Bionic Turtle’s Week in Risk (ending July 22nd)

Welcome to our Week in Risk blog! We’ve posted four new videos to our YouTube channel since our last blog, and we also have new practice questions to share with you! David has also chosen some great discussions from our FRM forum!

New Practice Questions

• P1.T4.812. Binomial model for options on stock indices and stocks with dividends (Hull Ch.13)  https://trtl.bz/2L1EXNK
• P2.T7.805. Extreme value theory (EVT): GEV versus POT (Dowd Ch. 7) https://trtl.bz/2LmqHi4

New YouTube

• Maximum likelihood estimation of GARCH parameters (FRM T2-26) https://trtl.bz/2utD6qS
• Contango versus normal backwardation (T3-19) https://trtl.bz/2uKp2ss

• Interest rate parity (IRP) applies cost of carry model (FRM T3-20) https://trtl.bz/2NygVqu
• Interest rate parity (IRP): visual/mathematical illustration (FRM T3-21) https://trtl.bz/2uQnDAH

In the forum

• Forum member, ag0511 started two fresh exam tip threads: Part 1 here: https://trtl.bz/2LtK88G and Part 2 here: https://trtl.bz/2LtKlbY
• [exam] More study tips https://trtl.bz/2LkmwDt I love this: “Also be careful with the BT forum as you go through the materials. It’s both a fantastic treasure trove of information, and a dangerous time warp when you follow interesting posts and end up going deep down the rabbit hole for far longer than you’d planned.“
• [P1.T2] Classic distribution probability exam-type motif assumes you to deduce a constant if (for example) Pr[X = a] = 3b https://trtl.bz/2Lf6pHd
• [P1.T2] Miller Chapter 3 EOC Questions #6 and #7 explained  https://www.bionicturtle.com/forum/threads/p1-t2-r2-miller-ch-3-basic-stats.14025/

• [P1.T2] Elaborating on the correlated normal Monte Carlo simulation step https://trtl.bz/2LqJ6dO
• [P1.T2] Retrieving variance when we have a joint distribution https://trtl.bz/2Lv8e34
• [P1.T2] Breaking down GBM MCS https://trtl.bz/2LqJ6dO
• [P1.T3] When solving a swap problem, it is typical to simplify any fixed payments that can be automatically netted, so to speak (otherwise, there would truly be an infinite number of possible solutions) https://trtl.bz/2JBstXL
• [P1.T4] Hull 15 EOC https://trtl.bz/2JIsKrU
• [P2.T5] An FRM candidate definitely wants to be comfortable with matrix features; e.g., how many unique pair-wise correlations exist in a portfolio of N assets?  https://www.bionicturtle.com/forum/threads/correlation-number-of-pairings.14013/

• [P2.T5] Dowd’s standard error of the coherent VaR measure https://trtl.bz/2Lrjq0x

Risk

• Arguing With the Yield Curve http://awealthofcommonsense.com/2018/07/arguing-with-the-yield-curve/
• Understanding The Yield Curve: A Prescient Economic Predictor  https://www.financialsamurai.com/understanding-the-yield-curve-a-recession-predictor/
• The Flattening Yield Curve (Neel Kashkari, President @MinneapolisFed) https://trtl.bz/2JFThGp
• Why duration is less meaningful for high yield https://mainstayinvestmentsblog.com/2018/07/why-duration-is-less-meaningful-for-high-yield/
• The End is Near For the Economic Boom http://fortune.com/longform/economic-expansion-end-is-near/

• Prolonged Slump in Bond Liquidity Rattles Markets https://trtl.bz/2JLJ4YW
• Public Pensions Are Earning More Than 8%—That’s Unlikely to Go On Much Longer   https://trtl.bz/2uRGtXS
• Research: We Take More Risks When We Compete Against Rivals https://hbr.org/2018/07/research-we-take-more-risks-when-we-compete-against-rivals
• [GARP] Regulators Underscore Urgency of LIBOR Transition https://trtl.bz/2LtZJoQ
• [GARP] After the Frenzy: A Fresh Outlook on GDPR https://trtl.bz/2LsEGTx
• [GARP] Volcker 2.0: Has Anything Really Changed with the RENTD Requirement?  https://trtl.bz/2Lqi4mP
• [GARP] From Risk Management to Performance: 6 Ideas for Raising the Game in ERM  https://trtl.bz/2Lqi5an

Banks

• Wells Fargo’s Latest Challenge: Refunds for Pet Insurance, Legal Services (wsj.com) https://trtl.bz/2JKd3Av
• Bank of America Profits Rise 33% on Higher Trading Revenue, Lower Taxes  https://www.wsj.com/articles/bank-of-america-profits-rise-1531738186
• A bank branch for the digital age https://www.mckinsey.com/industries/financial-services/our-insights/a-bank-branch-for-the-digital-age

• An incident database is a reverse risk register https://paladinrisk.com.au/2018-blog-3-incident-database-reverse-risk-register/

Governance

• What GE’s Board Could Have Done Differently https://hbr.org/2018/07/what-ges-board-could-have-done-differently 1. The board was too big (18 directors but the average US company board is 11 members). The board had no finance committee (“As I have explained elsewhere, a finance committee is critical for a board in complex public companies like GE, which are involved in a broad range of retirement plans, stock buybacks, and large acquisitions. Since the Sarbanes–Oxley Act in 2002, audit committees do not have enough time to carry out their prescribed list of detailed duties as well as to deal effectively with these broader issues of capital allocation.“).      3. The board’s audit committee wasn’t paying attention.
• New YouTube Channel: Office Hours, the channel for GRC pros https://trtl.bz/2JO2cFE (website at  https://officehou.rs/ )

Climate etc.

• Why Our Intuition About Sea-Level Rise Is Wrong https://nautil.us/issue/62/systems/why-our-intuition-about-sea_level-rise-is-wrong-rp
• Wildfires In The U.S. Are Getting Bigger https://fivethirtyeight.com/features/wildfires-in-the-u-s-are-getting-bigger/

#GOES17 shares some first #wildfire imagery from the satellite of the deadly fire burning over 12,000 acres near #Yosemite. #FergusonFire @Cal_Fire (GOES-17 data is preliminary, non-operational). More imagery: https://t.co/P1F11zXUHI pic.twitter.com/0g4mA0WQZj

— NOAA Satellites (@NOAASatellites) July 17, 2018

• As Hurricane Season Arrives, U.S. Homeowners Haven’t Fixed Their Big Underinsurance Problem  https://trtl.bz/2JJWowY
• First ever flood risk catastrophe bond launched http://www.iii.org/insuranceindustryblog/first-ever-flood-risk-catastrophe-bond-launched/

Quantitative

• An Introductory Guide to Maximum Likelihood Estimation (with a case study in R)  https://www.analyticsvidhya.com/blog/2018/07/introductory-guide-maximum-likelihood-estimation-case-study-r/
• Basic Statistics in Python: Probability https://www.dataquest.io/blog/basic-statistics-in-python-probability/

• Attribution based on tail probabilities https://www.johndcook.com/blog/2018/07/17/attribution/
• Advanced Statistical Computing (Roger Peng) https://leanpub.com/advstatcomp

Other

• [SSRN] The Insurance Business in Transition to the Cyber-Physical Market: Communication, Coordination and Harmonization of Cyber Risk Coverages https://trtl.bz/2LATEHr
• [SSRN] Understanding Cyber-Risk and Cyber-Insurance https://trtl.bz/2LuPJvu

• You’re Not as Smart as You Think: Perils and Benefits of Overconfidence https://trtl.bz/2uUqBUK
• The European Commission Versus Android https://stratechery.com/2018/the-european-commission-versus-android/
• The Most Important Number in Finance [LIBOR] Is Going Away. Wall St. Isn’t Prepared.  https://www.nytimes.com/2018/07/19/business/libor-future-2021-phase-out.html

• Health Insurers Are Vacuuming Up Details About You — And It Could Raise Your Rates (propublica.org)  https://trtl.bz/2JIYhK9
• Predicting the Markets (book) http://blog.yardeni.com/2018/07/predicting-markets.html