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’Commodities VaRy extreme right now
Hark — the standard deviation devils sing (again).
As Reuters columnist John Kemp pointed out yesterday, recent swings in the commodities complex have produced some impressive probabilities figures.
Swinging on an oil VaR
Oil price volatility is no doubt producing ample trading opportunities for many in the market, but as of Friday it has become much more expensive to take advantage of them.
The CME on Thursday announced it would be raising margins on trading crude oil by about 20 per cent for both speculators and hedgers,
Correlation trading and the WTI-Brent spread
Another day, and another widening in the WTI-Brent front-month future spread — this time to what looks to be approaching record wides.
The spread hit as much as -9.50 on Monday and according to Bloomberg data the record for the differential stands at -10.67,
High frequency traders do ‘risk’ better
Perhaps it’s not too astounding a finding…
But a Federal Reserve staff working paper by Dobrislav P. Dobrev and Pawel J. Szerszen has found that using historical high frequency data to forecast equity returns is far more effective than using general daily or monthly data.
Is Goldman’s luck about to change?
It’s that time in the quarter when we get to see how successful Goldman Sachs has been at making money.
Without further ado then, here’s the 10-k chart that shows the frequency distribution of daily trading net revenues for the year ended December 2009:
VaR and piñata pensions reform
Here’s something you may have missed down Mexico way.
From the Wall Street Journal:
[Mexico's pensions regulator] Consar also approved modifications to the [Mexican pension funds} Afores’ risk control methodology in order to avoid forced asset sales during periods of extreme market volatility in order to comply with value-at-risk limits.
Morgan Stanley posts Q4 earnings of $0.14 a share
Another bank result, this time from Morgan Stanley, now the second major US bank to report a(n albeit lower-than-expected) profit so far this fourth-quarter earnings season.
Analysts expected the Morgan Stanley to post earnings of 36 cents a share on revenue of about $7.8bn,
You can bet there’ll be a Goldman inquiry into that one day…
Goldman Sachs’ Q3 daily trading revenues from the bank’s just-released 10-Q filing:
Related links:
Morgan Stanley and VaRiations – FT Alphaville
On Goldman’s fat tail risk – FT Alphaville
Morgan Stanley reports EPS of $0.38, net income of $757m
Here’s the fifth major US bank to report earnings this third-quarter season — Morgan Stanley with attributable net income of $757m.
The bank managed to eke out the profit, along with applicable diluted earnings per share 38 cents,
Would you like a massage for your stressed VaR?
The BIS has released its analysis of proposed changes, adopted in July, to Basel II capital rules.
It’s basically an exercise in seeing just how much more capital banks will have to hold under the rejigged rules,
Chasing the fat tail
Alternate title: Building a better Monte Carlo model.
Risk managers and investors will, of course, be familiar with Monte Carlo simulations — which are used in finance to value potential loan losses and things like portfolio risk or derivatives.
Leverage ratios are the new VaR?
What happens when you get Rick Bookstaber and Nassim Nicholas Taleb in the same room, to talk about one of the most controversial risk measures of the financial crisis?
They (almost) agree.
The two were speaking in front of the US House of Representatives Committee on Science & Technology,
The Black Swan battle is about to begin
On Thursday, the US House of Representatives Committee on Science & Technology will turn its attention to financial modeling.
Specifically, the committee will be scrutinising the role of the much-maligned Value-at-Risk model,
As good as Goldman
From the bank’s second-quarter 10-Q:
Related links:
Goldman’s $100m days shatter its records – FT
On Goldman’s fat tail risk – FT Alphaville
Morgan Stanley and VaRiations
Comment columns are awash today with talk of Morgan Stanley’s trading prudence, as evidenced by its lower Q2 Value at Risk number.
For instance, here’s Graham Bowley at the New York Times:
. . . After years of chasing Goldman,
Stressed-out VaR
One of the centrepieces of Lord Turner’s review of banking regulation is the potential use of so-called stressed VaR — an attempt to rectify the failings of the ‘normal’ Value at Risk model, one of the pillars of upcoming banking regulations on market risk.
Goldman’s getting riskier
This morning we were struck by the following paragraph in a New York Times article:
While others are shying away from risks, Goldman is courting them. A common measure of risk-taking at Goldman and other banks is known as value at risk,
On Goldman’s fat tail risk
Financial blog Zero Hedge points us in the direction of a risk management presentation from Goldman Sachs.
The majority of slides are typical management-type stuff. There are some impressive Venn diagrams and graphics of interlocked puzzle pieces,
VaRy complex
Two rather disarming charts from Dresdner today.
They’re looking at the distribution of Goldman Sachs’ daily trading profit and loss numbers, to show just how different risk has become in the current environment — and conversely,
Lord Turner, VaR and the FSA
Lord Turner’s speech at the Economist’s Inaugural City Lecture yesterday is really worth a read: broad without being generalised, nuanced without being technocratic. It more or less covers all the bases and is an excellent brief on the current financial crisis.