Excellent article, Tim! I would recommend all of Taleb’s books as a ‘must-read’, starting with Fooled by Randomness. Every asset has its own character, and it’s price action and volumes traded must be viewed totally objectively and acted upon accordingly if the trader/investor is to have a chance for long-term success.
As a former FX options trader, I well know the number of multiple SD days I lived through. the economists called it kurtosis, and options traders have adapted by using Black Scholes with a volatility smile to try to account for the penchant for big moves.
But the meat of the argument you make is, to me, variance is not risk, it is variance. risk is better defined by the sleep test, can you sleep at night with your position/portfolio.
Excellent article, Tim! I would recommend all of Taleb’s books as a ‘must-read’, starting with Fooled by Randomness. Every asset has its own character, and it’s price action and volumes traded must be viewed totally objectively and acted upon accordingly if the trader/investor is to have a chance for long-term success.
As a former FX options trader, I well know the number of multiple SD days I lived through. the economists called it kurtosis, and options traders have adapted by using Black Scholes with a volatility smile to try to account for the penchant for big moves.
But the meat of the argument you make is, to me, variance is not risk, it is variance. risk is better defined by the sleep test, can you sleep at night with your position/portfolio.
thanks for this, very well put
Great article. Especially the last sentence.