Risk magazine - Jul 2020
Articles in this issue
Applying the scientific method to investing
The new field of experimental finance goes beyond backtesting
Libor death notice could be served this year – FCA
Announcement may come soon after Isda’s fallback protocol takes effect in November
Shifting Libor fallback window jolts basis market
Fallback spreads widened more than 20% after UK regulator says Libor’s end could be announced this year
Risk-free rates may fail liquidity test for hedge accounting
Experts fear trades referencing SOFR and €STR will not be eligible for hedging relief
Libor trap lurks in 2021 US stress tests
Using SOFR, borrowing could boom and revenues collapse
Recent defaults lead to record credit derivatives payouts
CDS auctions have yielded historically low recovery rates this year, meaning swap sellers have had to pay more than normal
Bond-CDS basis keeps investors interested
Difference between cash bond spreads and derivatives tightens but still offers value, dealers say
Data error inflated Wells Fargo’s op risk capital by $5 billion
Sharp fall in Q1 RWAs followed removal of duplicate data
US banks face capital hit from resurgent advanced approaches
Banks pushed onto internal models wrestle with procyclical capital charges
Banks push for capital changes as CECL provisions soar
Spike in set-asides exposes fault lines between new accounting standards and Basel rules
Banks eye post-pandemic shake-up of op risk scenarios
Firms seek better handle on impact of global shocks, and hope to avert regulatory attention
People moves: Citi clearing head Kemp retires, Sapcanin made CRO of European markets, HSBC GAM hires Axa’s Leon, and more
Latest job changes across the industry
Covid-19: Pandemic risk – Special report 2020
The economic devastation wrought by Covid-19 is already significant: the hits to employment, gross domestic product and other key macro factors regulators ask banks to test to has already surpassed supervisors’ severely adverse scenarios, and shows every…
The scientists probing the human mind for an investing edge
Recent advances in behavioural finance could give rise to new quant models and strategies
Credit problem: SOFR faces uphill struggle in loan market
Furnishing Libor’s replacement with a credit-sensitive spread is proving to be a Sisyphean task
Clearing banks feel pinch as rates turn negative
Negative returns on dollar deposits at Eurex, Ice and LCH spur talk of business model change
Structured notes – Transforming risk into opportunities
Global markets have experienced a period of extreme volatility in response to acute concerns over the economic impact of the Covid‑19 pandemic. Numerix explores what this means for traders, issuers, risk managers and investors as the structured products…
Conduct risks stalk banks in Libor transition
As replacement rate concerns become more pressing, firms fear Libor lawsuits and regulatory wrath
Initial margin – Special report 2020
Buy-side firms in advanced preparations for phases five and six of initial margin (IM) rules are eager to maintain momentum and put their efforts to the test now that implementation has been delayed by 12 months following disruptions related to the Covid…
Eurex’s risk chief on the need for boring models
Banks need stability and predictability of VAR-based margin when volatility spikes, says clearing house CRO
Rise of ethical swaps brings hedging questions
Banks ponder how to offset risks of ESG derivatives – or whether hedging is even desirable
Bruised, not broken: execs say Libor switch on track despite Covid
Compressed timeline for transition may leave smaller firms struggling to meet end-2021 deadline
Beware of cliff edge in Libor fallbacks
Derivatives users may see a sudden change in the value of payoffs when Libor ends, Coremont analysts write
Key steps in the transition to SOFR
Phil Whitehurst, head of service development, rates, SwapClear at LCH, offers his insight into when a term structure for the secured overnight financing rate (SOFR) is likely to be established, what will be required for this to become a reality and what…
How the Fed’s Covid stress test got stuck in the middle
Experts fear CCAR add-on has neither informed investors nor guided capital management
Synthetics sweetener teases European banks
As structural woes resolve, regulators remain split on preferential capital treatment for STS deals
Investors at the gates: MMF reforms fail the Covid test
After MMF rescues return, regulators urged to rethink rules on gates and sponsor support
Confidence in pricing data is essential in a distressed market
Jason Waight, head of regulatory affairs, Europe at MarketAxess, explores the key role of reliable data sources in offering a commercial advantage to traders during the March crisis
Scared of fallen angels? So are the rating agencies
Data shows rating agencies more reluctant to downgrade firms at the investment-grade boundary
Quant firm deploys new metric for Covid sensitivity
Los Angeles Capital debuts new factor for measuring stocks’ sensitivity to the pandemic
Sometimes it’s fine to be boring
Diversification puts portfolios in the middle of the pack – where investors feel safe, writes Antonia Lim
Driving anti-money laundering efficiency gains using artificial intelligence
Anti-money laundering (AML) is expensive and labour-intensive, and artificial intelligence (AI) can offer improved efficiency gains. Could they be a match made in heaven? This Risk.net webinar, in association with NICE Actimize, took place amid the…
Power surge: the evolution of PPAs
Energy industry expert looks at key developments in the power purchase agreements market
Clearing banks show they’ve learned lessons of the past
CCP members were able to meet massive margin calls in March. But could they do it again?
Covid shock could topple US insurers’ exotic CLOs
Losses on “atypical” tranches could hit $899 million
Foreign banks and Fed at odds on stress test impacts
HSBC North America predicted a loan-loss rate of 2.7%, well below the Fed’s 6% estimate
Fourteen margin breaches at CME’s swap unit in Q1
The peak breach was almost $80 million in size
SwapClear incurred a $558m margin breach in Q1
Liquidity and concentration add-ons covered 41% of mark-to-market exposure
Fed’s Covid scenarios far harsher than latest stress tests
Under worst-case, 25% of banks would have post-stress CET1 ratios of less than 4.8%
Three systemic US banks face stress capital buffer add-ons
JP Morgan, Goldman Sachs, Morgan Stanley will see minimum requirements increase under new regime
Op risk data: Morgan Stanley falls foul of Dutch tax office
Also: JP Morgan settles crypto fees class action; banks debate Covid-19 scenarios. Data by ORX News
Mind the tax when hedging TRS
New model gauges whether deals are still profitable, after taxes
Funding adjustments in equity linear products
How tax asymmetries and Tobin tax affect the pricing of total return swaps
A closed-form solution for optimal mean-reverting strategies
The heat potentials method is used to find the optimal profit-taking and stop-loss levels
Doyne Farmer’s next big adventure: capturing the universe
Quant fund pioneer plans to build an economic super-simulator on a global scale
