Risk magazine - Apr 2020
Articles in this issue
Hedge fund Parplus said to be source of ABN’s $200m loss
New York-based volatility fund had close ties to defaulted prop shop Ronin Capital
Pandemic threatens Libor transition plans
Resources diverted to Covid-19 response, as RFR-Libor basis spikes on stress
After coronavirus rout, concerns raised about Simm
Annual recalibration means March volatility will not be reflected in margin until end-2021
Coronavirus rout revives attacks on futures margining
FCMs call for permanently higher margins following “unprecedented” number of breaches
RBS exits listed derivatives trading and clearing
Clients served eviction notices last week as bank moves to downsize NatWest Markets unit
Autocalls hit peak vega, where hedging costs mount
Eurostoxx and Nikkei losses flip structured product dealers into painful short vol territory
Rate volatility highlights benchmark flaws
Libor and SOFR in spotlight following market rout, as both decouple from commercial paper
Fed defies coronavirus to push ahead with stress test
US diverges from Europe and forces banks to juggle CCAR with real-life operational burden
EU banks seek FRTB delay, citing ‘strain’ of virus
Firms want leeway to fight market mayhem, minus burden of new reporting rules
Sluggish back-office systems added to margin pressures
Systems supplied by FIS struggled to handle massive spike in March trading volumes
People moves: Citi Europe CRO to head crisis management; HSBC Global Asset Management hires strategy head; and more
Latest job changes across the industry
As Covid snaps credit models, lenders turn to stress-testing
Banks enlist scenario analysis to bolster creaking default models
FX vol revived by Covid-19 – but for how long?
Traders split on whether virus impact, or central bank responses, will prove most powerful
Index delays leave passive bond funds in purgatory
Moves to postpone index rebalancings could backfire as rating agencies press ahead with downgrades
Coronavirus is testing op risk managers to the limit
No amount of stress testing can prepare firms for the risks they’re facing, says Ariane Chapelle
How carbon-cutting Drax manages currencies and credit
Interview: UK power giant uses option selling – and other tactics – to create hedging headroom
Repo rules caught in Covid’s concertina effect
Pandemic jeopardises phased rollout of Europe’s SFTR regime, raising fears of chaotic ‘big bang’ start
Fee fight: dealers take aim at brokerage costs
Old tensions have new edge as banks urge clients to bypass platforms
Libor Risk – Quarterly report Q1 2020
Regulators may have to accept Libor transition will be slower than they hoped. But the final framework may yet be more robust as a result. Knowing how rates perform in times of stress will be crucial to the success of benchmarks intended for real economy…
The Fed’s stress capital buffer: relaxed but not relaxing
Bankers welcome key methodology improvement, but final rule could still curb dividends
Of rats and men: would member compensation imperil CCPs?
CCPs and members split over whether compensation after default losses is moral hazard or fair
Funds try to predict behaviour of mystery investors
New EU rules on liquidity stress-testing force fund managers to hunt out clues on investors
Lighting up the black box: a must for investors?
Many contend you must be able to interpret machine learning in order to use it
What quants can learn from the Covid crisis
More nowcasting, less backtesting, and strategies that adapt to new regimes: a manifesto from Lipton and López de Prado
To handle Covid-19 we need better data
Winton’s David Harding says unconscious bias in test data means epidemic is poorly understood
Shale firms pump hedge books for liquidity lifeline
Lucrative hedge portfolios offer promise of cash but unlocking residual value won’t be simple
Climate risk – Special report 2020
As governments worldwide focus on the coronavirus (Covid‑19) pandemic amid plummeting demand for fossil fuels, it may seem climate change has dropped down the global agenda. Firms that don’t assess the climate risk in their portfolios, or hedge or divest…
Growing sanctions raise compliance risk for energy firms
Sanctions increase risk for energy firms as regulators step up enforcement, writes maritime data expert
Systemic banks could free $156bn of capital after Fed plea
Banks asked to use management buffers to support economy in combating coronavirus
Countercyclical buffer releases may free €6bn at top EU banks
Banco Santander and BNP Paribas could free €1.1 billion each
Traders flee Vix futures
Short interest of asset managers down 80% on 12-month peak
Libor-SOFR blowout raises questions for fallback rate
Implied three-month SOFR v Libor basis gapped to 108bp on March 19
SOFR trades transact below zero for the first time
A few traders paid around -0.02% to borrow Treasuries in exchange for cash
CDX volumes roar upward on coronavirus panic
Notional traded volumes hit multi-year highs in each of the last three weeks
Op risk data: BNP faces €150m bill from mortgage loan sales
Also: Maybank, ING and MUFG hit by $300m commodities trading fraud. Data by ORX News
Swaps data: how the market responded to Covid-19
Swap rates saw massive moves as volumes peaked, writes Amir Khwaja of ClarusFT
Three adjustments in calibrating models with neural networks
New research addresses fundamental issues with ANN approximation of pricing models
Deep learning calibration of option pricing models: some pitfalls and solutions
Addressing model calibration and the issue of no-arbitrage in a deep learning approach
The joint S&P 500/Vix smile calibration puzzle solved
SPX and Vix derivatives are modelled jointly in an arbitrage-free setting
‘Huge role’ for quants in Covid-19 response – MIT’s Lo
Policy-maker actions or missteps will drive markets, academic says
