Outliers (August Blow Up)

Interesting article on the MIT Technology review (here), pointing out that most quantitative models on Wall Street make assumptions about the relationship between instruments and are subject to the “black swan” problem, not properly recognizing “unexpected” outliers in their strategies.

In the context of automated strategies my view is that it is fine to work within the assumptions of “normal” market behavior, provided that one has a risk management strategy to contain losses from outlier events to an amount that will not significantly erode accrued profits. To not do so is an opportunity lost.


Leave a comment

Filed under outliers, risk management

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s