CHAPTER 19Some Rules of the Road for Risk Management: The First Three Axioms
Risk management is about these words: risk, volatility, and liquidity. They get thrown around so much because the precise meaning of these words is truly hard to pin down. There are different grades or shades of meaning for each of these that are sometimes not recognized.
Here is an axiom system that outlines risk management in the abstract and characterizes the major players in the subject—risk, volatility, and liquidity. When math provides the most natural exposition, the axiom system is mathematical. At other times, a concept eludes adequate mathematical representation and is treated in a discursive way.
An axiom is a “self-evident truth.” Axioms refer to observed ...
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