Valuating Capital Requirements

Since I am far from quantitatively inclined my tolerance for highly quantitative approaches to finance is low. Naturally, during the derivate driven whirlwind of the last decade I missed out on many an opportunity to add an extra zero. I don't have an regrets in this regard. You can only play with the skill set you have. Jump shooters should stay out of the paint, especially if they can't pull up in time.

This is precisely why I am getting an inkling to write up my own financial formula. You see with the dreaded day of real financial regulation approaching, I am wondering how the quant minds of Wall Street plan to attack a new playing field. Now that the Senate has cracked into gear on forcing greater capital requirements and transparency for financial firms, the next wave of financial golden boys will be those who find a way to hedge for austerity risk.

Being that we've already tipped a cap to the ECB on its austerity measures on previous NSFW programs, I won't get into this end of the equation. What I will say is that with many old methods of making money in markets becoming irrelevant, a combination of global macro and risk management will become a valued skill set.

Sadly, I don't begin to have the skill set to attack this issue from a mathematical perspective. It is, however, a friendly suggestion to all of you guys looking to add that extra course or financial designation to your resume. Go for math and advanced econometrics. Look into ways you can incorporate Dodd-Frank (or whatever derivation of it exists in a few years) into your valuation strategies. Think about how capital requirements and position limits can be maximized. The ability to expand these limits in your models and methods of valuation can mean the difference between a very early retirement and a lifetime of toiling in a damp, dark cubicle.

Word to the wise...