But this is a really important client: Difference between revisions

But this is a really important client (view source)

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 There is no economy of scale when it comes to risk management, folks. It is a ''dis''economy of scale. The risk is [[convex]]. In a bad way. It might be a risk you were prepared to take, in small size, among a diverse and de-correlated group of small clients — and even then it is amazing how those correlations suddenly invert — but taking it in ''big'' size, against a ''single'' player —is that not the lesson of [[LTCM]], [[Amaranth]] and [[Enron]]?
-Yet, the world-weary old codger sits down on a rock and sets down his staff: for this, my friends, is the immutable way of the universe. We may not like it, but we cannot change it. It leads to two conclusions, neither enormously becoming for your [[risk management]] teams. ''Either'' we ''still'' haven’t learned the lessons of [[Enron]], [[Amaranth]] and [[LTCM]], and rely blindly on those [[Black-Scholes]] models that, as we now know, only work until the point where you really wish they were working, ''or'' the sacred protections we carve into those granite [[master trading agreements]] carry a lot less real value than we generally care to admit. Is that [[Don’t take a piece of paper to a knife-fight|piece of paper really the weapon you want when World War Three kicks off]]? Is the fraught negotiation some kind of charade; a piece of theatre put on to demonstrate our willing, and keep in perpetual employment entire villages of risk controllers and negotiators — the same ones we seem intent on relocating to Ulan Bator because they’re too expensive?
+Yet, the world-weary old codger sits down on a rock and sets down his staff: for this, my friends, is the immutable way of the universe. We may not like it, but we cannot change it. It leads to two conclusions, neither enormously becoming for your [[risk management]] teams. ''Either'' we ''still'' haven’t learned the lessons of [[Enron]], [[Amaranth]] and [[LTCM]], and rely blindly on those [[Black-Scholes]] models that, as we now know, only work until the point where you really wish they were working, ''or'' the sacred protections we carve into those granite [[master trading agreement]]s carry a lot less real value than we generally care to admit. Is that [[Don’t take a piece of paper to a knife-fight|piece of paper really the weapon you want when World War Three kicks off]]? Is the fraught negotiation some kind of charade; a piece of theatre put on to demonstrate our willing, and keep in perpetual employment entire villages of risk controllers and negotiators — the same ones we seem intent on relocating to Ulan Bator because they’re too expensive?
 {{sa}}