Risk magazine - May 2020
Articles in this issue
Faith in the machine
The coronavirus crisis could be a defining moment for machine learning in finance
FVA losses back in spotlight after coronavirus stress
Three US banks suffer combined loss of almost $2bn after rates and funding double whammy
How axed dividends left SocGen in a €200 million hole
Collapse in equity trading revenues prompts rethink of autocall hedging
CME was ill-prepared for negative oil prices, FCMs say
Bourse draws criticism over timing of options model change; delay in sending key margin file
CCPs postpone euro discounting switch to July
Five-week extension agreed after working group proposal for September delay fails to find consensus
Eurozone banks fear market risk capital hike due to Covid-19
Hopes that ECB will fix double-counting as VAR breaches rise on market volatility
Delay to IM calculation window leaves some exasperated
“Hasty” decision by global rule-makers frustrates firms that had already started initial margin prep
Quants warn on credit risk in stocks
Conventional models may be missing explosion in novel exposure
Discounting delay risks swaptions mess – Eurex
Swaptions hurdles seen as yet another reason to keep June €STR switch date
TMX backs down on blanket margin hike after members revolt
Canadian CCP will review methodology and apply margin multipliers at the product level
Banks fear time-limit on Fed leverage ratio reprieve
Capital constraints not covered by relief also weigh on balance sheet strategy
Covid loans support six-month extension for Libor lending
UK working group delays Libor loan end-date to March 2021 as emergency loan scheme shuns Sonia
First USD/CNY cross-currency swap using SOFR trades
Crédit Agricole and Bank of China’s $10m trade marks a new milestone for risk-free rate
Buy side eyes outsourced trading amid Covid disruption
Pressure on trading continuity drives in-house desks to look outwards
Some quants fear more deleveraging to come
Buy-siders brace for further selling after hedge funds dumped risk in March
Emergency Covid loans carry high mis-selling risk, banks fear
Rapid roll-out of government schemes raises legal fears over inequitable client treatment
Electronic bond trading stalled in volatile markets
Bid/offer spreads on bond platforms spiked in March and the buy side struggled to trade
Hedge funds see big gains on dividend curve trades
A popular relative value strategy delivered unexpected profits when companies axed payouts
Ion’s wrists slapped in probe of Broadway deal
Competition watchdog extends initial investigation after Ion failed to comply with call for info
Lloyds and Riverside rehitch revolving loan to Sonia
£100m Sonia facility overcame late operational hurdles to be among the first done since the onset of coronavirus
Machine learning in fraud analytics to combat financial crime – Getting it right
Risk and compliance professionals gathered for a Risk.net webinar in association with NICE Actimize to consider the challenges and opportunities of successfully harnessing artificial intelligence in the fight against financial criminals
People moves: Brevan Howard risk head moves to Coremont unit, Pimco PMs, and more
Latest job changes across the industry
To model the real world, quants turn to synthetic data
Future financial models will be built using artificially generated data
The mysterious disappearance of a Chicago trading giant
Puzzling losses, a closely guarded auction and possible redemption – sources unpick Ronin’s collapse
Make the most of the Uncleared Margin Rules extension
On April 3, BCBS-IOSCO announced a one year extension to the final implementation phases of the uncleared margin rules (UMR), citing the ongoing market disruption across the globe resulting from COVID-19
Covid brings op risk to the fore at Credit Suisse
Jim Barkley, head of non-financial risk, has added pandemics to the long list of threats on his radar
European banks seek capital relief for CVA hedges
Volatile trading in March caused CVA hedges to dominate market risk RWAs at some smaller dealers
Sonia term rate contenders tested by market mayhem
Regulator-proposed quote approach falters as dealers pull swap prices from screens
Does rates reform for structured notes lack structure?
Philipp Orgler and Vladimir Piterbarg say it’s time to focus on Ibor transition for structured notes
FRTB comes too late for Covid crisis
Expected shortfall would stop Basel 2.5 duplicate capital charges, but backtesting still a problem
Managing a derivatives portfolio through turbulent markets
Steering a portfolio of non-linear derivatives, such as options and more exotic products, is challenging at the best of times. Market risks change as markets move and time passes, risks offset in complex ways and proxy hedging is common. In this feature,…
Capital One oil swaps waiver could haunt CFTC
Oil price collapse raises fresh questions about regulator’s justification for offering relief
Regulatory lenience over Covid-19 must be carefully judged
Former ECB supervisory board member says unwinding regulatory relief later will take courage
Counterparty credit risk – Why data is only valuable in context
Paul Whitmore, global head of counterparty risk solutions at Fitch Solutions, explains how qualitative data can add colour and insight to quantitative metrics for assessing the creditworthiness of counterparty banks
Quants pitch in to improve pandemic models
The finance industry’s quants are trying their hand at modelling the virus and its economic impact
Covid-19 tumult is testing AI fund returns
Some ML strategies have coped well, but others began to struggle as panic mounted
El-Erian on Covid-19 policy risks and central bank capture
Former Pimco chief says Fed has gone too far, market function rules needed and chance opens for shared policy load
Negative oil prices put spotlight on investors
What part did Bank of China and other investors play in last month’s oil rout, asks derivatives veteran
For ESG raters, clearer skies still signal stasis
As Covid-19 tamps down environmental risk, rating agencies are unmoving on ESG scoring
Uncharted waters
How pension plans can better equip themselves for a period of economic upheaval. By Matthew Seymour, RiskFirst, a Moody’s Analytics Company
Covid loan losses exceed 2019 CCAR projections
CECL accounting likely responsible for discrepancy
BNP incurs nine VAR breaches in Q1
Market RWAs jump 37% to €26 billion
PRA relief blunts market risk surge at Barclays, StanChart
Without temporary measures, market RWAs would have been 18% higher at StanChart
New securitisation rules weigh on UK banks
HSBC sees capital charge increase 41% quarter-on-quarter
Banks stride towards BCBS 239 implementation
No G-Sib was non-compliant with any key data management principles
Foreign banks’ EM exposure could spiral as Covid-19 bites – BIS
Activation of credit lines and guarantees could cause exposures to leap 26%
Op risk data: Outsourcing losses loom in lockdown
Also: Swedbank hit with huge AML fine; record Russia fine for StanChart. Data by ORX News
Global macro views combine with quantitative models to produce consistent returns
The team behind River and Mercantile Group’s global macro strategy team operates under two key principles: that macro is the most important aspect of any investment decision and that decision-making should incorporate both systematic and discretionary…
Solving the enigma of the volatility smiles
Has the problem of jointly calibrating the volatility smiles of the Vix and S&P 500 been solved?
The SABR forward smile
Thomas Roos presents the expressions for the implied volatilities of European and forward starting options
The quadratic rough Heston model and the joint S&P 500/Vix smile calibration problem
A combination of rough volatility and price-feedback effect allows for SPX-Vix joint calibration
How Goldman’s algos adapted to virus vol
Interview: Ralf Donner explains why algo usage is up while markets are down
