Commentary

Risk Compensation: From Face Masks to Credit, Market and Systemic Risk

Risk Compensation: From Face Masks to Credit, Market and Systemic Risk

What is Risk Compensation? Risk Compensation is a behavioral model of human attitudes towards risk which suggests that people might adjust their behavior in response to the perceived level of risk. It follows that, depending on the strength of the effect, that it might counteract and even annul the impact of risk mitigation, if the updated attitude and behavior modifies the actual underlying risk Examples of potential risk compensation effects abound A prominent example of potential risk compensation in recent times that established the concept in more formal terms in public policy debates concerned the beneficial role of safety belts in automobiles.
The Game of Life With Macroeconomic Stimulus

The Game of Life With Macroeconomic Stimulus

Agent-based models is a major class of simulation models, with many potential applications in economics and finance

Agent-Based Models The origins and early years According to Wikipedia an agent-based model (ABM) is ABM: class of computational models for simulating the actions and interactions of autonomous agents (both individual or collective entities such as organizations or groups) with a view to assessing their effects on the system as a whole. A cellular automaton is a particular class of ABM. It is a discrete dynamical model used and studied in a variety of fields: computer science, mathematics, physics, complexity science, theoretical biology among others.
Why is risk so poorly defined?

Why is risk so poorly defined?

A survey of existing definitions When looking up the meaning of risk we are immediately confronted with a surprising situation. There is no satisfying and authoritative general purpose one-liner that we can adopt without second thoughts. Let us start with the standard dictionary definitions: The online Merriam Webster Dictionary defines risk as the possibility of loss or injury The online Cambridge Dictionary opines that risk means the possibility of something bad happening The Oxford English (Concise, Hardcover!
What do people talk about at FOSDEM 2020

What do people talk about at FOSDEM 2020

FOSDEM means Free and Open Source Software Developers European Meeting

Intro FOSDEM is a non-commercial, volunteer-organized European event centered on free and open-source software development. It is aimed at developers and anyone interested in the free and open-source software movement. It aims to enable developers to meet and to promote the awareness and use of free and open-source software. FOSDEM is held annually since 2001, usually during the first weekend of February, at the Université Libre de Bruxelles Solbosch campus in the southeast of Brussels, Belgium.
IFRS 9 Expected Credit Loss and Risk Capital

IFRS 9 Expected Credit Loss and Risk Capital

The new IFRS 9 financial reporting standard IFRS 9 (and the closely related CECL) is a brand new financial reporting standard developed and approved by the International Accounting Standards Board (IASB). Strictly speaking IFRS 9 concerns only the accounting and reporting of financial instruments (e.g. bank loans and similar credit products). Yet the introduction of the IFRS 9 standard has significant repercussions beyond financial reporting, and touches e.g., bank risk management as well.
A Risk Agnostic Approach to European Safe Bonds (ESBies) Tranching

A Risk Agnostic Approach to European Safe Bonds (ESBies) Tranching

What are European Safe Bonds? While the creation of the eurozone was a landmark of the European integration process, the financial crisis highlighted that the eurozone remains an incomplete design which can lead to unpredictable and adverse situations in the event of a (the) next major crisis. One of the key such “incompleteness” features of the current eurozone architecture is that it does not have a truly risk-free (safe) euro debt instrument: one that continues being serviced (avoids a default event) at virtually any point in time and state of the world, no matter how severe.
Data Scientists Have No Future

Data Scientists Have No Future

The working definition of a Data Scientist seems to be in the current overheated environment: doing whatever it takes to get the job done in a digital #tech domain that we have long neglected but which is now coming back to haunt us! That is nice urgency while it lasts, but it is not a serious job description for the future. You will always find entrepreneurial institutions to offer degrees and certifications on the latest trending hashtag.
Four individuals that can look straight into your eyes

Four individuals that can look straight into your eyes

Here are four individuals that can look straight into your eyes Torvalds developed the #linux operating system, the software engine now powering anything from the tiniest #raspberrypi to the scariest supercomputer. Humanity’s best guarantee that the digital era remains an equal playing field Mullenweg developed the #wordpress blogging platform. Gave voice and content ownership to millions of digital authors making him the closest to the Gutenberg of our era
Machine Learning Ballyhoo

Machine Learning Ballyhoo

Are you getting a bit tired with all the machine learning ballyhoo? You can blame it all on a German mathematician(*), Carl Friedrich Gauss, who started the futuristic “mega-trend” back in 1809: He showed us how to “train” a straight line to pass nicely through a cloud of unruly, scattered data points. To find, in effect, a path of least embarrassment. Two+ centuries later it is still a profitable enterprise to invent elaborate variations of that theme, now going under the more exalted name of “supervised learning“, which may or may not include “deep learning”.

If programming languages were human languages which one would be which?

Most developers know (or get to know quickly once they join a team) that programming languages are as much about communicating with other developers as they are about instructing the computer. Which raises the interesting question: If programming languages were human languages which one would be which? Here is a (tonque-in-cheek mind you!) compilation of a mapping between programming languages and human languages. Suggestions / corrections are welcome via the feedback button
The Zen of IFRS 9 Modeling

The Zen of IFRS 9 Modeling

At Open Risk we are firm believers in balancing art and science when developing quantitative risk tools. The introduction of the IFRS 9 and CECL accounting frameworks for reporting credit sensitive financial instruments is a massive new worldwide initiative that relies in no small part on quantitative models. The scope and depth of the program in comparison with previous similar efforts (e.g. Basel II) suggests that much can go wrong and it will take considerable time, iterations, communication and training to develop a mature toolkit that is fit-for-purpose.
Guiding principles for a viable open source operational risk model

Guiding principles for a viable open source operational risk model

Guiding principles for a viable open source operational risk model (OSORM) Such a framework: Must avoid formulaic inclusion of meaningless risk event types (e.g., legal risk created by the firm’s own management decisions) or any risks where the nature and state of current knowledge does not support any meaningful quantification. Such potential risks would be managed outside the framework Must employ a bottom-up design that addresses the risk characteristics of simpler business units first and (if needed) creates a combined profile for a more complex business in a building block fashion.
Privacy-at-Risk

Privacy-at-Risk

The data privacy genie is out of the bottle From Yahoo’s massive email data leaks, to Equifax’s exposing of sensitive data for a large segment of the US population, to Apple’s resisting the bypassing the security features of the iPhone, not a week goes by without some alarming piece of news around data privacy. The ramifications for the legal use of private digital data by companies and government and the consequences of illegal or unintended use are huge.
How to Stress Test Financial Weapons of Mass Destruction

How to Stress Test Financial Weapons of Mass Destruction

How to Stress Test Financial Weapons of Mass Destruction In recent decades we have been collectively spared the haunting images and existential anxiety provoked by the sight of detonating nuclear weapons for testing purposes – not to mention the increased levels of radiation in the atmosphere and other side-effects. This achievement is largely thanks to a series of treaties to control nuclear bomb testing that have been signed and enforced by most (unhappily not all) countries worldwide.
The Promise of Open Risk Data

The Promise of Open Risk Data

There is a legend that every time a data set is released into the open, somewhere dies a black swan The Promise of Open Risk Data Well, it is not a true legend. Legends take centuries of oral storytelling to form. In our frantic age, dominated by the daily news cycle and viral twitter storms, legends have been replaced by the rather more short-lived “memes” and #hashtags. Black Swans need no introductions The whole informal theory of black swans concerns improbable events (low likelihood events) that come as a nasty surprise and have large impact.
Seeking clues for financial stability in quantum physics

Seeking clues for financial stability in quantum physics

Seeking clues for financial stability from quantum physics How physicists discovered why the world is stable Physics is one of those remarkably successful branches of science that have helped shape the modern era. Let your gaze drop on any man made gadget in your surroundings and its likely that its working principles go back to a fundamental discovery in physical science that dates back no more than two hundred years or so.
If banks were airlines

If banks were airlines

If banks were airlines Ever since the scary turbulence of the Great Financial Crisis it has been instructive and illuminating to compare the travails of the financial industry with the state of other industries, especially those more down to earth, also known as real world industries. The automotive industry was particularly handy for good analogies: Almost all of us have first-hand experience with the successes and failures of risk management when it concerns cars and driving.
Lehman, Brexit, De-Regulation and the future of EU fintech

Lehman, Brexit, De-Regulation and the future of EU fintech

Lehman, Brexit, De-Regulation and the future of EU fintech The decision by the citizens of the United Kingdom to vote against continuing membership of the European Union (#brexit) will have wide ranging repercussions on many facets of the European (and even global) economic system. As of early 2017, we see this trend further reinforced by a new US administration that aims to revisit a wide range of policy choices, including aspects of financial services regulation.
Transparency, standards, collaboration key to regaining trust in financial services

Transparency, standards, collaboration key to regaining trust in financial services

Transparency, collaboration key to regaining trust in financial services In banking, confidence is the first order of business Maintaining the confidence of market participants, clients, shareholders, regulators and governments is uniquely important for the financial sector. Trust is, quite literally, the real currency. Yet it is a truism that confidence is hard to build up and rather easy to destroy. Why is this so? The short answer: The difficulty in rebuilding trust is linked to the lack of transparency.
We are hiring artificially intelligent bankers

We are hiring artificially intelligent bankers

Job Specification for an Artificially Intelligent Banker The Artificially Intelligent Banker is responsible for the overall management of the AI2H (AI to Human) lending department. The following requirements (job specifications) were determined by extensive data mining analysis and derived from the job description as crucial for success in the Artificially Intelligent Banker role. The successful candidate for the Artificially Intelligent Banker position will possess the following qualifications: Experience Evidence of 8-12 months of continuous uptime without rebooting Progressively more responsible positions in human interface roles, preferably in a similar industry in two different decentralized autonomous firms Indicatively human sales interaction experience with least 10 mln Human subjects is required.