The lecture Speech from Credit Swiss Event by Edu Pristine is from the course Archiv - Current Issues of FRM. It contains the following chapters:
5 Stars |
|
5 |
4 Stars |
|
0 |
3 Stars |
|
0 |
2 Stars |
|
0 |
1 Star |
|
0 |
... random errors were inevitable in measurements and that small errors were more likely than large and were symmetric around the true value. Jacob Bernoulli formalized the "reversion to the mean" in 1713 based on the colored pebbles experiment. Normal distribution was formally introduced ...
... Normality had moved from the simple games of chance and found applications in public affairs and social choice. ...
... Frisch-Slutsky divided the dynamics of economy into two elements: an irregular random element or impulse and a regular systematic element or propagation mechanism. Cowles Foundation, then, pioneered the development of macro-econometric models with two features: least squares method for propagation mechanism and normality of random impulses. ...
... The speed of decay in the tail is governed by ... The tails fatten as ? falls. In the said study, statistical properties of a set of natural, social and economic systems were considered and compared ...
...For financial and economic series presented, the probability of a four- sigma event could be underestimated by a factor of 100 or more. ...
... Small changes in the system can lead to completely different real-world outcomes. Chaotic dynamics have also been observed in the fields of economics ...
... Examples: sand pile, forest fires, traffic jams etc.. The build- up to financial crisis is another example. The search for higher yield caused participants to increase risk. The system self-organized to a high-risk state ...
... Before financial crisis, banks were encouraged to invest in assets that were underweighted ...
... It's important to understand the distinction between risk and uncertainty now more than ever. Risk arises when the statistical distribution of the future outcomes can be calculated or measured. ...
... Moreover, Black-Scholes options pricing formula also assumes normality of returns. Non-normal behavior of returns will lead to a material mispricing of risk. It also affects the credit risk models. ...
... It can be countered by the oversight of systemic risks by regulatory agencies. These bodies can provide a guide to the contours of systemic risk which could provide a basis for risk ...