Bionic Turtle’s Week in Risk (ending March 18th)

This Week in Risk blog includes David’s newest YouTube videos, new practice questions that he has written, some great discussions from our forum and some interesting general risk articles!

Practice Questions

• P1.T4.806. Putting value at risk (VaR) to work (Allen Ch.3) http://trtl.bz/2Htp64C
• P2.T9.807. The role of culture in the financial industry (Lo) http://trtl.bz/2tLddVD

YouTube

• Type I versus II error and power (FRM T2-13) http://trtl.bz/2tYbc8u

• Minimum variance hedge (FRM T3-6) http://trtl.bz/2tYbqMS

In the forum (selected only)

• [P1.T2] Backtest rejection (continued) https://www.bionicturtle.com/forum/threads/p1-t2-719-one-versus-two-tailed-hypothesis-tests-miller-ch-7.13420/#post-58624
• [P1.T2] Sampling distribution of OLS estimators https://www.bionicturtle.com/forum/threads/sampling-distribution-of-ols-estimators.13781/
• [P1.T2*] What is meant by consistent AIC/SIC/MSE? https://www.bionicturtle.com/forum/threads/p1-t2-505-model-selection-criteria-diebold.8381/
• [P1.T3] Convenience yield is unique among the cost of carry factors: it is implied by the traded futures price  https://www.bionicturtle.com/forum/threads/p1-t3-716-arbitrage-and-the-cost-of-carry-model-hull-chapter-5.10601/#post-58625
• [P1.T3] Term life insurance premium (Hull’s EOC Question 3.16)  https://www.bionicturtle.com/forum/threads/term-life-insurance-premium-hull-rm-fi-eoc-3-16.13769/

• [P1.T3] The rate begins when the contract ends (contract maturity) for a Eurodollar futures contract  http://trtl.bz/2DE29sT
• [P1.T3] Because Q = 100 – R, an increase in the rate directly implies a decrease in the quote and contract price for a Eurodollar futures contract http://trtl.bz/2DDSB16
• [P1.T4] Profit/loss under a swap rate steepening versus the roll-down yield  https://www.bionicturtle.com/forum/threads/p1-t4-314-forward-rate-curve-trades-tuckman.6898/#post-58627
• [P1.T4] Forum member, @sharman.jamie, with real-world insights on Bloomberg’s OAS1 approach  https://www.bionicturtle.com/forum/threads/duration-of-a-floating-rate-note.3631/#post-58605
• [P1.T4] The full price (not the flat price) pulls to par https://www.bionicturtle.com/forum/threads/p1-t4-311-accrued-interest-tuckman.6873/page-2#post-58626

• [P1.T4] Option convexity (aka, gamma) should be priced in http://trtl.bz/2DBPuXy
• [P1.T5] Thank you forum member, QuantMan2318, for help answering questions about bond duration!  http://trtl.bz/2DDsw2i
• [P1.T5] VaR for Bond Portfolio with ranges of interest rate changes & probabilities http://trtl.bz/2DCj8Mt
• [P1.T5] I used to believe durations were unitless; now I believe for both durations their units are time (years)  https://www.bionicturtle.com/forum/threads/l2-t5-25-duration-tuckman.3447/#post-58670
• [P2.T6] Malz CVaR is not UL – EL. Rather, relative CVaR = UL = loss quantile – EL http://trtl.bz/2DDU6fL

• [P2.T6] The effect of a delivery squeeze on CDS-bond basis  https://www.bionicturtle.com/forum/threads/delivery-squeeze.9682/
• [P2.T6] Thank you, forum member, @Karim_B (again!) for the correction concerning debt payoff under Stulz  http://trtl.bz/2DDREG4
• [P2.T6] Good catch by forum member, curo, of my imprecise interpretation of overcollateralizatoin  http://trtl.bz/2DCZ24N
• [P2.T6] Should RAROC deduct the tax shield? https://www.bionicturtle.com/forum/threads/p2-t6-701-unexpected-loss-and-return-on-risk-adjusted-capital-rarorac-de-laurentis.10078/#post-58678
• [P2.T6] The intuition of subordinated bonds in Merton https://www.bionicturtle.com/forum/threads/effect-of-time-to-maturity-on-sub-bonds.10409/

• [P2.T7] Gross versus net leverage on the economic balance sheet http://trtl.bz/2DAQg73
• [P2.T7] The derivation of Malz’ liquidity-adjusted VaR square root scaling multiplier  http://trtl.bz/2DDNQVb
• [P2.T7] Good point forum member, jaivipin, about model risk https://www.bionicturtle.com/forum/threads/p2-t7-700-operational-risk-definition.10651/#post-58623 

Interesting external links

• How the Bear Stearns Meltdown Wrecked Something More Valuable than Money  https://blogs.wsj.com/moneybeat/2018/03/16/how-the-bear-stearns-meltdown-wrecked-something-more-valuable-than-money/
• Senate passes rollback of banking rules enacted after financial crisis http://trtl.bz/2pjjoM4 [Washington Post]
• The Troubled Legacy Of Dodd-Frank https://www.hoover.org/research/troubled-legacy-dodd-frank
• [GARP] The New York State Cyber Rules: Year One and Beyond http://trtl.bz/2DCrZ0H
• Why Blockchain Will Survive, Even If Bitcoin Doesn’t https://www.wsj.com/articles/why-blockchain-will-survive-even-if-bitcoin-doesnt-1520769600

• [off topic] Seeing vs. Reading (the key to creativity) https://medium.com/personal-growth/seeing-vs-reading-29365d4540e2
• Longevity FAQ: A beginner’s guide to longevity research https://www.ldeming.com/longevityfaq/
• International Forum of Independent Audit Regulators Report on 2017 Survey of Inspection Findings  http://www.fsa.go.jp/cpaaob/english/press/20180312.html
• [case study] The Blood Unicorn Theranos Was Just a Fairy Tale https://www.bloomberg.com/view/arti…vestors-and-consumers-who-used-its-blood-test
• FICO’s Lock on Mortgage Credit Scores Comes Under Fire – WSJ https://www.wsj.com/articles/ficos-lock-on-mortgage-credit-scores-comes-under-fire-1521019801

• [quant] Visualizing MonteCarlo Simulation Results: Mean vs Median  https://firstdifferences.wordpress….montecarlo-simulation-results-mean-vs-median/  “It is clear to see that both the distribution of the mean and the median are centered around the true expected value of zero. This implies that both estimators are unbiased. However, the distribution of the mean tends to be more concentrated than that of the median. The mean has a smaller variance and is therefore more efficient.”