Risk magazine - May 2017
May 2017 issue featuring articles on: CVA, CRD V and the Pillar 2 exemption; the future of the Volcker rule; use of alternative data by quant funds; the buy side’s role in European sovereign bond market-making; and an in-depth section on machine learning.
Articles in this issue
European banks tire of CVA guessing game
Continued political wrangling over Europe’s CVA exemption increases uncertainty for dealers
Mnuchin: FSOC working on revised Volcker rule
US Treasury secretary wants revamp of prop trading ban; not repeal
Fed’s Powell joins chorus of Volcker rule critics
Governor seeks to simplify rule banning prop trading
OCC seeks leverage ratio relief as liquidity shrinks
85% of CCP’s volumes now short contracts on 20 biggest names, claims risk chief
Dealers crack down on clients with dual netting sets
Pricing adjustments for posting non-cash collateral can run to 100bp
Margin rule mismatch spawns new VM funding cost for buy side
Settlement timing difference penalises back-to-back trades with US and EU banks
Banks calm on Eurex-LCH basis volatility
Past basis blowouts prepared banks for movements, say traders
Blockchain smart contracts raise systemic risk concerns
Automated swaps margin payments could exacerbate systemic risks, regulators warn
Data woes force dividend swaps out of Simm update
Dealers have different approaches to pricing dividend risk factors
P&L test in FRTB may not work – research
Delays in approval and small data sets may doom internal model approach, research finds
Research finds ways to tame FRTB’s biases in forex charges
New paper shows ways to reduce influence of reporting currency
Regulatory blitz weakening model risk management, say banks
Smaller banks’ modelling practices under growing scrutiny, but ability to comply is stretched
EU capital revamp paves way for corporate CVA charge
Draft directive offers national regulators power to override controversial exemption
Volcker fights back as prop-trading ban comes under attack
Former Fed chair tells Risk.net that calls for total overhaul of eponymous rule are misplaced
The hard labour in profiting from alternative data
Quant fund spending on fresh data will pass $7 billion by 2020, yet most attempts to use it fail
Non-banks eye EGBs as primary dealers retreat
Primary dealers warn of further exits as principal trading firms wait in the wings
Madness in the method: Basel grapples with G-Sib riskometer
Some experts warn the methodology to identify systemic banks could increase systemic risks
Robo-traders and robo-labour
Banks and buy-siders are starting to harvest the benefits of machine learning beyond the front office
Model risk managers eye benefits of machine learning
Ramp-up in regulatory scrutiny of model validation sees banks turn to black boxes
Quants turn to machine learning to model market impact
JP Morgan, Bloomberg and Portware among those applying AI to long-standing problem
Spike in bad loans raises scrutiny of P2P credit models
Jump in delinquencies at some lenders prompts questions over modelling practices, but firms stand by their approach
Is wholesale banking disruption-proof?
Fintech threatens market-making, research and wealth management, writes eCo Financial Technology CEO
Dexia faces fraud charges over ‘hidden costs’ in swaps deal
Italian fraud trial could spell trouble for other banks providing municipal swaps contracts
ECB rate risk stress test renews fears over internal models
Banks alarmed by short timeline and opaque supervisory use of IRRBB stress test
Esma turns the screw on direct electronic access
Guidance thwarts narrower definition adopted by Eurex to help third-country clients
The race to find a factor-timing model that works
BlackRock, Man AHL, Research Affiliates and UBS believe they can successfully time risk premia
Bank scandals suggest cultural problems are industry-wide
Libor-rigging and similar misconduct across multiple firms may be the result of 'macro-cultures'
Nickel-and-Dimon: why bank CEOs loathe op risk capital
JP Morgan’s Jamie Dimon and ex-StanChart CEO Peter Sands are no fans of the RWA approach
What to do about Libor?
Darrell Duffie explains why transition from Ibor-based benchmarks is necessary and feasible
Monthly credit data review: gloomier than spreads suggest
David Carruthers of Credit Benchmark looks at banks’ credit risk data
Monthly swaps data review: ETD vs OTC margin totals
New disclosures from big CCPs show listed market consumes more margin than cleared swaps
Mortgage and auto loan securitisations inflict op risk losses
Megan van Ooyen from SAS rounds up the top five operational risk losses for March 2017
Time to talk about settlement risk
Quants are proposing netting or the use of CLS Bank to remove Herstatt risk in margined trades
Does initial margin eliminate counterparty risk?
Andersen, Pykhtin and Sokol show the existence of residual exposure after initial margin posting
Model-free valuation of barrier options
Austing and Li provide a continuous barrier options pricing formula that fits the volatility smile
A sound modelling and backtesting framework for forecasting initial margin requirements
Anfuso, Aziz, Loukopoulos and Giltinan propose a method to develop and backtest forecasting models for IM
Research start-up offers quant tips for discretionary investors
Disruptor sees gap in market, created by growing influence of macro factors on trade performance
