Blog Week in Risk (April 22nd)

[David Harper CFA FRM]

New YouTube

• Regression: significance test of slope coefficient (FRM T2-18) https://trtl.bz/2qQIWRq
  
• Regression: Excel's linest array function and its goodness-of-fit measures (FRM T2-19) https://trtl.bz/2HGjxDG
• Forward rates are implied by zero rates (FRM T3-11) https://trtl.bz/2Hk8rAx

In the forum (selected only)

• [general] Will the exam ask questions about concepts in an assigned reading but that are not covered by a learning objective? https://trtl.bz/2vF94Do
• [GARP 17-P1-6] How to know where interest rates input into interest rate parity (IRP) https://forum.bionicturtle.com/threads/garp-2017-p1-question-6-garp17-p1-6.13818/
• [P1.T1] What is the key difference between a cash versus synthetic CDO? https://trtl.bz/2vF9w4y
• [P1.T1] Trying to grok LTCM's mean reversion trade mistake https://trtl.bz/2HHKCX4
• [P1.T2] Scaling log price over ΔT versus that average return over ΔT https://trtl.bz/2vBXnxh
• [P1.T2] How testable are the Diebold readings? https://trtl.bz/2HFBRN2
• [P1.T3] Bootstrapping the forward LIBOR with a swap rate https://trtl.bz/2vyZyll
• [P1.T3] Put-call parity indirect introduces volatility into bounds https://trtl.bz/2vBq6T5
• [P1.T4] When is carry-roll-down positive or negative? https://trtl.bz/2HFu8OU
• [Hull 5.3] Discrete income versus continuous yield https://forum.bionicturtle.com/threads/hull-05-03.3755/
• [Hull 5.5.] Why does the forward price of an investment commodity have a lower bound, but the forward price of a consumption commodity does not have a lower bound? https://forum.bionicturtle.com/threads/hull-5-5.13840/
• [Hull 5.8] Why should stock index futures always be in normal backwardation? https://trtl.bz/2vGrfZG
• [P2.T5] Thank you @emilioalzamora1 for clarification of absolute versus relative value at risk (VaR), this is really foundational! https://trtl.bz/2vAkCbg
• [P2.T6] In Crouhy's credit-linked note (CLN), how is the investor effectively long a credit default swap (CDS)? https://trtl.bz/2vBwiKW
• [P2.T7] Thank you @Karim_B for improvement on Hull's FRTB expected shortfall (ES) calculation https://trtl.bz/2vBPIiI
• [P2.T7] Which EVT approach is better when losses cluster in bunches over time (i.e., are not independent)? https://forum.bionicturtle.com/threads/p2-t7-705-extreme-value-theory-evt.10709/
• [P2.T8] What is the difference (if any) between the Treynor ratio and Jensen's alpha in practice? https://trtl.bz/2vB5ev9
• [P2.T8] Thank you @Karim_B for identifying a problem with my Policy-mix VaR question https://trtl.bz/2vyMigN
• [P2.T8] Principal-agent problem for hedge fund managers https://trtl.bz/2vBSvs1

Interesting External Links

Banking, political and regulatory

• FSB publishes toolkit to mitigate misconduct risk http://www.fsb.org/2018/04/fsb-publishes-toolkit-to-mitigate-misconduct-risk/
• Overview of the Standards of Conduct for Investment Professionals Rulemaking Package https://trtl.bz/2vBX5GU (SEC’s PR release is here https://trtl.bz/2vBX5GU)
• Bank Capital Rules Need More Than Fine-Tuning https://www.bloomberg.com/view/arti...bank-capital-rules-need-more-than-fine-tuning
• Managing 21st-Century Political Risk https://hbr.org/2018/05/managing-21st-century-political-risk

Technology, including Data Science and Cybersecurity

• Cybersecurity Tech Accord https://cybertechaccord.org/accord/
• Zelle, the Banks’ Answer to Venmo, Proves Vulnerable to Fraud https://www.nytimes.com/2018/04/22/business/zelle-banks-fraud.html
• Introducing Cyber Risk Quantification to Your Enterprise Risk Team https://www.risklens.com/blog/introducing-cyber-risk-quantification-to-your-enterprise-risk-team
• Palantir Knows Everything About You https://www.bloomberg.com/features/2018-palantir-peter-thiel/

Careers

• Risk Manager of the Year: Q&A with Rebecca Cady http://www.riskmanagementmonitor.com/risk-manager-of-the-year-qa-with-rebecca-cady/

Other, including Book

• [book review] Schilit, Financial Shenanigans, 4th ed. http://readingthemarkets.blogspot.com/2018/04/schilit-financial-shenanigans-4th-ed.html (Book is here https://amzn.to/2HGr7y1)
• [climate] Rising Sea Levels Reshape Miami’s Housing Market https://www.wsj.com/articles/climate-fears-reshape-miamis-housing-market-1524225600

Enterprise risk management (ERM) including Governance

• How These Investors Saw Facebook’s Privacy Scandal Coming https://www.wsj.com/articles/how-these-investors-saw-facebooks-privacy-scandal-coming-1523880000 “To come up with the ESG [environmental, social and governace] ratings, analysts from firms including MSCI, Sustainalytics and Thomson Reuters Corp. scour news stories, financial records, regulatory filings and company reports looking for hazards that traditional financial analysis might miss. Each firm is assessed on the key risks facing its industry, and those results feed into the overall rating.”
• The Investor View on Executive Compensation in 2018 https://corpgov.law.harvard.edu/2018/04/18/the-investor-view-on-executive-compensation-in-2018/

Case Studies

• Wells Fargo to Pay $1 Billion to Settle Risk Management Claims https://trtl.bz/2vChxHE
• Deutsche Bank's Bad News Gets Worse With $35 Billion Flub https://trtl.bz/2vzSDZ3

Risk Foundations (FRM P1.T1)

• The Limits of [Modern Portfolio] Theory http://www.eipny.com/white-papers/the-limits-of-theory/
• Trading One Risk For Another http://awealthofcommonsense.com/2018/04/trading-one-risk-for-another/ This is also a theme in many FRM topics, the idea that risk is not eliminated but only translated: ”You cannot eradicate risk in a portfolio. You can only choose when and how to accept risk in different variations. Doing so will always involve balance and trade-offs.”

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

• VIX 101: How the Volatility Gauge Works (The Cboe Volatility Index has become well known in trading circles as Wall Street’s fear gauge) https://www.wsj.com/articles/vix-101-how-the-volatility-gauge-works-1524398401

Operational risk, including Legal risk (FRM P2.T7)

• Basel III: The final regulatory standard (McKinsey) https://www.mckinsey.com/business-f...ights/basel-iii-the-final-regulatory-standard

Current issues (FRM P2.T9)

• [Topic: Credit loss provisioning, IFRS 9/CECL] Banks Get a Break on Accounting Rule (Regulators float changes to regulation on loan losses that will give banks more wiggle room) https://www.wsj.com/articles/banks-get-a-break-on-accounting-rule-1523871001. And, Federal Reserve press release here https://www.federalreserve.gov/newsevents/pressreleases/bcreg20180413a.htm