The Misleading Notion Downside Risk

The Misleading Notion Downside Risk

Risk has two components: exposure uncertainty For there to be risk, both must be present. If you swim in shark infested waters, you are uncertain whether you will be attacked. You are exposed because you would suffer and possibly die if attacked. Being both uncertain...
How to Calculate Value-at-Risk – Step by Step

How to Calculate Value-at-Risk – Step by Step

The power of value-at-risk lies in ints generality. Unlike market risk metrics such as the Greeks, duration or beta, which are applicable to only certain asset categories or certain sources of market risk, value-at-risk is general. It is based on the probability...
Animal Spirits

Animal Spirits

Last week, some hedge fund manager made fleeting headlines when he announced he was bullish because “Animal spirits matter.” Are you paying attention? I hope not. As a risk manager, don’t be co-opted by finance’s latest loaded phrase:...
Just Kill Me – United Airlines’ Risk Management

Just Kill Me – United Airlines’ Risk Management

Don’t ask “how could this have been avoided?” That is the wrong question. By now, everyone has seen the graphic videos of United Airlines forcibly removing a passenger from an overbooked flight, humiliating and bloodying him as he was dragged,...
Rubbernecking the Oscars Envelopegate

Rubbernecking the Oscars Envelopegate

If you are a risk manager, don’t ignore what happened at Sunday’s Oscars. You must respond. As details emerge about how the wrong envelope was passed, traditional and social media are abuzz. Everyone’s fascinated. It is like rubbernecking at an...
Watch Your Back. Watch Your Sales Force.

Watch Your Back. Watch Your Sales Force.

Salespeople are like “hired guns”. They play a unique role within firms. But when things go wrong, hired guns can become loose cannons. There are two ways this typically happens. Recent events provide an example of each. One is the Wells Fargo phony...
What’s Your Risk Appetite?

What’s Your Risk Appetite?

Suppose you arrive at your dentist’s office for an appointment. Before escorting you to an examination room, the receptionist asks what your pain appetite is. That afternoon, you head over to the Apple store to buy the latest iPhone. A sales clerk at the front...
How To Start A New Risk Management Job

How To Start A New Risk Management Job

You finally did it! You landed that senior risk management position at a fabulous firm. The job search took a while, and the vetting was intense. But you made the cut. They chose you! A bigger challenge is yet to come. Starting a new job is exciting. It can also be a...
How to Measure VaR for a Pegged Currency

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...
Snappy Comeback to Latest Criticism of VaR

Snappy Comeback to 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...

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