P2.T7] The “special spread” is the difference between the general collateral (CG) repo rate (aka, general collateral rate) and the the special collateral repo rate https://forum.bionicturtle.com/thre...s-special-repo-rates-tuckman.8431/#post-49798
- [P2.T7] Understanding value at risk (VaR) backtest with atypical examples; e.g., 60% VaR or 60% confidence interval (CI) http://trtl.bz/2qfcEkg
- [P2.T7] Good question! How different would Malz’ economic balance sheet look difference if we assumes short options and long credit default swaps (CDS)? https://forum.bionicturtle.com/threads/p2-t7-510-balance-sheet-leverage-malz.8387/#post-49856
- [P2.T8] My favorite thread of the week is with @Roddefeller where we dissect Ang’s formula 6.8 (and he shows me the derivation, awesome!) https://forum.bionicturtle.com/threads/p2-t8-701-multifactor-models-andrew-ang.10169/#post-49814
- [P2.T8] In Andrew Ang is there a relationship between the rebalancing factor and short volatility? https://forum.bionicturtle.com/thre...mentum-investing-andrew-ang.10194/#post-49874
- [P2.T8] @emilioalzamora1 on selection bias versus backfill bias versus survivorship bias https://forum.bionicturtle.com/thre...ge-funds-industry-and-biases.8033/#post-49718
- [P2.T8] Common type of question: marginal VaR and component (contribution) VaR https://forum.bionicturtle.com/thre...marginal-and-incremental-var.8395/#post-49870
- [P2.T8] @emilioalzamora1 with a HUGE share on alpha https://forum.bionicturtle.com/threads/p2-t8-704-alpha-and-effective-benchmarks-andrew-ang.10204/
- [P2.T9] @emilioalzamora1 on why VIX is an indicator of global liquidity https://forum.bionicturtle.com/thre...-debt-in-emerging-economies.10338/#post-49888
- [GARP 2017 P2.63] Mistake in calculating the standard deviation of (scaled) alphas https://forum.bionicturtle.com/threads/garp-2017-p2-63.10438/
- [GARP 2107 P2.10] Mistakes in RAROC calculation https://forum.bionicturtle.com/threads/garp-2017-p2-10.10340/
- [GARP 2017 P2.35] Imprecise liquidity value at risk (LVaR) question https://forum.bionicturtle.com/threads/garp-2017-p2-35.10341/
- [GARP 2107 P2.78] Common type of question: infer default probabilities from yields https://forum.bionicturtle.com/threads/2017-garp-pq-78.10449/
- [GARP 2106 P2.8] Mistake in surplus at risk (SaR) calculation https://forum.bionicturtle.com/threads/garp-2016-p2-8.10440/
- Goldman Sachs Embraces Banking’s Bland Side: Lending Money (The investment bank, seeking growth beyond its elite Wall Street turf, is moving to finance corporate takeovers, lend against mansions and make personal loans for things such as kitchen remodels) https://www.wsj.com/articles/goldman-sachs-embraces-bankings-bland-side-lending-money-1493675955
- The Troubled Future of Global Banking http://www.capco.com/insights/capco...ormation/troubled-future-of-global-banking-17
- Global Capital Markets 2017: Mastering the Value Migration (”We refer to the shift of global revenue pools from banks to nonbanks as the value migration”) by The Boston Consulting Group (BCG). Report is here http://trtl.bz/2qTC5VC
- Bank of America Pays Peanuts for Deposits, but the Money Keeps Flowing In (Ability to hold the line on rates illustrates built-in advantages of big banks, wsj.com) http://trtl.bz/2pnU4Bs
- Banks Pull Back on Car Loans as Used-Auto Prices Plummet https://www.wsj.com/articles/banks-pull-back-on-car-loans-as-used-auto-prices-plummet-1493816356
- 2017 Atlantic Council Report on Geopolitical Risk http://trtl.bz/2q5tlP6 Report in http://trtl.bz/2psdeXL
- Ending Too Big to Fail: Resolution Edition http://www.moneyandbanking.com/commentary/2017/4/30/ending-too-big-to-fail-resolution-edition
- Puerto Rico: A Debt Problem That Kept Boiling Over https://www.nytimes.com/2017/05/05/business/dealbook/puerto-rico-debt.html “With its creditors at its heels and its coffers depleted, Puerto Rico sought what is essentially bankruptcy relief in federal court on Wednesday, the first time in history that an American state or territory had taken the extraordinary measure.”
- Message of Puerto Rico Debt: Easy Bets Sometimes Lose https://www.nytimes.com/2017/05/04/business/dealbook/puerto-rico-creditors-hedge-funds.html
- Some default and debt restructuring data https://simplystatistics.org/2017/05/04/debt-haircuts/ “A case like this [Puerto Rico] is unprecedented, but there are plenty of data on restructurings.”
- Italy Is Europe's Next Big Problem https://www.bloomberg.com/view/articles/2017-05-02/italy-is-europe-s-next-big-problem
- Inside Canada’s Push to Contain the Fallout From Home Capital (bloomberg.com) http://trtl.bz/2p8t51N and The Downfall of Canada’s Largest Alternative Mortgage Lender (Chart by visualcapitalist.com) http://www.visualcapitalist.com/chart-downfall-home-capital-group/
- On Climate, Uncertainty Is Not the Same as Agnosticism https://blogs.wsj.com/economics/2017/05/02/on-climate-uncertainty-is-not-the-same-as-agnosticism/
- Climate Skeptics Always Assume the Risks Are Overhyped https://www.bloomberg.com/view/arti...keptics-always-assume-the-risks-are-overhyped “From 1990 through 2012, for example, the United Nations’ Intergovernmental Panel on Climate Change -- which reviews and summarizes scientific findings on climate change from around the world -- consistently underestimated the amount that global temperature, carbon-dioxide concentrations and sea levels would rise. Again and again, scientists were too conservative in their climate-change predictions.”
- Q&A Detailed look at the global warming hiatus again confirms that humans are changing the climate http://www.latimes.com/science/sciencenow/la-sci-sn-global-warming-hiatus-20170503-htmlstory.html “This analysis in Nature pulls together many findings in the wake of several research efforts looking to address the hiatus conundrum. Some argued that global warming predictions didn’t match the actual data during that time period because they didn’t include complex short-term climate factors that are poorly understood. Others have argued that the hiatus didn’t really exist; that it was a problem with the instrumentation or the data analysis, for example. The new Nature paper essentially works through several examples under both of these explanations and finds that it’s a combination of the two.”
- McKinsey’s Digital Insurance (Facing Digital Reality: Regulation, product complexity, and insurers’ large balance sheets have kept digital attackers from insurers’ gates. That is changing, but in ways incumbents should embrace. They can flourish in the digital age—if they move swiftly and decisively) https://digitalinsurance.mckinsey.com/
- The Fintech Files: Understanding Blockchain https://blogs.cfainstitute.org/investor/2017/05/02/the-fintech-files-understanding-blockchain/
- Hackers Ran Through Holes in Swift’s Network (wsj.com) http://trtl.bz/2qLxF5R "It was a stunningly simple ruse: The cybercriminals behind the Bangladesh heist used malware to steal bank codes and place fake transfer orders, according to people familiar with the incident. The attacks also have threatened the trust that banks have had for decades in Swift, a cooperative that runs the international messaging service among banks."
- Getting started with data science – recommended resources https://itsalocke.com/getting-started-with-data-science-recommended-resources/
- Data is giving rise to a new economy http://www.economist.com/news/briefing/21721634-how-it-shaping-up-data-giving-rise-new-economy “Data are to this century what oil was to the last one: a driver of growth and change. Flows of data have created new infrastructure, new businesses, new monopolies, new politics and—crucially—new economics. Digital information is unlike any previous resource; it is extracted, refined, valued, bought and sold in different ways. It changes the rules for markets and it demands new approaches from regulators.”
- [GARP] Six Great Reasons YOU Should Learn to Code (Computer code is the future — and it’s also the present. To improve now and be much more valuable in the future, learn to code! The benefits are immense) http://trtl.bz/2pOQQck
- Colleges Rush to Ramp Up Online Classes https://www.wsj.com/articles/colleges-rush-to-ramp-up-online-classes-1493575200
- From the London Whale to Wells Fargo, a Bank Regulator [Thomas Curry, OCC] Looks Back https://www.nytimes.com/2017/05/05/business/dealbook/thomas-curry-comptroller.html
- Following Your Passion is a Numbers Game http://trtl.bz/2p8wa1O
- Top 20 Financial Modeling Interview Questions (with Answers) http://www.wallstreetmojo.com/financial-modeling-interview-questions-answers/
- [Book review] Behave: The Biology of Humans at Our Best and Worst https://www.wsj.com/articles/how-the-brain-makes-us-do-it-1493678528 Included because this is about decision-making: “Mr. Sapolsky’s concept is to examine behavior starting at its most immediate neural underpinnings, then trace it to progressively more distant causes, including hormonal, social and developmental ones, and ultimately to search out its evolutionary antecedents. To my knowledge, this hasn’t been done before in one book, and he succeeds magnificently … It’s no exaggeration to say that Behave is one of the best nonfiction books I’ve ever read.”
- The Cyber Risk Handbook: Creating and Measuring Effective Cybersecurity Capabilities http://amzn.to/2qcxmBf
- Corporate Fraud Handbook: Prevention and Detection (5th Edition) http://amzn.to/2qcfOVR
- Blockchain For Dummies http://amzn.to/2pT7jfG
- Financial Valuation: Applications and Models http://amzn.to/2pSFUfP
- [reddit thread] I raised my credit score from 546 to 720 in 4 months thanks to you guys http://trtl.bz/reddit-credit Straightforward, actionable steps.
- People Aren’t Using Retirement Accounts To Save More For Retirement (The IRA system was designed to help people save more for retirement. But almost nobody is using it that way) https://www.buzzfeed.com/matthewzeitlin/people-arent-using-retirement-accounts-to-save
- Sweden has a Museum of Failure http://museumoffailure.se/
- NY Times Magazine's Money Issue https://www.nytimes.com/2017/05/04/magazine/the-magazines-money-issue.html
- Our world outsmarts us https://aeon.co/essays/the-complexity-of-social-problems-is-outsmarting-the-human-brain Includes Bayes Theorem! “Whether contemplating the pros and cons of climate change; the role of evolution; the risks versus benefits of vaccines, cancer screening, proper nutrition, genetic engineering; trickle-down versus bottom-up economic policies; or how to improve local traffic, we must be comfortable with a variety of statistical and scientific methodologies, complex risk-reward and probability calculations – not to mention an intuitive grasp of the difference between fact, theory and opinion. Even moral decisions, such as whether or not to sacrifice one life to save five (as in the classic trolley-car experiment), boil down to often opaque calculations of the relative value of the individual versus the group.”
- The Error at the Heart of Corporate Leadership https://hbr.org/2017/05/managing-for-the-long-term David: I was trained at consulting firms where "to maximize shareholder value" was assumed to be the primary--if not exclusive--goal of every company to which we consulted. But this agency-based model has problems. For example, executive pay tends to be heavily in stock and options; but share gains are largely due to market and sector exposure (nevermind that most grants aren't truly performance-based). Meanwhile the drop in average holding period by shareholders is stunning. This has always been a valid academic debate (shareholders versus broader stakeholders), but there are trends--like the ascendant appeal of private markets--that suggest maybe the agency model is ripe for change. This is an excellent summary of this issue.
- Independent Directors: New Class of 2016 https://corpgov.law.harvard.edu/2017/05/04/independent-directors-new-class-of-2016/ “To see how boards are keeping current and strategically aligning board composition to company needs, we reviewed the qualifications and characteristics of independent directors who were elected to Fortune 100 boards for the first time in 2016.”
- Inside VW’s Campaign of Trickery (New details emerge in Volkswagen’s broad conspiracy to cover up a campaign aimed at deceiving pollution regulators) https://www.nytimes.com/2017/05/06/business/inside-vws-campaign-of-trickery.html “Mr. Gottweis’s memo delivered a clear warning to the very highest level of management of the risk that Volkswagen had been caught using an illegal defeat device.”
- What’s it like to lose £350m? A rogue trader confesses (guardian.com) http://trtl.bz/2qTHHz5 “Perhaps the most shocking element of Stenfors’s new book is that it confirms that the economic crisis, which was effectively created by the banks, did very little to make the banks address their bad habits.”
- How a Hedge-fund Ace Chased Silicon Valley Riches and Embarrassed Himself http://trtl.bz/2p8oKvz “The frenzy [of new money into venture-backed companies] has since faded, turning Mr. Adams’s misadventures into a cautionary tale about chasing Silicon Valley riches. Venture-capital investment plummeted 42% last year, putting pressure on existing investments by making it harder to attract new money at higher valuations.”
- Chart: The Downfall of Canada’s Largest Alternative Mortgage Lender [Home Capital] http://www.visualcapitalist.com/chart-downfall-home-capital-group/
- John Paulson’s Fall From Hedge Fund Stardom https://www.nytimes.com/2017/05/01/business/dealbook/john-paulsons-fall-from-hedge-fund-stardom.html
- The Long, Hard, Unprecedented Fall of Sears https://www.bloomberg.com/news/articles/2017-05-08/the-long-hard-unprecedented-fall-of-sears
- Aon's 2017 Global Risk Management Survey http://www.aon.com/2017-global-risk-management-survey/index.html Press release http://trtl.bz/2qKSP0f Report here in http://trtl.bz/2qitkYj (Executive Summary is here http://trtl.bz/2qKGHjL)
- New Step-In Risk Guidelines http://causalcapital.blogspot.sg/2017/05/new-step-in-risk-guidelines.html
- [GARP] Bribery and Corruption Risks Are Increasingly Viewed as Reputational http://trtl.bz/2qisvyz
- [GARP] When Controls Get Out of Control, Costs Escalate http://trtl.bz/2qTPInY
- Same Stats, Different Graphs: Generating Datasets with Varied Appearance and Identical Statistics through Simulated Annealing https://www.autodeskresearch.com/publications/samestats This is such an elegant piece of work, the Datasaurus is my new favorite dataset. Short paper is here http://trtl.bz/2pdwJYg
- Seven Easy Graphs to Visualize Correlation Matrices in R http://jamesmarquezportfolio.com/correlation_matrices_in_r.html
- Weibull distribution and Benford’s law https://www.johndcook.com/blog/2017/05/02/weibull-distribution-and-benfords-law/
- Visualizing uncertainty in housing data http://lenkiefer.com/2017/04/26/housing-data-uncertainty
- 41 questions on Statistics for data scientists & analysts https://www.analyticsvidhya.com/blog/2017/05/41-questions-on-statisitics-data-scientists-analysts/
- Traders Are Fleeing the Options Market (Falling volumes are raising concerns about the fragility of the options market) https://www.wsj.com/articles/traders-are-fleeing-the-options-market-1494158400
- Should Free Markets Govern the Bond Rating Agencies? (Gretchen Morgenson) https://www.nytimes.com/2017/05/05/business/07gretchen-morgenson-ratings-agencies-moodys.html … and here is the referenced Open Letter from Former Rating Agency Executives on the Financial Choice Act http://trtl.bz/2qOQ5zi
- 12 Types of Technical Indicators Used by Stock Traders (visualcapitalist.com) http://www.visualcapitalist.com/12-types-technical-indicators-stocks/
- As IPOs Pick Up, Big Startups Hold Out (The market for IPOs is rebounding, but high-profile startups like Uber and Airbnb are shying away amid concerns their companies would be valued at less than private fundraising rounds) https://www.wsj.com/articles/as-ipos-pick-up-big-startups-hold-out-1494154807
- Lies Traders Tell: A New Trial, a New Worry in Mortgage-Bond Circles http://trtl.bz/2pUartl “The hot topic lately: prices. What happens when traders quote different prices to different buyers -- or fudge when asked what they themselves paid?”
- Risk of dollar shortage hits investors’ radar (ft.com) http://trtl.bz/2prLW43
- How Ultralow Interest Rates Could Backfire (When the Fed raises interest rates the stock market usually takes it badly, but banks are praying for tighter monetary policy) https://www.wsj.com/articles/why-rallying-bank-stocks-should-worry-the-fed-1493829618
- Jeremy Grantham’s (GMO) latest quarterly letter is a good read. As a value investor, he laments the regime shift in average price-earning (P/E) ratios, from about 14 to ~ 23.4 and asks "why isn't it reverting to the mean?" His answer is: although interest rates (discount rates) remain low, corporate profit margins have shifted from 5.0% to 7.0% as corporations have more monopoly power (enabled by regulations) and more brand power. Here is the short letter http://trtl.bz/0505-gmo-letter (from https://www.gmo.com/)
- There coverage of low VIX has been daily: Wall Street Fear Gauge VIX Sinks to Decade Low (Some analysts see it as worrying sign that investors are insufficiently skeptical) https://www.wsj.com/articles/wall-street-fear-gauge-vix-sinks-to-decade-low-1493674572; Low Volatility and the Risks of Crowded Trades https://www.bloomberg.com/view/articles/2017-05-02/low-volatility-and-the-risks-of-crowded-trades; Slumbering volatility the market surprise for 2017 https://www.ft.com/content/7f4fa84e-2eaa-11e7-9555-23ef563ecf9a
- In our forum, VIX https://forum.bionicturtle.com/threads/repost-to-davids-tweet-about-the-vix.10448/
- Finally (maybe you can skip the other VIX articles!): The VIX Tells Us Very Little About Tomorrow (All the hand-wringing because the fear index has fallen below 10 is a waste of time) https://www.bloomberg.com/view/articles/2017-05-08/the-vix-tells-us-very-little-about-tomorrow
- Recent Attacks Illustrate the Principles of Terrorism Risk Modeling http://www.rms.com/blog/2017/05/03/...te-the-principles-of-terrorism-risk-modeling/
- How Catastrophe Modeling Can Help Make Buildings More Resilient http://www.air-worldwide.com/Blog/How-Catastrophe-Modeling-Can-Help-Make-Buildings-More-Resilient/
- Angst in America, Part 5: The Crisis We Can’t Muddle Through (by John Mauldin) http://www.mauldineconomics.com/fro...rica-part-5-the-crisis-we-cant-muddle-through “We know three things with near certainty: 1. Public pension plans are nowhere near able to meet their obligations. 2. Most cities and states can’t possibly contribute enough to cover the gaps without serious budget upheaval or increased taxes. 3. Plan investments won’t achieve projected returns, let alone earn enough to cover the contribution gaps.”
- How do investors evaluate founding teams? https://medium.com/village-capital/how-do-investors-evaluate-founding-teams-7ba012de6384
- Full Tilt Capital Progress Report: Our strategy may not be as crazy as you thought http://trtl.bz/2qOInVV “Before launching Full Tilt, we identified three aspects of venture capital that were held sacred by the incumbents: deal economics, investment decision process, and portfolio company support. We decided to intentionally do the opposite of the incumbents in these three areas (do something different) and now, time will tell if we’re correct or not.”
- Risky Business (Is smart beta truly smarter and better?) http://www.humbledollar.com/2017/05/risky-business-2/
- Why I Lost My Bet with Warren Buffet https://www.bloomberg.com/view/articles/2017-05-03/why-i-lost-my-bet-with-warren-buffett Nine years ago, only one hedge fund manager stepped forward to take Warren Buffett's $500,000 bet to compete head-to-head: 5 active investments versus the S&P 500 index fund. The contest is almost over and so far (in a relatively neutral environment), Warren Buffet's passive strategy is trouncing the active funds: The passive index is up +85.4% (7.1% CAGR) versus +21.6% (2.2% CAGR) for the hedge funds. Ted Seides says "it's just not the whole story," but this sort of thing doesn't help hedge funds.
- Quantitative Investing: A Crisis Waiting to Happen https://blogs.wsj.com/moneybeat/2017/05/05/quantitative-investing-a-crisis-waiting-to-happen/
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