ING issues ESG-linked interest rate swap

Dutch bank takes carrot-and-stick approach on interest rate swap for oil and gas equipment firm

Global banks fear Hong Kong frontrunning FRTB

Local subsidiaries of EU and US banks may be forced to adopt models before their parents

CME no longer looking back to Lehman

Changes to rates margin model come as bourse tweaks pricing for Eurodollar futures

 

COMMENTARY: The weight of history

This time last year, we were approaching an important anniversary: 10 years since the September 2008 collapse of Lehman Brothers. This wasn’t just a cue for a wave of retrospective articles washing over virtually every part of the financial media (not excluding Risk.net, though we did take more of a have-we-learned-anything tack). It also marked the point at which the direst moments of the global financial crisis would start to drop out of a 10-year loss data window.

We looked at the...

Financial firms tier their models according to risk to support a range of model risk management activities. Decision trees and scorecards are the two main approaches to tiering, with each type of tool having advantages and disadvantages. Observed industry practice highlights several key principles for effective model risk tiering. Design, calibration, implementation, and governance of model risk tiering should reflect those key principles.

Almost 11 years after the Lehman Brothers default triggered a global financial crisis, CME Group is finally letting the shocks that reverberated through fixed income markets in the days and months that followed roll off its interest rate swap clearing margin model – sort of.

Most CCP risk models use a rolling lookback when setting margins, with the historical window tied to a set number of years: each day, the previous trading day’s data gets added to the time series, while the data from the

Dealers dip toe into Sonia swaptions market

NatWest and HSBC print trades, Barclays offers prices

New op risk taxonomy set for October debut

Project is being closely watched by banks and regulators amid frustrations with legacy Basel approach

Euribor futures spread spike strangles prop traders

Safe-haven butterfly trades savaged by shock divergence in mid-term contracts

 

COMMENTARY: The price of liquidity

It hasn’t been the calmest few years for the European rates market, but at least the big market structure issue – how to manage the transition away from Euribor to its replacement benchmark rate, whenever and however that may occur – is one that can be dealt with carefully and with plenty of time for thought. Meanwhile, in the market itself, liquidity remains high and proven low-risk trades such as butterfly trades (sell a short-dated and a long-dated future, and buy two intermediate ones) and their relatives...

Japanese banks Norinchukin and Nomura have switched to a new system for calculating counterparty risks, which cut trillions of yen from their leverage exposures. The effects on risk-based capital, however, were different for each. The two banks adopted the Basel Committee-mandated standardised approach for measuring counterparty credit risk in the first quarter of this year.

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Calculating value-at-risk using historical data involves finding a way between two common pitfalls. If the window of historical data considered is too small, the result will be extremely volatile, as the dataset of daily data points will turn over rapidly. But if too long a lookback is used, the danger is it includes data that is no longer relevant, because it comes from a period in history that is too remote to be comparable to the present day.

Basel II mandated banks using their own models to

A new blockchain platform that promises to simplify the gnarled process of equity-swap reconciliation is nearing completion, and its big Wall Street backers will get the chance to try it out by year-end.

Over the past few years, Axoni, a distributed-ledger technology (DLT) firm, has been building the platform for Citigroup, Goldman Sachs, JP Morgan and other investors to make the convoluted process of reconciling equity swaps closer to a limpid one. The platform will eventually be open to any

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Training Materials Please note that presentation materials are distributed electronically and attendees are required to bring a laptop or tablet to the course with them to access the slides. Due to the business-sensitive nature of some of the topics discussed, there are occasions when speakers do not allow us to distribute their presentations.

A new standardised taxonomy for operational risk developed by industry consortium ORX is set to be unveiled in October.

After spending over a year sifting through a vast dataset composed of the taxonomies of more than 60 of its members, ORX has completed a first draft of the new taxonomy, which is currently being reviewed by a member advisory group, says Steve Bishop, head of risk information and insurance at ORX.

The project is not intended to supplant taxonomies at any one financial

The volatility of concern in conventional volatility-managed strategies such as volatility targeting and mean–variance optimization is the expected conditional volatility. However, for investors, it is the realized volatility that is important, because there is only one realization in the market. This paper provides a multiperiod strategy that directly manages the realized volatility over a long horizon.

Risk model implementation requires the proper estimation of key input variables. The present issue of The Journal of Risk offers papers that deal with estimation techniques in conjunction with an assessment of their efficiency. The applications featured include risk measure estimation, credit risk model backtesting with a small sample size, and nonmaturing bank deposits.

The rise in prominence of the risk measure expected shortfall (ES) has spurred further interest in its statistical estimation. In “Nonparametric versus parametric expected shortfall”, the first paper in the present issue, R. Douglas Martin and Shengyu Zhang use influence functions to show how parametric and nonparametric estimators differ markedly, especially with regard to standard error and risk coherence.

The standard parameter smoothing tool of the exponentially weighted moving average (EWMA) is revisited in our second paper, “Recursive estimation of the exponentially weighted moving...

Central Banking met with Mark Carney on August 1 in London

You joined the Bank of England (BoE) as governor at a time when the Prudential Regulation Authority (PRA) and the new macro-prudential framework under the Financial Policy Committee (FPC) were being integrated into the bank. At the same time there was the ‘One Bank’ transformation aimed at better integration and extracting savings. How has this all worked out?

There are policy synergies and operational synergies.

Part of the reason I