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Black swans and financial risk management

Started by Cain, January 26, 2009, 05:40:07 PM

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Cain

January 26, 2009, 05:40:07 PM
http://www.nytimes.com/2009/01/04/magazine/04risk-t.html

The problem, basically, is asymmetrical payoff.  99% of the time, the payoff was big, and worth the risk.  1% of the time, it caused a catastropic meltdown. 

Bebek Sincap Ratatosk

#1
January 26, 2009, 05:47:02 PM
Taleb, Our Lady's Non-Prophet for the 21st Century
- I don't see race. I just see cars going around in a circle.

"Back in my day, crazy meant something. Now everyone is crazy" - Charlie Manson

LMNO

#2
January 26, 2009, 05:59:45 PM
Not to besmirch NT, but there seems to have been a few other problems at hand; GIGO, insufficient data, and the map/territory thing.

After all Goldman Sachs used VaR, but they noticed something weird was happening; so they went conservative, shored up their accounts, and missed the worst of it.

In short, it wasn't completely the VaR in itself, it was also that it was used improperly.
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