Tail risk
Are investors betting on Kamala or Donald? Neither
Hedge funds and others shun election-based trades and rely on existing hedges to guard against surprise market moves
Roll up for the BoE’s counterparty mystery tour
Letter warns of cross-currency repo risks, but they didn’t feature in Archegos or LDI blow-ups
Research on the premium for the joint lower-tail risk of liquidity and investor sentiment
The authors put forward the concept of the joint lower-tail risk of liquidity and investor sentiment and investigate the issue of lower-tail risk premiums in the Chinese stock market.
EU banks balk at new market risk models back test
EBA proposals introduce additional expected shortfall back test for market capital risk models under FRTB
‘Guys far more experienced than me didn’t really know what risk was’
A flawed understanding of risk has made markets fragile, says Convex Strategies CIO David Dredge
Real-time repo needed for non-stop trading – DRW’s Wilson
Isda AGM: Veteran trader warns of “ugly tail risks” if market plumbing is not upgraded
Fat tails and optimal LDI portfolios
A portfolio optimisation technique for pension funds and insurance portfolios is presented
VAR tail grew fatter at Bank of America in 2022
Gap between 95% and 99% confidence levels widens to 10-year record
Measuring tail operational risk in univariate and multivariate models with extreme losses
The authors consider operational risk models and derive limit behaviors for the value-at-risk and conditional tail expectation of aggregate operational risks in such models.
Rifts widen across EU banks’ trading results
Largest fair-value hits from HFT assets moved further from median in H1
Modeling maxima with a regime-switching Fréchet model
The authors identify a regime-switching Fréchet model which can be used to identify the behavior of extreme values in financial series.
Assessing systemic fragility: a probabilistic perspective
Using new measure of systemic fragility, the author ranks euro area banks and sovereigns and according to their systemic risk contribution.
Keep risk parity simple, stupid
In times of volatility, simpler risk parity strategies may outperform more elaborate counterparts
Banks shock commodities by 1,000% in stress-test rethink
Energy price spikes force clearing firms to consider extreme or even ‘implausible’ scenarios
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…
‘Corrective’ algo tells quant firm when it’s wrong
QTS has built a machine to show whether a strategy is likely to succeed or flop
Trend following’s bumper returns mask fading convexity
Research suggests strategy is no longer a reliable hedge against stock market crashes
Inflation scenarios, pt II: end of the party
Whether inflation rises or falls, crowdsourced scenarios forecast huge range of outcomes
As geopolitical risk spikes, a major index gets a revamp
Geovol risk gauge built by Nobel laureate Robert Engle to become Global Covol
Banks tout CCAR-style stress tests for emergent risks
Extreme-but-plausible scenario planning is being applied to geopolitical events such as Ukraine conflict
Bank of America’s VAR drops 19% in Q4
Average one-day trading VAR falls to lowest point since Q1 2020