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Category Archives: Risk Management
JP Morgan “London Whale” series by Lisa Pollack
I discuss the JP Morgan “London Whale” credit derivatives trading loss in my “Practical Risk Management Course” at the University of Chicago Booth School of Business. I found Lisa Pollack’s discussion of the background and details invaluable. The following is … Continue reading
Lamia Gurdleneck – “it’s what you do with the figures that matters”
In the frontispiece of my risk management books I have a quote that sums up a fundamental truth about quantitative risk management: It’s not the figures themselves, it’s what you do with them that matters” I included the quote because … Continue reading
Posted in Miscellaneous, Risk Management
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What is the link between VIX and VaR?
VaR is Value at Risk – a concept widely used (and miss-used) in financial risk management. VIX is the Volatility IndeX, a measure of the implied volatility of S&P 500 index options. (Legally, it is a trademarked ticker symbol for … Continue reading
Managing financial risk and the limitations of quantitative modeling
John Kay in a 2011 column says that the management of risk is “almost entirely a matter of management competence, well-crafted incentives, robust structures and systems, and simplicity and transparency of design.” (“Don’t blame luck when your models misfire” Wednesday … Continue reading
Marginal Contribution to VaR for Simulation
Last week I was talking to a group of risk professionals and advocating marginal contribution to risk when someone asked “what about calculating marginal contribution to VaR for historical or Monte Carlo simulation?” (NB – we’re talking here about Litterman’s … Continue reading
Thinking about VaR – and not as “Worst Case”
Value at risk or VaR has a bad name. But much of the problem is how we think about and how we talk about VaR. Words do matter and using the wrong terms and phrases often takes us down the … Continue reading
Posted in Risk Management
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Risk Management Talk at Greenwich Library
On September 6th 2012 I gave a talk at the Greenwich Library, “How to Think About Risk Management”, co-sponsored by the CFA Society of Stamford. I talked about my views on risk management, focusing on two topics: Arguing for risk … Continue reading
Posted in Conferences, Risk Management
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JPMorgan Chase loss seems to be an idiosyncratic trading loss
The JPMorgan Chase loss seems to be a plain-vanilla trading loss – unfortunate and bad news, but not a sign of something more serious in the financial system. Bad as they are, we have lived with these kind of trading … Continue reading
Rights and Wrongs of Value at Risk (VaR)
With the loss announced by JPMorgan Chase last week there are, once again, loud and varied denunciations of Value at Risk or VaR. Unfortunately, such talk sheds little light upon and often shows misunderstanding of the underlying issues. Take the … Continue reading
JPMorgan Chase loss and idiosyncratic vs. systemic risk
The loss announced by JPMorgan Chase last week raises many interesting questions, one being the distinction between idiosyncratic and systemic risk. The distinction between idiosyncratic risk versus systemic risk (and idiosyncratic vs. system events) is vitally important because the sources … Continue reading
Posted in Musings, Risk Management
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