AI and Geoeconomics

Synthetic ETFs Last year, Bank of England analysts wrote: Synthetic ETFs exhibit more of the characteristics that might contribute to the build-up of systemic risk. They are more complex than physical ETFs, although the degree of complexity remains far below that of some structured credit products developed in the run-up to the crisis. The derivative transactions between ETFs and affiliated banks (or those that the bank itself might undertake to gain exposure to the index) result in the build-up of counterparty credit exposures between market participants. And synthetic structures might pose funding liquidity risk to banks acting as swap counterparties if there is a sudden withdrawal of investors from the ETF market. There’s an extremely good discussion of the risks of synthetic ETFs in  this paper by the Bank for International Settlements . But the short version is that all of the risks get bigger when you see a large pronounced move to withdraw funds ...

Les joueurs de cartes - Paul Cézanne - 1890-1892 Source : Goeree, Jacob K. and Kushnir, Alexey I., A Geometric Approach to Mechanism Design (December 20, 2011). University of Zurich Department of Economics Working Paper No. 56. Available at SSRN: http://ssrn.com/abstract=1974922 or http://dx.doi.org/10.2139/ssrn.1974922 Mechanism design is the science of creating optimal social systems by maximizing a well-defined social welfare function taking into account resource constraints and participants' incentives and hidden information. It provides a framework to address social engineering questions like what auction format assigns goods most efficiently or yields the highest seller revenue, “when should a public project such as building a highway be undertaken?” and “which trading rules maximize the gains from trade?” The difficulty in answering these questions stems from the fact that the designer, or public authority, typically does not possess deta...