London, 24 November 2014
Understanding the objectives, appetite and tolerance for risk drives good risk management. That message sometimes gets lost.
Before he retired, Paul Bostok was a partner of GMO and Managing Director of their London office. Prior to that, he was portfolio manager at GMO Woolley.
He explains why the usual risk measures often miss the point.
- Paul Bostok:
Having done a PhD in particle physics at Oxford, I suppose I became one of the early quants. When, in 1985, I finished my doctorate, the investment management part of Baring Brothers was looking for somebody to do financial calculations on a new-fangled gadget called a personal computer. This entailed putting Lotus 123 into one of the floppy disc drives and our data into the other. There was also a mainframe computer, but that held all the client records and other big stuff, it wasn't set up to do things like financial analysis. I was one of the first people to do that sort of thing.
For two years I worked with Paul Woolley1 and Robert Rice2 on optimisation problems as well as running a protected equity fund.3 At the time, some specialist firms in Chicago had launched portfolio insurance products. But as a junior analyst at the time, you also tended to work a bit on everything.
Leland-Rubinstein4 was the best-known one, I think.
Yes there were three of them: Leland, O'Brien and Rubinstein, and they had their own firm. But of course when October 1987 happened it kind of ...