Risk management is a topic I’ve discussed here a bit. In particular, on March 16, 2006, I wondered aloud
When I look out at the world, one of the major risks to the markets that I see is, ironically, risk management. I suspect that one of the primary employers of junior quants in the last 5 [...]
Market turmoil is still quite fascinating to me and I still believe the current environment will be one for the history books and I’m still trying to take as much as I can from this learning experience.
My professional work experience is in fixed income. For two years, I was very “plugged in” to the markets [...]
Quantitative risk management is actually one of the topics that I can speak about with some authority because I have worked in the area professionally. Seeing the smoke and mirrors that goes on behind the scenes, I managed to convince myself that one of the greatest dangers to the markets is, ironically, risk management. I’ve [...]
This is bound to end up badly.
From the Wall Street Journal:
Seeking Hidden Losses, Regulators Comb Books Of Wall Street Titans
Here are some excerpts (my emphasis in bold):
The SEC is looking into whether Wall Street brokers are using consistent methods to calculate the value of subprime-mortgage assets in their own inventory, as well as assets held [...]
A theme I’ve been thinking about for at least the last 2 years is the concept I call the “risks of risk management”. Is it possible that the recent introduction of highly quantitative risk management systems has actually increased market risk?
Here is something I posted to NP on March 16, 2006:
Risks of Risk Management
Hi everyone,
Since [...]
Again, the title is not a fact, but a premonition. Since my last premonition (sadly) came true, maybe there is something to this voodoo analysis after all.
One aspect of the subprime CDO and subsequent contagion that hasn’t gotten much attention (yet) is the influence and impact of risk management systems. In one of my first [...]
If you ever talk to quants *gasp* or traders, you may occasionally hear them refer to structured securities such as CDOs using terms like “ratings agency arbitrage”. As usual, the word “arbitrage” is totally inappropriate in this context. What they essentially mean is that the structures are designed to take advantage of the weaknesses [...]
