Bruno Imaizumi

‘’Leverage's effects on financial institutions in Brazil.’’ TERM PAPER SUMMARY: This paper investigates the influence of financial hardship on Brazilian banks' capital structures, with an emphasis on the Basel III leverage ratio. It promotes diversifying income streams to lessen dependency on interest income and weather economic downturns. The article compares Brazil's systemic risk, credit market risk, and financial service disruption to those of the United States and the Eurozone. The article concludes that Brazil's financial system is less stable and more vulnerable to economic shocks due to lower levels of capitalization and liquidity. The findings suggest that Brazilian banks should prioritize building up their capital reserves and liquidity buffers to enhance resilience in the face of potential financial crises. Implementing stricter regulatory measures, such as increasing capital requirements and stress testing, could help mitigate systemic risks in the country's banking sector. CRITICAL EVALUATION: Pros : 1. Diversifying income streams can also provide opportunities for growth and expansion into new markets. This strategy can help businesses remain competitive and adapt to changing market conditions. 2. Imposing stricter regulatory measures can help mitigate the risks by imposing limits on leverage, increasing capital requirements, and enhancing oversight of financial institutions. By learning from the experiences of other economies, Brazil can better prepare for and navigate through future financial crises. 3. Brazil's financial system's stability and resilience can be enhanced through reforms like improved risk management and increased transparency, ensuring the country's long-term stability. 4. Implementing reforms will protect Brazil's financial system from crises and contribute to sustainable economic growth by addressing vulnerabilities and strengthening regulations. Additionally, these reforms will help attract more foreign investment and boost investor confidence in Brazil. Cons: 1. However, diversification can also increase complexity and operational risks within the organization. 2. However, these measures may also lead to increased compliance costs for financial institutions and potentially hinder economic growth in the short term. It is important for Brazil to strike a balance between regulation and fostering a competitive and dynamic financial sector. 3. However, implementing these reforms may face resistance from certain sectors within the financial industry. It is crucial for Brazil to find a balance between regulation and innovation to foster sustainable growth in the financial sector. 4. They may face opposition from those who benefit from the current system, which may be difficult to implement due to political challenges.

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Log-Normal Stochastic Volatility Model with Quadratic Drift by Artur Sepp & Parviz Rakhmonov. Read the full articles at https://lnkd.in/gYsqmCtx. In this paper, the authors introduce the log-normal stochastic volatility (SV) model with a quadratic drift to allow arbitrage-free valuation of options on assets under money-market account and inverse martingale measures. They show that the proposed volatility process has a unique strong solution, despite non-Lipschitz quadratic drift, and we establish the corresponding Feynman–Kac partial differential equation (PDE) for computation of conditional expectations under this SV model. #bitcoin #ethereum #nonaffinemodels #momentgeneratingfunction #cryptocurrencyderivatives #quadraticvariance #IJTAF International Journal of Theoretical and Applied Finance

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Great literature review on inflation-linked products by Jarrow and Yildirim. Covers bonds, derivatives, pricing models, and empirical findings. Link (open access): https://lnkd.in/df5Pm5BB

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Fear and Greed: The concept of Sticky Strike and Sticky Delta by Goldman Sachs! Exploring the concepts of Sticky Strike and Sticky Delta in options pricing! Smile relocation:- These models play a crucial role in understanding how Implied Volatility Smile respond to change in spot price. Sticky Strike Model: Implied volatility for a given strike remain same and is independent to change in spot Sticky Delta Model: Implied volatility for a given delta remain same as spot changes! Which model to use and when? What do you think? #Quant #StickyDelta #StickyStrike

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#Brazil: Real-ity for the cheapest equity market in large EM (on some measures) Currency down 3% so far this month, over 20% year to date: an unconvincing policy to cut primary fiscal deficit is the core problem In this report on Tellimer, linked in the comment below, I juxtapose this with: - restrictive monetary policy - a real effective exchange rate that implies upside to the currency, - benign external metrics (low current account deficit, and s/t external debt, high foreign reserves cover of imports), and - an equity index that is on a bigger price/book discount versus historical average than any peer in large #emergingmarkets I also consider how an extended period of ill health for Lula might impact the situation

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Brazil Local Fixed Income closing commentary In the morning, some sort of the Deja-vu feeling was hovering markets. The JPY once more was appreciating close to 1% and triggering another wave of dismantling of carry trade positions. Currencies such as MXN and ZAR were already suffering and the perspective for the opening of local markets was far from bright. Right before the opening we had the release of the IPCA-15 from July and it came higher than expected, with bad openings and core measures. Now we had all the ingredients for an opening under a lot of pressure and that is what happened. Quickly BRL was trading close to 5.70 and local rates more than 15bps. Eventually, the JPY retraced back, calming down markets and cooling off the morning pressure. Along with that, we had the National Treasury wisely issuing a small auction, which also helped to contain the pressure. From then on, the BRL started to trade in a better tone, but local rates, which at first followed, failed to keep it, and widen all it back. Even with some foreigners buying NTN-Fs and others receiving Jan/27, couldn’t contain another big widening of local rates. In the end, local yields widened like 20bps across the curve depending on the tenor a bit less. As I have mentioned, the scenario is quite binary. I could see the monetary policy authority hiking rates if we continue in this mood and I also can see, things calming down, if the external scenario helps. I don’t have any big conviction in any bet, and I am trying to make a buck here and there, making the most of it in the daily volatility. I intend to keep it this way at least the next Copom meeting on the coming Wednesday. Good evening, Ed Disclaimer: “This material was prepared by Local Fixed Income trading desk of Itaú Unibanco, based on reliable public sources, not reflecting the opinion of Itaú Unibanco and the area responsible for its creation and it should not be considered as an analysis or consulting material of investments”.

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Brazil: Analysts raise the 2024 year-end IPCA inflation forecast to 4.12% y/y, while increased Selic interest rate forecast by 25bps to 9.75% for 2025 Obviously, the June IPCA inflation result contributes to a slight reduction in uncertainties in the domestic economic picture. This is coupled with lower political noise, the unanimous decision by the BCB board in the last meeting, and the BRL 15.0bn package of expenditure cuts announced by the Ministry of Finance's economic team the previous week. These factors should support the reduction of stress observed in the yield curve and provide lower exchange rate volatility, helping to partially accommodate inflation expectations while the fiscal issue remains to be fully addressed in the coming quarters of 2024. In any case, it should be noted that the BCB board indicated in its latest communication that there is no room for new cuts if the goal is to achieve the convergence of inflation to the target by 2025, given the alternative scenario presented.

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This paper offers an extensive review of statistical arbitrage research across equities, fixed income, and commodities. It features a rich reference list of 100+ papers for further insights. Read paper here (open access): https://lnkd.in/de4Cphzn

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Understanding Inverse Problems in Investment Analysis: From Theory to Practice #InverseProblem #QuantFinance #RiskAnalysis #FactorInvesting #DataScience #FinancialModeling #MarketAnalysis #AlgoTrading #PortfolioOptimization #ImpliedVolatility

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🚀 Record Growth in Brazil’s Debt Capital Market in April! 🎋 Brazilian Debt Capital Markets sustained their secular growth in April, with total issuances reaching BRL 187 billion ($37B) in the first four months, representing a 139.1% increase compared to the same period last year. 📊 April highlights include: Interest Rates: In Brazil, there was a slight decrease in short-term maturities and a widening of long-term ones, affected by economic uncertainties and a more cautious view on government spending policies. In the US, the Fed indicated that interest rates will remain high for a longer period, which, combined with below-expected economic data, raised inflation concerns. Private Credit Markets: There was a slowdown in the offerings of #CRIs, #CRAs, and #debentures, with a 39% decrease in April compared to March, totaling BRL 33.8 billion ($7B). Factors such as problems in the agricultural sector and uncertainty regarding future Selic rate cuts contributed to this reduction and the increase in private credit spreads. Debentures, Commercial Notes (NC), and Real Estate #ABS (CRIs): Despite the slowdown compared to March, debentures and NCs continued to dominate issuances with a record BRL 115 billion ($23B) in the first four months compared to the same period in 2023. CRIs also showed strong growth, with an increase of 194%, totaling BRL 21.8 billion ($4B). Agricultural ABS (CRAs): These also performed impressively, totaling BRL 13.5 billion ($3B), an increase of 122% in the same period. 🔍 Market Radar: Impact of Spending Policies: Government reactions regarding spending policies are increasing uncertainties, which could influence the term structure of interest rates and investment decisions. Agribusiness: The first quarter was challenging for #agriculture. Requests for debt extensions, bankruptcy filings, and missed expectations made the cost of capital higher and more restrictive. Another point to watch is the impact of heavy rains in Rio Grande do Sul. Want to better understand how these trends can affect your investments or your business? Check out our attached monthly newsletter for detailed analyses and deep market insights. 💡 Exploring debt financing as an alternative to equity? Contact Raquel Silberberg Kryss, Bruno Valsecchi, Igor Donni, Felipe Moraes, Arthur O'Keefe, and discover how Bamboo Debt Capital Markets Platform, Brazil’s Premier Tech-driven DCM Dealer, can boost your company’s growth with our innovative debt solutions. Pioneering Access to Debt Capital Markets, together we can navigate the complexities of today’s market and unlock new opportunities for sustainable growth. 🎋 We look forward to exploring these opportunities with you! 🚀🎋 Article credit: Natan Oliveira Santos - Thank you! 🙏 #DebtCapitalMarkets #Debentures #Investment #BambooDCM #ABS #StructuredCredit

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I would like to clarify something: this is not a backtest. Thirty-four weeks ago, I began a live study using machine learning models for portfolio management. I established two portfolios—one focused on Brazil (highlighted in yellow) and another focused on the United States (in green) stocks—and compared them to their main benchmarks: the Brazilian Index, the S&P 500, and a bond index. The initial weeks were somewhat uncertain as the model adapted to market conditions, but eventually we reached a stable phase. Again, to be perfectly clear: this is not a backtest. This is a live, long-only study, and the composition of each portfolio is published in advance every week. The process is fully auditable to all OMQS users (https://om-qs.com). As of today, the Brazilian portfolio has delivered a 46% return, while the U.S. portfolio has achieved 19%, significantly outperforming their respective benchmarks in the period. Additionally, I have accounted for operational costs throughout—no academic oversights here. While 34 weeks is still a short-term period, it is long enough to demonstrate that these results are not mere luck. For further context, a 14-year backtest supports these findings. Two key takeaways: this approach does not rely on Deep Learning or hype-driven techniques. It uses traditional ML models, proving that simplicity can be powerful. With a bit of patience, the evidence speaks for itself.

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Wall Street's sentiment continues to sour across Brazilian equities. JPMorgan became the second bank in just over a week to downgrade its recommendation on Brazilian stocks, citing a burgeoning budget deficit and the prospect of higher interest rates. Latest for Bloomberg News https://lnkd.in/ebw77_Jw

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27/09/2024 Yesterday, the U.S. dollar depreciated by 0.59% against the Brazilian real, closing at BRL 5.4432. Today, the dollar opened with a slight decline domestically. Internationally, the dollar is also down against its major peers and emerging market currencies, following the release of the PCE, which showed a 0.1% increase in August compared to July. Domestically, the market is digesting the release of the Continuous National Household Sample Survey (Pnad Contínua), which indicated an unemployment rate of 6.6% in Brazil for the quarter ending in August, close to the lower end of market expectations. Brazil Earlier today, the General Market Price Index (IGP-M) registered a 0.62% increase in September, following a 0.29% rise in August, according to the Getulio Vargas Foundation (FGV). As a result, the index has accumulated a 4.53% increase over the past 12 months. Additionally, the Central Bank reported that bank loans in the free credit market dropped by 1.7% in August compared to July, amounting to BRL 542.8 billion. Over the past 12 months, this represents a growth of 15.9%. The highlight of the day is the General Employment and Unemployment Registry (Caged) for August, calculated by the Ministry of Labor and Employment, which is set to be released at 10 AM (Brasília time). United States Following the PCE release, Treasury yields accelerated their decline. The 2-year T-note yield hit a daily low of 3.588%, while the 10-year T-note yield dropped to 3.761%, and the 30-year T-bond yield reached a low of 4.098% this morning. *The above text is for informational purposes only and does not reflect any long or short positions or expectations of Itaú Bank.

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Brazil has many problems, but external is not one of them, which is a boon for Brazil’s sovereign bonds (even though Brazil’s local bonds are often under pressure this year): > Brazil’s current account deficit is trailing low (1.41% GDP) > Brazil’s FDI are trailing high (around 3.1% GDP) > Brazil’s basic balance (current account + FDI) is very much positive > Brazil’s international reserves are ample, and the country is a net sovereign creditor (reserves > public sector external debt)

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