FRM Exam (week ending 5/8)
General
Risk (general risk-related news that I find relevant, or just interesting ... )
Quantitative methods
General
- When should you start a new thread on the BT forum? https://forum.bionicturtle.com/threads/when-should-you-start-a-new-thread-on-this-forum.9539/
- Suggestions https://forum.bionicturtle.com/threads/suggestions.9533/
- Several members are posting their mock exam results at https://forum.bionicturtle.com/threads/practice-exam-scores-and-actual-exam-result.7650/page-3
- Does EWMA forecast volatility? https://forum.bionicturtle.com/threads/garch-and-ewma.9475/
- @theproman23 asks about the difference between standard deviation and standard error https://forum.bionicturtle.com/threads/p1-t2-405-distributions-i.7958/#post-42094
- @Siqueue observes that “pull to par” is not necessarily monotonic; e.g., does a zero-coupon bond price always increase over time? https://forum.bionicturtle.com/threads/l1-t3-196-bond-maturity-and-retirement.4722/#post-41945
- @Duvie15 asks about the specificity of futures delivery periods https://forum.bionicturtle.com/threads/l1-t3-142-key-features-of-a-futures-contract.4370/#post-41940
- @puneet_ makes an excellent point about the optimal (i.e., minimum variance) hedge ratio https://forum.bionicturtle.com/threads/hedge-ratio-so-called-optimal.9530/
- @sultan90 asks how to calculate the gain/loss on a net hedged currency trade https://forum.bionicturtle.com/thre...ng-against-money-received-in-the-future.9528/
- @Deepak Chitnis with a better method to finding the aged mortgage balance https://forum.bionicturtle.com/thre...al-mortgage-products-tuckman.8474/#post-42096
- @Apara asks for detail on the credit migration matrix https://forum.bionicturtle.com/thre...tion-transition-matrix.5563/page-2#post-41990
- @Siqueue observes that this statement is FALSE: “Both value at risk (VaR) and expected shortfall (ES) are spectral measures” https://forum.bionicturtle.com/threads/p1-t4-31-spectral-risk-measures.5709/#post-42052
- @brian.field helpfully clarifies the difference between the Profit/Loss and Loss/Profit formats with respect to VaR https://forum.bionicturtle.com/threads/l2-t5-69-parametric-value-at-risk-var.3643/#post-42013
- @Kavita.bhangdia asks how VaR is pro-cyclical https://forum.bionicturtle.com/thre...asurement-and-feedback-loops.7539/#post-42088
- How do we interpret Tuckman’s risk-neutral probabilities https://forum.bionicturtle.com/threads/l2-t5-40-replicating-callable-bond.3551/page-2#post-42089
- @QuantMan2318 helpfully explains trade compression https://forum.bionicturtle.com/threads/trade-compression-gregory.9525/
- @Ace_Ashmant asks about the impact of default correlation on credit value at risk (CVaR) of senior bond tranche https://forum.bionicturtle.com/thre...vities-in-structure-products.7043/#post-42015 and some related follow up is here at https://forum.bionicturtle.com/thre...-default-rate-and-correlatio.7030/#post-42012
- @brian.field shares article referenced by Meissner https://forum.bionicturtle.com/thre...he-crisis-confessions-of-a-risk-manager.9536/
- @Delo asks how Gregory comes to the idea that “increasing recovery increases the implied default probability” https://forum.bionicturtle.com/threads/cva-recovery-impact-gregory.9534/
- @NNath with a keen observation about the question of legal ownership transfer in the case of a repo versus pledged collateral https://forum.bionicturtle.com/threads/repo-collateral-re-use-and-legal-ownership.9545/
- @Mkaim asks about Malz’s treatment of options on the economic balance sheet https://forum.bionicturtle.com/threads/p2-t7-510-balance-sheet-leverage-malz.8387/#post-42000
- @Delo observes that Crouhy has defined adjusted risk-adjusted return on capital (ARAROC) in two different ways https://forum.bionicturtle.com/threads/difference-between-raroc-and-araroc.6669/
- On the relationship between component and incremental VaR https://forum.bionicturtle.com/thre...nent-value-at-risk-var.4779/page-2#post-42047
- @Kavita.bhangdia asks two great questions: what is an “illiquid sound” institution and why is the Fed’s collateral policy important? https://forum.bionicturtle.com/threads/lolr.9541/
- On FB, Rahul asks what’s wrong with solving for interest rate swap as forward rate agreements (FRAs) https://forum.bionicturtle.com/threads/2011-p1-11-value-of-interest-rate-swap.9532/
- @bpdulog asks for clarification on VaR’s lack of sub-additivity; e.g., is VaR never sub-additive? https://forum.bionicturtle.com/threads/2014-practice-exam-question-20.9526/
- What is the impact of interest rate volatility on the value of a callable convertible bond? https://forum.bionicturtle.com/threads/2011-practice-exam-question-12.9547/
- What does it mean to “buy” (be long) a forward rate agreement? Is it the same as “long an interest rate swap?” (https://forum.bionicturtle.com/threads/2012-p1-18-buy-a-forward-rate-agreement-fra.6929/#post-42091
Risk (general risk-related news that I find relevant, or just interesting ... )
Quantitative methods
- The 17 equations that changed the world https://www.weforum.org/agenda/2016/04/the-17-equations-that-changed-the-world
- Math Stumps Your Doctor, Too (Bayes Theorem) http://www.bloomberg.com/view/articles/2016-05-05/math-stumps-your-doctor-too
- How to Learn Advanced Mathematics Without Heading to University - Part 2 https://www.quantstart.com/articles...hematics-Without-Heading-to-University-Part-2
- 60 Minutes: Fintech, Shaking up the financial industry http://www.cbsnews.com/news/fintech-shaking-up-the-financial-industry/
- Robots Will Strike Asset Management Firms First (The rise of financial technology threatens all of Wall Street, a new survey by CFA Institute shows) http://www.bloomberg.com/news/artic...set-management-firms-should-fear-fintech-most
- DCF Myth 3: You cannot do a valuation, when there is too much uncertainty! http://aswathdamodaran.blogspot.com/2016/05/dcf-myth-3-you-cannot-do-valuation-when.html
- The Hottest Metric in Finance: ROIC http://www.wsj.com/articles/the-hottest-metric-in-finance-roic-1462267809
- Market and Funding Liquidity: An Overview. Speech by William C. Dudley https://www.newyorkfed.org/newsevents/speeches/2016/dud160501 “As I see it, in the context of our financial system there are two distinct types of liquidity. The first is what is typically referred to as market liquidity. I would define market liquidity as the cost—both in expense and time—of buying or selling an asset for cash … The second important type of liquidity is funding liquidity. By funding liquidity, I mean the ability of a financial entity to raise cash by borrowing on either an unsecured or a secured basis. Although market and funding liquidity are often treated as distinct, they can be closely related. This is especially the case during a financial crisis.”
- New blog: Compliance & Enforcement (by NYU School of Law) at https://wp.nyu.edu/compliance_enforcement/ “The driving forces have been the enormous growth in compliance jobs, the shortage of other legal jobs, and the obvious importance of the compliance function in the management of American and international industry,” says Geoffrey Miller.
- Regulators want to slow runs on derivatives http://www.bloomberg.com/view/articles/2016-05-04/regulators-want-to-slow-runs-on-derivatives “The deep fragile magic at the heart of banking is that a bank funds its risky assets by issuing risk-free money-like liabilities.”
- Wall Street Stock Loans Drain $1 Billion a Year From German Taxpayers https://www.propublica.org/article/wall-street-stock-loans-drain-1-billion-from-german-taxpayers “Dividend-arbitrage (aka, div-arb) transactions are structured and marketed as tax-avoidance vehicles. The practice — sometimes called dividend washing, dividend stripping or yield enhancement — is the latest version of a long-running game in which creative bankers exploit gaps and inconsistencies in foreign tax systems to benefit wealthy clients.”
- Negative bond yields cost investors $24bn annually http://www.ft.com/intl/cms/s/0/8d9627e2-1223-11e6-839f-2922947098f0.html#axzz487KhQmuW “As a result of low and even negative yielding sovereign debt, many investors are forced to buy riskier bonds with lower ratings, or longer-dated bonds. But that is eroding the possible returns there too.”
- The safe asset scarcity problem, 2050 edition http://www.coppolacomment.com/2016/05/the-safe-asset-scarcity-problem-2050.html
- What’s Up with GCF Repo? http://libertystreeteconomics.newyorkfed.org/2016/05/whats-up-with-gcf-repo.html Their Primer on the GFC Repo Service is good: https://www.newyorkfed.org/research/epr/2015/2015_epr_primer-on-the-gcf-repo
- The History and Economics of Safe Assets by Gary Gorton http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2770569
- The Future of the Hedge Fund Industry http://awealthofcommonsense.com/2016/05/the-future-of-the-hedge-fund-industry/ Ben Carlson is such a great blogger.
- Why Does Indexing Shrink Alpha? http://www.pragcap.com/why-does-indexing-shrink-alpha/ This is about the following article that has received a lot of attention on my twitter feed, Index Investing Makes Markets and Economies More Efficient http://www.philosophicaleconomics.com/2016/05/passive/
- Merger (Risk) Arbitrage – What is it? http://blog.alphaarchitect.com/2016/04/28/facts-fiction-merger-arbitrage/#gs.MqPgio4
- Aaron Brown (who is widely admired in the risk management field) posted a 4-video series on GARPs site, including: What is Risk? Risk Management vs Portfolio Management and How Hard is Risk Management? http://www.garp.org/#!/risk-intelligence/video//rrqh8l2hux
- The Business Case for Relinquishing AAA Credit Ratings http://www.bloomberg.com/news/artic...ess-case-for-relinquishing-aaa-credit-ratings “Finance theory says a company should balance tax savings against the risk of bankruptcy. Interest payments on debt are tax-deductible, so it’s advantageous to borrow—especially now, when the Federal Reserve’s easy-money policies have made borrowing cheap even for companies with a less-than-perfect balance sheet. AAA-rated nonfinancial corporate debt yielded only 0.13 percentage points less than AA-rated issues in April.”
- The Hazards of Financial Engineering http://www.wsj.com/articles/financial-engineering-shows-its-downside-1462224900 “The biggest 1,500 nonfinancial companies in the U.S. increased their net debt by $409 billion in the year to the end of March, according to Société Générale, using almost all—$388 billion—to buy their own shares, net of newly issued stock. Companies have become far and away the biggest customer for their own shares.”
- The Board’s Cybersecurity Responsibility http://www.rmmagazine.com/2016/05/02/the-boards-cybersecurity-responsibility/
- Lemons & Peaches: Understanding Adverse Selection https://medium.com/@thogge/one-mental-model-to-rule-them-all-6cf1ec9e6889#.zb7lta1xj
- Week 5 Part II: Practical Applications for Forwards https://www.linkedin.com/pulse/week-5-part-ii-practical-applications-forwards-jeffrey-warner-cfa
- Materiality: Investor Concerns https://blogs.cfainstitute.org/maketintegrity/2016/05/06/materiality-investor-concerns/
- What gives a trader an edge? An interview with trader, analyst, and portfolio manager Adam Grimes https://www.quandl.com/blog/interview-with-a-trader
- Investopedia’s new Index of Investor Worry, the Investopedia Anxiety Index (IAI) http://www.garp.org/#!/risk-intelligence/detail/a1Z400000033WXoEAM
- Where is the riskiest place to live? http://www.theguardian.com/global-d...e-is-the-riskiest-place-to-live-floods-storms
- Just in case you these these three two major risk reports: 1. Allianz Risk Barometer 2016 http://www.agcs.allianz.com/insights/white-papers-and-case-studies/allianz-risk-barometer-2016/ and 2. the PWC Risk in Review Study https://www.pwc.com/us/en/risk-assurance/risk-in-review-study/key-findings.html and 3. The Global Risks Report 2016 by the World Economic Forum https://www.weforum.org/reports/the-global-risks-report-2016
- The Book That Will Save Banking From Itself http://www.bloomberg.com/view/articles/2016-05-05/the-book-that-will-save-banking-from-itself The Book is The End of Alchemy: Money, Banking, and the Future of the Global Economy http://amzn.to/1NnQvqC
- How to Bake Pi: An Edible Exploration of the Mathematic of Mathematics http://amzn.to/1rCbzzt
- Even the Odds: Sensible Risk-Taking in Business, Investing, and Life http://amzn.to/1rCcdwR
- Intro to Statistics with R: Introduction (free course) https://www.datacamp.com/courses/introduction-andrew-conway “We are proud to announce we have made some huge updates to our Intro to Statistics with R series. Over 100 challenges and more than 30 videos are redesigned from scratch. Start playing to see the changes for yourself.” (I've completed nine datacamp courses, they are a fantastic way to learn R)
- Introduction to R for Excel Users https://tomhopper.me/2016/05/03/r-for-excel-users/
- Wharton M.B.A.s Get More Training in Data and Decision-Making http://www.wsj.com/articles/wharton-m-b-a-s-get-more-training-in-data-and-decision-making-1462381445
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