Category: RISK MANAGEMENT

Is Gold Still a Good Diversifier?

It’s commonly believed that Gold is a good diversifying asset, and for many years, this was true. Gold is often seen as a safe-haven asset, which means that investors turn to it when they are worried about the stock market. However, Gold has not always been a good investment. In …

Artificial Intelligence for Delta Hedging

Financial risk management is the process of identifying, measuring, and managing financial risks. There are many different types of financial risks, including interest rate risk, credit risk, liquidity risk, market risk, and operational risk. Machine learning and artificial intelligence can be used to identify and measure these risks, as well …

Using Machine Learning to Predict Market Volatility

The unpredictability of the markets is a well-known fact. Despite this, many traders and portfolio managers continue to try to predict market volatility and manage their risks accordingly. Usually, econometric models such as GARCH are used to forecast market volatility. In recent years, machine learning has been shown to be …

How to Determine Credit Risks of a Startup

There is a very interesting discussion on stackexchange on how to determine the credit risks of a startup. What would be the ideal way to develop the IFRS9 ECL model for startup fintech when there is no historical data. There are 2 answers to this question (as of November 2021) …

Is It Better To Be Lucky Than Good?

In the financial market, the logarithms of asset prices are often modeled as a normal distribution. Elsewhere in life, many things are normally distributed: people’s height, education levels, talents, working hours in a day, etc. Success, as measured by wealth, however, is not normally distributed. In fact, it’s heavily skewed …

Tail Risk Hedging Strategies: Are They Effective?

Portfolio hedging is a risk-management practice that uses a number of strategies to mitigate the risks of any given portfolio. Tail risk hedging in particular is one of the techniques used in equity portfolio management. It basically involves buying put options in a certain amount to partially or fully protect …

An Application of Volatility Estimators

Volatility estimators are a useful tool in volatility trading and risk management. We have discussed several types of volatility estimators, ranging from the simple Close-to-Close Historical Volatility to more complex ones like the Garman-Klass-Yang-Zhang volatility. As discussed in Reference , volatility estimators can also be used directly in delta-one trading …

Are Accounting Numbers Useful?

Accounting numbers are prevalent in financial reporting, business valuation, and investment management. They’re so frequently used that the practitioners rarely asked pragmatic questions such as: are they useful, do they account for some meaningful risks, can they be used to price assets. A recent article attempts to bring some …