Weatherproofing Bonds
When it comes to managing climate risk, what is the wise investor to do? Low-carbon investing is one possibility. We recently interviewed Marielle de Jong, head of fixed -income quant research at Amundi Asset Management. She said, “The purpose of low-carbon investing is not to penalize companies that produce a lot of CO2. The question is whether the production line is carbon efficient, whether there is no unnecessary spoilage. That is why the selection criterion is the intensity, the tonnage of CO2 per added value, and not the tonnage itself.” She cautioned, “It is a complex task to measure CO2 […]
Weatherproofing Equities
Risks in finance are many and varied. How can a forward-looking researcher choose which areas need the most attention? We recently interviewed Patrick Bolton, professor of business at Columbia University and asked what led to his interest in hedging climate risk. “I am interested in long-term investing, especially how large long-term institutional investors should think about the risk-return trade-offs they face,” he said. “Long-term investors have to think harder about risks that do not yet appear material to short-term investors. One category of such risks is what is now commonly referred to as environmental, social and governance factors, or in […]
Stress Testing Mortgages. Part 2
The team of Scott L. Smith, Jesse Weiher, and Debra Fuller at the Federal Housing Finance Agency (FHFA) use specialized financial models to estimate potential losses. They carried out empirical tests of countercyclical shocks using four different models of mortgage credit risk. This posting continues a February 4, 2015, presentation by Scott L. Smith to an audience of financial risk managers at Global Association of Risk Professionals (GARP). Two models were devised at FHFA, and two are commercially available credit models: one, called Black Knight (formerly LPS-AA), and the other called ADCO Loan Dynamics. The estimated losses were converted to a capital […]
Europe: Is the worst over? Part II.
“Deleveraging takes a long time, and it is painful,” said Philippe Ithurbide, Global Head of Research, Analysis and Strategy at Amundi Asset Management. In the second part of his presentation to the CFA Society Toronto on November 19, 2013, he discussed solutions to European financial difficulties. Deleveraging must be helped along in order to shorten the time and reduce negative socioeconomic impacts. “Never in history have we seen the deleveraging of all the players at the same time.” “Banking credit is faltering everywhere in the euro zone,” said Ithurbide. Euro zone bank credit is still highly fragmented by nation, with […]