Taking Back Control: A Bank’s perspective into the use of risk control systems of investment re-allocation and their resiliency under random CTA performance.

Leon Gambetta Johanson, Jose Antonio (2016) Taking Back Control: A Bank’s perspective into the use of risk control systems of investment re-allocation and their resiliency under random CTA performance. [Dissertation (University of Nottingham only)]

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Abstract

This study was done with the purpose of making trading investments more attractive to a Bank. We Identify a disconnect between the investor (Bank) and the Trader (CTA). CTA’s are often regarded as long-term investment options and are assumed to prefer a fixed amount of capital with which to work with. From a Bank’s perspective, handing over 100% of the investment risk to the Trader not only exposes its investment to market risk, but also operational risk via the Trader. Therefore, we propose the idea of taking back control of the investment, by managing the funds available to the Trader based on his performance.

We use fuzzy rules to set our system parameters, identifying the Traders Magnitude of losses and gains, to allocate the adequate amount of funds based on Trader performance. We collect a diverse set of CTA’s, representing different industries and compare a static allocation against that of our system of re-allocation. We find that the bottom line of trading investments can improve under such a system whilst simultaneously lowering operational risk. Additionally, a variety of re-allocations systems are run against a series of conditions in order to determine our best performing system of re-allocation. We find that when our re-allocation responses are doubled, our uniform system produces the best set of results. Preliminary evidence supports the implementation of a system of re-allocation with the goal of making Trading Investments more attractive to a Bank. However, we also find one general rule of re-allocation to not produce the best results for Traders individually.

Item Type: Dissertation (University of Nottingham only)
Keywords: MSc Banking and Finance Dissertation
Depositing User: Leon Gambetta Johanson, Jose
Date Deposited: 17 Jan 2022 16:42
Last Modified: 17 Jan 2022 16:42
URI: http://eprints.nottingham.ac.uk/id/eprint/36906

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