Models

Chloe Curtis
Mind Map by Chloe Curtis, updated more than 1 year ago
Chloe Curtis
Created by Chloe Curtis over 4 years ago
1
0

Description

VAR

Resource summary

Models
  1. VAR
    1. Single asset class
      1. Bell curve
        1. Normal market conditions
          1. Exacerbate diversification
            1. Separate lending and risk
              1. Fundamental rules of banking: default risk is inevitable liability of business
              2. Turner Review
                1. ST observation period.
                  1. Network risks-> self enforcing cycles.
                    1. Paradox: Systemic risk highest when measured risk lowest
                      1. Take on more risk
                      2. Risk vs uncertainty and systemic vs idiosyncratic
                      3. Apotheosis of 50 years of FE.
                        1. Complete fallacy-> blind faith in models.
                          1. Net risk less than risk of either two investments.
                            1. Endogenous risk e.g. uncertainty.
                            2. Gaussian Copula
                              1. Simple elegant ease accuracy ubiquitous
                                1. Spark of mathematical legerdemain
                                  1. CDS prices-> implicit assumption price risk correctly.
                                    1. No look at underlying
                                      1. Constant correlation rather than mercurial.
                                        1. Taleb- charlatanism.
                                        2. Black boxes.
                                          1. Regulators risk measures derived from model
                                            1. Legitimacy
                                            2. Conformity-> compounded risk.
                                            3. Robhini
                                              1. Not black swan-> white swan events remarkable predictable.
                                                1. Enthusiastically embraced 20% yearly increase in prices.
                                                2. Frank Knight
                                                  1. Uncertainty cannot be priced
                                                  2. Fama
                                                    1. Markets are utterly rational and efficient.
                                                      1. Random walk became conventional wisdom.
                                                      2. My View
                                                        1. Religious faith in models
                                                          1. Financial wizards carried away in euphoria
                                                            1. During market upheaval 'all correlations go to one'.
                                                              1. Exacerbated by one stop shop
                                                              2. Stiglitz
                                                                1. 1987 'Once in a lifetime crash-> one in every billion years.
                                                                  1. 10 years later LCTM.
                                                                  2. Financial markets do not learn-> people running models do not look at history.
                                                                  3. Rajan
                                                                    1. Linkages between markets and institutions.
                                                                      1. Exposed to large systemic shocks.
                                                                        1. Fat tail risks.
                                                                          1. Keynes
                                                                            1. Future inherently unpredictable-> no mode.
                                                                          2. Euphoria leads to SS.
                                                                        2. PA Problem
                                                                          1. Moral hazard.
                                                                            1. Myopic destructive incentives
                                                                          2. Copycat behaviour e.g. Asch visual experiment feel left out.
                                                                            1. Crazy ones those not in market.
                                                                            2. Cassidy
                                                                              1. Market strong self-equalibvrating tendencies.
                                                                                1. GD historic anomaly-> error of MP converting recession into cataclysm
                                                                                2. Disaster Myopia
                                                                                  1. Representative Heuristic
                                                                                    1. Rational irrationality
                                                                                      1. Prisoners dilemma
                                                                                        1. Drunks staggering down the street
                                                                                          1. Synchronous lateral excitation
                                                                                          2. Samuelson
                                                                                            1. Physics of avalanches
                                                                                              1. No equilibrium relaitons-> economic dislocations.
                                                                                                1. Displace snow in path which adds weight and force
                                                                                              2. Mansharamani
                                                                                                1. LCTM never had a monthly loss greater than 3% prior to 1998.
                                                                                                  1. Likelihood 1 in 50 million.
                                                                                                  2. Over/undershooting no unique equilibrium no self correcting self reinforcing.
                                                                                                  3. Low cross regional correlation.
                                                                                                    1. LCH
                                                                                                      1. Take no account of most important determinant-> self control.
                                                                                                      Show full summary Hide full summary

                                                                                                      Similar

                                                                                                      ADVT2509 Models: Weeks 1 - 3
                                                                                                      EMI D
                                                                                                      ADVT2509 Models: Weeks 1 - 3
                                                                                                      EMI D
                                                                                                      ADVT2509 Models: Weeks 1 - 3
                                                                                                      Josh Butler
                                                                                                      Demographic Transition Model (DTM)
                                                                                                      Phoebe Fletcher
                                                                                                      Demographic Transition Model (DTM)
                                                                                                      EMI D
                                                                                                      Chapter 4: Domain Modelling
                                                                                                      Jo Hart
                                                                                                      PESTEL
                                                                                                      EMI D
                                                                                                      PESTEL
                                                                                                      Tim Mitchell
                                                                                                      Chapter 5: Extending the Requirements Model
                                                                                                      Jo Hart
                                                                                                      Population - The Demographic Transition Model
                                                                                                      EMI D
                                                                                                      Population - The Demographic Transition Model
                                                                                                      daniel.randle