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D-Fine from Physics to Finance.Pdf From Physics to Finance XXXVII Heidelberg Physics Graduate Days Heidelberg, October 10th, 2016 © d- fine© d- —fine All — rights All rights reserved reserved | 0 The opinions expressed in this presentation and on the following slides are solely those of the authors and not necessarily those of d-fine GmbH. d-fine GmbH does not guarantee the accuracy or reliability of the information provided herein. The slides in this presentation were prepared as basis for the XXXVII Heidelberg Physics Graduate Days. It is therefore possible that key substantive elements were delivered only orally and are not present on the slides. The slides in this presentation are provided for information purposes only. Any and all information contained herein is not intended to constitute technical or legal advice and shall not be the initial position for taking actions based on this content. We do not guarantee or warrant the accuracy of this information or any results and further assume no liability in connection with this presentation, including any information, methods, or suggestions contained herein. Without the express prior written consent of the authors, the presentation and any information contained within may not be used for any purpose other than personal information. © d- fine© d- —fine All — rights All rights reserved reserved | 1 Agenda » The banks’ role in the economy 3 » Time series in finance – non-linearity and prediction of the future 12 » The mechanics of the balance sheet – an engineers approach 68 » The costs of the crisis 76 » Is the financial complexity manageable? 88 2016-10-10 | From Physics to Finance © d- fine© d- —fine All — rights All rights reserved reserved | 2 The banks’ role in the economy 2016-10-10 | From Physics to Finance | The banks’ role in the economy © d- fine© d- —fine All — rights All rights reserved reserved | 3 The “Banks” Photo source: © NH1977 / PIXELIO 2016-10-10 | From Physics to Finance | The banks’ role in the economy (1/8) © d- fine© d- —fine All — rights All rights reserved reserved | 4 New players – Fintecs try to disrupt the banking industry New opportunities arise from disrupting old and 250 Investitionen von Risikokapitalgebern inefficient processes in the banking business: in Deutschland in Finanz-Startups (in » Use of Blockchain technologies contemplated in: Millionen Euro) 200 › Money (Bitcoin etc.) › Stock exchange › Account management 150 › Interbanking transactions › Title register… 100 » Brokerage of fix rate invest in foreign countries » Assistance in changing the bank-account 50 » Support of collection services » Credit rating with the help of user profiles/social 0 network data (currently not legal in Germany) 2015 I 2015 II 2015 III 2015 IV 2016 I 2016 II » First Fintechs in Germany are in possession of a bank licence » Established banks take notice Cooperation with or acquisition of Fintechs Digitalization of the banking business is a trend for years to come Source; Barkow-Consulting 2016-10-10 | From Physics to Finance | The banks’ role in the economy (2/8) © d- fine© d- —fine All — rights All rights reserved reserved | 5 Banking landscape in Germany Universalbanken (1.637) 288 Kreditbanken 4 Großbanken 172 Regionalbanken und sonstige Kreditbanken 112 Zweigstellen ausländischer Banken three pillars 1.027 Genossenschaftliche 1.025 Kreditgenossenschaften Kreditinstitute 2 Genossenschaftliche Zentralbanken 422 Öffentlich-rechtliche 413 Sparkassen Kreditinstitute 9 Landesbanken Spezialbanken (56) 21 Bausparkassen 16 Realkreditinstitute 19 Banken mit Sonderaufgaben Stand: Jahresende 2015 Source: Bankenstatistik, Statistisches Beiheft 1 zum Monatsbericht, Deutsche Bundesbank, September 2016, S. 104 2016-10-10 | From Physics to Finance | The banks’ role in the economy (3/8) © d- fine© d- —fine All — rights All rights reserved reserved | 6 The banks’ role – Transforming money Bank Mediator Transformation: Capital demand: » Quantity Capital supply: big, long term demanded capital » Term many small, rather short term amounts » Risk supplied capital amounts Transformation is at the heart of banking business Photo source: © segavax, Andreas Hermsdorf / PIXELIO 2016-10-10 | From Physics to Finance | The banks’ role in the economy (4/8) © d- fine© d- —fine All — rights All rights reserved reserved | 7 The banks’ role – Transforming money BankSmall / fast Mediator Big / slow Small / fast Transformation: Capital demand: » Quantity Capital supply: big, long term demanded capital » Term many small, rather short term amounts » Risk supplied capital amounts Transformation is at the heart of banking business Photo source: © segavax, Andreas Hermsdorf / PIXELIO 2016-10-10 | From Physics to Finance | The banks’ role in the economy (5/8) © d- fine© d- —fine All — rights All rights reserved reserved | 8 Traditional tasks of a bank Capital / Liquidity Information Risk taking transformation offset Both forms of transformation hold specific risks for the bank which need to be quantified and controlled: Volume » Volume transformation ↔ Credit Risk transformation Term » Term transformation ↔ Liquidity Risk and transformation Interest Rate Risk » Currency transformation ↔ FX Rate Risk » Equity Prices, Stock Exchange Rates, … Transformation is at the heart of banking business 2016-10-10 | From Physics to Finance | The banks’ role in the economy (6/8) © d- fine© d- —fine All — rights All rights reserved reserved | 9 German saving behaviour » Germans still invest the largest part of their capital in savings- / sight- / term- deposits and cash, as well as insurances 6.000,00 Geldvermögen privater Haushalten in Deutschland in Mrd. Euro 5.000,00 198,70 193,40 299,50 185,20 259,10 4.000,00 228,00 201,10 201,10 221,50 215,10 201,70 201,70 370,60 181,90 1.468,90 1.551,70 1.400,20 1.284,80 1.284,80 3.000,00 1.190,70 1.215,00 216,00 247,10 238,20 265,50 265,50 449,50 297,00 267,10 394,90 420,10 2.000,00 416,20 416,20 467,40 379,80 1.000,00 1.860,80 1.927,50 2.014,90 2.082,20 1.602,80 1.737,50 1.788,10 0,00 2007 2008 2009 2010 2011 2012 2013 Spar-, Sicht-, Termineinlagen und Bargeld Investmentzertifikate Festverzinsliche Wertpapiere Geldanlagen bei Versicherungen Aktien Sonstiges We have savings of about 5 trillion EUR Source: Deutsche Bundesbank, September 2014 2016-10-10 | From Physics to Finance | The banks’ role in the economy (7/8) © d-fine © d —-fine All —rights All rightsreserved reserved | 10 The ten biggest banks in Europe Total Assets of European Banks in trillion € (30.06.2016) 2.500 2.000 1.500 1.000 500 0 HSBC BNP Paribas Deutsche Credit Barclays PLC Societe Banco Groupe Royal Bank Lloyds Holdings Bank Agricole Generale Santander BPCE of Scotland Banking Group Group Group Source: http://www.relbanks.com/, http://www.xe.com 2016-10-10 | From Physics to Finance | The banks’ role in the economy (8/8) © d-fine © d —-fine All —rights All rightsreserved reserved | 11 Time series in finance – non-linearity and prediction of the future 2016-10-10 | From Physics to Finance | Time series in finance – non-linearity and prediction of the future © d-fine © d —-fine All —rights All rightsreserved reserved | 12 The yield curve interest rates (i) yield curve 1Y 2Y 3Y 5Y 7Y 10Y 11Y 12Y 13Y 14Y 15Y term (t) Term transformation, i.e., transformation in time, is a major transformation 2016-10-10 | From Physics to Finance | Time series in finance – non-linearity and prediction of the future (1/55) © d-fine © d —-fine All —rights All rightsreserved reserved | 13 The yield curve 6 3 3 interest rates (i) yield curve 1Y 2Y 3Y 5Y 7Y 10Y 11Y 12Y 13Y 14Y 15Y term (t) Term transformation, i.e., transformation in time, is a major transformation 2016-10-10 | From Physics to Finance | Time series in finance – non-linearity and prediction of the future (2/55) © d-fine © d —-fine All —rights All rightsreserved reserved | 14 Interest rates and their dynamics 15 Y The change in interest rates follows no simple statistics 2016-10-10 | From Physics to Finance | Time series in finance – non-linearity and prediction of the future (3/55) © d-fine © d —-fine All —rights All rightsreserved reserved | 15 Interest rates and their dynamics 10 Y The change in interest rates follows no simple statistics 2016-10-10 | From Physics to Finance | Time series in finance – non-linearity and prediction of the future (4/55) © d-fine © d —-fine All —rights All rightsreserved reserved | 16 Interest rates and their dynamics 9 Y The change in interest rates follows no simple statistics 2016-10-10 | From Physics to Finance | Time series in finance – non-linearity and prediction of the future (5/55) © d-fine © d —-fine All —rights All rightsreserved reserved | 17 Interest rates and their dynamics 8 Y The change in interest rates follows no simple statistics 2016-10-10 | From Physics to Finance | Time series in finance – non-linearity and prediction of the future (6/55) © d-fine © d —-fine All —rights All rightsreserved reserved | 18 Interest rates and their dynamics 7 Y The change in interest rates follows no simple statistics 2016-10-10 | From Physics to Finance | Time series in finance – non-linearity and prediction of the future (7/55) © d-fine © d —-fine All —rights All rightsreserved reserved | 19 Interest rates and their dynamics 6 Y The change in interest rates follows no simple statistics 2016-10-10 | From Physics to Finance | Time series in finance – non-linearity and prediction of the future (8/55) © d-fine © d —-fine All —rights All rightsreserved reserved | 20 Interest rates and their dynamics 5 Y The change in interest rates follows no simple statistics
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