The Creator of VaR Explains How Large Banks Measure The Risk Of Their Own Portfolios

Odd Lots

Bloomberg

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4.4 • 1.6K Ratings

🗓️ 25 June 2018

⏱️ 37 minutes

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Summary

Earlier this year, markets were spooked by blow-ups in a number of volatility-linked products. But dealing with volatility is the foundation of risk management on Wall Street and there's a particular model that's become pervasive among big investors and banks -- so-called Value-at-Risk (VaR) models seek to gauge how much a portfolio might gain or lose based on historic price movements. On this week's episode of the Odd Lots podcast, we speak to one of the original creators of VaR. Till Guldimann explains how he came up with the model while at JPMorgan, plus how it works, its limitations, how it can be gamed, and what he thinks of the volatility landscape now.

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0:54.0	Hello and welcome to another episode of the Odd Lots Podcast.
0:58.0	I'm Tracy Allaway.
1:00.0	And I'm Joe Wiesenthau.
1:02.0	So Joe, one thing we talk about quite a lot on this podcast, especially lately, has to be volatility.
1:09.0	Yeah, absolutely. We didn't see much volatility in any markets in 2017 and it's picked up more in 2018 though not dramatically, but we certainly have seen some very interesting episodes across a range of markets,
1:25.2	making things quite a bit more interesting.
1:27.6	Yeah, I love that we have episodes when there's no volatility, and then we have episodes
1:31.4	when there's lots of volatility.
1:33.0	But do we ever stop to ask about the backbone of volatility measuring or volatility models?
1:41.0	No, we don't really, I mean we talked a little bit, it's like we always sort of talk around it, don't we? Like we talked about how the people blew up when they were shorting the Vicks and stuff like that.
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