CMRA Articles and Commentary
With supply chain pressures, inflation, a possible recession, and a war, it is not surprising that options prices and implied volatility are up. It's like déjà vu all over again. As senior practitioners at Capital Market Risk Advisors (CMRA) with more than 30 years’ experience each, we’ve seen this movie before. Those who don’t learn from history are forced to repeat it.
Read MoreAs a quant who studied AI in the early 70’s and morphed into a derivatives pioneer/risk manager/ risk advisor, this article re quant funds in China attracted my attention. Several important points that we all know but sometimes need to be reminded:
1. “Say what you do and do what you say” is an essential component of the responsibility an asset manager owes to their investors that is not always respected
2. History does not always repeat itself nor should we assume it will
3. It is important to stress test how sensitive your conclusions are to your assumptions in addition to sensitivity to market moves
4. Liquidity matters and changes over time. Beware of “iceberg risk” where your positions might have copycats that impact your liquidity
We are pleased to announce that Peter Niculescu, partner of CMRA, has been invited as a keynote speaker at The Quant Conference Digital on November 6th, 2020. The Quant Conference is one of the largest quant conferences engaging the foremost thought leaders from finance and academia to discuss the future of the quantitative finance industry. The Quant Conference Digital is the first visual event and covers topics including “Legends of The Industry on The Role of AI in The Future of Investment Management", a keynote on "Risk manager versus virus", a panel on "The Age of Quant: Persistent Returns or Never-Ending Arms Race?" and much more.
Read MoreEvery crisis is an opportunity to learn and grow. Although history does not necessarily repeat itself, risk management flaws and weaknesses often do. To avoid making the same mistakes again, it is useful to reflect on lessons learned and in many cases re-learned.
To that end, we have conducted a survey of a select group of risk management professionals to tease out their reactions and conclusions to the events of 2020.
Read MoreLehman Brothers filed for bankruptcy on September 15, 2008 and the subsequent Great Recession reached its peak in 2009. Because these were the biggest and most stressful financial events of the last 80 years, historical data from 2008 and 2009 form the basis for much of today’s risk stress testing. However, as the intervening years push us further away from 2008 and 2009, the Great Recession’s impact on risk metrics can start to recede.
Most financial services companies use stress scenarios that are based on historical data. For example, the 99th percentile adverse move over a 10-day period is a common cut-off for the development of stress scenarios. Notably, such a stress scenario is by definition no more severe than the 99th percentile.
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