Risk Management After Lehman
For all who thought it was money that makes the world go ‘round, bad news: it is in fact constants. Not the respectably stable constants like gravity, but that whole crew of potentially ill-behaved hooligans that need to be carefully estimated to make applied finance possible: volatility, jumps, correlations, and the like. Look deep enough into any risk model, there they are.
The billion-dollar question for us is do we still trust them, after Lehman, AIG, and a swing in basic commodity prices
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