Risk magazine - August 2022
In this month’s issue: disagreements over PRA plan to run additional Simm backtests; term SOFR curbs re-evaluated; uncertainty surrounds FRTB model applications; and much more
Cover art: Martyn Dempsey, www.anne-mariebainbridge.co.uk
Articles in this issue
The ghost of Archegos returns to haunt Simm
UK regulator’s attack on Simm may have more to do with the failed family office than meets the eye
Banks turn away from FRTB internal models in Europe
Drawbacks mean even fewer model approval applications planned than past ECB survey suggested
Hedge funds warn SEC dealer rule is ‘unenforceable’
Private funds say they are collateral damage of poorly drafted push to regulate PTFs
JP Morgan quants are building deep hedging 2.0
New model uses Bellman technique to learn general derivatives hedging strategies
Why a US fund manager added $4.8bn of Libor swaptions in Q1
Columbia Threadneedle’s eyebrow-raising trades were part of an effort to clean up legacy hedges
Major lender hikes borrowing costs as crypto flounders
Brokers warn crypto market faces a reckoning with wrong-way risk as lenders rush to tighten terms
PRA’s pot shots threaten Simm’s global ubiquity
UK regulator’s push to improve model governance could tip non-cleared derivatives market into chaos
ARRC reconvenes task force to evaluate term SOFR curbs
Concerns over one-sided market for term SOFR swaps prompts review of ‘scope of use’ guidelines
When stagflation looms, investors get no satisfaction
In a toxic inflation-stagnation mix, conventional trades and hedges falter; alternatives are unproven
The JSE’s leading role in sustainability disclosures
The global landscape for sustainability standards and frameworks is evolving so rapidly that stock exchanges are becoming vital partners in helping companies navigate the complexities around disclosures on environmental, social and governance (ESG)…
Regulators should be careful what they wish for on FRTB
New framework likely to reduce use of internal models, as planned; but is that a good thing?
‘Nightmare’ of uncertainty plagues FRTB model applications
Shifting timetable and rule tweaks that could alter incentives dampen appetite for internal models
Why FRTB model test loves volatility, but hates hedges
Crucial P&L test for internal models easier to pass if price swings are large, or desks poorly hedged
US banks’ Brexit gambit hit by EU cross-border ban
US firms trying to Brexit-proof their European operations could now be hit by CRD VI
Growing use of ‘carte blanche’ keeps FCMs ‘awake at night’
Executing brokers want to speed up trade processing, but practice is deemed risky by clearers
Covid chaos spurs on search for model risk aggregation
Many models failed in pandemic, but analysing them in clusters easier than whole-bank view
‘Are we nearly there yet?’ Banks navigate ESG loan accounting
Lenders ask standards boards for guidance on how rules should be applied
Boosting the ESG exposure of a low‑risk portfolio
Nikolay Radev, senior quantitative researcher at FactSet, discusses the limitations of previous environmental, social and governance (ESG) measurement, and proposes a new approach to optimising ESG exposure in minimum tail-risk (MTR) portfolio…
Amid macro storm clouds, a silver linings playbook for fintech
Banks and VCs believe inflation and rising interest rates will result in winners as well as losers
Why fears about quantitative tightening are overblown
The benefits of collateral availability may outweigh the monetary liquidity withdrawn by central banks
Rethinking regulation of the modern financial system
Rules must address uncertainty and risks, and not be too complex, says Bank of Italy's Trapanese
Risk Technology Awards 2022: No oil painting
After years of relative peace, the risk landscape has turned ugly. This year’s winners of the Risk Technology Awards weigh the challenges facing their clients
Deutsche’s market RWAs climb 28% as VAR multiplier bites
RWAs in the ‘corporate and other’ segment surged to €7.8bn in Q2 from €715m at end-2021
Goldman Sachs’ VAR averaged record $124m in Q2
Trading risk indicator surged past early pandemic readings
Crédit Agricole’s VAR jumps 88% on fixed income blow-up
Trading risk gauge reached the highest since Q2 2020
Barclays adds £984m to ETN snafu bill
Market sell-off in Q2 has increased cost of buying back notes mis-sold by the bank in 2019
Danske breaches VAR four times, spurring RWA hike
Fifth hypothetical breach in six months triggers VAR multiplier increase
Multi-asset class portfolio stress‑testing: best practices and future challenges
Risk and investment professionals will require a sophisticated blend of historical and hypothetical scenarios to navigate today’s volatile markets, says Ivan Mitov, director of risk research at FactSet
Getting the jump on pricing dividend-protected derivatives
Morgan Stanley quants show how to avoid mispricing corporate options and convertible bonds
Linking performance of vanilla options to the volatility premium
A framework to account for vanilla options' performance in trading strategies is presented
The contractual dividend bleed
Models for dividend protected options need to compensate for valuation mismatches
This time’s no different: Robeco’s faith in 200-year backtests
Firm’s (very) long-term studies suggest factor strategies can soften hit from stagflation
