Fat tails
Podcast: Jan Rosenzweig on fat tails and LDI portfolios
An optimised portfolio can look very different when extreme moves are given more weight
Fat-tailed factors
Independent component analysis is proposed as an alternative to principal component analysis
Buy side turns to extreme value theory to spot tail risks
Asset managers reappraise decades-old technique to gauge downside risks amid fears of volatile 2022
Don’t follow the models: they’re lost, too – risk managers
Risk USA: managers cite Covid, repo crisis and geopolitical risks as examples of model failures
Prudential CRO: markets haven’t priced in tail risks
Risk USA: distribution of extreme outcomes “has gotten broader and wider”, says Nick Silitch
How to trade like the investor who made $1bn in a day
Mark Spitznagel won’t reveal how he made a 4,144% return, but he does discard plenty of rival trades
The Fundamental Review of the Trading Book and fat tails
Conservative capital buffers may not be enough to protect against tail events
Podcast: CFM’s Bouchaud on agent-based models and ESG investing
Hedge fund quant, and Risk.net’s new columnist, shares his unique take on markets
To make sense of complex systems, send in the agents
Standard quant models cannot comprehend a radically complex reality, writes Jean-Phillippe Bouchaud
Small, speculative clearing members – are they worth the risk?
CCPs need new tools to scrutinise their members, for everyone’s good health
One bad apple: default risk at CCPs
One clearing member's disproportionately large position increases the credit risk for all CCP members
Dark materials: how one academic is delving into data
David Hand shines a light on dark data and the dangers of distortion by absence
Forecasting value-at-risk
Alvin Stroyny and Tim Wilding build a dynamic risk framework for multi-asset global portfolios
Funding and credit risk with locally elliptical portfolio processes: an application to central counterparties
In this paper, the authors extend the scaling approach of Andersen et al (2017a) from a model driven by Brownian motion to one driven by an arbitrary isotropic Lévy process.
Keep it real: tail probabilities of compound distributions
Igor Halperin proposes new approach to compute probabilities of heavy-tailed distributions
A review of the state of the art in quantifying operational risk
In this paper, the authors provide a comprehensive review of the different approaches developed to model operational risk, specifically focusing on the actuarial approach.
Climate change is the fattest tail risk of them all
Casting doubt on science is an unwise risk management strategy, Vincent Kaminski argues
Value-at-risk time scaling: a Monte Carlo approach
This paper discusses a VaR time-scaling approach based on fitting a distribution function so as to apply a Monte Carlo simulation to determine long-term VaR.
Fat tails via utility-based entropy
Asset returns are well known to be fat-tailed, but widely used classical econometric techniques are not well suited for building such distributions. Craig Friedman, Yangyong Zhang and Wenbo Cao use a minimum relative utility-based entropy principle to…
Fat tails via utility-based entropy
Asset returns are well known to be fat-tailed, but widely used classical econometric techniques are not well suited for building such distributions. Craig Friedman, Yangyong Zhang and Wenbo Cao use a minimum relative utility-based entropy principle to…