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Pastimes : All Clowns Must Be Destroyed
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To: yard_man who wrote (34522)5/22/2000 6:43:00 PM
From: pater tenebrarum  Read Replies (1) of 42523
 
yes you're right, value at risk...sorry, confusing terms. anyway, the point remains, these models do not include the huge deviations that one sees in extremely emotional markets, merely because they are rare. however, when an MCVHE occurs, as e.g. when the yen carry trade blew up (a relatively small event, involving very large sums however), huge losses are incurred.
unfortunately derivatives that are largely used as insurance, are unlike 'normal' insurance much more prone to introducing systemic risk.
as of yet they are untested in a real storm...'98 was a bit of a preview, but the main event still awaits most likely.
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