Tag Archives: regulation

A test of new market circuit breakers

The Barron’s article “Hitting the Switch on New Circuit Breakers” describes a backtest of the proposed new rules for circuit breakers in American markets. All trades for 2008 through 2010 were inspected relative to the so-called “limit up-limit down” scheme. Result: Maybe we should think a little more about it. Subscribe to the Portfolio Probe … Continue reading

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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

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The appropriate use of risk models

Jon Danielsson and Robert Macrae on how to think about risk models. Uncertainties in risk models The authors point to several reasons why risk models are uncertain: The model estimation period is too short There are structural breaks during the estimation period Data snooping and model optimisation occur Portfolios are optimised, maximising errors It is … Continue reading

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