Bionic Turtle’s Week in Risk (ending October 1st)

We’ve had a very busy week preparing and publishing new content in the Study Planner! We published new videos, study notes and learning spreadsheets! In-between all of that, David was able to find some really great articles for our week in risk. We hope you enjoy! 🙂

New practice questions

• P1.T3.729. Gap, forward start and compound exotic options (Hull, Chapter 26) https://www.bionicturtle.com/forum/threads/p1-t3-729-gap-forward-start-and-compound-exotic-options-hull-chapter-26.10734/
• P1.T3.730. Chooser and barrier (exotic) options (Chapter 26 cont.)  https://www.bionicturtle.com/forum/threads/p1-t3-730-chooser-and-barrier-exotic-options-chapter-26-cont.10740/
• P2.T8.709. Ang on Factors and Factor Theory https://www.bionicturtle.com/forum/threads/p2-t8-709-ang-on-factors-and-factor-theory.10737/

• P2.T8.710. Portfolio value at risk (VaR) and surplus at risk (SaR) https://www.bionicturtle.com/forum/threads/p2-t8-710-portfolio-value-at-risk-var-and-surplus-at-risk-sar.10742/

In the forum this week (selected only)

• [P1.T1] Bodie’s diversification of non systematic risk  https://www.bionicturtle.com/forum/threads/r10-p1-t1-bodie_ch10_diversification_of_residual_risk.10743/
• [P1.T2] Is it possible for you to give a brief example of how SSR cannot increase with the additional of extra variables and specifically show the impact then of powers? https://www.bionicturtle.com/forum/threads/p1-t2-505-model-selection-criteria-diebold.8381/#post-52462

• [P1.T2] The GARCH update of correlation is tedious, it includes two omegas  https://www.bionicturtle.com/forum/threads/p1-t2-703-ewma-versus-garch-volatility-hull.10151/
• [P1.T3] More currency swap discussion https://www.bionicturtle.com/forum/threads/l1-t3-176-currency-swap-valuation-hull.4587/page-4
• [P1.T3] Trying to figure out the details in Hull’s trading commission schedule  https://www.bionicturtle.com/forum/threads/fin_prods_hull_ch2_commissions.10731/
• [P1.T3] On the importance of stating FX assumptions that are consistent with industry/market convention   https://www.bionicturtle.com/forum/threads/garp-2017-p2-73-garp17-p2-73.10694/#post-52453
• [P1.T3] Explaining Hull’s hedge fund of fund fees https://www.bionicturtle.com/forum/threads/p1-t3-706-hedge-funds-hull.10292/
• [P2.T5] Good observation by forum member, dbansal, about implied volatility and put-call parity  https://www.bionicturtle.com/forum/threads/p2-t5-200-implied-volatility-topic-review.5981/#post-52522

• [P2.T5] It is true that dollar duration is typically a strangely high number  https://www.bionicturtle.com/forum/threads/p2-t5-205-fixed-income-ii-topic-review.6037/page-2#post-52530
• [P2.T5] More VaR backtesting discussion https://www.bionicturtle.com/forum/threads/p2-t5-207-backtesting-var-topic-review.6055/

• [P1.T5] There is a known mistake in Meissner’s text in regard to Kendall’s tau and concordant/discordant pairs  https://www.bionicturtle.com/forum/threads/potential-error-in-p1-t5-mr-9-3-2-3-kendalls-tau-and-concordant-discordant-pairs.8209/#post-52500

• [P2.T5] Vasicek could be represented with a non recombining tree, we just choose to recombine for convenience’s sake  https://www.bionicturtle.com/forum/threads/p2-t5-305-vasicek-model-for-interest-rates-tuckman.6710/page-2#post-52482
• [P2.T6] Why does an institution’s own credit quality impact BCVA?  https://www.bionicturtle.com/forum/threads/p2-t6-708-stress-testing-the-credit-value-adjustment-cva.10146/
• [P2.T7] It’s easy to make a mistake when tabulating (aka, convolution) the severity-and-frequency LDA distributions  https://www.bionicturtle.com/forum/threads/p2-t7-704-loss-distribution-approach-lda-external-loss-data-basels-standardized-measurement.10702/
• [P2.T8] What does Ang mean by “The optimal trading point of illiquid assets is lower than the long-run average holding”?  https://www.bionicturtle.com/forum/threads/illiquid-assets-ang.10745/
• [P2.T8] Does unsmoothing affect only risk or also returns?  https://www.bionicturtle.com/forum/threads/unsmoothning-returns-ang.10746/
• [P2.T8] Frustrating mistakes with respect to the portfolio VaR metrics, but Jamal offers a helpful shortcut for the identification of a consistent set of assumptions https://www.bionicturtle.com/forum/threads/difference-between-marginal-and-incremental-var.8395/page-3#post-52519

Banks and Banking

• Agencies propose simplifying regulatory capital rules  https://www.federalreserve.gov/newsevents/pressreleases/bcreg20170927a.htm
• How Big Banks Became Our Masters https://www.nytimes.com/2017/09/27/opinion/how-big-banks-became-our-masters.html
• How software is eating the banking industry https://www.cnbc.com/2017/02/15/how-software-is-eating-the-banking-industry.html

Natural Science, including Climate and Energy

• The Media Really Has Neglected Puerto Rico https://fivethirtyeight.com/features/the-media-really-has-neglected-puerto-rico/
• Hidden Costs of Climate Change Running Hundreds of Billions a Year  http://news.nationalgeographic.com/2017/09/climate-change-costs-us-economy-billions-report/

Technology, including FinTech and Cybersecurity

• The Blockchain Economy: A beginner’s guide to institutional cryptoeconomics http://trtl.bz/2wrNEWh

• Eight Things Cryptocurrency Enthusiasts Probably Won’t Tell You http://www.ofnumbers.com/2017/09/21/eight-things-cryptocurrency-enthusiasts-probably-wont-tell-you/

Data science (primarily R), including Alternative Data

• Learning Python: From Zero to Hero https://medium.freecodecamp.org/learning-python-from-zero-to-hero-120ea540b567
• Survival Analysis with R https://rviews.rstudio.com/2017/09/25/survival-analysis-with-r/

Books and Courses (including Journal/SSRN)

• The Reputation Risk Handbook: Surviving and Thriving in the Age of Hyper-Transparency (DoShorts)  http://amzn.to/2xMdmXj

Personal Finance

• What you need to know about reverse mortgages … and their new rules  https://www.marketplace.org/2017/09/29/economy/what-you-need-know-about-reverse-mortgages-and-their-new-rules

Case Studies and Companies, including Strategic or Reputation risk

• All Your Equifax Breach Questions (and Some Answers) in One Place  https://www.nytimes.com/interactive/2017/your-money/equifax-data-breach-credit.html

• On Behalf of Equifax, I’m Sorry https://www.wsj.com/articles/on-behalf-of-equifax-im-sorry-1506547253
• The Equifax Hack Has the Hallmarks of State-Sponsored Pros https://www.bloomberg.com/news/features/2017-09-29/the-equifax-hack-has-all-the-hallmarks-of-state-sponsored-pros

Quantitative Analysis (FRM P1.T2)

• How Good is That Random Number Generator? http://davegiles.blogspot.com/2017/09/how-good-is-that-random-number-generator.html

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

• Corporate Debt Maturity Profiles https://corpgov.law.harvard.edu/2017/09/30/corporate-debt-maturity-profiles/

Credit risk (FRM P1.T6)

• Citi Is Bringing Back One of the Most Infamous Bets of the Credit Crisis  https://www.bloomberg.com/news/articles/2017-09-26/as-synthetic-cdos-roar-back-a-young-citi-trader-makes-her-name  “It’s an astonishing comeback for the roughly $70 billion market for synthetic CDOs, which rose to infamy during the crisis and then faded into obscurity after nearly destroying the financial system … This time, Citigroup says, it’s doing things differently. The deals are tailored in a way that insulates it from any losses, while giving yield-starved buyers a chance to reap returns of 20 percent or more. The market today is also just a fraction of its size before the crisis, and few see corporate defaults surging any time soon.”
• Reducing counterparty credit risk in uncleared markets – but what are the costs?  https://bankunderground.co.uk/2017/09/27/reducing-counterparty-credit-risk-in-uncleared-markets-but-what-are-the-costs/

Investment risk, including Pensions (FRM P1.T8)

• Raising Modern Portfolio Theory (MPT) from the Dead https://blogs.cfainstitute.org/investor/2017/09/26/raising-modern-portfolio-theory-mpt-from-the-dead/
• The Massive Hedge Fund Betting on AI https://www.bloomberg.com/news/features/2017-09-27/the-massive-hedge-fund-betting-on-ai

• Hedge Funds Ain’t Dead Yet https://www.wsj.com/articles/hedge-funds-aint-dead-yet-1506859200