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Risk.net Insurance quants increase risk-adjusted profits using novel hedging technique But there is no standard way for insurance companies to hedge the risk of variable annuity contracts. Two industry practitioners have put forward a new hedging method using protective put options. They estimate that the technique can improve risk-adjusted profits for insurers’ variable annuity portfolios by 60%. The improvement comes from two sources: more efficient use of options as a hedging tool, and a r...

New threats sprang from old sources in this year’s Top 10 op risks, belying a big drop in losses

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Updated March 1, 2021 10:16 p.m. EST By Joe Giglio, WRALSportsFan There’s an important part of life on the NCAA tournament bubble that people often forget: It’s not just about what your team does but what the other teams on the bubble do, too. So Duke’s overtime loss to Louisville on Saturday, while not ideal, does not doom the Blue Devils. That’s because while Duke was losing, so were Minnesota, Seton Hall, Stanford, Ole Miss, Boise State and Indiana. All of the sudden, you don’t...

Risk.net Italy has not been seen as a candidate to pick up business from the UK – until now Colleoni Chapel and the Basilica of Santa Maria Maggiore in Bergamo Recent headlines have lauded how Amsterdam and Paris have been able to draw stock trading in European names away from London as part of the fallout from the UK finally leaving the European Union. Legally speaking that is true, as European firms now trade stocks on platforms owned by legal entities on the continent rather than in the UK...

Risk.net Barclays quant proposes methodology for factoring hedging costs into derivatives valuations Dealers make various adjustments to the fair value of derivatives contracts to account for the credit risk, funding costs and capital requirements associated with these transactions. But, somehow, the cost of hedging has so far escaped the attention of XVA desks. While it is standard practice to set aside ad hoc reserves to cover the cost of hedging, a formal mathematical formula for calculati...

Fallback spreads for all currencies could be fixed together, even if some benchmarks survive past 2021

Conflicting results fuel arguments over dividends and buybacks

Risk.net Quants unveil new technique for controlling extrapolation by neural networks According to a popular internet meme, there are two types of people in this world: those who can extrapolate from incomplete data. Neural networks will probably struggle with that one. As quants race to deploy neural networks in finance, they are running into a common problem. Neural networks require huge datasets to train, but they do not always extrapolate well when faced with new situations.   “Neural ne...