Capital Markets & Risk
Risk and derivative questions punish framework substitution and convention drift. A greater-of payoff modeled as a sum, a square-root time-scaling dropped, a forward quoted additively rather than as a rate ratio, none of these are exotic, and all of them produce a confident number that misstates the hedge, the claim, or the risk by a structural margin.
Convertible & preferred securities
MechanismA non-participating preferred pays the greater of its preference or its as-converted value, not the sum of the two.
ConsequenceOverstates the preferred holder's claim and distorts the entire equity waterfall.
MechanismParticipating preferred takes its preference and then shares as-converted, often subject to a cap; the payoff is piecewise.
ConsequenceMisstates common proceeds across exit values.
Options & derivatives
MechanismParity holds on forward terms; dividends and financing carry shift the relationship.
ConsequenceProduces a mispriced synthetic and a false arbitrage signal.
MechanismDelta approximates but is not the risk-neutral exercise probability, which is N(d2) rather than N(d1).
ConsequenceMisstates hedge ratios and expected payoff.
Risk measures (VaR, duration, Greeks)
MechanismUnder an i.i.d. assumption volatility scales with the square root of time, not time itself.
ConsequenceOverstates annualized VaR by roughly sixteen times.
MechanismDuration is a first-order approximation; large moves require the second-order convexity term.
ConsequenceUnderstates price gains and overstates losses on big moves.
Hedging & FX
MechanismCovered interest parity sets the forward as spot times the ratio of gross interest rates, not spot plus a spread.
ConsequenceProduces a mispriced forward and a false carry signal.
MechanismTriangulating through a common currency requires consistent base and quote conventions.
ConsequenceReciprocates the cross rate and inverts the trade.
The full bank contains additional items not published here. The taxonomy is a living artifact, derived from practice — versioned, dated, and never claimed to be exhaustive.