Snappy Comeback to the Latest Criticism of VaR

Last week, the Swiss pulled their peg, and swissie soared. Part of the fallout—surprise, surprise!—is criticisms of value-at-risk. This time The Economist is leading the charge, writing: … Another likely casualty is the ‘value-at-risk’ models banks use to calculate the maximum they might lose on any given investment or transaction. But banks’ value-at-risk models don’t […]

Is Risk Management a Job or a Career?

There are few life decisions as consequential as your choice of career. Get it wrong, and you’re in for a world of discontent. Perhaps you currently have a risk management position and are wondering if you can make it a career. Or maybe you are just starting out and are contemplating risk management as a […]

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 […]

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 […]

Nickels In Front of Bulldozers

There is an old saying on trading floors: Watch the trader who makes consistent money. He is the one who is going to blow up. In his book When Genius Failed, on the 1998 failure of hedge fund Long-Term Capital Management (LTCM), Roger Lowenstein shares a compelling analogy for this: Picking up nickels in front […]

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