• What Do Creators of the VIX Think of Volatility?
    The volatility index was created more than 30 years ago. Since then it has become a favorite tool for both speculation and risk management.  There is now strong evidence that VIX futures and related exchange-traded products are changing the market dynamics. Specifically, in the early days of the VIX, the cash market led the futures. But since 2012, VIX futures leads cash 75% of the time.[caption id="attachment_413" align="aligncenter" width="794"] VIX Contango as at Sep 15, 2017. Source: vi [...]
  • Interview with a Co-creator of the Volatility Index
    Dan Galai was a co-creator (along with M. Brenner and R. Whaley) of VIX, the volatility index.  According to Wikipedia:The formulation of a volatility index, and financial instruments based on such an index, were developed by Menachem Brenner and Dan Galai in 1986 and described in academic papers.The authors stated the “volatility index, to be named Sigma Index, would be updated frequently and used as the underlying asset for futures and options. … A volatility index would play the same [...]
  • Credit Derivatives-Is This Time Different?
    Credit derivatives, the types of complex financial instruments that were responsible for the 2008-09 Global Financial Crisis, are back to the news.Two months ago, Frances Schwartzkopff of Bloomberg reported,A complex credit product that regulators are still trying to get their heads around is proving popular with some big institutional investors in Europe.The product is a synthetic securitization, in which a bank pays an investor to take on the credit risk of a portfolio while keeping the actual [...]
  • U.S. expects Madoff $4 billion fund payout to start this year
  • Ackman asks ADP's retail investors to back him in new video
  • BlackRock's Rieder: Investors should expect ECB taper 'early next year'
  • Stockpicking mutual fund managers try new bet: themselves
  • Wells Fargo's lone outsider aims to clean up bank's reputation
  • College savings in 529 plans may be worth less than hoped
  • Getting your kid to bank summer earnings
  • The big data breach suffered by Equifax has alarming implications
    UNTIL something goes wrong, few people give much thought to the surveillance they undergo by credit-reporting agencies (CRAs). Yet these agencies’ business is deeply intrusive: quantifying character. They assign individuals credit scores based on how they previously managed debt. The scores are then sold to lenders. In America, Equifax, Experian and TransUnion, the “Big Three” CRAs, have gathered credit histories and identifying information for nearly every adult.On September 7th Equifax admitted that something had indeed gone very wrong: hackers had gained access to personal information on about 143m people, mostly Americans. It reported that, from mid-May to July, hackers exploited a vulnerability in its website. The data compromised included Social Security numbers (SSNs), dates of birth and driving-licence numbers, and for 209,000 people, possibly their credit-card numbers as well. Equifax also noted that data about some Britons and Canadians may have been stolen.The...Continue reading
  • Goldman Sachs announces a change in strategy
    IT IS not easy to feel pity for Goldman Sachs. Its alumni lord it in pivotal government positions around the world; from every prestigious business school, applicants queue in hope of a job; its senior executives earn eye-watering amounts; and it has a presence, it seems, in every corner of the global economy. Yet these are troubling times for the bank. It is facing fundamental questions about its business model.Its investors are particularly worried by a precipitous decline in the fortunes of its core fixed-income, currencies and commodities unit (FICC). That is the business from which Goldman’s current leadership graduated. The bank’s president, Harvey Schwartz, used a conference on September 12th to give an unusually detailed account of how it is changing. He outlined plans for igniting growth in an apparently stagnant business, and for preserving profitability despite that stagnation.One factor in Goldman’s problems has been a change in its staff...Continue reading
  • Initial Coin Offering means investor caution obligatory
    HERE is the deal. You can buy an entry in a computer ledger issued by a startup company on the basis of an unregulated prospectus. It is called an “initial coin offering” or ICO. But though the ledger entry is called a coin, you cannot spend it in any shop. And whereas the use of the term ICO makes it sound like an IPO (initial public offering), the process whereby a firm lists on a stockmarket, coin ownership does not necessarily get you equity in the company concerned.This sounds like the kind of bargain that would appeal only to people who reply to e-mails from Nigerian princes offering to transfer millions to their accounts. But ICOs may well be the most popular investment craze since the dotcom boom of 1999-2000; even Paris Hilton, a celebrity heiress, has jumped on the bandwagon. The list of active, upcoming and recent ICOs on the website “ICO alert” covers 31 pages of A4 paper and includes around 600 companies. More than $2bn has been raised in total.There is a serious side to the craze, just as there was with the dotcom boom. The technology that underpins digital currencies—the blockchain—is an important development. This is a secure, decentralised ledger that everyone can inspect but that no single user controls. It seems likely to be adapted for use across the financial system—to record property...Continue reading
  • A positive sign from the bond market
    THE stockmarket's positive mood has managed to survive the tensions over North Korea's nuclear programme.  In part, this is because investors believe that global economic growth and corporate profits will continue to do well.One reassuring signal is from the corporate bond market. The global default rate on speculative (junk) bonds has been dropping; fewer companies are going bust (see chart). This is the first time the default rate has...Continue reading
  • How to protect yourself against the theft of your identity
    AS IDENTITY theft has proliferated, so has the number of businesses hoping to make money selling protection against it. Companies such as LifeLock, Identity Guard and PrivacyGuard sell products similar to Equifax’s TrustedID Premier identity-theft protection. That was the service Equifax offered to every American with a Social Security number in the aftermath of its big data breach.Those who enroll in TrustedID are promised notification if their information is offered for sale on the internet. Their credit reports with Equifax, Experian and TransUnion, the “Big Three” credit-reporting agencies (CRAs), are also monitored for suspicious activity, such as the opening of new accounts or failures to pay a bill on time. If such activity is detected, users can “freeze” their Equifax credit reports, ie, make them unavailable to lenders. And TrustedID offers $1m-worth of insurance to compensate users for losses incurred as a result of identity theft. Equifax is offering the service free...Continue reading
  • Putting a new face on an American banknote is oddly difficult
    IT WOULD be hard to find a better example of long-term gridlock in Washington than its treatment of banknotes, whose appearance has essentially been frozen since 1929. The administration of Barack Obama took a half-hearted step towards a new look, proposing the replacement of Alexander Hamilton’s portrait on the $10 bill with a portrait of Harriet Tubman, a former slave who became a civil-war hero.Problems cropped up at once. It seemed ludicrous to scrap the portrait of the one person on a note who helped create America’s financial system. It did not help that he was also the hero of a smash-hit Broadway musical. So the administration decided instead to replace Andrew Jackson, America’s seventh president, on the $20 bill. But by then it was too close to the election to push the change through.President Donald Trump has since lent his support to keeping Jackson. In a recent interview, his treasury secretary, Steven Mnuchin, made it clear he had little interest in pursuing...Continue reading
  • Retail banks’ foreign ventures rarely pay off
    NOT everybody—or every business—travels well. Retailers from Walmart to Tesco have faltered in forays into foreign lands. Banks, too, often fancy that success at home can be reproduced abroad. In meeting the needs of big companies, they are often right. Global corporations seem to want global banks. But in retail banking, serving households and small businesses, they are usually mistaken.Or so concludes a report by Lorraine Quoirez and her colleagues at UBS, examining the performance of seven international banks (BBVA, Citigroup, HSBC, ING, Santander, Société Générale and Standard Chartered). For several measures, such as net interest margins and returns on equity, the Swiss bank’s analysts constructed benchmarks for each firm. The benchmarks are the averages for all banks in countries where the seven are active, weighted by the importance of each market in each bank’s loan book.Most of the banks fall short on most measures. For example, UBS expects...Continue reading