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Why Switzerland has a 1000 CHF banknote?

Switzerland is an odd country for many reasons and one of these is because his Central Bank issues the largest banknote in the world. So far, I thought that 500€ banknote was the honour to be the number one. But just few days ago, while I was surfing on the SNB webpage, I found out that Switzerland has a bigger one. That discovery shocked me a lot. First of all, because I have never seen one in spite of I have been living in Switzerland since three months ago. But, besides, because I realized that 1000 CHF represents the 9’2% of the notes issued and more than 60% of the printed money in circulation. (See here) It seemed to me too much and, obviously, the first question that came to my mind was: Why? What are doing other Central Banks?

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Inequality and technology: Thoughts about the 1:12 initiative

Nowadays there is a public debate in Switzerland about the initiative of limiting the income’s differences within a Company by law. The initiative, named 1:12, would ban that any employee earn in one month more than other employee in a year working for the same company. Here you can find the official webs of Ja and Nein.

Obviously, one would bring to the table a lot of  ethical or political arguments and certainly, it would be interesting to talk about them. But, besides all these kind of philosophical considerations, the 1:12 initiative has reminded me one topic on which I have thought many times. It is the influence of the new technologies on the inequality and income distribution.

Why do we try to calculate Stock Prices and not other goods of the economy?

One of my favorite radio programs about economics and finance is the one hosted by Russ Roberts. – In fact, it isn’t exactly a radio program since it’s only available on podcast, but that doesn’t matter at all now. – Every week, Russ Roberts interviews an economic celebrity. During one hour, the host comes up with some interesting questions which allow us learning a lot. I usually listen to Econtalk podcasts while running or walking towards my office. So, on the podcast* I was listening last week Roberts asked Emmanuel Derman so amazing question.

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Given that I was running, I had to stop, breathe deeply and wind back in order to listen again and memorize the question: Why do we try to calculate Stock Prices and not other goods of the economy?

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ROC Curve in finance. An example using R *

Receiver operating characteristic (ROC), or simply ROC curve, is a very powerful tool for measuring classifiers’ accuracy in binary-class problems. ROC curve allows comparing the performance of different models through a visual chart that makes the analysis very statistical friendly.

Besides the graph, the accuracy of the model can be assessed measuring the area under the ROC curve (AUC). An area of 1 represents a perfect test; an area of 0.5 represents a worthless test, the random guessing procedure. So, the closer to 1 the AUC, the better model. This measure is equivalent to the Gini coefficient.

I just read on the Wikipedia that ROC curve was developed during World War II for detecting enemy objects in battlefields. I don’t know if its origin is absolutely true, but nowadays it can be use in finance. Let’s see an example using R.

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Should Banks pay higher taxes?

Nowadays, over all after the public bailouts in favour of banks in the European countries, there has been an increasing public outcry demanding more social responsibility from banks. More transparency, better collaboration with authorities, a drastically cut down of the wages and bonuses of their main executives and, of course, demanding to the banks to pay higher taxes.

However, it’s well known that in economics there is no free lunch. It means that whatever change on bank’s legislation has a direct impact on their behaviour and therefore, in the whole economy. As concern banks’ taxes, the policy maker should realize that tax rate is a variable that affects the level of banks’ liabilities and its process of taking risk.

Let’s me explain.

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Diversity of RWAs across countries

 

At last the Basel III committee has brought out the report on assessment of the implementation of the Basel III framework in Switzerland. Earlier reports on the European Union, and the United States were published by the Committee in October 2012 and March 2013, respectively.

The Basel committee has found several inconsistencies between Swiss regulations and original Basel III framework. Some of them are irrelevant but other ones not. The report (section 1.4) summarizes and classifies these main inconsistencies by materiality. These main findings have an effect upon Capital definition and credit risk measures.

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Calculating the VaR of one single stock. It seems easy, isn’t it?

The Value at Risk is a well-known risk technique. During decades VaR has been widely used in market risk but nowadays it has become an old-fashion technique.

We already knew the pros and cons about VaR, but I think that some critics from official establishments have buried it definitely. However, before VaR passed away forever I would like to do a short exercise in order to show the strength of Normal distribution, the most powerful advantage of VaR method.

I want to calculate the daily VaR of 1.000.000 shares of UBS traded in NY stock exchange. There are 3 alternatives ways: Historic VaR, assuming a Normal distribution or even a third one, fitting a more complex distribution which captures skewness and kurtosis based in Normal distribution. So, there we go.

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The Bankers’s New Clothes: What’s wrong with banking and what to do about it?

That’s the suggestive title that Anat Admati and Martin Hellwig have chosen for her new book.

And certainly their essay is very interesting and for me, it one of the most sharp works about the financial crisis. If somebody doesn’t want or doesn’t have enough time to read the book, can download a long  interview here.

The key point is clear and easy to remember: If banks had more core capital and less debt, the world would be a better place to live in.

Thus, the question is: How much core capital should banks have?

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Books which made me change my mind

 

There are many books which has changed my mind in some way. In fact, I think that each book we read affects us and if that doesn’t happen, it means this book doesn’t deserve be read.

I am a bookworm and I could talk about books until kingdom come. But fortunately for you, I am not going to.

Here you are only a taste.

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Facing the credit crunch in the Southern European countries

 

Entrepreneurs, companies and households are facing higher financial cost as a consequence of economic slump. In a theoretical framework, this statement is hardly surprising. During any recession, economic prospects go down, therefore probabilities of default rise and spreads widen. So far, everything is ok.

However, nothing is so clear when we are talking about the Eurozone. Since the sovereign debt crisis broke out in mid-2007, the borrowing costs between countries have widen dramatically. As a result, the interest paid for companies which want to invest is not linked with their fundamentals. Instead, it depends of the spread of the sovereign bond where these companies are settled. That is, nowadays, it does not matter the specific risk of a company, the market is leaded by the sovereign spread, the systemic risk of each country. So, the sovereign debt crisis has halted the process of interest rate convergence in the Eurozone and currently, in fact, this financial integration is stepping back. Today, there is a fragmentation in the European financial market again. Leer más