OlsenBlog

Northern Rock is back in the press. The EU commission has given the green light to restructure Northern Rock and remove the impaired assets from its balance sheet. This is window dressing: if impaired assets are marked to market and losses are realized, then the assets are on par with all the other assets. They then have a fair chance to perform better or worse than the other assets. If losses are realized, there is no good or bad bank and a combined bank is just as good as two separate banks.

The regulators should focus on the real issues:

Credit agreements, loans, etc. are highly complex legal agreements. The in-transparency of 200 page legal contracts does not gibe as well with quantitative modeling as we would expect it to in the 21st century. We need a computer language to code legal agreements. (more…)

We define a methodology to quantify market activity on a 24 hour basis by defining a scale, the so-called scale of market quakes (SMQ). The SMQ is designed within a framework where we analyse the dynamics of excess price moves from one directional change of price to the next. We use the SMQ to quantify the FX market and evaluate the performance of the proposed methodology at major news announcements. The evolution of SMQ magnitudes from 2003 to 2009 is analysed across major currency pairs…

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Author: Richard B. Olsen, Founder and CEO of Olsen Ltd

Since the world became aware in the summer of 2007 of an imminent financial crisis, people have asked why so few experts saw it coming. There have been many calls for an early warning system for the world economy – but little has been said about how to build one.
To construct a global early warning system we have to overcome the predicament Alan Greenspan, the former US Federal Reserve chairman, highlighted 12 years ago. “How do we know when irrational exuberance has unduly escalated asset values?” he asked. “We should not underestimate … the complexity of the interactions of asset markets and the economy.”
Macroeconomic data alone cannot provide sufficient information to determine whether asset prices are inflated. We need to dig deeper and track the complexity of interactions in financial markets and the economy…

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With the deepening economic crisis there have been repeated calls for an early warning system of the world economy. Little has been said, how such a system should be built.

To build a global early warning system we have to overcome the predicament that Alan Greenspan highlighted: ‘How do we know when international exuberance has unduly escalated asset values?….We should not underestimate or become complacent about the complexity of the interactions of asset markets and the economy…

Clicking here will retrieve an Acrobat version.