Posts Tagged ‘finance’

My sister called me ugly, but we are identical twins (Or why we should not shoot the ugly sister)

Wednesday, November 30th, 2016

By Taylor Murtha, QUT Master of Applied Finance student

Risk is the team of scientists in the corner doing the calculations to figure out how close they are to a mission failure. Uncertainty is Neil Armstrong putting his foot on the moon hoping it doesn’t collapse or explode and send him into the abyss. Like identical twin sisters they are similar in appearance but they are different in nature, risk is highly quantifiable whilst uncertainty is not. The human equivalent of risk is Warren Buffett, he makes an assumption about the possible outcomes and their likelihood and makes an investment decision based on that information. The human version of uncertainty is Richard Branson, who doesn’t know all the possible outcomes or the specific probabilities but he thinks it is a good idea so he invests. Obviously Richard Branson is far more interesting then Warren Buffett because he is wild and unpredictable which is the perfect metaphor for uncertainty. (more…)

The dark side (about extremes and where nobody knows)

Monday, October 24th, 2016

Written by Ruolin Wang, PhD Candidate at QUT

Two years ago, the world witnessed the disappearance of flight MH370. So far, we have not found it, for sure it is gone, together with 239 passengers on board. Every hour, thousands of airplanes fly towards their destinations above in the sky, but very few of them end up with the same fate as MH370. The prevailing but “not yet determined” explanation for the disappearance was that the pilot Zaharie hijacked the aircraft. Is it a risk of air travel? It is the airport control tower’s task to assess foreseeable risks and direct them around bad weather and air traffic to ensure a safe flight. However, as for aircraft hijacking, I am inclined to describe it using the word uncertainty. Why? To put it simply, risk is different from uncertainty.

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Risk Management: Flawed Fantasy Or Achievable Challenge?

Thursday, June 26th, 2014

By Brendan Hogan, a Masters of Applied Finance student

Lights are flashing. The screams of children are echoing off the walls. The cabin has become an ecosystem of fear and trepidation. There has been no word from the cockpit in over 20 minutes and the rattling of the Rolls-Royce engines mimic the velocity of an earthquake. A flight stewardess appears from the galley and assures the passengers everything is going to be alright. She asks everyone to put their life vests on as a precaution: “standard procedure,” she says. (more…)

Wall Street, The Love (Hate) Affair With Credit Default Swaps, And The Case Of The Misguided Model

Monday, August 5th, 2013

By Martin Kidd

Martin Kidd is Managing Director of Embiggen Finance and is completing a Master of Business (Applied Finance) at Queensland University of Technology

Imagine yourself sitting at a dinner party, where everybody has interesting anecdotes and now it’s your turn to tell a story. You’re a derivatives trader, and you know that if you start talking about work, everyone’s eyes will glaze over because there is approximately zero genuine interest in whatever it is you actually do for a living. Unless you’ve allegedly played a part in the 2007 credit crisis, that is. Credit default swaps have had a bit of a hard time in the finance media since the peak of the financial crisis, so perhaps it’s about time we explored the journey they’ve had since conception through to what’s happening in the market today.

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One Job Too Many (?)

Tuesday, June 25th, 2013

by Jenna Moore, a current Bachelor of Business (Honours) student.

The recent and unexpected $6B trading loss sustained by JPMorgan Chase & Co fuelled the debate centered on CEO duality. CEO duality refers to the situation where the CEO also holds the position of the Chairman of the board. With increasing public awareness and academic interest in corporate strategic leadership, two key questions resound in both corporate finance research and social debate at large: Should the CEO and Chairman roles be separated? Should a separation be mandatory?

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When all you have is a hammer; Why financial managers are so bad at measuring risk

Monday, May 20th, 2013

By Robin (Mac) Stark

When a carpenter sets to work, tools in hand, he is prepared. The house he goes to work on, he is all too familiar with, and, thanks to physics and engineering, he can replicate, time after time, the same solid and reliable structure. Alas – this is not so for the contemporary Financial manager. Yet, there is a belief that a risk analyst can go to her trade, tools in hand, with the same accuracy and reliability of the carpenter. But this is her first mistake, a hammer is a reliable tool derived from the predictability of physics – the carpenter can make use of a simple and reliable hammer because with certainty, the force of the last strike of the hammer will be the same as the next. However, for the risk manager, such an assumption can prove costly, because the game is not the same – finance is not physics, a hammer just won’t do.

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Thief, Liar, Cheater! Do bad guys really finish last?

Wednesday, May 15th, 2013

by Jenna Moore

In late 2012 Lance Armstrong ceased denying doping rumours. The seven-time Tour de France winner went from hero to zero faster than the news could be put to print around the world. Though some had always been dubious about his seemingly superhuman performance, there is no doubt Oprah’s extra long (and extra lucrative) expose would have left many die-hard Armstrong fans lost and troubled by the relentless and self-righteous deceit spanning more than a decade. Armstrong cemented himself as a cycling legend; a cancer survivor; a philanthropist, and he sure knew how to sell the sizzle without the steak. Lance Armstrong’s business was Lance Armstrong. His reputation was his capital and not only has he forfeit a large part of his future reputational nest-egg, he stands to be disrobed of the ‘unjust’ riches he was awarded by the US Federal Government through sponsorship deals amounting to US$40m. But even still, despite the seemingly rigorous international anti-doping measures in place, Armstrong proved the reward was worth the risk and is estimated to have accumulated a net worth of over $125m. Do bad guys really finish last?

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Hot Tips to get you to the Top! – Keep the Big Picture in Mind

Tuesday, March 26th, 2013

On the night of Wednesday 20 March 2013, QUT’s School of Economics and Finance held its very own ‘Town and Gown’ event, which brings together economics and finance students to network with Brisbane-based professionals from these two discipline areas.

The presenters were asked, “What is your best piece of advice for job-seekers?” Their answers were insightful and we thought worth sharing. If you have some further tips you’d like to share, please join the discussion.

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Eyes wide shut: Are finance managers looking but don’t see?

Tuesday, October 9th, 2012

By Shane Murray

In the wake of poor returns or worse, substantial loss of wealth, Financial Managers wear the blame. Like a phoenix born from the ashes of ruin, the angry mob emerges and sprays charge at the financial sector, labelling their behaviour as reckless, their knowledge of financial markets absent and their understanding of risk as infantile. In my opinion this is a justified resolve as from inception, Financial Managers have been monitoring risk with their eyes wide shut. The inherent flaws of contemporary risk models used by Financial Institutions are well known, as too are the means of manipulating portfolios to accumulate risk not captured by their estimates. Such behaviour is reckless and wholly undermines why risk is quantified in the first place. But what choice do Traders have? Year after year shareholders demand bigger and better returns and Financial Managers find themselves in a precarious situation. Should they be reducing the exposures when the mutters of disaster begin to surface, or do they turn a blind eye and rely on their risk metrics as an appropriate scapegoat? After all, taking the safer approach, reducing risk and yielding a lesser return spell certain crucifixion at the hands of the same angry mob. So it seems the problem is twofold. Thankfully, with so much on the line, a collaborative approach to risk supervision is emerging through the Basel accords which aim to dispel such irresponsible behaviour. Unfortunately such endeavours are yet to curb the insatiable desires of the mob, which Financial Managers seem more than willing to oblige.

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Credit risk: what we know, what we don’t know and what we should know

Thursday, August 30th, 2012

By Mei Lin KER

With the deregulation of the financial markets, companies have progressed from traditional method of bank borrowing to the issuance of corporate bonds to seek capital from the general public. As a potential lender, how will you assess which company is a safer haven to park your money? Is there a way to allow you to gauge the default risk of each company so that you can make an informed choice? One of the solutions lies in credit rating agencies. The use of ratings is pervasive in today’s society. From movies to restaurants to even car safety, ratings are compiled to provide consumers a quick assessment and comparison of the desirability of the product or service. In the financial industry, credit risk ratings for corporate and sovereign debt instruments are provided by credit rating agencies (CRAs) with the current industry leaders being Moody’s, Standard & Poor’s (S&P), and Fitch.

The probe by the US Congress Committee uncovered the credit rating agencies as one of the main culprits fuelling the GFC calamity. Their failure in providing correct ratings to certain complex financial products led to the severity of the financial meltdown. Under Basel II, banks utilising the standardised approach to determine their regulatory capital are required to use external credit assessments to determine the weightings for calculation of the total risk-weighted assets. Elevated to the status of “nationally recognised statistical rating organisations” (NRSROs), Moody’s, S&P and Fitch provide such external credit statistics. Though more rating agencies have been added to the list as the years passed, the Big Three maintain their dominant positions, collectively representing 95% of the market. What do we actually know about such agencies to trust their competency in providing accurate and unbiased ratings? Let’s explore further.

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