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Non-Tech : Bill Wexler's Trading Cabana -- Ignore unavailable to you. Want to Upgrade?

To: Doc Bones who wrote (2522)	8/7/2007 5:52:53 AM
From: RockyBalboa	Read Replies (1) \| Respond to of 6370

Correct... model error. Or worse, errors in underlying assumptions. Meaning what. An unsuitable model was chosen to evaluate risks and possibly certain bulk or correlation risks have been neglected. Value at risk is flawed too. The model limits our risk scenario to 95% non-events when in fact, only the real events do count and derail a company. Worse, the probability distribution has fatter tails than someone might imagine. Even worse, cross risk correlations - market/credit risks and liquidity risks are unknown and can not be estimated, except that they approach 1 in crisis scenarios. All that is exactly what LTCM killed.