February 27, 2015
Philosophy and course benefits
Our methodology is entirely embedded in practice. Most risk management techniques are made by non-practitioners developing theories then finding applications in the real world, with chronic errors and risks of blowups. We travel the opposite direction: we start with the real world, and use entirely practical but rigorous methodology to find which models work or don’t work, which models need to be developed and what to do about the problems.
We will point out exactly where people are still making fundamental errors and we propose which ones can be corrected.
Attendees will leave with effective methods and heuristics, which includes from questions such as which risk reports to look at to how to detect the tail risks in a portfolio.
Who should attend this seminar
Fund managers who want an extra edge
Risk managers who need to figure out things not in books and equations
Experienced traders who want some perspective
Contents
The Mother of All Problems: the Law of Large Numbers under Fat Tails. What are Fat Tails? Where can we identify them? How robustness is built. What are limits of statistical methods?
Properties of Antifragile Systems and Portfolios
How to look at the risks of an investment; how to make a risk report useful: Identifying risk sources. Alternative Extreme Betas, StressVaR, Heuristic(s).
Portfolio selection and construction: Diversification and Portfolio Constraints under Extreme Events. Extreme Risk Budgeting.
What is wrong with traditional methods: Markowitz, Black-Litterman, VaR, CVaR even with fat tails, Correlation (traditional), Exposures, basis risk…
Risk from Models: Fragility Heuristic, Asymmetry of model error, Correlation breaks, Uncertainty on risk model parameters (e.g. tail thickness)
Special Topics: American options, squeezes, transaction costs.
