(Un)Calculated Risk | by Peter Orr of Intuitive Analytics

VIDEO - Optimization in Muni Bond Sizing

Posted by Peter Orr on Mar 15, 2013

"Computer programming is an art, because it applies accumulated knowledge to the world, because it requires skill and ingenuity, and especially because it produces objects of beauty. A programmer who subconsciously views himself as an artist will enjoy what he does and will do it better."  Donald Knuth

This video builds on the overwhelming popularity of our first video on using linear algebra to structure bond deals in public finance and lays out a technique for applying a basic optimzation algorithm to simultaneously size and amortize a $100 million municipal bond deal, from 10 years out to 3,000 (just for fun). 

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VIDEO: Linear Algebra of Public Finance Debt Sizing

Posted by Peter Orr on Mar 13, 2013

"If people do not believe that mathematics is simple, it is only because they do not realize how complicated life is."  - John Louis von Neumann 

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Public Finance and the 2nd half of the Technology Chessboard

Posted by Peter Orr on Feb 07, 2013

“Exponentials can’t go on forever, because they will gobble up everything.”  - Carl Sagan

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Municipal Defaults - 36x Higher Than You Think (and other myths)

Posted by Peter Orr on Aug 16, 2012

Enough research will tend to support your theory.     - Murphy’s Law of Research

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The RIGHT refunding discount rates to use? Wrong question...

Posted by Peter Orr on Aug 14, 2012

 I finally know what distinguishes man from the other beasts: financial worries.
- Jules Renard

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The ‘Formula that Killed Wall Street?’ or ‘Know A Bad Rate Model When You See It’

Posted by Peter Orr on Jun 19, 2012

"Copulas are generally an early doodling activity in an area." - Anonymous Street quant

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Good News for Muni Issuers: Rate and Ratio Correlations Still Work!

Posted by Peter Orr on May 10, 2011


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5 Things a True “Muni Expert” Would Say About Municipal Defaults

Posted by Peter Orr on Mar 10, 2011

“An Expert is a person who avoids small errors while sweeping on to the grand fallacy.”  - Steven Weinberg

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Basel III and the Future of Bank Supported VRDBs in Public Finance

Posted by Peter Orr on Nov 01, 2010

Last Friday I attended the Municipal Analysts Group of New York (MAGNY)'s lunch event on Basel III and the future of the muni variable rate market. First MAGNY event I've been to; it was solid. Chris Wolfe, a Fitch bank analyst, Barbara Samett an analyst from Vanguard, and Bill Collins an MD in public finance at the Bank of Nova Scotia were panelists. 

Basel I was originally designed to set minimum capital levels for banks and create a level playing field for lenders from different countries. Basel I was rather simple and treated a wide range of credit risks with a coarse set of requirements, leading to regulatory arbitrage. It created perverse incentives for banks to load up on more risk increasing expected returns on capital. Basel II provided more granularity to asset classes and went down a more quantitative path allowing banks to use an internal ratings based approach. Unfortunately, Basel II also led to absurd things like 99.9% one year confidence levels. If you think you can reliably capture events that happen once in a thousand years, I've got some watery real estate in the Southeast for you...

 In light of the recent financial crisis and the fact that the once in a thousand year events seem to be occurring every 8-10 years, Basel III (The Return of the Regulators) is upon us. What does this mean for banks and their letter and line of credit products?  Here were the highlights from the discussion:

- Basel III has "scenario based" tests that will generally lead to significantly higher capital charges for banks, decreasing expected RAROC.

- Basel III includes the concept of a "Net Stable Funding Ratio" for which Chris said none of the banks were particularly well-positioned. This may not go fully into effect until 2018.   

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4 Ways to Make Killer Public Finance Debt Service Charts, Part 2

Posted by David De la Nuez on Oct 28, 2010

This is a continuation from Part 1 where we showed how to graph debt service and principal prior to the refinancing on the same chart as remaining and new debt service and principal.

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