Volatility
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
CVA, market RWAs more than double at UBS in Q1
Overall risk-weighted assets increased 10% on end-2019
Buy side eyes outsourced trading amid Covid disruption
Pressure on trading continuity drives in-house desks to look outwards
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
Some quants fear more deleveraging to come
Buy-siders brace for further selling after hedge funds dumped risk in March
FRTB comes too late for Covid crisis
Expected shortfall would stop Basel 2.5 duplicate capital charges, but backtesting still a problem
Vol boosts rules-based trading services
More users – and more platforms – turn to auto-RFQs for smaller tickets
Covid-19 tumult is testing AI fund returns
Some ML strategies have coped well, but others began to struggle as panic mounted
The joint S&P 500/Vix smile calibration puzzle solved
SPX and Vix derivatives are modelled jointly in an arbitrage-free setting
Money funds turn to Fed facility amid record inflows
MMFs are accepting 0% returns and waiving management fees to avoid ‘breaking the buck’
Sluggish back-office systems added to margin pressures
Systems supplied by FIS struggled to handle massive spike in March trading volumes
Traders flee Vix futures
Short interest of asset managers down 80% on 12-month peak
Hedge fund Parplus said to be source of ABN’s $200m loss
New York-based volatility fund had close ties to defaulted prop shop Ronin Capital
ABN winds down Ronin books after Vix losses
$200m loss suffered by bank’s clearing business is thought to be mystery second default
In choppy forex markets, algos buck expectations
Goldman, Nomura and others report increased volumes, although some clients revert to principal quotes
Autocalls hit peak vega, where hedging costs mount
Eurostoxx and Nikkei losses flip structured product dealers into painful short vol territory
Coronavirus, smart contracts and public bailouts for CCPs
The week on Risk.net, March 7–13, 2020
Vanishing hedges hurt HK warrants issuers
Traders suspect big losses after Hang Seng gapped down at start of wild week
Swaps liquidity slumps as Treasury stress spreads
Big buy-side participants report “worst day” for market depth in 10 years, as spreads widen and prices gap
Bonds and swaps struggled in virus volatility
Low liquidity and wider spreads amplified by remote working, traders claim
Oil futures and options see record volumes
Brent crude contract traded volumes hit 3.4 million on March 9
For FX dealers, virus brings volumes
Mixed feelings for sell-side traders as Covid-19 spurs wave of speculation and hedging
Dealers turn to mid-cap and EM deal-contingent trades
Premiums of more than 25% are attractive to banks battling low vol and increasing competition
Factor strategies seesaw in coronavirus-hit markets
Quants struggle to second-guess ongoing effect of virus on investments