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WIFE Week in Risk (ending March 19th)

David Harper CFA FRM

David Harper CFA FRM
Staff member
New practice questions
In the forum this week (selected only) or Major News
Banks, banking, political and regulatory
Technology, including FinTech and Cybersecurity
Natural Science, including Climate and Energy
Books and Courses (including Journal/SSRN)
Personal finance
Enterprise risk management (ERM) including governance
Case Studies and Companies, including Strategic or Reputation risk
Quantitative Analysis (FRM P1.T2)
Financial Markets and Products, including Interest Rates, Commodity Risk, and Foreign Exchange (FX)(FRM P1.T3)
Valuation and Risk Models, including Country risk (FRM P1.T4)
  • Valuation Shell Game: Silicon Valley’s Dirty Secret https://www.nytimes.com/2017/03/08/...-shell-game-silicon-valleys-dirty-secret.html “This type of valuation [409A valuation] allows hot, privately owned technology companies — like Uber, Airbnb or Nextdoor — to issue common stock or stock options to employees at a low price and, at the same time, or nearly the same time, sell preferred stock to outside investors at a price that is often three or four times higher.”
Operational risk, including Legal risk (FRM P1.T7)
Investment risk, including Pensions (FRM P1.T8)
Current issues (FRM P2.T9)
  • Goldman Sachs’ lessons from the Quant Quake (Nearly 10 years after its nadir, quantitative investing is again the hot trend in finance) https://www.ft.com/content/fdfd5e78-0283-11e7-aa5b-6bb07f5c8e12 “Quantitative investing is once again the hottest trend in finance. Computer-driven hedge funds have just notched up their eighth straight year of client inflows, doubling their assets from 2009 to $918bn, according to Hedge Fund Research. Even this understates the interest, as many traditional hedge funds and big mutual fund managers are all trying to blend more quantitative techniques with their traditional approaches … Understanding how markets function increasingly requires knowledge of a Greek-based alphabet soup of concepts and phenomena — such as alpha generation, smart beta, gamma scalping, delta hedging and option theta. Their speed has accelerated markedly, and the number of market anomalies, odd trading patterns and mysterious “flash crashes” have increased in tandem with the ascent of algorithms.”
  • Getting Through the Long Post-Crisis Hangover https://www.bloomberg.com/view/articles/2017-03-13/getting-through-the-long-post-crisis-hangover “To oversimplify wildly: In a world of secular stagnation, we have financial bubbles and busts because the underlying rate of economic growth is so slow. In a world of financial cycle drag, we have slow economic growth because financial volatility is weighing on the economy.” (Reinhart and Rogoff’s This Time is Different was assigned in the 2010 FRM, before the “brand-tainting controversy” that featured model risk!)
  • Currency Traders Race to Reform ‘Last Look’ After Bank Scandals https://www.bloomberg.com/news/arti...-race-to-reform-last-look-after-bank-scandals “Last look gives a market maker, such as a dealer, time to back out of a trade. Some argue that the practice has merits, allowing market makers to quote better prices. But a firm could unfairly learn a counterparty’s intentions without having to complete the transaction. The Bank of England has said the practice is vulnerable to misuse.”
  • Factor Investing and the Importance of Market Cycles http://www.allaboutalpha.com/blog/2017/03/15/factor-investing-and-the-importance-of-market-cycles-2/
  • Super-easy monetary policy and reflating Japan’s economy: The Bank of Japan’s mission is incomplete http://voxeu.org/article/super-easy-monetary-policy-and-reflating-japan-s-economy “The negative interest rate policy lowered the entire yield curve and resulted in reducing longer-term yields to a significant degree. While the BOJ emphasised this was a result of its successful monetary policy, the negative interest rate policy raised a number of concerns and has potential side effects. These adverse impacts can be classified into four issues: a decline in the profitability of the financial sector and potential financial instability risk; promotion of cash substitution and a deterioration in households’ sentiments; a decline in liquidity and weakened functions of the JGB markets; and the BOJ’s operational challenges and balance sheet risk.”
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