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Volatility Risk Is Not “Risk”

March 18, 2013

Drama. Would the banks chase this “model” (please see below) if it could be any of  less profitable, not profitable, or even as likely to produce losses that can’t be controlled as it might be to produce profits that can’t be explained (Reuters, March 18, 2013, JPMorgan and other banks tinker with risk models)? The answer is yes, yes and yes, because what else can they to do in a world that has more “money” or “cash” looking for opportunities than opportunities looking for money?

In fact (in very rough numbers), the world is so awash with “money” trying to become “capital” or, an “investment”, that the banks have “had” to create “synthetic investments” as “new opportunities” in order to try to eke out some real return (above the rate of inflation) on “cash” which they would otherwise just have to store and return to its owners when they need it (please see our Post, Numbers 20:12, August 2012). “Had” is, of course, a strong word because who doesn’t want to “test the boundaries” of what is a plausible tool for estimating “volatility risk” and “diversifying” said risk across negatively correlated assets (please see our Post, Volatility For The Delta Challenged, or Run, Rabbit! Run, June 2012, or any of our numerous Posts on Hedge Funds Bushwhacked By Volatility, most recently, January 2013)?

“Risk-weighted assets used to be done by some department of the bank and no one concentrated on them; they were insignificant,” the European bank source said. “Now, we’re all trying to optimize them.” – ibid, Reuters.

OK, so make my day.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond™
“Alpha-smart with 100% Capital Safety and 100% Liquidity”
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.

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