• Fri Aug 17
    Why the WWII references? It’s like nothing has happened since worth being proud about.
  • Tue Aug 14
    "Which numerical computing language is best: Julia, MATLAB, Python or R? “ Updated with new Julia 1.0 info,…
  • Tue Aug 14
    Keep the faith. Bitcoin will appreciate 10,000% Promise.
  • Tue Aug 14
    Rich, isn’t that the fault of the EU and Remoaners and will be sorted after Brexit?
  • Mon Aug 13
    Of course it does. It shows a mindset and competence and understanding that ate so intertwined in the Brexit debate.
  • Mon Aug 13
    RT @jonlis1: ‘The marriage of xenophobia and incompetence’: welcome to Brexit
  • Mon Aug 13
    There is a contradiction in the arguments of the libertarian Brexiteers, as the government is needed to deliver on…
  • Sun Aug 12
    The letter "Voter issues” in the economist is absolutely spot on.
  • Fri Aug 10
    RT @LSE_SRC: #European #Capital #Markets and #Brexit: the Road(s) Ahead - 10th Sept @Unibocconi Keynote speaker: Mario Nava (Chairman, CONS…
  • Wed Aug 08
    RT @richgpayne: Crypto pukes, again via @FinancialTimes
  • Tue Aug 07
    This could be a good Brexit outcome "Financial TimesHammond sees dangers of bank capital shift after Brexit”…
  • Tue Aug 07
    RT @HmsGerlach: This is a very good piece by @kevinhorourke — Why economics needs economic history | VOX, CEPR Policy Portal…
  • Tue Aug 07
    Is Julia really faster than Python? A convincing case.
  • Tue Aug 07
    Yet another example of the EU harming Britain with crap rules my Brexit friends will argue. As for me, I rather lik…
  • Mon Aug 06
    Success in politics these days depends on finding enemies of the people. Any will do.


    19 March 2018

    Do cryptocurrencies live up to the hype? Are they the future? Ponzi schemes or just a cult? This follows up from Cryptocurrencies don’t make sense.


    Sound and fury signifying nothing except newspaper headlines

    10 February 2018

    As the financial press had it, the financial markets had quite a dramatic week.

    Put it in context, how dramatic was it?


    Yesterday's mini crash in a historical context

    6 February 2018

    The stock market had a mini crash yesterday. So how big was that in a historical context?


    Here be dragons

    Medieval mapmakers noted the risk of an unknown kind by “here be dragons”. Attempts at measuring extreme risk should come with a similar warning. Just like the sailors of yesteryear, financial institutions will go into unknown territories and, just like the map makers of the earlier era, modern risk modellers have little to say.


    VIX, CISS and all the political uncertainty

    Two widely used indicators of financial risk, the VIX index and the ECB’s CISS, are at a historical low. The (financial) world must be really safe. However, that doesn’t square with all the newspaper headlines screaming political uncertainty. What gives?


    European bank-sovereign doom loop

    European banks and sovereigns are much more closely linked than American banks and their government. The resulting bank-sovereign doom loop has been gathering strength, since the 2008 crisis.


    Do the new financial regulations favour the largest banks?

    The new postcrisis financial regulations, for example Basel III, have the unfortunate side effect of favouring the largest banks relative to the smaller. This can result in concentration, oligopolies, and even larger SIFI banks. This problem is made worse because of how Europe likes to regulate.


    The ECB Systemic Risk Indicator

    The European Central Bank has an indicator of systemic risk called the Composite Indicator of Systemic Stress , CISS. So what sort of signal does it send and what is it to be used for?


    Finance is not engineering

    Regulations change behaviour and outcomes. It is seductively attractive to say that someone misbehaves, therefore we need the rule to prevent the misbehaviour. However, human beings, being human, don’t just comply, their behaviour changes. That is why regulating the financial system is infinitely more complex than engineering.


    University of Iceland seminar

    I did a seminar at the University of Iceland. The first half of the presentation was about risk and regulations and the second part is about economic policy in Iceland. The slides can be downloaded from here.

    The announcement is here.

    The slides are in English but the Icelandic title is:

    Stenst uppskriftin í raunverulegum bakstri? Getur þjóðhagsvarúð og peningastefna skilað því sem lofað er - eða aðeins lækka hagvöxt að nauðsynjalausu?


    Should macroprudential policy target real estate prices?

    Keynote speech at the bank of Lithuania on “Should macroprudential policy target real estate prices?”

    The slides can be downloaded here and the presentation can be seen here.


    Is Julia ready for prime time?

    March 2017

    I really want to like Julia. She promises to solve all the frustrations with other numerical languages.


    With capital controls gone, Iceland must prioritise investing abroad

    The Icelandic government announced today it it lifting its capital controls. Private investors, pension funds and the government need to prioritise investing abroad to lower the chance of another crash.

    The Icelandic authorities in November 2008 imposed capital controls because they were in a panic over how to react to the crisis. The IMF was an enthusiastic supporter, its representative at the time arguing that it was one half of a belts and suspenders policy, the other being interest rates of 21%.


    Competing Brexit visions

    I have been struggling to make sense of the Brexit debate. Perfectly reasonable, well informed and highly intelligent people reach diametrically opposite conclusions, all impeccably argued. In order to make sense of the debate, I did what any quant might do and made a graph of the competing Brexit visions.


    Systemic consequences of Brexit

    I got to present on the systemic risk consequences of Brexit in a SUERF conference. The slides can be downloaded here. The main conclusions are:


    Interview on þjóðbraut on Hringbraut

    I was interviewed on the new programme þjóðbraut on the Icelandic TV station Hringbraut. Only if you speak Icelandic.


    The McNamara fallacy in financial policymaking

    One of the puzzling things about post-crisis financial policymaking is the dual understanding that we missed the excessive build-up of risk before 2007 in spite of having all the numbers right in front of us and at the same time founding the new world order on numbers and measurements. Have the policymakers fallen for the McNamara fallacy?


    Farewell CoCos

    One can only welcome ECB’s rethinking on CoCos. They make banks’ capital structures unnecessarily complicated and create hidden risks.


    Will Brexit give us the 1950s or Hong Kong?

    At the risk of overgeneralising, Brexiteers have two, rather different world views — 1950s Britain or the hip, modern, perhaps like Hong Kong. One certainly is more likely.


    Of Brexit and regulations

    One often hears from Brexit supporters that too many regulations come from Brussels, that it would be much better if we could regulate ourselves. At least when it comes to finance, that argument just does not hold water.


    IMF and Iceland

    I just spotted an interview with the IMF representatives to Iceland about their policy prescriptions, and it did make for an interesting reading.


    Stability in Iceland

    I got to address the annual meeting of Business Iceland today on the topic of “On fiscal and monetary policy in Iceland”. The main theme was about what to do about the high economic volatility.


    Of tail risk

    Suppose one cares about tail risk, what is the best way to estimate it? There are two, not mutually exclusive, ways; statistical and structural. Which is right?


    What are risk models good for?

    One can endlessly criticize risk models, but that is just too nihilistic. So, what are the good for? There are three camps, the model believers, the rejectionists and the healthy skeptics. I’m going to make the case for the last below.


    Perceived and actual risk

    Risk can be classified into what is predicted by models — perceived risk — and the the fundamental — underlying risk, actual risk.


    Models and regulations and the political leadership

    Why do the regulatory authorities seemingly fall into the category of model believers, if not quite to the view that there must be one true model? Well, it is sort of inevitable the way the regulatory process works.


    Why do we rely so much on models when we know they can't be trusted?

    There a lot of evidence that models are less than perfectly reliable. Why then do we rely so much on models in decision-making, and especially financial regulations? Because there are three types of people: Believers in true model, skeptics who accept model risk and nihilistic rejectionists.


    Does a true model exist and does it matter?

    When designing models, the underlying assumption is often that the model captures the true data generating process. Does a true model exist? To me, the question is completely irrelevant.


    The point of central banks

    Much of the analysis of the recent market turmoil is amusing. Take the Wall Street Journal, Why the Fed Is the Root of Much Market Turmoil: Fed is a key reason markets have plunged and risk of recession rising . Here is a quote:


    Impact of the recent market turmoil on risk measures

    Last January I looked at how the Swiss FX shock affected the most popular risk measures. Events of the past week give us another interesting test. My daily risk forecast shows the various risk measures for a number of assets, but focus on the SP-500, and the following picture taken from the site today:


    Objective function of macro-prudential regulations

    I have been in a conference for the past few days, and have seen a few presentations on macropru type regulations.


    Risky business: Finding the balance between financial stability and risk

    Our LSE blog It is important that we understand and do something about systemic risk. The problem is that we desire two incompatible things simultaneously: we wish the financial system to be safe; but we also want to finance risky economic activity.


    Regulators could be responsible for next financial crash

    LSE report warns that forcing financial institutions to forecast risk in the same way could mean they will all end up being caught unawares.
    A writeup in the Telegraph about our Magazine.


    How Iceland is falling behind. On Sprengisandur

    I got to be on the radio show Sprengisandur, if you understand Icelandic. After discussing Greece, got asked about Iceland. The Icelandic authorities could have made some of the same mistakes as the Greek government did in its crisis, but overall, the three governments since then, have done a decent job. All, in their own way, paving the way for prosperity.


    Greece on Sprengisandur

    I got to talk about Greece on the radio show Sprengisandur, if you understand Icelandic.


    Market moves that are supposed to happen every half-decade keep happening

    May 14, 2015
    Bloomberg today had an interesting piece, called Market Moves That Are Supposed to Happen Every Half-Decade Keep Happening. Here is their self-described “terribly simplistic list”


    Capital controls

    May 12, 2015
    I got to participate in a discussion on capital controls, sponsored by Samtök Atvinnulífsins which could be translated as the Icelandic Chamber of Commerce. The event was held in the lovely Harpa. If you read Icelandic, the writeup is here with my slides.


    What do ES and VaR say about the tails

    So, does ES capture tail risk, but VaR not? Therefore the Basel committee is correct, and we all should use ES. Is that true?


    The Danish FX event

    Denmark had a small FX event on March 20, in the context of the Swiss FX shock, it is not much a of an event, but it does reinforce stereotypes.


    On the Swiss FX shock

    Just looked again at the what I did on the Swiss FX shock, looking at how the various risk measures performed in the days after the event, and also looking at the risk of the inverse FX.

    The original analysis just looked at the risk of the Franc appreciating, but why not look at the risk of the euro appreciating.


    My bloggs on VoxEU