Commentary

Is the size of global debt truly “astronomical”?

The notion of astronomical numbers and figures is quite frequently seeping in everyday language when large quantities of something are encountered in “normal” life. The strict definition of astronomical is obviously something of, or relating to, astronomy and astronomical observations but in common usage it also denotes something enormously or inconceivably large. This is, of course, because astronomical figures are inconceivably large!

The role of simulation in risk management and decision support

A Simulation is a simplified imitation of a process or system that represents with some fidelity its operation over time. In the context of risk management and decision support simulation can be a very powerful tool as it allows us to assess potential outcomes in a systematic way and explore what-if questions in ways that might otherwise be not feasible. Simulation is used when the underlying model is too complex to yield explicit analytic models (An analytic model is one can be “solved” exactly or with standard numerical methods, for example resulting in a formula).

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

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 survey of existing definitions of risk

When looking up the meaning of Risk we are confronted with a surprising situation. There is no satisfying and authoritative general purpose one-line definition that we can adopt without second thoughts. Let us start with the standard dictionary definitions:

What do people talk about at FOSDEM 2020

Introduction

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. The history of FOSDEM is neatly available at Wikipedia, while the current conference (2020) website is available here.

What is a Risk Taxonomy?

There are various formal definitions of risk taxonomies (and we will go over those below), but it might be useful to first look at a very intuitive example of a risk taxonomy: the classification of fire hazards (also known as fire classes)

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. This is prompted by the fact that the framework requires embedding forward looking risk assessments in the measurement of the value of credit assets currently on the balance sheet.

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!

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
• Dougiamas developed #moodle, the world’s digital Academy. Capturing millenia of teacher’s experience into one powerful #elearning system makes him an educational innovator on a par with the Greek masters of antiquity
• Wales developed #wikipedia. It is not only the world’s digital encyclopedia and top 5 website. It is the most blinding evidence that tech enabled mass collaboration will change the human condition

They are all different characters from different walks of life. Yet they are united by the power of the #opensource software movement.

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.

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 (tongue-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

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.

What are the guiding principles for a viable open source operational risk model (OSORM)? Such a framework should:

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.

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

There is a legend that every time a data set is released into the open, somewhere dies a black swan

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.

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

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.

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. While the aftershocks of these events still reverberate, it seems that we can posit quite confidently that: