Bionic Turtle’s Week in Risk (ending August 19th)

Welcome to this week’s risk blog! We took last week off because David was on a much-deserved vacation in England! This week, we will highlight some of the most informative discussions in our FRM forum and provide you with interesting risk articles from around the globe!

In the Forum This Week (selected only)

degree compare frm

sample variance

  • [P1.T2] What is the meaning of “If the inverses of all roots of Θ(L) are inside the unit circle, then the process is invertible”  https://trtl.bz/2BhwxNR
  • [P1.T2] A thought-provoking question that allows for a meditation on the three different, yet effectively identical, approaches to the statistical test (significance test, confidence interval and p value) https://trtl.bz/2MnVEE8
  • [P1.T2] Common confusion about S&W’s summary distribution table comparing test scores to student-teacher ratios https://trtl.bz/2BhPwYz
  • [P1.T4] To really understand effective duration, you want to understand how it is the slope of the secant line that approximates the tangent line to the price/yield curve https://trtl.bz/2MueJna

duration-secant

potential future exposure

  • [P2.T7] A simple but excellent question about the interpretation of the EVT VaR (does it refer to the parent or child distribution?)  https://trtl.bz/2Mn31LO

World

  • Turkey Was Ripe for a Currency Crisis. Will It Spread? https://trtl.bz/2PjCzQX … [But this view seems credible:] Turkey’s Economic Red Flags Stand Out Among Emerging Markets https://trtl.bz/2PoyOKn ” “Its economic woes include one of the largest trade deficits of any emerging-market country, unmatched external debts, a currency vulnerable to decline, exceptionally high inflation, unorthodox monetary policy and very little international goodwill.

vulnerable markets Turkey

  • Turkey Will Put Capital Rules to the Test https://trtl.bz/2Mn34Yc “First, bank failures are triggered by funding problems: typically, a run on the bank and an inability to cover deposit outflows. More capital can’t protect against this risk. Banks are also highly leveraged by design. Unless they’re willing to return to 19th-century standards of 50 percent equity, the effectiveness of capital requirements will depend on the magnitude of exposure and loss in question.” If you are wondering about the 18.0% (of risk-weighted assets, RWA) requirement mentioned in the article, it refers to the FSB’s TLAC standard, see http://www.fsb.org/2015/11/tlac-press-release/

Banks and Wall Street

  • Wall Street Erases the Line Between Its Jocks and Nerds (There used to be a strict hierarchy: Traders made money and won glory while programmers wrote code and stayed out of sight. Those days are over)  https://trtl.bz/2MWqcsN “Everyone who comes to sales and trading needs to know how to code.
  • Nobody Says ‘Zelle Me’: Banks Struggle to Catch Up to Venmo https://trtl.bz/2MUkB6e At Bank of America, Zelle’s transaction volume just doubled YoY to over $9.0 billion (disclosure: I am long BAC). I use Venmo, but I’m interested to try Zelle.
  • Banks and Retailers Are Tracking How You Type, Swipe and Tap https://trtl.bz/2MpjvTX “The data collection is invisible to those being watched. Using sensors in your phone or code on websites, companies can gather thousands of data points, known as behavioral biometrics, to help prove whether a digital user is actually the person she claims to be.
  • U.S. Pursues One of the Biggest Mortgage-Fraud Probes Since the Financial Crisis (WSJ) https://trtl.bz/2MWfUc2

mortgage fraud

  • Wells Fargo’s Apologies Leave Customers Unmoved (ft.com) https://trtl.bz/2Pirpfo “There is a message in here for any big company trying to shrug off a hit to its reputation: however much you may think you are done with the past, the past is not done with you.

Quantitative

volatility 101

  • Histograms and Density Plots in Python https://trtl.bz/2MpkYcV I love this article because it shows how you don’t know histograms until you actually have to chart/code them!

Risk/FRM

FICO-security-ranking

Stress-testing-banks

Cyber and Technology

  • The Security App That Actually Makes Browsing Easier https://trtl.bz/2Plb5dJ I hope you use a password manager. Here at BT we use LastPass. But the new Dashlane 6 look good. If you are not using a PW, now is a good time to research the alternatives. Here is PC magazine’s review https://trtl.bz/2Pi2BEg

dashlane-dark-web-alerts

blockchain

 

Investing

Process Diversification

Other (Climate and Future)

  • Why Ravaging Heatwaves Matter to World’s Dinner Table https://trtl.bz/2PgTR1j “To see the impact of record-breaking temperatures around the world, watch wheat. Found in everything from bread to noodles, biscuits to cereals, beer to cakes — there is no more widely grown staple crop and more than 170 million metric tons trade every year.

food import export

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