How to Measure VaR for a Pegged Currency

On Friday, I wrote a lighthearted piece challenging criticisms of value-at-risk. The Swiss had abandoned their currency peg; people had lost money; and VaR was being blamed—again. My message was essentially this If your VaR measure wasn’t flashing red alerts prior to the peg’s abandonment, don’t worry. It wasn’t supposed to. I neglected to provide […]

Snappy Comeback to the Latest Criticism of VaR

Last week, the Swiss pulled their peg, and swissie soared. Part of the fallout—surprise, surprise!—is criticisms of value-at-risk. This time The Economist is leading the charge, writing: … Another likely casualty is the ‘value-at-risk’ models banks use to calculate the maximum they might lose on any given investment or transaction. But banks’ value-at-risk models don’t […]

A Revelation

I have written about it before, and I am sure I will write about it again. … how financial risks that devastate firms aren’t random occurrences, as if the gods on Olympus toss dice to determine a company’s fate. No. There are causes. And these are usually traceable to human frailties. Most often, the specific […]

Is Risk Management a Job or a Career?

There are few life decisions as consequential as your choice of career. Get it wrong, and you’re in for a world of discontent. Perhaps you currently have a risk management position and are wondering if you can make it a career. Or maybe you are just starting out and are contemplating risk management as a […]

List Of Risk Management Failures

Those who cannot remember the past are condemned to repeat it. Nowhere is George Santayana’s famous admonition more applicable than in the field of risk management. As a reminder of all the ways things can go wrong, I maintain an informal list of prominent risk management failures. I just updated the list and thought I […]

What The 4 T’s Overlook

If you have been active in risk management for a while, you have probably heard of the 4 T ‘s. These—at a very high level—are the four possible responses to risk. Conveniently, each begins with the letter T: Tolerate Treat Transfer Terminate They appear in various risk management standards. They pop up in books, articles […]

High-Frequency Trading: What You Need To Know

You probably already know the basics: that high-frequency trading (HFT) is a style of trading that involves placing, transacting and/or rescinding numerous orders over compressed time intervals measured in milliseconds (thousandths of seconds). Positions are rarely held more than a few seconds. The pace is too fast for any human, so trading decisions are made […]

Book Review: Flash Boys

Michael Lewis has a new book out. It may be more influential than even his 1989 runaway bestseller Liar’s Poker. Called Flash Boys: A Wall Street Revolt, it is an illuminating expose of the shadowy world of high-frequency trading. For almost a decade, the U.S. equity markets have been corrupted. Established exchanges have fragmented into […]

Nickels In Front of Bulldozers

There is an old saying on trading floors: Watch the trader who makes consistent money. He is the one who is going to blow up. In his book When Genius Failed, on the 1998 failure of hedge fund Long-Term Capital Management (LTCM), Roger Lowenstein shares a compelling analogy for this: Picking up nickels in front […]

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