Bionic Turtle’s Week in Risk (ending January 13th)

Welcome to our Week in Risk blog! This week we’ve posted two new YouTube videos discussing the Binomial option pricing model and Exchange options. We’ve also included some discussions from our FRM forum, including our updated historical pass rates graph. We hope you enjoy all of the extra risk links that we’ve provided also! Have a great week!

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

New 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*] How does a longevity bond work? https://trtl.bz/2FoQELq
• [P1.T3*] Balance sheet of P&C versus life insurance company https://trtl.bz/2FuPWeM

• [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

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

• Climate Change and Proxy Voting in the U.S. and Europe (Harvard Law Forum) https://trtl.bz/2Fysopy
• Ocean Warming Is Accelerating Faster Than Thought, New Research Finds https://trtl.bz/2FpWwnH

• 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

Other

• 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/