Thu, Jul 27, 2017
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Alternative Market Briefing

Other Voices: Modified Volatility - 1937 paper found relevant to today's risk management challenges

Wednesday, August 12, 2009

By Peter Urbani, CIO, Infiniti Capital:

An obscure tract by a University of Adelaide Statistics Professor, Edmund Cornish is today among the leading candidates for improving risk management.

The 1937 paper by Edmund Alfred Cornish (1909 - 1973) and Sir Ronald Fisher* provides the basis for the Cornish-Fisher expansion by which the impact of higher statistical moments such as skewness and kurtosis (3rd and 4th statistical moments) can be added to the normal distribution.

This is important in the measurement of risk because these higher moments are primarily what is responsible for the so called 'fat tails' of returns. These cause large losses to be both more frequent and more severe than predicted by the normal distribution which considers only the first two moments (Mean and Standard Deviation). The Gaussian or Normal distribution underpins all of probability theory and the 'assumption of normality' is deeply embedded in most finance theory including option pricing models and the widely used Value at Risk (VaR) metric by which banks determine how much capital they need to hold in reserve against potential losses.

As we have seen from the recent credit crisis and a spate of bank failures in the US and elsewhere (72 US banks have failed so far this year), most banks were not holding sufficient capital to cover their losses in the recent crisis. In fact it has been estimated that in aggregate they were holding only half as much in reserve as they actu......................

To view our full article Click here

Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing

 



  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Launches - Bitcoin hedge fund launches ethereum-subscribed ICO investment vehicle, Jersey players institutionalize first regulated crypto-currency hedge fund[more]

    Bitcoin hedge fund launches ethereum-subscribed ICO investment vehicle From Coindesk.com: The operators of a regulated, Jersey-based bitcoin hedge fund have officially closed a new $5 million fund aimed at investing in cryptocurrency tokens and initial coin offerings (ICOs). Backed by fun

  2. SWFs - China Wealth fund backs TPG lender as part of U.S. property push[more]

    From Bloomberg.com: China Investment Corp., the sovereign wealth fund that controls $814 billion in assets, is betting on U.S. real estate by investing in a commercial real estate lender formed by the money management firm TPG. In conjunction with last week's initial public offering of TPG RE Financ

  3. Months to minutes: Enigma launch aims to boost crypto hedge fund creation[more]

    From Coindesk.com: What if starting a hedge fund was as easy as downloading an API? A startup incubated at MIT Media Lab is today revealing a product designed with this ease-of-use in mind. Called Catalyst, the first product offering by blockchain startup Enigma aims to trigger nothing short of an e

  4. North America - Hedge funds disclose their Puerto Rico debt holdings, US dominates new money portion of Greece's debt sale[more]

    Hedge funds disclose their Puerto Rico debt holdings From Reuters.com: A group of hedge funds that hold about $3 billion of Puerto Rico sales-tax-backed debt released a court filing late on Tuesday that revealed how much of the total amount each fund manages. Decagon Holdings LLC,

  5. $25 million cryptocurrency fund launches to capitalize on the "internet of the future"[more]

    From Coindesk.com: General Crypto, a $25 million cryptocurrency hedge fund, has launched to provide high net worth investors with liquid exposure to the cryptocurrency market and digital assets that they believe could run the technological infrastructure of the future. Since the start of 2017, the t