Category: papers

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Happy New Year and Some News

1 January 2024

Happy New Year to everyone!

We trust you all had a nice Christmas break and raring to go in 2024.

A couple of bits of news from us.

First, our article “Arbitrage Problems with Reflected Geometric Brownian Motion” has just been published. The full reference and the Open Access link is given here:

“Arbitrage Problems with Reflected Geometric Brownian Motion.” (D.E. Buckner, K. Dowd and H. Hulley) Finance and Stochastics (2023) 28: 1-26.

We will have more to say on reflected GBM processes soon, as Annals of Actuarial Statistics, the journal that published Guy Thomas’s devastatingly flawed articles on the subject, seems to think it is OK to published flawed models that could bankrupt a company that uses them, without allowing anyone (i.e. us) to make any comment to that effect in its hallowed pages. This is like a maths journal that publishes an article saying that 2 plus 2 equals 5, and that’s OK because 2 plus 2 equals 4 is merely an opinion and other actuaries might have a different opinion.

We will how well that opinion holds up in due course. We have a cunning plan to address this issue.

Second, my new book on free banking is out. The link is:

The Experience of Free Banking, second edition.

There is a blog on it here, which also explains what free banking actually is.

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The Liability Driven Investments Problem is Bigger than It Looks

I (Buckner) will be presenting on the subject of LDI and the ‘bigger than it looks’ problem on Nov 3, 2022 04:30 PM London, by Zoom.

If you would like to attend, please contact me here for the flyer, and the Zoom link.

“The September 28th collapse in the gilts market led the Bank of England to announce a £65bn programme to stabilise long-term interest rates and save UK pension schemes from defaulting on their Liability Driven Investment (LDI) positions by the end of that day. Schemes had experienced liquidity problems on their Interest Rate Swap positions, losses on which had triggered margin calls requiring them to sell assets.

“The affair has highlighted the danger of hedging illiquid positions with liquid ones. I shall argue, based on a model of the underlying interest rate transformation involved in LDI, that there is more to the issue than has yet been appreciated.”