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What is rogue trading?

Why is there rogue trading?

How do rogue traders generate these losses and how do they get away with it?

How can you stop rogue trading?

What happens in a break up?

Does breaking up make sense?

Assessing break ups and potential break ups...

U tags

The risk free rate is not just a number in a discount rate computation but an opportunity cost.

The risk free rate is a reflection of what people expect in the overall economy for the foreseeable future.

The risk free asset is also where investors flee when the fear factor rises, the much vaunted "flight to safety" during crises.

1. The dysfunctional valuation:

2. The depressed valuation

3. The denial valuation

4. The dynamic valuation

Rogue trading is trading by an individual, that violates his or her employer's norms and rules on investing and risk taking, exposing the entity to catastrophic risk.

Trading is addictive:

The search for the "big" payoff

House money and Breakeven effects

more risk than you should with other people's or house money

to get back to break even

Buy on borrowed money

Derivatives

Long-short strategies

Time lags in risk measurement/management systems

Systematic measurement error in risk management systems

Avoidance and Denial

Hire the right traders

Real time and dynamic risk measurement systems

Restrict trading in illiquid assets

Simple and focused risk management systems

Stress testing

Look at outcome and process, not just outcome

Top managers at banks

Investors in these banks

Regulatory authorities

It is sanctimonious

It is hypocritical

It is superficial

Market mistakes:

Contaminated Parts

The efficiency story

The simplicity story

The tax story

Loss of economies of scale

Reduced access to capital (and higher cost)

Lost synergies

a. Past performance

b. Separate and independent businesses

c. Management rationale and consistent actions

Time Warner

GE

Citigroup/Bank of America/ JPM Chase

Get emails

Take quizzes/exam

Valuation project

I tags

noble CEO

keeper of the value investing flame

brilliant financial thinker

"good" billionaire

Control of the management of the business(es)

Market pricing of the units

A break up can have tax implications

This semester's class:Valuation

What is this class about?

What background do I need to take the class?

How do I take this class?

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internal links

addressanchor text
Risk free rates and value: Dealing with historically low risk free rates
In my previous post on the sovereign rating downgrade for the US
3:16 PM
Links to this post
Ruminations on Rogue Trading
earlier post on Jerome Kerviel
5:42 AM
Links to this post
The Buffett Plan: An apt name for a sanctimonious, hypocritical and superficial proposal
Bank of America
6:26 AM
Links to this post
Breaking up is easy to do...
10:44 AM
Links to this post
Operation Twist II: The Fed as Chubby Checker
I argued (though I admitted my limited credentials to be involved in this debate) that I did not think it would work
9:04 AM
Links to this post
Class is in session...
9:59 AM
Links to this post
Buffett and Bank of America: Playing Poker with Patsies...
7:03 PM
Links to this post
Older Posts
Home
Posts (Atom)
Risk free rates and value: Dealing with historically low risk free rates
The Buffett Plan: An apt name for a sanctimonious, hypocritical and superficial proposal
Class is in session...
Operation Twist II: The Fed as Chubby Checker
Equity Risk Premiums: The 2011 Edition
Breaking up is easy to do...
Ruminations on Rogue Trading
Buffett and Bank of America: Playing Poker with Patsies...
Can betas be negative? (and other well used interview questions)
How much cash is too much? Looking at Apple
2011
September
Risk free rates and value: Dealing with historical...
Ruminations on Rogue Trading
The Buffett Plan: An apt name for a sanctimonious,...
Breaking up is easy to do...
Operation Twist II: The Fed as Chubby Checker
Class is in session...
August
Buffett and Bank of America: Playing Poker with Pa...
Trapped Cash: Measurement and Consequences
Momentum versus Contrarian: Two Reads of the ERP
Chill, dude! It is not the ratings downgrade.. It ...
July
A Sovereign Ratings Downgrade for the US? End of t...
Stay Private vs Going Public: Changing landscape
Default and Bankruptcy: Black, white and shades of...
June
From revenues to earnings: Operating, financing an...
There is an app for that....
Thoughts on intrinsic value
May
Dual share structure: The Google model spreads
Valuing young growth companies: A postscript on Li...
Is Skype worth $8.5 billion? An exercise in valuin...
The Little Book of Valuation
April
Alternatives to the CAPM: Wrapping up
Alternatives to the CAPM: Part 5. Risk Adjusting t...
Alternatives to the CAPM: Part 4: Market-Implied c...
Alternatives to the CAPM: Part 3: Connecting cost ...
Alternatives to the CAPM: Part 2: Proxy Models
Alternatives to the CAPM: Part 1: Relative Risk Me...
Margin of Safety: An alternative risk assessment t...
March
Breach of Trust: Bank Valuation after the banking ...
Catastrophe and consequences for value
A tide in the affairs of men...
Luck versus skill: How can you tell?
Behavioral Economics: Thoughts on Value and Price
February
Buffett and Black-Scholes
Equity Risk Premiums: The 2011 Edition
Merck and Pfizer: Thoughts on investing as a patri...
Dividend Policy for the 21st century
The unemployment rate: A look at the sampling ques...
The Shift to Buybacks: Implications for investors
January
Tax policy
Buybacks and Stock Prices: Good or bad news?
Stock Buybacks: What is happening and why?
How much cash is too much? Looking at Apple
Herding behavior: Why, so what and what if?
The Facebook Valuation!
2010
December
Corporate finance in illiquid markets
Making money off illiquidity: Two Strategies
Asset selection & Valuation in Illiquid Markets
Asset allocation for illiquid markets
All assets are illiquid
November
Are complex models the answer?
October
September
July
June
May
April
March
February
January
2009
December
November
October
September
August
July
June
May
April
March
February
January
2008
December
November
October
September

external links

addressanchor text
img
report
quickly identified and named
Today's story
memorable rogue traders
had a movie
perp walk
Volcker rule
new banking rules that are being discussed in the UK
one of the proposals
Ted Wechsler
Todd Combs
winning bidder
I do remember that he did hand-pick his last successor and that did not end well
because a significant portion of the income comes from capital gains and dividends
letters that he has written to his stockholders
Breaking up may have been hard to do for the Carpenters
Kraft Foods
McGraw-Hill
Netflix
Tyco
Kraft spin off from Altria (Philip Morris) in 2007
Harold Geneen
Charles Bludhorn
"discounting" conglomerates by about 5-15%
break up of Tyco
the Dark Side of Valuation
examine why valuing their "octopus" companies is so difficult
Bank of America,
very simple spreadsheet for assessing the effect on value of a break up
1 comments
The Fed is now planning to get back into the game with a maneuver that it has last tried in 1961: Operation Twist
img
img
The EP ratio for the S&P 500 right now is about 6.97%, based upon a trailing PE of 14.34
You can download the spreadsheet
favored version of the twist
http://people.stern.nyu.edu/adamodar/New_Home_Page/background.html
http://www.stern.nyu.edu/~adamodar/New_Home_Page/equity.html
http://people.stern.nyu.edu/adamodar/New_Home_Page/webcasteqfall11.htm
http://people.stern.nyu.edu/adamodar/New_Home_Page/eqemail.html
http://www.coursekit.com
img
sufficiently capitalized
http://on.wsj.com/nUOWBS
value of $4.30/option
Tier 1 capital
Here is one article that seems to provide clarity
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