15 June 2020

Amazon AWS has been recommending ARM Graviton2 as a cost-effective alternative to Intel/AMD instances. So I tried it out.

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8 May 2020

Does it make sense to invest in low vol funds?

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8 May 2020

I just tried the same code in R’s data.tables and Julia’s DataFrames, and the results are a bit surprising.

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30 April 2020

It is easy to manipulate risk forecasts. If your regulator or compliance officer sets a risk target you don’t like, just tell them what they want to hear and continue taking the risk you like.

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27 April 2020

It is easy to criticise risk forecasting, but it’s rather pointless unless one can come up with proposals. Here are my five principles for the correct use of riskometers.

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25 April 2020

Backtesting is the magical technique that tells us how well a forecast model works. Test the model on history, and we have an objective way to evaluate how good the model is. But does it really work in practice?

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24 April 2020

The way financial risk is measured is by a device I have called the riskometer. It is a fantastic thing, plunge it into the bowels of the City of London and out pops a single accurate measurement of risk. Magical. But does it work in practice?

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23 April 2020

The way we manage financial risk has a lot in common with the old concept of scientific socialism. The modern-day riskometer is pseudoscientific, and the increased reliance on it leads to disastrous systemic risk.

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1 January 2019

The financial markets did not have a good 2018 as the media kept on reminding us:

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3 December 2018

The riskiest year in human history was 1962. The year of the Cuban missile crisis, the closest we ever came to a nuclear war. The mother of all tail events, where all prices go to zero. Volatility that year was average — 16.5%

How can market risk be average when tail risk is at its highest?

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2 December 2018

Perceived risk is risk predicted by models and actual risk is the fundamental underlying risk. We measure perceived risk and care about actual risk. Unfortunately, those two are negatively correlated.

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1 November 2018

Was last month’s stock market crash was as bad as some are making out?

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3 June 2018

One can endlessly criticise risk models, but that is just too nihilistic. So, what are the good for? There are three camps, the model believers, the rejectionists and the healthy skeptics. I’m going to make the case for the last below.

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20 May 2018

Two widely used indicators of financial risk, the VIX index and the ECB’s CISS, are at a historical low. The (financial) world must be really safe. However, that doesn’t square with all the newspaper headlines screaming political uncertainty. What gives?

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30 March 2018

Medieval mapmakers noted the risk of an unknown kind by “here be dragons”. Attempts at measuring extreme risk should come with a similar warning. Just like the sailors of yesteryear, financial institutions will go into unknown territories and, just like the map makers of the earlier era, modern risk modellers have little to say.

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6 February 2018

The stock market had a mini crash yesterday. So how big was that in a historical context?

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24 September 2017

The European Central Bank has an indicator of systemic risk called the Composite Indicator of Systemic Stress , CISS. So what sort of signal does it send and what is it to be used for?

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12 March 2017

March 2017

I really want to like Julia. She promises to solve all the frustrations with other numerical languages.

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12 March 2016

Suppose one cares about tail risk, what is the best way to estimate it? There are two, not mutually exclusive, ways; statistical and structural. Which is right?

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26 February 2016

Why do the regulatory authorities seemingly fall into the category of model believers, if not quite to the view that there must be one true model? Well, it is sort of inevitable the way the regulatory process works.

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25 February 2016

There a lot of evidence that models are less than perfectly reliable. Why then do we rely so much on models in decision-making, and especially financial regulations? Because there are three types of people: Believers in true model, skeptics who accept model risk and nihilistic rejectionists.

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25 February 2016

When designing models, the underlying assumption is often that the model captures the true data generating process. Does a true model exist? To me, the question is completely irrelevant.

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28 August 2015

Last January I looked at how the Swiss FX shock affected the most popular risk measures. Events of the past week give us another interesting test. My daily risk forecast shows the various risk measures for a number of assets, but focus on the SP-500, and the following picture taken from the site today:

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14 May 2015

May 14, 2015
Bloomberg today had an interesting piece, called Market Moves That Are Supposed to Happen Every Half-Decade Keep Happening. Here is their self-described “terribly simplistic list”

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25 April 2015

So, does ES capture tail risk, but VaR not? Therefore the Basel committee is correct, and we all should use ES. Is that true?

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24 February 2015

Just looked again at the what I did on the Swiss FX shock, looking at how the various risk measures performed in the days after the event, and also looking at the risk of the inverse FX.

The original analysis just looked at the risk of the Franc appreciating, but why not look at the risk of the euro appreciating.

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