Bionic Turtle’s Week in Risk (ending May 7th)

We’ve had a great week here at Bionic Turtle! Our forum is booming with really informative financial risk discussions, as everyone is getting ready for the FRM exam! Stop by our forum and join in on the discussions, or post your own questions. Our forum is full of members who love to help, and David is always ready to answer some of the toughest content questions out there!

In the forum this week (selected only)

Callable convertible bond

Alpha

RAROC calculation

Bank and banking

Global Capital Markets 2017: Mastering the Value Migration

Political and regulatory risk, including Systemic Risk (including BIS)

GDP Reductions from Separate US and Chinese Spheres

International

 

Natural Science, including Climate and Energy

  • On Climate, Uncertainty Is Not the Same as Agnosticism https://blogs.wsj.com/economics/2017/05/02/on-climate-uncertainty-is-not-the-same-as-agnosticism/
  • Climate Skeptics Always Assume the Risks Are Overhyped https://www.bloomberg.com/view/articles/2017-05-02/climate-skeptics-always-assume-the-risks-are-overhypedFrom 1990 through 2012, for example, the United Nations’ Intergovernmental Panel on Climate Change — which reviews and summarizes scientific findings on climate change from around the world — consistently underestimated the amount that global temperature, carbon-dioxide concentrations and sea levels would rise. Again and again, scientists were too conservative in their climate-change predictions.
  • Q&A Detailed look at the global warming hiatus again confirms that humans are changing the climate http://www.latimes.com/science/sciencenow/la-sci-sn-global-warming-hiatus-20170503-htmlstory.htmlThis analysis in Nature pulls together many findings in the wake of several research efforts looking to address the hiatus conundrum. Some argued that global warming predictions didn’t match the actual data during that time period because they didn’t include complex short-term climate factors that are poorly understood. Others have argued that the hiatus didn’t really exist; that it was a problem with the instrumentation or the data analysis, for example. The new Nature paper essentially works through several examples under both of these explanations and finds that it’s a combination of the two.

Technology, including FinTech and Cybersecurity

  • McKinsey’s Digital Insurance (Facing Digital Reality: Regulation, product complexity, and insurers’ large balance sheets have kept digital attackers from insurers’ gates. That is changing, but in ways incumbents should embrace. They can flourish in the digital age—if they move swiftly and decisively) https://digitalinsurance.mckinsey.com/

facing-digital-reality

Data science (primarily R), including Alternative Data

Exams, Financial Associations (GARP, FRM, CFA Institute) and Careers, including CRO Interviews

Top 20 Financial Modeling Interview Questions

Books and Courses (including Journal/SSRN)

  • [Book review] Behave: The Biology of Humans at Our Best and Worst https://www.wsj.com/articles/how-the-brain-makes-us-do-it-1493678528 Included because this is about decision-making: “Mr. Sapolsky’s concept is to examine behavior starting at its most immediate neural underpinnings, then trace it to progressively more distant causes, including hormonal, social and developmental ones, and ultimately to search out its evolutionary antecedents. To my knowledge, this hasn’t been done before in one book, and he succeeds magnificently … It’s no exaggeration to say that Behave is one of the best nonfiction books I’ve ever read.
  • The Cyber Risk Handbook: Creating and Measuring Effective Cybersecurity Capabilities http://amzn.to/2qcxmBf
  • Corporate Fraud Handbook: Prevention and Detection (5th Edition) http://amzn.to/2qcfOVR
  • Blockchain For Dummies http://amzn.to/2pT7jfG
  • Financial Valuation: Applications and Models http://amzn.to/2pSFUfP

Personal finance

People Aren’t Using Retirement Accounts

Other (interesting!)

  • Sweden has a Museum of Failure http://museumoffailure.se/
  • NY Times Magazine’s Money Issue https://www.nytimes.com/2017/05/04/magazine/the-magazines-money-issue.html
  • Our world outsmarts us https://aeon.co/essays/the-complexity-of-social-problems-is-outsmarting-the-human-brain Includes Bayes Theorem! “Whether contemplating the pros and cons of climate change; the role of evolution; the risks versus benefits of vaccines, cancer screening, proper nutrition, genetic engineering; trickle-down versus bottom-up economic policies; or how to improve local traffic, we must be comfortable with a variety of statistical and scientific methodologies, complex risk-reward and probability calculations – not to mention an intuitive grasp of the difference between fact, theory and opinion. Even moral decisions, such as whether or not to sacrifice one life to save five (as in the classic trolley-car experiment), boil down to often opaque calculations of the relative value of the individual versus the group.

Enterprise risk management (ERM) including Governance

  • The Error at the Heart of Corporate Leadership https://hbr.org/2017/05/managing-for-the-long-term David: “I was trained at consulting firms where “to maximize shareholder value” was assumed to be the primary–if not exclusive–goal of every company to which we consulted. But this agency-based model has problems. For example, executive pay tends to be heavily in stock and options; but share gains are largely due to market and sector exposure (nevermind that most grants aren’t truly performance-based). Meanwhile the drop in average holding period by shareholders is stunning. This has always been a valid academic debate (shareholders versus broader stakeholders), but there are trends–like the ascendant appeal of private markets–that suggest maybe the agency model is ripe for change. This is an excellent summary of this issue.
  • Independent Directors: New Class of 2016 https://corpgov.law.harvard.edu/2017/05/04/independent-directors-new-class-of-2016/To see how boards are keeping current and strategically aligning board composition to company needs, we reviewed the qualifications and characteristics of independent directors who were elected to Fortune 100 boards for the first time in 2016.

Independent Directors: New Class of 2016

Case Studies and Companies, including Strategic or Reputation risk

  • Inside VW’s Campaign of Trickery (New details emerge in Volkswagen’s broad conspiracy to cover up a campaign aimed at deceiving pollution regulators) https://www.nytimes.com/2017/05/06/business/inside-vws-campaign-of-trickery.htmlMr. Gottweis’s memo delivered a clear warning to the very highest level of management of the risk that Volkswagen had been caught using an illegal defeat device.

volkswagon emissions device

  • What’s it like to lose £350m? A rogue trader confesses (guardian.com) http://trtl.bz/2qTHHz5Perhaps the most shocking element of Stenfors’s new book is that it confirms that the economic crisis, which was effectively created by the banks, did very little to make the banks address their bad habits.
  • How a Hedge-fund Ace Chased Silicon Valley Riches and Embarrassed Himself http://trtl.bz/2p8oKvzThe frenzy [of new money into venture-backed companies] has since faded, turning Mr. Adams’s misadventures into a cautionary tale about chasing Silicon Valley riches. Venture-capital investment plummeted 42% last year, putting pressure on existing investments by making it harder to attract new money at higher valuations.
  • Chart: The Downfall of Canada’s Largest Alternative Mortgage Lender [Home Capital] http://www.visualcapitalist.com/chart-downfall-home-capital-group/

Downfall of Canada’s Largest Alternative Mortgage Lender

 

Risk Foundations (FRM P1.T1)

Global Risk Management Survey

Quantitative Analysis (FRM P1.T2)

Correlation Matrices in R

Financial Markets and Products, including Interest Rates, Commodity Risk, and Foreign Exchange (FX)(FRM P1.T3)

12 Types of Technical Indicators Used by Stock Traders

Valuation and Risk Models, including Country risk (FRM P1.T4)

Slumbering-volatility

Operational risk, including Legal risk (FRM P1.T7)

Investment risk, including Pensions (FRM P1.T8)

  • Angst in America, Part 5: The Crisis We Can’t Muddle Through (by John Mauldin) http://www.mauldineconomics.com/frontlinethoughts/angst-in-america-part-5-the-crisis-we-cant-muddle-throughWe know three things with near certainty: 1. Public pension plans are nowhere near able to meet their obligations. 2. Most cities and states can’t possibly contribute enough to cover the gaps without serious budget upheaval or increased taxes. 3. Plan investments won’t achieve projected returns, let alone earn enough to cover the contribution gaps.

The Crisis We Can’t Muddle Through

How do investors evaluate founding teams

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