Bionic Turtle’s Week in Risk (ending October 14th)

Welcome to our Week in Risk blog! This week, we wrapped up our Hull, Chapter 19 reading with 6 new practice questions. Our newest YouTube video asks the question, “Is it optimal to early exercise an option?”. Our forum has been VERY busy! There are some really great FRM forum discussions that you will want to take a look at before the exam. We hope you have a great week!

New Practice Questions

• P1.T4.820. Delta- and gamma-neutral position; and the relationship between delta, theta, and gamma (Hull Ch.19)  https://trtl.bz/2A0jA8y

• P1.T4.821. Delta hedging, scenario analysis and portfolio insurance (Hull, Ch.19)   https://trtl.bz/2pJRPLy

New YouTube

• Is it optimal to early exercise an option? (FRM T3-36) https://trtl.bz/2RBEH7O

In the forum (an asterisk “*” indicates the OP still may need help)

• [GARP] Alternative exam date doesn’t match admission ticket date   https://www.bionicturtle.com/forum/threads/alternative-exam-date.21015/
• [GARP FRM] Resources for refreshing math skills   https://www.bionicturtle.com/forum/threads/resources-for-refreshing-math-skills.8101/

• [GARP P1*] Bond duration https://trtl.bz/2C0tN6h
• [GARP P2.15*] https://www.bionicturtle.com/forum/threads/garp-2018-p2-15.21006/ … add here  https://www.bionicturtle.com/forum/threads/notes-from-my-review-of-garps-2017-part-2-practice-exam.10510/
• [BT] Did this influence our name? https://www.bionicturtle.com/forum/threads/bionic-beta-wins-the-1970s.21033/
• [P1.T1] Jensen’s alpha https://trtl.bz/2IM64Ih
• [P1.T1] Basic definitions of actors and their roles in the global financial crisis   https://www.bionicturtle.com/forum/threads/basic-definitions-of-actors-and-their-roles-in-the-crisis.21045/
• [P1.T2] Thank you Adele (a.bologna295) for correcting my language w.r.t. sample mean hypothesis interpretation  https://trtl.bz/2C3irhP
• [P1.T2*] The relationship between the F ratio and the coefficient of determination (R^2)   https://trtl.bz/2zYgBNU
• [P1.T3] How many days are between January 1st and June 13th? https://trtl.bz/2C5vy2l

• [P1.T3] Must know discrete/lumpy versions of cost of carry (COC) model https://trtl.bz/2zYY18q
• [P1.T3] In general the interest rate futures contract (e.g., T-bond futures, Eurodollar futures) quotes (aka, prices) have an inverse relationship with interest rates https://trtl.bz/2pNYuo7
• [P1.T3] Thank you Chris (Cjdubs12 ) for identifying an “optical illusion” in my swap valuation spreadsheet https://trtl.bz/2pKsfGa
• [P1.T3] Why is the current credit exposure always zero for one of the swap counterparties?   https://trtl.bz/2pQ0uMx
• [P1.T3] Thank you Maiyaa for help with callable convertible bond and interest rate volatility   https://trtl.bz/2C4XZNx

• [P1.T4*] Trading the forward curve steepening or flattening https://trtl.bz/2BZQasK
• [P1.T4] Annual versus semi-annual annuity factor https://trtl.bz/2C2mfQt
• [P1.T4] The difference between investing $500,000 and buy $500,000 in face value of a bond   https://trtl.bz/2pImA3r
• [P1.T4] What does it mean to be short gamma? https://trtl.bz/2pKA7rk

• [P1.T4] The roll of three dice as a probability distribution that characterizes loss severity   https://trtl.bz/2IKEATF
• [P1.T4] What are the units of Greek theta? https://trtl.bz/2pHPCAg
• [P1.T4] Thank you clive.bastow for help in better phrasing the change to a negative gamma   https://trtl.bz/2pKHxLl
• [P1.T4] A portfolio of written (short) at-the-money calls and puts with near-term maturity has high, positive position theta  https://trtl.bz/2IONeAi
• [P1.T4] Calculating the full (aka, cash, dirty) bond price when settlement is between coupons   https://trtl.bz/2pQsJe9

• [P1.T4] Taylor series: FRM candidates need to be able to scale yield volatility in bond VaR and add gamma term in option VaR  https://trtl.bz/2pOfLxc (and a similar example is given here   https://trtl.bz/2pTp27x)
• [P1.T4] Thank you again clive.bastow for shortcut to retrieving d2 in BSM https://trtl.bz/2pPbtFZ
• [P1.T4] Solving for the spot rate as a function of forward rates, given discount factors   https://trtl.bz/2pUfbyi
• [P1.T4] Ong versus Schroeck versus De Laurentis https://trtl.bz/2pSoq1K
• [P1.T4] The Law of One Price will be assumed in exam questions, for example https://trtl.bz/2pU4oUy
• [P1.T4. Hull 13.08] Typical exercises giving practice to the GBM equity process (i.e., lognormal prices) assumption  https://www.bionicturtle.com/forum/threads/hull-13-08.3822/

• [P1.T4*] Can the OIS be a swap rate, and is it is good proxy for the spot risk-free rate?   https://trtl.bz/2pRdscL
• [P2.T5] Does anyone have a (detailed) IRC spreadsheet? https://trtl.bz/2pLImDu
• [P2.T5] The BSM model-based mispricing implications of an uncertain volatility that is positively correlated with asset price  https://trtl.bz/2pLAsKl
• [P2.T5] What is meant by, Conditional time-varying volatility will reveal as an unconditional heavy-tailed distribution  https://trtl.bz/2pOLiPQ
• [P2.T5] Is there a relationship between the CDS spread and the underlying the CDO equity tranche excess spread? Thank you  emilioalzamora1 for a truly killer answer! https://trtl.bz/2IVlMko

• [P2.T6*] Computing the z-spread in Malz’ Chapter 7 https://trtl.bz/2INGFxT
• [P2.T6] In general, Sum(marginal CVA) = Sum(incremental CVA) ≤ Sum(standalone CVA) but, at the same time, the sum of incremental CVAs is not necessarily meaningful https://trtl.bz/2pRTr6a

• [P2.T6] What is the most common type of collateral, according to Gregory?   https://www.bionicturtle.com/forum/threads/types-of-collateral.21050/
• [P2.T6] Impacts on the bilateral credit value adjustment (CVA) https://trtl.bz/2pTOmKn

Banking and Regulatory

• Dealing with Uncertainty: How the Fed Determines Monetary Policy https://trtl.bz/2pUjOsa
• How 60+ Startups Are Disrupting Retail And Commercial Banking Around The World  https://www.cbinsights.com/research/disrupting-banks-startup-market-map/

• Leverage Rule Arbitrage http://libertystreeteconomics.newyorkfed.org/2018/10/leverage-rule-arbitrage.html
• Real-Time Risk Management and Next-Generation Insurance https://trtl.bz/2IKX6ew

Risk

• Basel AML Index reveals slow progress in combating money laundering   https://www.baselgovernance.org/node/6981
• A basic principle most people don’t understand about risk https://trtl.bz/2pQaGET
• Multiple risk-free interest rates http://www.sr-sv.com/multiple-risk-free-interest-rates/
• Intelligent Risk (by PRMIA) https://trtl.bz/2ynF2SM

• Measuring Risk Tolerance https://blog.thinknewfound.com/2018/10/measuring-risk-tolerance/
• 10 years later: How the housing market has changed since the crash https://trtl.bz/2IKUuNC

Technology

• Impressions and Lessons from the O’Reilly AI Conf 2018 https://trtl.bz/2pRGJE8

• This Texas Finance Professor Sifts Data for Signs of Rigged Markets https://trtl.bz/2NETag7 Here is John Griffin’s SSRN page (with papers) https://trtl.bz/2NDYss9
• Scaling Cyber Supply Chain Risk Management with Dark Web Monitoring https://trtl.bz/2pSwIXq
• Big News: Behind the First U.S. Cybersecurity Assessment https://www.fico.com/blogs/fraud-security/us-cybersecurity-assessment/

Climate and Natural

• The Full Extent of Michael’s Impact Becomes Clear https://www.rms.com/blog/2018/10/12/the-full-extent-of-michaels-impact-becomes-clear/ NYT update https://trtl.bz/2NBhrnq

• What You Should Know About the New Climate Change Report https://trtl.bz/2pPO5bt
• Why Hurricane Michael’s Landfall Is Historic http://www.air-worldwide.com/Blog/Why-Hurricane-Michael’s-Landfall-Is-Historic/l
• Dangerous Rapidly Intensifying Landfalling Hurricanes Like Michael and Harvey May Grow More Common https://trtl.bz/2pSHi0I
• Climate change will make the next global crash the worst https://trtl.bz/2pULmO0
• Why Did Hurricane Michael Rev Up to Category 4 So Quickly? https://trtl.bz/2pSczRg

#HurricaneMichael intensified as the storm made landfall near Mexico Beach, Florida, at around 1:30 p.m. ET. @NOAA's #GOESEast satellite captured this view of the Cat. 4 hurricane moving ashore. Latest updates from @NHC_Atlantic: https://t.co/gcFrOMm2RR pic.twitter.com/ZIqmQslbYP

— NOAA Satellites (@NOAASatellites) October 10, 2018

• Many Pensions and Endowments Are Exposed to Hurricane Michael https://trtl.bz/2pMUIvc

Career and Education

• The Chartered SRI Counselor is the “first certification for sustainable, responsible and impact investing.”  https://www.cffp.edu/CSRIC
• World Development Report 2019 (The Changing Nature of Work)   http://www.worldbank.org/en/publication/wdr2019

• The Secrets of Getting Into Harvard Were Once Closely Guarded. That’s About to Change   https://trtl.bz/2pQawgL
• The Most in Demand Skills for Data Scientists https://trtl.bz/2NCCzcU

Investing and Personal Finance

• Thousands of Southerners Planted Trees for Retirement. It Didn’t Work. https://trtl.bz/2IM7tPa
• The $210 Billion Risk in Your 401(k) https://trtl.bz/2pSdGRc
• Getting ahead of the market: How big data is transforming real estate https://trtl.bz/2pJAF0z

• Mortgage Rates Fast Approaching 5%, a Fresh Blow to Housing Market https://trtl.bz/2pSa69I
• The Price of Financial Advice Is, Finally, Falling https://trtl.bz/2INRPD9

Other (Quantitative, Case Study, Governance)

• Simpson’s Paradox: How to Prove Opposite Arguments with the Same Data https://trtl.bz/2NEW4kY

• Edward Lampert’s Non-Strategy to Save Sears https://trtl.bz/2NGFeSQ
• Results of ISS Governance Principles Survey https://corpgov.law.harvard.edu/2018/10/08/results-of-iss-governance-principles-survey/