Risk management

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kevinchou333
Posts: 4
Joined: Wed Dec 06, 2017 3:59 am

Risk management

Post by kevinchou333 » Wed Dec 06, 2017 4:02 am

Will risk arbitrage remain a viable strategy for banks to make money?

mega317
Posts: 1229
Joined: Tue Apr 19, 2016 10:55 am

Re: Risk management

Post by mega317 » Wed Dec 06, 2017 1:02 pm

Synovus seems to have done well in the Cabelas-Bass deal. But that was earlier in the year, maybe things are different now. Why do you ask?

kevinchou333
Posts: 4
Joined: Wed Dec 06, 2017 3:59 am

Re: Risk management

Post by kevinchou333 » Wed Dec 06, 2017 2:20 pm

Only asking because it was part of my interview question for an investment firm.
I said M&A is still a feasible arbitrage to take advantage of, but I couldn't think of any other ways to answer the question.
Any suggestion?

mega317
Posts: 1229
Joined: Tue Apr 19, 2016 10:55 am

Re: Risk management

Post by mega317 » Wed Dec 06, 2017 2:28 pm

Haha no suggestions, I have no idea what any of this means. I would have answered yes. If they think the answer is yes, then you're on the same page. If they think it's no, then maybe they see you as someone who can help them make money.

Did you get the job?

alex_686
Posts: 2587
Joined: Mon Feb 09, 2015 2:39 pm

Re: Risk management

Post by alex_686 » Wed Dec 06, 2017 2:34 pm

What do you mean by "risk arbitrage"? It is a woolly concept, elastic enough to meet almost any speaker's definition.

The short answer is "No". Banks can no longer borrow money cheaply to build up a inventory of assets to do risk arbitrage things.

The longer answer, and the one you were asked, is "Maybe". There are some loopholes in the new rules, there are select opportunities out there. Can you identify them?

kevinchou333
Posts: 4
Joined: Wed Dec 06, 2017 3:59 am

Re: Risk management

Post by kevinchou333 » Wed Dec 06, 2017 6:43 pm

Still waiting to hear back from them, my hopes are not too high tho.
One of the manager threw that question to me towards the end of the interview, didn't quite get what he was asking either so i said yes and kinda explain the mechanism.
There was another one on my thoughts on index reconstruction, I said i had no experience in index since never have hands on exp in index trading.
Anyone have thoughts on that ??

long_gamma
Posts: 199
Joined: Mon Sep 14, 2015 4:13 pm

Re: Risk management

Post by long_gamma » Wed Dec 06, 2017 7:22 pm

Risk arb has higher sharpe in last 12 years.

Is this viable strategy? Yes, in general prop desks does not want take directional risk. So this strategy fits that style.

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Last edited by long_gamma on Wed Dec 06, 2017 7:51 pm, edited 1 time in total.
"Everyone has a plan 'till they get punched in the mouth." --Mike Tyson

2015
Posts: 970
Joined: Mon Feb 10, 2014 2:32 pm

Re: Risk management

Post by 2015 » Wed Dec 06, 2017 7:33 pm

kevinchou333 wrote:
Wed Dec 06, 2017 6:43 pm
Still waiting to hear back from them, my hopes are not too high tho.
One of the manager threw that question to me towards the end of the interview, didn't quite get what he was asking either so i said yes and kinda explain the mechanism.
There was another one on my thoughts on index reconstruction, I said i had no experience in index since never have hands on exp in index trading.
Anyone have thoughts on that ??
Never answer a question in an interview that you don't fully understand. Don't be afraid to ask for clarification. My favorite question during interviews was always "How do you mean by that?" A couple of alternative questions could be, "can you please be more specific, I'm not sure what you're looking for?" These are open-ended questions which force the interviewer to be more specific while simultaneously ensuring you don't answer with what you think the interviewer means but means something different in their head. Remember that questions during interview are meant to screen out candidates as opposed to screening anyone in. Ensure your answers are always short and concise as possible. It also helps to finish your answer with a question, such as (in this case), "is this the mechanism you use here?"

I liked your honest response to the question on index trading because if an interviewer senses you are engaging in b.s., this will tend to hurt rather than help. I recommend you study thoroughly any questions you weren't completely comfortable answering. I also recommend deconstructing every interview and studying what went right/wrong so that you get better and better at interviewing.

kevinchou333
Posts: 4
Joined: Wed Dec 06, 2017 3:59 am

Re: Risk management

Post by kevinchou333 » Wed Dec 06, 2017 11:56 pm

Noted, thanks for all the support and answer.

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