JanDash's Blog  Risk Management
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2nd Edition, Quantitative Finance and Risk Management, a Physicist's Approach
http://www.wilmott.com/blogs/jandash/index.cfm/2015/9/6/2ndEditionQuantitativeFinanceandRiskManagementaPhysicistsApproach
The second edition was sent to the publisher. It will be out early next year. The big addition is a long chapter on Climate Change Risk Management.
Here is an excerpt from the book jacket:
This second edition includes some new, expanded, and wideranging considerations for risk management: Climate Change and its longterm systemic risk; Markets in Crisis and the Reggeon Field Theory; ?Smart Monte Carlo? and American Monte Carlo; Trend Risk ? time scales and risk, the Macro?Micro model, singular spectrum analysis; credit risk: counterparty risk and issuer risk; stressed correlations ? new techniques; Psychology and option models.
Solid risk management topics from the first edition and valid today are included: standard/advanced theory and practice in fixed income, equities, and FX; quantitative finance and risk management ? traditional/exotic derivatives, fat tails, advanced stressed VAR, model risk, numerical techniques, deals/portfolios, systems, data, economic capital, a function toolkit; risk lab ? the nuts and bolts of risk management from the desk to the enterprise; case studies of deals; Feynman path integrals, Green functions, and options; and ?Life as a Quant? ? communication issues, sociology, stories, and advice.
Risk Management
Sun, 06 Sep 2015 01:44:00 0000
http://www.wilmott.com/blogs/jandash/index.cfm/2015/9/6/2ndEditionQuantitativeFinanceandRiskManagementaPhysicistsApproach

New paper "Market Crises, Earthquakes, and the Reggeon Field Theory"
http://www.wilmott.com/blogs/jandash/index.cfm/2013/6/11/NewpaperMarketCrisesEarthquakesandtheReggeonFieldTheory
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2274413
Market Crises, Earthquakes, and the Reggeon Field Theory
Jan Dash (Bloomberg LP)
Xipei Yang (Bloomberg L.P.)
March 19, 2013
Abstract:
This paper contains new results for helping to understand financial crises. First, we present a new model for obtaining the probability of equity crises within one year in advance, and we test it. Second and separately, various markets already in crises appear quantitatively related to a theory of nonlinear diffusion called the Reggeon Field Theory calculated years ago. Details are in a longer companion paper.
The time dynamics of the origins of crises are commonly pictured by bubbles growing and collapsing. Our dynamic model, the ?CEEC (Critical Exponent Earthquake Crisis) Model?, has these features , and can provide early warning equity crisis signals to help prevent losses. The CEEC Model uses concepts of ?critical exponents? from physics plus a qualitative analogy from earthquakes to describe the buildup of bubbles (increase of ?frictional stress?) with subsequent crises from bubble collapses (?earthquakes?) . The only inputs to the CEEC model for an equity index are equity index returns.
Tests comparing the CEEC model to data yield encouraging results, much better than chance. Here are results from running the model as the user would have run it in the past:
? In 69% of the tests for which the model indicated a crisis in the short term (within one year), a crisis was in fact observed within one year.
? 31% of actual crises were missed by the model within one year before the crisis.
We also analyze various markets already in crisis (equity, FX, commodities, rates, bonds). We find behavior numerically consistent with a theoretical result with no free parameters for the general theory of nonlinear diffusion in physics, generalizing standard Brownian motion, the Reggeon Field Theory RFT. An anomalous RFT critical exponent translated into finance language is around 0.3, and this number qualitatively describes the average behavior of markets in crisis.
This 0.3 RFT anomalous variance exponent is perhaps the first number calculated in advance since the Gaussian Brownian diffusion variance exponent (1.0) used in standard finance, without numerically fitting anything.
Risk Management
Tue, 11 Jun 2013 02:36:00 0000
http://www.wilmott.com/blogs/jandash/index.cfm/2013/6/11/NewpaperMarketCrisesEarthquakesandtheReggeonFieldTheory

Stressed VAR
http://www.wilmott.com/blogs/jandash/index.cfm/2008/6/17/StressedVAR
The attached presentation discusses Stressed VAR, a practical market risk measure that merges stress testing with VAR, using a familiar and theoretically consistent framework. Stressed VAR contains jump/tail effects using fattail Gaussian volatilities, stressed correlations that model turbulent market collective behavior, and a high confidence level. Estimates can be included for liquidity penalties, idiosyncratic risks, and time scales roughly incorporating dynamic trading effects. The presentation includes parameter estimation and application as well as theory.
The presentation also briefly discusses the Volatility of Component VAR.

© 2008 Jan W. Dash. All rights reserved
Risk Management
Tue, 17 Jun 2008 12:40:00 0000
http://www.wilmott.com/blogs/jandash/index.cfm/2008/6/17/StressedVAR