http://allaboutalpha.com/blog/2009/09/30/how-to-avoid-black-swan-excrement/ Hedge funds, portable alpha, 130/30 and alpha-centric investing Fri, 19 Mar 2010 07:52:26 +0000 http://wordpress.org/?v=abc hourly 1 http://allaboutalpha.com/blog/2009/09/30/how-to-avoid-black-swan-excrement/comment-page-1/#comment-234718 Is Alpha Now Illegal? | Reaction Radio Fri, 29 Jan 2010 09:56:09 +0000 http://allaboutalpha.com/blog/?p=6344#comment-234718 [...] then the black swan poop hit the [...] [...] then the black swan poop hit the [...]

]]> http://allaboutalpha.com/blog/2009/09/30/how-to-avoid-black-swan-excrement/comment-page-1/#comment-208329 Carvalho Thu, 01 Oct 2009 07:32:41 +0000 http://allaboutalpha.com/blog/?p=6344#comment-208329 ES or CVaR are already used in the industry. I agree that ES is much better measure of risk than VaR. But they don't solve the black swan problem in asset classes like ABS, CDO and the like. The problem with such asset classes remains that in quiet periods you cannot afford being out (you get the sack because your peers do better than you) and in turbulent periods you cannot afford being invested (your investment gets killed, and you get the sack anyway). Timing the exit before the black sawn strikes cannot be achieved with either ES or CVaR. The problem lies with skewness and kurtosis of returns of such investments and with how fund managers and traders are assessed on their job by investors and their bosses. ES or CVaR are already used in the industry. I agree that ES is much better measure of risk than VaR. But they don’t solve the black swan problem in asset classes like ABS, CDO and the like. The problem with such asset classes remains that in quiet periods you cannot afford being out (you get the sack because your peers do better than you) and in turbulent periods you cannot afford being invested (your investment gets killed, and you get the sack anyway). Timing the exit before the black sawn strikes cannot be achieved with either ES or CVaR. The problem lies with skewness and kurtosis of returns of such investments and with how fund managers and traders are assessed on their job by investors and their bosses.

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