Blog Week in Risk (June 3rd)

David Harper CFA FRM · Jun 4, 2018

In the Forum

Global

Italy and the Euro Crisis: How We Got Here (WSJ) https://www.wsj.com/articles/italy-and-the-euro-crisis-how-we-got-here-1527603984 What to Make of Italy’s Astonishing Bond Selloff https://www.wsj.com/articles/what-to-make-of-italys-astonishing-bond-selloff-1527663600
For Oil Prices, Political Risks Dwarf the Dollar (WSJ) https://www.wsj.com/articles/for-oil-prices-political-risks-dwarf-the-dollar-1527595200
Italian markets: Redistribution risk revives redenomination risk https://trtl.bz/2kMLJI0 Summarized by Matt Levine (this is a great illustration of CDS trigger issues) https://www.bloomberg.com/view/articles/2018-05-30/broker-robots-will-calm-your-panic “I think it is plausible to say that a country that exits the euro and redenominates its debts has in some meaningful sense defaulted on those bonds. So it makes sense that CDS would pay out there. And in fact the International Swaps and Derivatives Association, which makes the CDS rules, agrees.”

Banks

[Volker rule] Big Banks to Get a Break From Limits on Risky Trading https://www.nytimes.com/2018/05/30/business/volcker-rule-banks-federal-reserve.html
[Volker rule] Don't mourn the bank regulation's demise. It never really worked [Felix Salmon] https://trtl.bz/2sDrEXR “The problem with the Volcker rule as implemented was that it forced banks to justify, on a trade-by-trade basis, that what they were doing was necessary for their clients, rather than just speculative proprietary trading. That’s hard for the banks, which is why they wanted the rule changed. But it was also incredibly cumbersome for regulators, who were equally forced to try to implement the Volcker ‘don’t do proprietary trading’ rule on a case-by-case basis.” And Matt Levine again: The Volcker Rule Gets a Little Easier https://www.bloomberg.com/view/articles/2018-05-31/the-volcker-rule-gets-a-little-easier
Dodd-Frank Act rollback. What does it mean for risk managers? https://trtl.bz/2HjzcEA
Deutsche Bank’s U.S. Operations Deemed Troubled by Fed https://www.wsj.com/articles/deutsche-banks-u-s-operations-deemed-troubled-by-fed-1527768310

Personal

Risk

A New Era In Modeling Catastrophic Risk http://www.brinknews.com/a-new-era-in-modeling-catastrophic-risk/ “Stationarity is the name for the concept of data remaining unchanged—or stationary—over time. When applied to climate science, it refers to the assumption that the earth’s climate is not changing. The vast majority of climate scientists believe the stationarity assumption is incorrect, and any approaches based on this assumption are fundamentally flawed.”
How To Use Prospect Theory To Create New Habits https://trtl.bz/2kKTNZy “A specific amount of loss hurts us more than the same amount of gain would delight us.”
Nine cognitive biases risk managers should know https://www.raconteur.net/business/nine-cognitive-biases-risk-managers-know
A Risk Practitioners Guide to ISO 31000: 2018 [Institute of Risk Management] https://www.theirm.org/media/3513119/IRM-Report-ISO-31000-2018-v3.pdf
[P2.T9 Ang] Value versus momentum factors http://osam.com/Commentary/factors-from-scratch "The excess returns associated with Value and Momentum result from convergent and divergent processes, respectively. Value stocks are systematically underpriced and gradually converge on their fair value over time. Momentum stocks start out fairly valued or slightly overvalued, and go on to become more overvalued in the short-term, before reverting back. Both styles represent a market mistake that can be captured as alpha."

Other

Internet Trends Report 2018 [Mary Meeker] http://www.kpcb.com/internet-trends
How Companies Use the Latest Profits Fad to Fool You https://blogs.wsj.com/moneybeat/2018/06/01/how-companies-use-the-latest-profits-fad-to-fool-you/ “The mutations include Ebitdac (with a change in acquisition costs used by insurers); Ebitdao (with option expense, a cost of paying management); Ebitdap (pension and other retirement benefits); Ebitdar (the costs of leasing real estate or airplanes, depending on the industry), Ebitdare (losses, gains and other adjustments on real estate); Ebitdas or Ebitdasc (stock-based pay for management); and Ebitdax (exploration costs for oil-and-gas companies)”
The National Debt Dilemma (Council on Foreign Relations) https://www.cfr.org/backgrounder/national-debt-dilemma
The Book of Why: The New Science of Cause and Effect https://amzn.to/2Jpdg02 Review by The New York Times https://trtl.bz/2kLJxQX
Why Data Scientists love Gaussian? https://towardsdatascience.com/why-data-scientists-love-gaussian-6e7a7b726859
Skill shift: Automation and the future of the workforce (McKinsey & Company) https://trtl.bz/2kKeBAr
The New Tech That Terrifies OPEC https://www.wsj.com/articles/the-new-tech-that-terrifies-opec-1527845401