WIFE Week in Risk (March 4th)

[David Harper CFA FRM]

New practice questions

• P1.T4.804. Value at risk (VaR) estimation approaches (Allen) https://forum.bionicturtle.com/thre...t-risk-var-estimation-approaches-allen.13701/
• P2.T9.805. The bank/capital markets nexus goes global (Song Shin) https://forum.bionicturtle.com/thre...al-markets-nexus-goes-global-song-shin.13742/

In the forum this week (selected only)

• Understanding the organization of our questions https://forum.bionicturtle.com/threads/understanding-the-questions-organization.13704/
• [P1.T2] Deriving the GARCH(1,1) forward volatility formula https://forum.bionicturtle.com/thre...dels-perform-in-volatility-forecasting.13746/
• [P1.T2] A confidence interval, CI = sample_statistic +/- critical_value * standard_error, and the standard error is already a standard deviation http://trtl.bz/2oDJpFv
• [P1.T2] Sample variance versus variance of sample mean https://forum.bionicturtle.com/threads/miller-variance-of-the-sample-mean-vs-sample-variance.13690/
• [P1.T2] In the binomial pdf, the binomial coefficient translates a permutation probability into a combination probability http://trtl.bz/2F5NH2s
• [P1.T2] On the difference between the ordinary sum of variables and the mixture distribution which is a weighted sum of distributions http://trtl.bz/2CUd814
• [P1.T2] Backtest with binomial clarifications https://forum.bionicturtle.com/thre...wo-tailed-hypothesis-tests-miller-ch-7.13420/
• [P1.T2] @FlorenceCC observes a Miller question on Bayes that could be improved https://forum.bionicturtle.com/thre...s-p1-t2-quantitative-methods.8755/#post-58394
• [P1.T2] @ziminli1228 makes a good point that “two-variable regression” is a legacy phrase and ambiguous https://forum.bionicturtle.com/thre...s-p1-t2-quantitative-methods.8755/#post-58410
• [P1.T3] Thank you @gika for spotting my lame MISTAKE in the calculation of the return on a T-bill https://forum.bionicturtle.com/thre...-bond-prices-hull-chapter-6.10627/#post-58430
• [P1.T3] Reading Hull’s insurance mortality tables http://trtl.bz/2I0Z1L9
• [P1.T3] Can the par yield exceed the highest zero rate? https://forum.bionicturtle.com/thre...erest-rate-definitions.4531/page-3#post-58327
• [P1.T4] Tuckman’s volatility of the P&L of the hedged position http://trtl.bz/2FLyFvU
• [P2.T5] Thank you @emilioalzamora1 for finding the derivation of Spearman’s rank correlation http://trtl.bz/2FL48hS
• [P2.T5] Thank you @Karim_B for continuing to identity typos in the Study Notes http://trtl.bz/2F94n54
• [P2.T5] Detailed example of why an increase in the confidence level is associated with an increase in the probability of a Type II error https://forum.bionicturtle.com/threads/l2-t5-60-basel-ima-backtest-jorion.3610/page-3#post-58388
• [P2.T5] Solving for the replicating two-bond portfolio in Tuckman https://forum.bionicturtle.com/threads/tuckmans-three-step-binomial.13429/#post-58322
• [P2.T5] More on copula functions https://forum.bionicturtle.com/threads/copula-functions-meissner.13441/
• [P2.T5] My Tuckman simulation XLS could be improved https://forum.bionicturtle.com/thre...ways-scale-dw-by-sqrt-1-12-every-month.13745/
• [P2.T6] We did figure out the key difference between expected exposure (EE) and expected shortfall (ES) https://forum.bionicturtle.com/threads/p2-t6-321-credit-exposure-metrics-gregory.7153/#post-58414
• [P2.T6] The subtle difference between adding and subtracting σ^2/2 in the Merton (or BSM) https://forum.bionicturtle.com/thre...e-credit-risk-of-derivatives.7689/#post-58317
• [P2.T6] Zeros do count in the calculation of expected exposure (EE) https://forum.bionicturtle.com/thre...arginal-ee-gregory-4-5.7223/page-2#post-58435

Political and regulatory risk, including Systemic Risk (including BIS)

• [BIS] Pillar 3 disclosure requirements - updated framework (consultative document) https://www.bis.org/bcbs/publ/d432.htm

Natural Science, including Climate and Energy

• Beyond Carbon: Water Risks and Sustainable Investing http://trtl.bz/2t12yWk Includes link to Ceres’ Investor Water Toolkit In https://www.ceres.org/resources/toolkits/investor-water-toolkit

Technology, including FinTech and Cybersecurity

• Cryptocurrency Firms Targeted in SEC Probe https://www.wsj.com/articles/sec-launches-cryptocurrency-probe-1519856266

Personal finance

• Goldman Sachs, Adviser to the Elite, Wants to Be Your Local Bank (wsj.com) http://trtl.bz/2H45Gmq

Financial reporting, including Accounting and Audit

• Revenue Recognition: The Bottom Line on the New Top Line http://trtl.bz/2t03Gtq (CFA report here http://trtl.bz/0226-cfa-rr-10questions)
• Investors Require Improvements in Reporting of Alternative Performance Measures https://blogs.cfainstitute.org/mark...estors-require-improvements-to-apm-reporting/ (CFA report is here http://trtl.bz/2CYSIUD)
• Why Financial Statements Don’t Work for Digital Companies https://hbr.org/2018/02/why-financial-statements-dont-work-for-digital-companies

Financial Markets and Products, including Interest Rates, Commodity Risk, and Foreign Exchange (FX)(FRM P1.T3)

• Lessons From 15 Years Of Short Selling: 12 Reasons Not To Short, by Whitney Tilson https://seekingalpha.com/article/4152732-lessons-15-years-short-selling-12-reasons-short “Shorting is brutally difficult, especially during a long, complacent bull market like this one, which is why I advise most investors to learn about short selling - there are many important skills and lessons from which all investors can benefit - but not actually do it.”
• An Abridged, illustrated history of volatility (ft.com) http://trtl.bz/2FqcCgu (pdf is here http://trtl.bz/2CT3JqA)
• Spotify Kicks Off Its Unusual IPO https://www.wsj.com/articles/spotify-kicks-off-its-unusual-ipo-1519847272
• Should we worry about inflation http://theweek.com/articles/758439/should-worry-about-inflation and: Why an Unpleasant Inflation Surprise Could be Coming (wsj) http://trtl.bz/2Fj1m5R “On top of these short-term factors [low unemployment, big tax cut, federal spending], several structural forces are at work. One is protectionism. Global trade rose faster than global output from the early 1980s until the global financial crisis. Trade held down prices and wages by exposing American workers and firms to intense foreign competition. Globalization has since gone into reverse, and protectionist pressures are mounting … [and] productivity growth, the usual antidote to rising costs, is tepid and could stay that way.”
• Dollar-Rate Breakdown Exposes Foreign-Exchange Mystery (The U.S. currency was expected to strengthen amid rising interest rates. Instead, it’s down 11% since late 2016) http://trtl.bz/2CnfedY
• The Decline of Life Insurance is a Mystery https://www.bloomberg.com/view/articles/2018-02-27/the-decline-of-life-insurance-is-a-mystery

Valuation and Risk Models, including Country risk (FRM P1.T4)

• Interest Rates and Stock Prices: It's Complicated! (by Aswath Damodaran) http://aswathdamodaran.blogspot.com/2018/03/interest-rates-and-stock-prices-its.html

Investment risk, including Pensions (FRM P2.T8)

• Harvard Blew $1 Billion in Bet on Tomatoes, Sugar, and Eucalyptus https://www.bloomberg.com/news/arti...llion-in-bet-on-tomatoes-sugar-and-eucalyptus