Alexander Campbell
RiskNet
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Past articles by Alexander:
SA-CCR tweak could slash equity risk charge – research
Better calibration would cut equity options exposures in half, research finds → Read More
Fallbacks, Libor and the cultural risks of lockdown
The buy side and Libor: it’s decision time Investors weigh pros and cons of signing newly released Isda fallback protocol, as Libor demise looms NY Fed’s Stiroh: ‘cultural capital’ at risk in pandemic Risk USA: remote working could “erode” the culture of financial firms, says senior regulator Quarles’ plan for legacy Libor contracts stirs confusion Cryptic comment feeds speculation about a… → Read More
Climate risk, fixing Libor and tough times for US G-Sibs
Moves on climate risk could come early; other changes may have to wait until the end of 2021, or later Federal legislation to ensure legacy Libor contracts can move to SOFR is in the works Central bank liquidity and Treasuries will push US firms into higher G-Sib buckets COMMENTARY: The levers of power Change is coming in climate policy in both the UK and the US – and in both cases it’s coming… → Read More
Basis traders, prime brokers and election risk
Crowd-sourced election scenarios show sharp falls and correlation breaks if Trump challenges results The cash/futures basis trade could be a test case for regulating systemically risky activities Group set up after big Citi loss considers limit-checking hub, among other options COMMENTARY: Political uncertainty Risk.net looked this week at the impending US elections and their possible impact on… → Read More
XVA calculation, backtesting and escape from Emir
Differential machine learning produces results “thousands of times faster and with similar accuracy” As historical data loses relevance, quants must find new ways to validate their theories Emir Refit, which seemed to promise reporting relief for corporate users, is not a master key COMMENTARY: Not quite a quantum leap Expensive, temperamental and able to handle only the simplest of problems –… → Read More
Alt data, Libor and ESG in the time of Covid
The week on Risk.net, September 26–October 2, 2020 → Read More
Autocallables, Mifexit and the value of HFT
Spreads on ‘worst-of’ bonds leap 50% as some dealers retreat and others pile on hedges UK tipped to diverge from Europe’s proposed reforms to fund manager rules Dynamic fees could incentivise liquidity when and where it’s most needed, writes quant fund founder Bouchaud COMMENTARY: High-speed trading may still be a drag The debate over the value of high-frequency trading (HFT) continued on… → Read More
SOFR discounting, Covid and scenario crowdsourcing
Deluge of one-way risk and kinks in basis swap auctions could derail Libor transition milestone Second crowd-sourced scenario exercise reveals polarised views in equities and FX We will balance flexibility and resilience, says director of EU’s Single Resolution Board COMMENTARY: The new worst cases There’s a striking chart in Risk.net’s summary of its second scenario crowdsourcing exercise: it… → Read More
Swap termination, SA-CCR and the AFM’s push for fair treatment
Industry body is updating unloved procedure for valuing terminated swaps Dutch regulator suggests some liquidity aggregators should be classified as OTFs Move cut leverage exposure by $66 billion, but other banks wary of trade-offs COMMENTARY: Fear is the key Market practitioners have known for centuries that there was more to economics than the rational pursuit of advantage. “Sentiment was… → Read More
CVA problems, CCP resolution and digital tokens
March’s volatility forces dealers to fine-tune hedging strategies Potential levels of loss mutualisation under EU rules are unnerving some clearing members A common approach to classifying tokens is needed to prevent regulatory arbitrage, UK bank argues COMMENTARY: What’s that in real money? The inventors of cryptocurrency thought they were devising a new form of money. More than a decade later,… → Read More
Target2 ‘fingerprint’ could flag liquidity problems – research
Deviations from regular payment patterns are a sign something might be wrong → Read More
Stablecoins, term Sonia and skin in the game
Collateral used to back ‘stablecoins’ such as libra will be unavailable for reuse Clearing members could use the final rules to push for higher CCP capital globally Pending merger and FCA’s effort to create synthetic Libor rates could sway outcome COMMENTARY: The argument continues New EU rules mean a moderate victory on loss absorption – “skin in the game” – for clearing members, and a moderate… → Read More
Stress testing, home working and the move to €STR
Buy-side risk survey: Covid-19 is changing the way investors think about stress tests Dealers made success of remote working switch – now they’re investing in its future, and pausing grander ambitions Buy-siders prepare for valuation change from move to €STR COMMENTARY: Worse than worst-case Risk.net this week took a deep dive into the issues of scenario development and stress-testing on the buy… → Read More
Study suggests banks may be better off with simpler VAR models
Non-parametric VAR models perform well in calm markets, but miss the mark in volatile periods → Read More
Mifid swaps, VAR and buy-side Covid lessons
Wide-ranging survey reveals what worked and what didn’t in March – and what will change as a result Buy-side risk survey: VAR wasn’t much use in March, but it is ingrained in the industry Participants want better OTC transparency, but say Esma’s efforts at clarity could muddy the picture COMMENTARY: VAR from ideal VAR is going nowhere – but, before the gloom sets in, there’s evidence that… → Read More
Climate risk, ethics, and mega-bankruptcies
Co-chair of Basel task force discusses possible supervisory approaches to climate risk CRO talks loan reserves, VAR breaches, and the lessons of a lurid past Credit conditions were worsening before Covid, research finds COMMENTARY: Doing well by doing good Deutsche Bank’s problems have cost it billions of dollars and four chief executives in the last eight years – but the biggest had nothing to… → Read More
Altman: mega-bankruptcy wave coming
Credit conditions were worsening before Covid, research finds → Read More
Collar financing, low op risk losses and ESG data
Options-based structures gain ground on margin loans – and dealers say it may be a structural shift Also: Wirecard dominates legacy losses; SEB hit with massive AML fine. Data by ORX News Quants are using data on product returns and employee welfare to pick winners COMMENTARY: Too quiet The human disaster of 2020 has been mirrored in the macroeconomic data – the lists, lengthening each day, of… → Read More
Behavioural finance, alt data and risk-free rate problems
Recent advances in behavioural finance could give rise to new quant models and strategies Managers are using alternative data to assess the pandemic’s effect on individual stocks Experts fear trades referencing SOFR and €STR will not be eligible for hedging relief COMMENTARY: Failing better The Covid-19 pandemic has shown how bad a worldwide operational risk crisis can get. Underestimating the… → Read More
Libor switch, US capital problems and operating in lockdown
Compressed timeline for transition may leave smaller firms struggling to meet end-2021 deadline Swiss bank’s A3 system offers a blueprint for remote working Banks pushed onto internal models wrestle with procyclical capital charges COMMENTARY: How close was it? Operational problems spiked in late March as the coronavirus pandemic accelerated. The combination of rapid evacuation of offices and… → Read More