Monthly Archives: August 2011
The standards of pundits
From Saturday Morning Breakfast Cereal: Hat tip to This is the Green Room Subscribe to the Portfolio Probe blog by Email
Appropriate risk modeling
A response to Danielsson and Macrae. Previously In “The appropriate use of risk models” I presented a synopsis of the Danielsson and Macrae document by the same name, and urged you to read it (it’s not very long). Simplicity I highlighted the sentence: This suggests that models used to constrain risk should be substantially simpler … Continue reading
The ecology of collateral haircuts
New Scientist has an editorial that points to “Complexity, Concentration and Contagion” out of the Bank of England. The paper describes some experiments with a network calibrated to look like the UK banking sector. The experiments are trying to determine the effect of haircuts on collateral for interbank loans. Subscribe to the Portfolio Probe blog … Continue reading
Posted in Economics
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The indices understate the carnage
The first 6 trading days of August have been bad for the major indices, but how variable is that across portfolios? To answer that, two sets of random portfolios were generated from the constituents of the S&P 500. The trading days are 2011 August 1 — 5 and 8. The returns of the indices for … Continue reading
An exercise in quality control
To fix a broken market. The exercise Some teachers of quality control present their students with a series of pictures like Figure 1. Figure 1: Center the process on (0, 0). The students are tasked with centering the process at zero in both dimensions. The students put the center near where they’ve seen points. It … Continue reading
Posted in Fund management in general
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The Royal Institution starts a new club for finance
Exclusively for finance professionals who have a background in science and mathematics and want to keep their interests alive, the 14-10 club meets on a monthly basis to hear from top experts in science, maths and finance in a social and collegiate atmosphere in the heart of Mayfair. Speakers that are currently scheduled include: David … Continue reading
A look at the quality of CAPM
Empirical Finance Blog has a post called “How to use the Fama French Model”. I find the first part of the post most interesting. This shows some examples of how the Capital Asset Pricing Model falls down. I’ve trashed CAPM before in the form of “4 and a half myths about beta in finance”. The … Continue reading
The benchmark gambit
What do we lose when we use a benchmark? Simple Make everything as simple as possible, but not simpler. — Albert Einstein Everything should be made as simple as possible, but not simpler. — Albert Einstein Everything must be made as simple as possible. But not simpler. — Albert Einstein Everything should be as simple … Continue reading
