BO89: How To Approach Risk Management

Top Traders Unplugged

Niels Kaastrup-Larsen

Business, Business News, Investing, News

4.8 • 670 Ratings

🗓️ 1 June 2020

⏱️ 8 minutes

🔗️ Recording | iTunes | RSS

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Summary

A dive into Volatility Scaling as part of your Risk Management framework.

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Transcript

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0:00.0	For me, maybe as a last overall topic that I just want to dig into a little bit,
0:10.0	Moritz may have a few more, but given what we're going through at the moment, I think one point
0:16.0	that is so important, generally speaking, whatever you do in the investment world is risk management.
0:23.9	You know, I think that that is something that we, you know, it gets tested from time to time
0:29.5	to an extreme.
0:30.8	I think that's what we've been going through again the last week or two.
0:36.2	And I wanted to ask you a little bit about what you think about it,
0:40.6	what is, in your opinion, a good risk management framework
0:43.6	because there are many different types of risk right in what we do.
0:49.5	And maybe also some of the things you've learned along the way
0:54.1	through the various
0:55.1	crises or stress periods that you've been you know trading through what are the things
1:03.6	that stand out and you know yeah if you can talk a little bit to to that that would be great
1:10.3	I mean one of the nice things about the kind of style of trading that we do is that most of the risk management is kind of done for you by the system itself.
1:17.6	And that happens really through two different avenues. The first is volatility scaling.
1:23.6	And the second is the use of a momentum filter.
1:28.8	So in terms of volatility scaling, when positions get riskier, the system will automatically
1:35.0	reduce the size of the position to compensate.
1:38.0	So if you were unfortunate enough to be long S&P futures a couple of weeks ago.
1:47.1	You know, the VIX was at like, I don't know, 12 maybe.
1:50.8	And now it's at 70.
1:53.8	So it's gone up by a factor of about six.
	...

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