January 2012
Intermediate to advanced
384 pages
8h 36m
English
Content preview from Tail Risk Killers: How Math, Indeterminacy, and Hubris Distort MarketsBecome an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
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CHAPTER 21Some Rules of the Road for Risk Management: Axiom 5
Atradable way that financial risk manifests itself is in volatility. Precisely because it is a tradable asset across different asset classes, it is worth a close look. Here we look at a derivation of the statistical properties of volatility in a general probability context and how its tradable nature gives it some interesting properties.
AXIOM 5: THERE IS A STRONG RELATIONSHIP BETWEEN VOLATILITY AND RISK
Definition: The Volatility of a Time Series Is the Square Root of Its Variance
Michel Fliess, Cedric Join, and Frederic Hatt characterized volatility in a probabilistic way in February 2011 in a preprint paper titled “Volatility Made Observable at Last.”1 The characterization employs ...
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