analysis

As Fast as You Can

The implementation window for the new Current Expected Credit Loss (CECL) standard may seem plenty big enough, but there are loads of decisions to be made, such as “how will we calculate this?” “Decide on methodology and start implementing as fast as you can,” advised Masha Muzyka, Senior Director, Regulatory and Accounting Solutions at Moody’s Analytics. She was part of a round-table discussion, held on January 10, 2018, about the transition to CECL. The webcast was organized by the Global Association of Risk Professionals (GARP). The new CECL standard will bring significant changes, such as a spike in earnings volatility. […]

Challenges to modelling

Modelling the Current Expected Credit Loss (CECL) may present problems to some banks. Possibly a bank is collecting data for annualized charge-off rates and “how would that inform someone as to the loss rate over the lifetime of the portfolio?” asked Michael Gullette, SVP, Tax and Accounting at the American Bankers Association. The question is whether a bank has enough data of the right kind to see trends and relationships. “And if you have the data, what is the quality?” Gullette said. He was part of a round-table discussion about the transition to CECL that was webcast by the Global […]

Never too early to start

The “reasonable and supportable” clause of the new Current Expected Credit Loss (CECL) standard “is the most hotly debated part” of the regulation, according to Cristian deRitis, Senior Director, Consumer Credit Analytics at Moody’s Analytics. He was part of a round-table discussion about the transition to CECL that was webcast by the Global Association of Risk Professionals (GARP) on January 10, 2018. CECL is the new credit impairment standard under Financial Accounting Standards Board (FASB). “Auditors are grappling with what ‘reasonable and supportable’ means, too,” he added. For best practice in terms of modelling credit risk, the phrase boils down to whether […]

It’s all about the benchmark

The costs of financial transactions (in either the bond or stock markets) are quoted as bid and ask prices relative to the prevailing market price. But what, really, is meant by “prevailing market price” of thinly traded bonds? Two panellists discussed fixed income transaction cost analysis (TCA) at a webinar sponsored by the Global Association of Risk Professionals on December 12, 2017. Paul Daley, Managing Director at BondWave Information Lab, compared the market microstructure for stocks and bonds. BondWave LLC is a financial technology company and registered investment advisor that provides solutions to facilitate individual bond investing. “Data is the […]

Lower Bond Trading Costs

As the fixed income market evolves, what are the challenges and general directions of transaction cost analysis (TCA)? How can bond investors spend their money more wisely? “The same kind of conversation we used to have with equity dealers … can now occur with fixed income dealers. That means competition will drive down transaction costs,” said Henry Marigliano, Director at FIS Global Trading. FIS is an international provider of financial services technology. He was the was the first of two panellists discussing fixed income transaction cost analysis at a webinar sponsored by the Global Association of Risk Professionals on December […]

Early Warning Signs

“Overall, the energy sector remains stressed,” said Irina Baron, Associate Director at Moody’s Analytics. Baron was the third and final panellist discussing new dynamics in the handling of financial risk management in the energy sector at a webinar sponsored by the Global Association of Risk Professionals on November 29, 2017. Based on expected default frequency (EDF), 75 percent of US publicly-traded companies in the energy sector are not investment-grade risks. “Agency ratings give us a sense of which firms are more likely to default,” she noted. The drawback is that the realized default rate cannot be forecast. However, the expected […]

Managing Risk in Volatile Sector

Market observers have conflicting expectations, especially in the highly changeable energy sector. How can a talented analyst stay on top of it? Mehna Raissi, Senior Director at Moody’s Analytics, was the second of three panellists discussing new dynamics in the handling of financial risk management in the energy sector at a webinar sponsored by the Global Association of Risk Professionals on November 29, 2017. “Between 2008 and 2013, we were worried about rising oil prices,” Raissi said. However, “in the second half of 2014, oil prices came down and the headlines read: Recession caused by low oil prices.” Oil prices […]

Volatility Clustering

When looking at stock market time series, one notices immediately a certain “jitter” or “noise” in the daily returns. This is ordinary volatility. Every once in a while, volatility becomes higher and stays that way—for a while. “Volatility clustering occurs when the volatility of the returns becomes correlated from one day to another,” said Attilio Meucci, CEO and founder of Advanced Risk and Portfolio Management (ARPM). He was the sole presenter at the May 11, 2017, webinar on Modeling and Forecasting Volatility Clustering sponsored by the Global Association of Risk Professionals. Meucci began by showing an example of volatility clustering […]

Data Science 2. The Roadmap

“The core concept for data science is hypothesis testing,” said Nima Safaian, team lead for Trading Analytics at Cenovus Energy. The data scientist must identify trends, generate hypotheses, and test, test test. The scientist’s bent toward hypothesis testing should be even stronger than their math skills. Safaian was speaking at the Data Science webinar on August 2, 2016, sponsored by the Global Association of Risk Professionals (GARP). “Attitude is everything,” Safaian said. “Think like a startup. Have an agile mindset,” he urged, referring to the books The Lean Startup by Eric Ries and The Lean Enterprise by Humble, Molesky, and […]

Data Science 1. Trading Analytics

At the end of the day, what do you produce? If you are a knowledge worker, your “product” could be something as intangible and significant as decisions. That is the thinking behind the “decision factories” discussed in Roger Martin’s seminal Harvard Business Review article. If we labour in decision factories, then we are decision engineers, and our chief raw material is data, according to Nima Safaian, team lead for Trading Analytics at Cenovus Energy. “We need the capacity to produce many good decisions,” he said at the webinar on August 2, 2016, sponsored by the Global Association of Risk Professionals […]