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  • Interview with Robert Shiller 2017 Truman Medal Recipient
    Robert James Shiller  is an American Nobel Laureate, economist, academic, and best-selling author. He currently serves as a Sterling Professor of Economics at Yale University and is a fellow at the Yale School of Management's International Center for Finance. Shiller has been a research associate of the National Bureau of Economic Research (NBER) since 1980, was vice president of the American Economic Association in 2005, and president of the Eastern Economic Association for 2006–2007. He [...]
  • Statistical Distributions of the Volatility Index
    VIX related products (ETNs, futures and options) are becoming popular financial instruments, for both hedging and speculation, these days.  The volatility index VIX was developed in the early 90’s. In its early days, it led the derivative markets. Today the dynamics has changed.  Now there is strong evidence that the VIX futures market leads the cash index.In this post we are going to look at some statistical properties of the spot VIX index. We used data from January 1990 to May 201 [...]
  • Volatility Skew and Smile Trading
    Peter Carr recently gave a talk on volatility trading at the Fields institute.Summary:In general, an option’s fair value depends crucially on the volatility of its underlying asset. In a stochastic volatility (SV) setting, an at-the-money straddle can be dynamically traded to profit on average from the difference between its underlying’s instantaneous variance rate and its Black Merton Scholes (BMS) implied variance rate. In SV models, an option’s fair value also depends on the covariati [...]
  • The write stuff: Life lessons from author James Patterson
  • AIG launches new cyber threat analysis to gauge companies' risks
  • Vanguard looks to blockchain for index data
  • U.S. fund firms make new push for bitcoin ETFs as futures debut
  • Apple aims to block climate, rights proposals with quick use of SEC guidance
  • Fidelity keeps $2 billion mandate in New York after star manager's departure
  • Angelo, Gordon promotes top executives amid succession planning
  • Hedge funds embrace machine learning—up to a point
    ARTIFICIAL intelligence (AI) has already changed some activities, including parts of finance like fraud prevention, but not yet fund management and stock-picking. That seems odd: machine learning, a subset of AI that excels at finding patterns and making predictions using reams of data, looks like an ideal tool for the business. Yet well-established “quant” hedge funds in London or New York are often sniffy about its potential. In San Francisco, however, where machine learning is so much part of the furniture the term features unexplained on roadside billboards, a cluster of upstart hedge funds has sprung up in order to exploit these techniques.These new hedgies are modest enough to concede some of their competitors’ points. Babak Hodjat, co-founder of Sentient Technologies, an AI startup with a hedge-fund arm, says that, left to their own devices, machine-learning techniques are prone to “overfit”, ie, to finding peculiar patterns in the specific data they are trained on that...Continue reading
  • Putting a price on Bitcoin
    SCENE: A pet shop with a bored looking proprietor. A customer approachesCUSTOMER: I’d like to buy a parrot.OWNER: Certainly, sir. How about this one? It’s a Norwegian Blue. Beautiful plumage.CUSTOMER: It’s not moving muchOWNER: It is tired and shagged out after a long squawkCUSTOMER: Fair enough. How much is it?OWNER: $20,000CUSTOMER: I’ll pay with this BitcoinOWNER: Sorry, sir. On WavesDEX, the Bitcoin is only worth $13,500CUSTOMER: But on LocalBitcoins, it is over $21,500! Look at the news headlines. OWNER: Sorry, sir, but I can’t afford the risk. My rent, heat and light are all payable in dollars.CUSTOMER: But the dollar has ceased to be, it has shuffled off this mortal coil, it is an ex-currencyOWNER: So you say, sir. But at least it's a reliable means of exchange. It doesn’t move much from minute to minuteCUSTOMER: Like this parrotIf ever Bitcoin were widely adopted as a trading currency, this scene would be played...Continue reading
  • African countries are building a giant free-trade area
    “AFRICA must unite,” wrote Kwame Nkrumah, Ghana’s first president, in 1963, lamenting that African countries sold raw materials to their former colonisers rather than trading among themselves. His pan-African dream never became reality. Even today, African countries still trade twice as much with Europe as they do with each other (see chart). But that spirit of unity now animates a push for a Continental Free-Trade Area (CFTA), involving all 55 countries in the region. Negotiations began in 2015, aimed at forming the CFTA by the end of this year. In contrast to the WTO, African trade talks are making progress.At a meeting on December 1st and 2nd in Niamey, the capital of Niger, African trade ministers agreed on final tweaks to the text. Heads of state will probably sign it in March, once an accompanying protocol on goods has been concluded (agreement on services has already been reached). But trade barriers will not tumble overnight. The CFTA will come into force only when 15 countries...Continue reading
  • The markets believe in Goldilocks
    ANOTHER week, another record. The repeated surge of share prices on Wall Street is getting monotonous. The Dow Jones Industrial Average has passed another milestone—24,000—and the more statistically robust S&P 500 index is up by 17% so far this year. Emerging markets have performed even better, as have European shares in dollar terms (see chart).Political worries about trade disputes, the potential for war with North Korea and the repeated upheavals in President Donald Trump’s White House: all have caused only temporary setbacks to investors’ confidence. No wonder the latest quarterly report of the Bank for International Settlements asked whether markets are complacent, noting that “according to traditional valuation gauges that take a long-term view, some stockmarkets did look frothy”, and pointing out that “some froth was also present in corporate-credit markets”.The authors of the BIS report are not the only ones to worry that markets look expensive. The...Continue reading
  • Europe is seeing more collective lawsuits from shareholders
    LIKE the ghosts that haunted Ebenezer Scrooge, the scandals of years past—summoned up by angry shareholders—will not let companies rest. In Britain this year, the Royal Bank of Scotland (RBS) paid £900m ($1.2bn) to settle a long-running investor lawsuit related to the bank’s behaviour at the time of the financial crisis of 2007-08. Also in Britain, Lloyds Banking Group faces litigation. And it is not just banks. Investors in Britain sued Tesco, a supermarket chain, for losses caused by an accounting scandal in 2014. In Germany and the Netherlands investors are seeking compensation from Volkswagen (VW), a carmaker, for failing to disclose its manipulation of diesel-emissions tests.Securities litigation is on the rise in Europe for two main reasons. The first is that America is less hospitable than it was to such cases. Until 2010 harm suffered by foreign investors could be included in American lawsuits. That changed with a Supreme Court ruling on Morrison v...Continue reading
  • A full-scale Venezuelan default could push up oil prices
    Who believes in Nicolás?ON NOVEMBER 30th, as oil tsars from the Organisation of the Petroleum Exporting Countries (OPEC) and Russia met in Vienna, Venezuela’s former oil minister, Eulogio del Pino, once one of their number, was seized by armed guards at dawn in Caracas, and taken to jail. His arrest was not publicly acknowledged in Vienna. His replacement, Manuel Quevedo, a general in the national guard, attended OPEC and was received with the usual deference.Also unmentioned was how Venezuela, embroiled in a massive, messy debt default, is doing plenty of OPEC’s dirty work. Since November 2016, when OPEC first agreed with Russia to cut output to push up oil prices, Venezuela’s has fallen by 203,000 barrels a day (b/d), to 1.86m b/d in October. That is more than twice the cut it agreed with OPEC of 95,000 b/d.If its production continues to fall—some analysts say it could be down to 1.6m b/d in 2018—it could either drive up...Continue reading
  • As WTO members meet in Argentina, the organisation is in trouble
    “EVERYBODY meets in Buenos Aires,” said Cecilia Malmstrom, the European Union’s trade commissioner, days before heading there for the World Trade Organisation’s (WTO) biennial gathering of ministers, which opens on December 10th. Some non-governmental organisations have been blocked by the protest-averse Argentine authorities, but a meeting of people will indeed take place. One of minds is another matter.Most participants can agree on one thing. The WTO, which codifies the multilateral rules-based trading system, needs help. President Donald Trump has railed against it and threatened to pull America out. Without American leadership, there is little hope of reaching new deals. And even as the WTO’s dealmaking arm is paralysed, the Trump administration is weakening its judicial one by starving it of judges.Despite Mr Trump’s threats, America does not seem on the verge of crashing out of a system it helped to construct, to rely entirely on bilateral trade deals and...Continue reading
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