Blog Week in Risk (January 13th)

[David Harper CFA FRM]

New YouTube

• Exotic option: exchange option (FRM T3-47) https://trtl.bz/2QwSNWl
• Binomial option pricing model: up/down jumps based on volatility (FRM T4-7) https://trtl.bz/2HlZtqW

New Practice Questions

• P1.T4.901. Exploiting arbitrage opportunities with a replicating bond portfolio (also: clean versus dirty, and day-count conventions) (Tuckman Ch.1) https://trtl.bz/2CU2jzf
• P2.T9.901. Cyber Risk, Market Failures, and Financial Stability (Part 2 of 2) https://trtl.bz/2QwuDLO

In the Forum

• [GARP] We have the pass rates for the November 2018 exam! David has updated our historical pass rate graph to reflect the updates. https://trtl.bz/2RrWr9j
• [P1.T1] Which is unexpected loss (UL), relative or absolute MVaR? https://trtl.bz/2FuNXak
• [P1.T3] What is the role of Jensen's inequality in volatility/variance swaps? https://trtl.bz/2Fmw9Ot
• [P1.T3*] Balance sheet of P&C versus life insurance company https://trtl.bz/2FuPWeM
• [P1.T3*] How does a longevity bond work? https://trtl.bz/2FoQELq
• [P1.T4] Option on futures contract (aka, futures options) are generally American; they can be exercised any time during the life of the contract https://trtl.bz/2Fk3DxT
• [P2.T5] Dowd's Interpretation of QQ plot https://trtl.bz/2Fvf2Km
• [P2.T5] In the duration approach to fixed-income VaR mapping, do we assume the sole risk factor is Macaulay or modified duration? https://trtl.bz/2Fva7ZW
• [P2.T5] The VaR backtest presumes that the failure rate is an efficient and consistent estimator https://trtl.bz/2FvsPAI
• [P2.T7] Dowd's constant spread approach is a special case of his exogenous approach to liquidity-adjusted value at risk (LVaR) https://trtl.bz/2FvA6Ar
• [P2.T7] A subtle difference between VaR and stressed VaR in the Basel III internal models approach to market risk https://trtl.bz/2FvjybS

External

Risk

• Eurasia Group's Top (Political) Risks for 2019 https://www.eurasiagroup.net/issues/top-risks-for-2019
• Robert J. Shiller on Bubbles, Reflexivity, and Narrative Economics (CFA Institute) https://trtl.bz/2FoVw3i
• Coming to Terms with Operational Risk (NY Fed: Liberty Street) https://trtl.bz/2FCcPx9
• Excellent advice for all of us involved in managing risk (Norman Marks) https://trtl.bz/2FywZrN
• [GARP] FRTB: The Road to IMA https://trtl.bz/2FzxNwC
• [GARP] CECL, IFRS 9 and the Demand for Forecast Stability https://trtl.bz/2FuU0vE
• [BIS] The market risk framework (in brief) https://www.bis.org/bcbs/publ/d457_inbrief.pdf
• [BIS] BIS Quarterly Review, December 2018 https://www.bis.org/publ/qtrpdf/r_qt1812.htm

FinTech, Cyber and Data

• PayPal Quietly Took Over the Checkout Button https://trtl.bz/2FlVER9
• Libor Could Still Haunt Preferred-Share Investors https://trtl.bz/2Fo6VjA
• A Primer to GDPR, Blockchain and the Seven Foundational Principles of Privacy by Design https://trtl.bz/2Fw3E12
• Digital is reshaping US health insurance—winners are moving fast (McKinsey) https://trtl.bz/2FzCjLA
• A Regulatory Classification of Digital Assets https://corpgov.law.harvard.edu/2019/01/09/a-regulatory-classification-of-digital-assets/
• Defining Data Dependence (Atlanta Federal Reserve) https://trtl.bz/2FBCQfE
• The IoT Data Explosion: How Big Is the IoT Data Market? https://priceonomics.com/the-iot-data-explosion-how-big-is-the-iot-data/
• Logging In to Your Bank Account Is Now a $3 Billion Business https://trtl.bz/2FywpKE
• 5 Emerging Cyber Threats to Worry About in 2019 https://trtl.bz/2FrtyUo

Quant

• Monty Hall’s paradox — solve it by simulation! https://trtl.bz/2FrtsMy
• A Hands-On Introduction to Time Series Classification (with Python Code) https://trtl.bz/2FBz721
• Volatility: how algos changed the rhythm of the market (ft.com, pdf) https://trtl.bz/2RrHunH
• 26 Statistical Concepts Explained in Simple English - Part 6 https://trtl.bz/2HfnaBl

Investing

• The Members Exchange http://www.crossingwallstreet.com/archives/2019/01/the-members-exchange.html
• 10 Things Investors Can Expect in 2019 https://awealthofcommonsense.com/2019/01/10-things-investors-can-expect-in-2019/
• January 2019 Data Update 2: The Message from Bond Markets (Aswath Damodaran) https://trtl.bz/2FuYWRc and Prof Damodaran updated his popular dataset (Historical Returns on Stocks, Bonds and Bills) https://trtl.bz/2Fy9AGF His datapage is here http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datacurrent.html
• Financial SEER: A Way To Quantify Risk Tolerance And Determine Appropriate Equity Exposure https://trtl.bz/2FvorSu
• The Intangible Valuation Renaissance: Five Methods https://blogs.cfainstitute.org/inve...issance-in-intangible-valuation-five-methods/

Climate

• PG&E Sparked at Least 1,500 California Fires. Now the Utility Faces Collapse https://trtl.bz/2FsAZL5
• Climate Change and Proxy Voting in the U.S. and Europe (Harvard Law Forum) https://trtl.bz/2Fysopy
• The warming of the world's oceans is set to increase dramatically over the next 60 Years https://psmag.com/environment/climate-change-is-boiling-the-oceans and New York Times on the same study:
• Ocean Warming Is Accelerating Faster Than Thought, New Research Finds https://trtl.bz/2FpWwnH

Other

• Matt Levine at Bloomberg turned in another week of informative opinion. He's a must-read in risk and finance, he has both depth and range. He often chooses topics that are related to something in the FRM syllabus. Just last week he wrote about the newly proposed stock exchange MEMX (https://trtl.bz/2FrSYRJ), efficient markets (https://trtl.bz/2FtBODf), and the harrowing world of credit default swaps (CDS) written on Sears (https://trtl.bz/2FsVrLV)
• Taleb the Philosopher https://www.firstthings.com/article/2019/02/taleb-the-philosopher
• The 30-Year Mortgage is an Intrinsically Toxic Product https://trtl.bz/2FyqAg6
• Looking Ahead: Key Trends in Corporate Governance https://corpgov.law.harvard.edu/2019/01/10/looking-ahead-key-trends-in-corporate-governance/