Week in Financial Education (April 19, 2021)

I hope you enjoy my latest time series question set (P1.T2.21.2). It was fun to develop these with actual code snippets. GARP’s text (Chapter 11) on the Augmented Dickey-Fuller (ADF) might seem dense to readers, but you’ll see that in R we can execute the test with a single function call, adf.test(). As a practical exam matter, I recommend asking yourself, What is the null hypothesis in the ADF? Then you can identify the implication of a high/low p-value (that’s the most likely exam-type question). In the case of my latest factor theory (Andrew Ang) question set, I’m really happy with how the third question turned out (21.2.3): I think this simple visual test is a much better quiz of the low-risk anomaly that my previous questions on the concept. Have a great week!

1. P1.T2.21.2. Unit roots and Dickey-Fuller https://www.bionicturtle.com/forum/threads/p1-t2-21-2-unit-roots-and-dickey-fuller.23767/

2. P2.T9.21.2. Ang’s volatility and risk anomalies https://www.bionicturtle.com/forum/threads/p2-t9-21-2-angs-volatility-and-risk-anomalies.23773/

portfolio-possibilities-curve

1. What’s the difference, analytical versus numerical approach? https://trtl.bz/3ec8P5X Classic illustration is BSM versus binomial OPM.

2. Tracking error (TE) is a standard deviation (volatility) and where the benchmark can be beta-adjusted or not https://trtl.bz/3uVBWB6

3. This is a fun question that teases an understanding of VaR versus ES https://www.bionicturtle.com/forum/threads/var-es.23769/

VaR-versus-ES

4. Interest rates for inputs and outputs should always be annualized (i.e., in per annum terms) https://trtl.bz/2RGVH13

5. Thank you @nc27 for explaining Eurodollar futures contracts https://trtl.bz/3gmWbnd

Forum News - Experts

1. Economic capital confidence level (EC EL): A simple question by @pascalb refers to the fact that banks can choose simultaneously different confidence level(s) depending on the purpose/audience https://trtl.bz/3n21t9j

2. Term structure assumptions (when upward-sloping): an unchanged term structure reflects an assumption of a risk premium, while realized forwards reflects an assumption of no risk premium https://trtl.bz/3x58Zoq

3. Key rate 01s (KR01) have the same directionality as duration and DV01s https://trtl.bz/3amcFrU

Key-rate-01s

4. Term structure simulation: what exactly is dw? https://trtl.bz/3v0Kgjk

5. It is a thematic in Jon Gregory that the special purpose vehicle (SPV) is a thing that transforms counterparty risk into legal risk https://trtl.bz/3gkv4cA

6. How does counterparty risk influence the CDS-bond basis? https://trtl.bz/3edXNgz

CDS-bond-basis

Interesting Links

Risk

1. Wells Fargo’s Rehabilitation https://www.netinterest.co/p/wells-fargos-rehabilitation Great bank insights and summary of $WFC

2. BIS: Basel Committee work programme and strategic priorities for 2021/22 https://www.bis.org/bcbs/bcbs_work.htm; Basel Committee publishes analytical reports on climate-related financial risks https://www.bis.org/press/p210414.htm

Basel-Committee-strategy

3. Three steps to handling risks that exceed your company’s appetite (Carol Williams, ERM expert) https://www.erminsightsbycarol.com/exceed-risk-appetite/

4. Do not fire the risk manager! (Normal Marks) https://normanmarks.wordpress.com/2021/04/15/do-not-fire-the-risk-manager/

5. Transcript: 160 years of risk management (John Schlifske, CEO of Northwestern Mutual) https://ritholtz.com/2021/04/transcript-john-schlifske/

6. GARP Risk Intelligence: Crypto Risk Governance: Hazards and Opportunities (GARP) https://trtl.bz/2QxZTQc and SolarWinds (A Wake-Up Call and Opportunity to Assess Supply Chain Risk Management) https://trtl.bz/3syR7yG

crypto-risk-governance

Investing/Finance

1. Playing Different Games (Tiger Global) https://randle.substack.com/p/playing-different-games “Tiger has developed an entirely unique investment platform in venture/growth based on Maximum Deployment Velocity and Better/Faster/Cheaper Capital for Founders. These two pillars represent the most significant development in venture strategy since the advent of the growth fund.”

2. Some Thoughts on Coinbase by Ben Carlson, CFA https://awealthofcommonsense.com/2021/04/some-thoughts-on-coinbase/ “Coinbase went public yesterday and everything I read about their business continues to blow me away.”

3. SPACs: The Explosion of SPACs — Should You Care? https://blog.validea.com/the-explosion-of-spacs-should-you-care/; SPAC Fever: Clear and Present Danger? https://blogs.cfainstitute.org/investor/2021/04/13/spac-fever-clear-and-present-danger/

SPACs

4. The Yield Curve as a Predictor of Future Growth https://www.stlouisfed.org/on-the-economy/2021/april/yield-curve-predictor-future-growth

Data

1. Data Insights, Trends, and Best Practices to Achieve Organizational Excellence (datacamp) https://www.datacamp.com/community/blog/blog-datacamp-business-insights

2. R programming (#rstats): An Alternative to the Correlation Coefficient That Works For Numeric and Categorical Variables https://trtl.bz/2RPaIy9; Calculating Confidence Interval in R https://trtl.bz/3am3MPi; Have you checked your features distributions lately? https://nc233.com/2021/04/have-you-checked-your-features-distributions-lately/

Confidence-Interval-in-R

Other

1. Trending online courses in business, data science, tech, and health (Coursera’s Unbounded University) https://trtl.bz/3n6trR5 (report here)

2. Katie Haun on the Dark Web, Gangs, Investigating Bitcoin, and The New Magic of “Nifties” (The Tim Ferriss Show Transcripts) https://tim.blog/2021/02/24/katie-haun-transcript/ Ms. Haun has an utterly fascinating background and is now an a16z GP who sits on the board of coinbase (https://a16z.com/2021/04/14/coinbase-direct-listing/)

3. Why Applications of Calculus in Real Life is Essential to Make Kids Love Math? https://trtl.bz/3gi7ehG

4. Jeff Bezos’ 2020 Letter to Shareholders https://www.aboutamazon.com/news/company-news/2020-letter-to-shareholders “If you want to be successful in business (in life, actually), you have to create more than you consume. Your goal should be to create value for everyone you interact with.”

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