Interest rates are a determinant factor in the pricing mechanism of public markets.  When interest rates go up, the cost of borrowing increases, and this affects economic activity and company profits. Equity markets are sensitive to changes in interest rates because they affect corporate profitability and the cost of capital. …

The recent market correction has shown, once again, that the financial markets are strongly interconnected. The sell-off in stocks has led to a sharp increase in the credit spreads. The rally in oil price has helped commodity currencies such as the Canadian dollar and Australian dollar appreciate against the US …

It’s commonly believed that Gold is a good diversifying asset, and for many years, this was true. Gold is often seen as a safe-haven asset, which means that investors turn to it when they are worried about the stock market. However, Gold has not always been a good investment. In …

Financial risk management is the process of identifying, measuring, and managing financial risks. There are many different types of financial risks, including interest rate risk, credit risk, liquidity risk, market risk, and operational risk. Machine learning and artificial intelligence can be used to identify and measure these risks, as well …

The unpredictability of the markets is a well-known fact. Despite this, many traders and portfolio managers continue to try to predict market volatility and manage their risks accordingly. Usually, econometric models such as GARCH are used to forecast market volatility. In recent years, machine learning has been shown to be …

We have discussed how the volatility index, VIX, and the yield curve can be used to predict recessions. On a similar topic, a recent paper argued that machine learning models are outperforming logistic regression when it comes to predicting financial crises. It explored the reasons behind this and showed …

The yield curve is a graphical representation of the relationship between the yields of bonds with different maturities. The yield curve has been inverted before every recession in the United States since 1971, so it is often used as a predictor of recessions. Indeed, the spread between the long-term and …

There is a very interesting discussion on stackexchange on how to determine the credit risks of a startup. What would be the ideal way to develop the IFRS9 ECL model for startup fintech when there is no historical data. There are 2 answers to this question (as of November 2021) …

In the financial market, the logarithms of asset prices are often modeled as a normal distribution. Elsewhere in life, many things are normally distributed: people’s height, education levels, talents, working hours in a day, etc. Success, as measured by wealth, however, is not normally distributed. In fact, it’s heavily skewed …

Portfolio hedging is a risk-management practice that uses a number of strategies to mitigate the risks of any given portfolio. Tail risk hedging in particular is one of the techniques used in equity portfolio management. It basically involves buying put options in a certain amount to partially or fully protect …