How to Calculate Value-at-Risk – Step by Step

The power of value-at-risk lies in its generality. Unlike market risk metrics such as the Greeks, duration, convexity or beta, which are applicable to only certain asset categories or certain sources of market risk, value-at-risk is general. It is based on the probability distribution for a portfolio’s market value. All liquid assets have uncertain market […]

List Of Risk Management Failures

“Those who cannot remember the past are condemned to repeat it.” Nowhere is George Santayana’s famous admonition more applicable than in the field of risk management. As a reminder of all the ways things can go wrong, I maintain an informal list of prominent risk management failures. I just updated the list and thought I […]

How To Address Procedure Violations

It is surprising how many books and articles on risk management discuss procedures but don’t discuss violations of procedures. Is the topic so disturbing people don’t want to mention it? Maybe people think that, if an organization is managing risk properly, there won’t be procedure violations. That is not true. There are always violations. They […]

What The 4 T’s Overlook

If you have been active in risk management for a while, you have probably heard of the 4 T ‘s. These—at a very high level—are the four possible responses to risk. Conveniently, each begins with the letter T: Tolerate Treat Transfer Terminate They appear in various risk management standards. They pop up in books, articles […]

High-Frequency Trading: What You Need To Know

You probably already know the basics: that high-frequency trading (HFT) is a style of trading that involves placing, transacting and/or rescinding numerous orders over compressed time intervals measured in milliseconds (thousandths of seconds). Positions are rarely held more than a few seconds. The pace is too fast for any human, so trading decisions are made […]

Book Review: Flash Boys

Michael Lewis has a new book out. It may be more influential than even his 1989 runaway bestseller Liar’s Poker. Called Flash Boys: A Wall Street Revolt, it is an illuminating expose of the shadowy world of high-frequency trading. For almost a decade, the U.S. equity markets have been corrupted. Established exchanges have fragmented into […]

The First Mutual Funds: Interview With Michael Yogg

Today, I interview Michael Yogg, author of the new book Passion for Reality. Its about Paul Cabot, a pioneer of the mutual fund industry. In 1920s Boston, Cabot cofounded State Street Investment Corporation, one of the first open-ended mutual funds. He shepherded the fund through frenzied markets, the crash of 1929 and into the Great […]

“The World’s Largest Hedge Fund Is A Fraud.”

I recently attended a screening of the new documentary Chasing Madoff about a financial analyst, Harry Markopolos, who uncovered Bernie Madoff’s Ponzi scheme and spent almost a decade trying to get the SEC to investigate. One of his filing with the SEC was entitled The World’s Largest Hedge Fund Is A Fraud, but that wasn’t enough […]

Risk Archive: Preserving a Financial Knowledge Base

Who remembers RiskChat.com, a forum on financial risk management that I had the pleasure and honor of hosting from 1996 to 2009? It was the go-to website for financial professionals to discuss risk management, trading, financial engineering and a host of related topics. Over its life, the forum accumulated some 15,000 posts, a valuable knowledge base […]

Test Your Risk Intuition

I am dusting off a classic test for risk intuition. If you remember the test from years past, it will be nice to reminisce. If not, take the test now to assess your intuition and look at risk in a new way.

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