Excrement & Fans. One hitting other.

[RedGreenBen]

I am busy writing my trading plan for next FY. I am sufficiently professional/anal to want to include in the risk analysis section an estimated impact of those 'black swan' event like 9/11, exchange outages, etc.

Does anyone know of any papers/articles/threads anywhere that discuss this issue? I trade mainly major FX and european indices?

Ben

PS I have seen and read http://www.trade2win.com/boards/futures/36719-9-11-black-swan-effects-snp-other-futures.html

 

[arabianights]

The whole point of black swans is that you can't include them (statistically) in your risk analysis, Taleb would cry if he saw this question

Nevertheless, google 'Extreme Value Theory'

 

[RedGreenBen]

The whole point of black swans is that you can't include them (statistically) in your risk analysis, Taleb would cry if he saw this question

Nevertheless, google 'Extreme Value Theory'

I was going to defend myself by talking about 'shades of black swans' but thought better of it

 

[RedGreenBen]

Nevertheless, google 'Extreme Value Theory'

Interesting from a quantitative point of view (I have just 'lost' 2 hours whilst delving deeper and deeper into this!).

However, I'm also interested in a qualitative approach. For example, as these 'low probability/high impact events' (for the black swan purists) reach the market, how is that information absorbed? Did, for example 9/11, cause a large move in the blink of a cursor or was the information absorbed more slowly over minutes and hours (and reflected in price in the same way)?

I am no expert (in anything much!) but I would guesstimate, to stick with the same example, the probability of a major terrorist attack occurring in the US or Europe must be between 2 and 5% per year. Seems enough to devote a few minutes thought to.

Ben

 

[portomar]

I was going to defend myself by talking about 'shades of black swans' but thought better of it

grey ducks perhaps?

 

[RedGreenBen]

grey ducks perhaps?

I always thought one of the ducks in the '3 ducks' FX system looked a bit shady.

I know, I am spending too much time infront of this screen.: