Posts Tagged ‘Risk

30
Oct
11

Finanzas 101: FAQ, Short Selling + CDS

En el sitio de la Unión Europea, hay un accesible FAQ sobre la regulación sobre Short Selling y Credit Default Swaps.

¿Sesgos + momentum?, maybe.

Personalmente me quedo con la tabla comparativa -cerca del final- entre la regulacion del Short Selling en USA, EU y Hong Kong.

 

18
Oct
11

Paper: Anomalías y su impacto en el riesgo sistémico

The race to zero

1.  Introduction

Stock prices can go down as well as up.  Never in financial history has this adage been more apt than on 6 May 2010.  Then, the so-called “Flash Crash” sent shocks waves through global equity markets.  The Dow Jones experienced its largest ever intraday point fall, losing $1 trillion of market value in the space of half an hour.  History is full of such fat-tailed falls in stocks.  Was this just another to add to the list, perhaps compressed into a smaller time window?

No.  This one was different.  For a time, equity prices of some of the world’s biggest companies were in freefall.  They appeared to be in a race to zero.  Peak to trough, Accenture shares fell by over 99%, from $40 to $0.01.  At precisely the same time, shares in Sotheby’s rose three thousand-fold, from $34 to $99,999.99.  These tails were not just fatter and faster.  They wagged up as well as down.

The Flash Crash left market participants, regulators and academics agog.  More than one year on, they remain agog.  There has been no shortage of potential explanations.  These are as varied as they are many:  from fat fingers to fat tails; from block trades to blocked lines; from high-speed traders to low-level abuse.  From this mixed bag, only one clear explanation emerges:  that there is no clear explanation.  To a first approximation, we remain unsure quite what caused the Flash Crash or whether it could recur.

That conclusion sits uneasily on the shoulders.  Asset markets rely on accurate pricing of risk.  And financial regulation relies on an accurate reading of markets.  Whether trading assets or regulating exchanges, ignorance is rarely bliss.  It is this uncertainty, rather than the Flash Crash itself, which makes this an issue of potential systemic importance.

 In many respects, this uncertainty should come as no surprise.  Driven by a potent cocktail of technology and regulation, trading in financial markets has evolved dramatically during the course of this century.  Platforms for trading equities have proliferated and fragmented.  And the speed limit for trading has gone through the roof.  Technologists now believe the sky is the limit.

This rapidly-changing topology of trading raises some big questions for risk management.  There are good reasons, theoretically and empirically, to believe that while this evolution in trading may have brought benefits such as a reduction in transaction costs, it may also have increased abnormalities in the distribution of risk and return in the financial system.  Such abnormalities hallmarked the Flash Crash.  This paper considers some of the evidence on these abnormalities and their impact on systemic risk.

Regulation has thin-sliced trading.  And technology has thin-sliced time.  Among traders, as among stocks on 6 May, there is a race to zero.  Yet it is unclear that this race will have a winner.  If it raises systemic risk, it is possible capital markets could be the loser.  To avoid that, a redesign of mechanisms for securing capital  market stability may be needed.

Link al Paper

17
Oct
11

Tabla du Jour: Sin palabras…

(Fuente: Bespoke Investment Group)

13
Oct
11

Fun & Finance: #15, Charla sobre la Tasa Libre de Riesgo

En este episodio, Manuel le explica a Gaston que es la Tasa Libre de Riesgo y -de forma introductoria- que rol juega en los modelos de pricing de activos.

Siempre Mejor en HD

No se olviden de visitar la pagina de Fun & Finance  en Facebook

11
Oct
11

Finanzas 101: Proxy Hedging

Tal vez es una serie de post más para finanzas 301, pero los ultimos 3 post de Quantivity hacen un buen capitulo de Hedging.

Proxy / Cross Hedging

“The root challenge of two current equity risk and alpha projects boil down to hedging using non-underlying instruments, known as proxy hedging or cross hedging.”

Empirical Quantiles and Proxy Selection

“(…)how to choose an appropriate hedge instrument, especially amongst several alternatives.”

Empirical Copulas and Hedge Basis Risk

“Of particular interest is understanding the dynamics of basis risk under extreme scenarios (both up and down), which are driven by time-varying stochastic joint covariation.”

11
Oct
11

Paper: Una vuelta por el mundo…

Equity Premia Around the World

Abstract: 
We update our global evidence on the long-term realized equity risk premium, relative to both bills and bonds, in 19 different countries. Our study now runs from 1900 to the start of 2011. While there is considerable variation across countries, the realized equity risk premium was substantial everywhere. For our 19-country World index, over the entire 111 years, geometric mean real returns were an annualized 5.5%; the equity premium relative to Treasury bills was an annualized 4.5%; and the equity premium relative to long-term government bonds was an annualized 3.8%. The expected equity premium is lower, around 3% to 3½% on an annualized basis.

Link al Paper

22
Sep
11

Gráfico du Jour: Deuda soberana, ¿Quién la tiene?

(Fuente: Credit Writedowns)

07
Sep
11

Paper: Diversificación, rebalanceo como soluciones…

Diversification Return, Portfolio Rebalancing, and the Commodity Return Puzzle

Diversification return is an incremental return earned by a rebalanced portfolio of assets. The diversification return of a rebalanced portfolio is often incorrectly ascribed to a reduction in variance. We argue that the underlying source of the diversification return is the rebalancing, which forces the investor to sell assets that have appreciated in relative value and buy assets that have declined in relative value, as measured by their weights in the portfolio. In contrast, the incremental return of a buy-and-hold portfolio is driven by the fact that the assets that perform the best become a greater fraction of the portfolio. We use these results to resolve two puzzles associated with the Gorton and Rouwenhorst index of commodity futures, and thereby obtain a clear understanding of the source of the return of that index. Diversification return can be a significant source of return for any rebalanced portfolio of volatile assets.

Link al Paper

02
Sep
11

Paper: Estabilidad financiera y riesgo de cola

Tail risks and contract design from a financial stability perspective

The wider theme of this conference is about what we have learned from the recent crisis. There have been  many lessons. Some are not new but just a re-learning of old lore: ‘banks need to hold adequate capital’; ‘real-estate prices can fall dramatically’; ‘financial institutions need to avoid excessive risk taking’. The authorities are pursuing a long list of regulatory initiatives to address the externalities arising from risks in banks and markets, including Dodd-Frank in the US, the European Market Infrastructure Regulation (EMIR) in Europe, the Independent Commission on Banking (ICB) in the United Kingdom and the various Basel capital and liquidity rules internationally. And the Financial Stability Board has taken on a role in co-ordinating much of the other international effort. Academic research also has a large part to play in this process, in both identifying the issues and proposing or evaluating policy responses.

Link al Paper

03
Aug
11

Paper: #in Merton Model

Marking systemic portfolio risk with the Merton model

The downside risk of a portfolio of assets is generally substantially higher than the downside risk of its components. In times of crisis, when assets tend to have high correlation, the understanding of this difference can be crucial in managing the systemic risk of a portfolio.
In this article, Alex Langnau and Daniel Cangemi generalise Merton’s option formula in the presence of jumps to the multi-asset case. The methodology provides a new way to mark and risk-manage the  systemic risk of portfolios in a systematic way.

Link al Paper

______________________

A esta lectura, le sumaria este paper del 2006.



																



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