Low interest rates
- The Fed’s press release http://www.federalreserve.gov/newsevents/press/monetary/20160921a.htm “Against this backdrop, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives. The stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.”
- Why Raising Interest Rates Has Been Such a Tough Call for the Fed http://www.nytimes.com/interactive/2016/business/economy/fed-raise-interest-rates-explained.html “The Fed is wrestling with three big, intertwined questions: 1. How many people want jobs? 2. How low are interest rates? 3. What damage is done by doing nothing?”
- Understanding the BOJ Decision in Six Simple Questions (In a policy revamp, the BOJ hopes to control the yield curve) http://www.wsj.com/articles/why-japanese-bond-investors-will-get-nothingand-like-it-1474466356 “What does the BOJ want? It wants the 10-year yield to be around zero, allowing the bank to have negative yields on short-term debt, while maintaining a gap between short and long—especially some of its very-long-dated debt. By doing so, it can help the banks, insurers and pension funds that objected to the previous policy.”
- Japan’s Negative Interest Rates Explained http://www.nytimes.com/2016/09/21/business/international/japan-boj-negative-interest-rates.html
- The fall in interest rates by the Economist ttp://www.economist.com/news/briefing/21707553-interest-rates-are-persistently-low-our-first-article-we-ask-who-or-what-blame and related, Pensions: Fade to grey (It costs a lot more to fund a modern retirement. Employers, workers and governments are not prepared) http://www.economist.com/news/brief...ent-employers-workers-and-governments-are-not
- Yahoo hacking — what you need to know (How you could protect yourself against cyber crime) https://www.ft.com/content/266aa154-8165-11e6-8e50-8ec15fb462f4 “To reduce being affected by the next data breach, you should have unique passwords for every service you use rather than reusing passwords across the web. To create unique, strong passwords, password managers such as 1Password or LastPass are the best option.”
- Yahoo faces questions over delay in data breach revelation (Board faces questions over delay in disclosing hacked accounts as Verizon deal comes under spotlight) https://www.ft.com/content/54ec6bd8-818e-11e6-8e50-8ec15fb462f4
- Corporate Judgment Call: When to Disclose You’ve Been Hacked (Cyberattacks become more common, but relatively few get reported to the SEC) http://www.wsj.com/articles/corporate-judgment-call-when-to-disclose-youve-been-hacked-1474320689
- From Yahoo itself: An Important Message About Yahoo User Security https://yahoo.tumblr.com/post/150781911849/an-important-message-about-yahoo-user-security “A recent investigation by Yahoo has confirmed that a copy of certain user account information was stolen from the company’s network in late 2014 by what it believes is a state-sponsored actor. The account information may have included names, email addresses, telephone numbers, dates of birth, hashed passwords (the vast majority with bcrypt) and, in some cases, encrypted or unencrypted security questions and answers … Yahoo believes that information associated with at least 500 million user accounts was stolen and the investigation has found no evidence that the state-sponsored actor is currently in Yahoo’s network.”
- From Yahoo itself: Account Security Issue FAQs https://help.yahoo.com/kb/account/SLN27925.html What happened? “A recent investigation by Yahoo has confirmed that a copy of certain user account information was stolen from our network in late 2014 by what we believe is a state-sponsored actor.”
- Crisis of the Week: Fake Accounts Scandal Rocks Wells Fargo http://blogs.wsj.com/riskandcomplia...week-fake-accounts-scandal-rocks-wells-fargo/
- No bank will escape fallout from Wells Fargo scandal (Should regulators toughen rules on clawbacks, then all bank executives will be squirming) https://www.ft.com/content/732481e8-8153-11e6-8e50-8ec15fb462f4
- Dealpolitik: Liability for Wells Fargo Mess Could Seep Into Boardroom (Case law shows that it's a big red flag when executives keep a problem from the board, and immediate director involvement is required once they learn of the issue) http://blogs.wsj.com/moneybeat/2016...or-wells-fargo-mess-could-seep-into-boardroom
- The Fed’s Stress Tests Need to Be Transparent (Banks are being judged by secret models, in violation of the law that governs agency rule-making) http://www.wsj.com/articles/the-feds-stress-tests-need-to-be-transparent-1474064216 “Before conducting each year’s stress tests, the Fed develops a new economic hypothetical. In 2016 it involved a 6.25% drop in U.S. GDP and a crash that erased half the value of the stock market. Although the Fed discloses its assumptions, it does not provide the public with an opportunity to comment on them. The Fed also develops new models each year for how the hypothetical crisis would affect banks’ capital levels. In 2016 the models predicted losses of $526 billion. But the Fed keeps these models permanently secret, which has a troubling result: Banks must guess at how millions of different assets would respond to the Fed’s assumptions and what this means for the minimum capital they need to pass the test. Designing a stress-test program can cost a bank between $150 million and $250 million …” Here is the referenced report by the Committee on Capital Markets Regulation http://trtl.bz/CCMR-APA-stress-tests
- Banks have a dubious business model and markets have noticed http://ftalphaville.ft.com/2016/09/...bious-business-model-and-markets-have-noticed This is good and contain several references to FRM concepts “Sarin and Summers pose three key questions, although most of the emphasis is on the first two: 1. How do we measure the riskiness of a bank? 2. What could explain changes in those measures over time? 3. What should be done about it?” The paper is here http://trtl.bz/sarin-summers-have-banks-gotten-safer Including very interesting application of implied volatility; e.g., “The absolute value of the delta of an option can be thought of as the probability of the option ending up in the money (Gunn 2009).”
- Let's Think Again About Dodd-Frank by Tyler Cowen https://www.bloomberg.com/view/articles/2016-09-20/let-s-think-again-about-dodd-frank “The core problem is this: The franchise value of banks fell after the crisis, which pushed banks closer to insolvency. As recovery proceeded, however, Dodd-Frank pushed down the value of banks once again. If your reaction to this problem is, Regulation needs to be tougher yet, that’s going to worsen the dilemma by bringing banks that much closer to insolvency. Maybe it was factors separate from Dodd-Frank, such as lower interest rates, that have had the biggest role in reducing the value of banks. Still, that means regulation isn’t addressing the most significant threats to bank solvency.”
- New York State’s New Anti-Money-Laundering Regulation (Prescriptive and detailed Part 504 imposes validation, testing and certification requirements on financial institutions operating in the state, including foreign ones) http://www.garp.org/#!/risk-intelligence/detail/a1Z40000003Kt1a
- How to Identify and Manage Commodity Risk http://www.garp.org/#!/risk-intelligence/detail/a1Z40000003Kt7O
- A Technical Primer On Causality by Adam Kelleher https://medium.com/@akelleh/a-technical-primer-on-causality-181db2575e41 The series by Adam Keller: Casual Data Science https://medium.com/@akelleh/causal-data-science-721ed63a4027 "I started a series of posts aimed at helping people learn about causality in data science (and science in general), and wanted to compile them all together here in a living index. "
- Stressed VaR Using EVT https://assetpricingforbeginners.wordpress.com/2016/09/24/stressed-var-using-evt/ “We can clearly see that the Gaussian VaR is of no use as it underestimates the VaR to a large extent. To a certain extent Historical VaR gives us good conservative estimates, but Historical VaR is bounded by past events only. It can’t give an estimate of something that has not happened and The Future is Always Random. In such extreme events fitting the tails to a GPD [Generalized Pareto Distribution] will give us better estimates of VaR and Expected Shortfall and extremely useful in the case of stress testing.”
- More companies put price on their carbon emissions (Disney and Goldman Sachs are among those preparing to pay) https://www.ft.com/content/722f5df2-7e7f-11e6-8e50-8ec15fb462f4 Here is the CDP’s report (”Embedding a carbon price into business strategy”) http://trtl.bz/CDP-carbon-price
- Plan to save humanity from catastrophic global warming gets a boost (Why 31 countries joining the Paris Agreement is a big deal) http://www.popsci.com/paris-agreement-just-passed-major-milestone
- The Volatility Smile by Emanuel Derman and Michael Miller http://amzn.to/2dnBbhU I've started reading this and it already helped me further my understanding of the implied volatility smile
- FinTech Innovation: From Robo-Advisors to Goal Based Investing and Gamification http://amzn.to/2deSbl4
- The Handbook of Mortgage-Backed Securities, 7th Edition http://amzn.to/2cYqTlt The first revision of this since the crisis is due later in October. Description here https://global.oup.com/academic/pro...e-backed-securities-7th-edition-9780198785774
- Enterprise Risk Management (ERM) Playbook [for the U.S. Federal Government] Released https://cfo.gov/2016/07/28/enterprise-risk-management-erm-playbook-released/ “The group included risk practitioners and cross functional representatives from more than twenty federal agencies who gathered, defined, and illustrated practices applying ERM in the Federal context. The Playbook will help departments and agencies make better decisions based on a more holistic view of risks and their interdependencies.”
- The Sorry State Of Risk Tolerance Questionnaires For Financial Advisors https://www.kitces.com/blog/risk-to...oblems-for-financial-advisors-planplus-study/ “From the academic perspective, those who study consumer behaviors around risk and how it influences investment decisions are converging on three core constructs. The first is RISK TOLERANCE itself. In the academic context, risk tolerance very narrowly and specifically refers to a client’s willingness to take on risk – i.e., to pursue an uncertain positive outcome, with the potential that a negative outcome could result instead … The second construct is RISK CAPACITY, or the client’s financial ability (in dollars and cents terms) to endure a potential financial loss, and still be able to achieve his/her goals … The third construct is to recognize that different clients have different RISK PERCEPTIONS– how risky they think markets (or rather, their investments) are in the first place. The key point is that if perceptions are (or become) misaligned with reality, investors may engage in “surprising” behavior that seems inconsistent with their risk tolerance.
- Is Shareholder Value Maximization the Dumbest Idea in the World? https://blogs.cfainstitute.org/inve...r-maximization-the-dumbest-idea-in-the-world/ “Shareholders do not form a homogeneous group, they are heterogeneous. As a public company, are you trying to satisfy the flash trader or the pension fund that’s going to hold your stock for 60 years?”
- Is Survivorship Bias Haunting Your Investment Choices? http://blog.independenceadvisors.com/is-survivorship-bias-haunting-your-investment-choices/
- Supersized Corporate Bond Sales Are Taking a Bigger Bite Out of an $8 Trillion Market http://www.bloomberg.com/news/artic...ing-a-bigger-bite-out-of-an-8-trillion-market
- SEC Wages War on Misuse of Non-GAAP Metrics http://ww2.cfo.com/disclosure/2016/09/sec-wages-war-misuse-non-gaap-metrics/ Here is the SEC’s Compliance & Disclosure Interpretations (C&DIs) on the use of non-GAAP financial measures https://www.sec.gov/divisions/corpfin/guidance/nongaapinterp.htm
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