Model Risk

A while back, I went to a get-together with Massimo Morini, who wrote a book on model risk specifically. It struck me as a really interesting concept. I’ve been meaning to write a few words on model risk since. Model risk is the risk of a significant difference between the mark-to-model value of an instrument, … Continue reading

Optimal Position Sizing

I had a suspicion, that there must be a way to mathematically determine optimal position sizes. Ralph Vince, the author of the Handbook of Portfolio Mathematics: Formulas for Optimal Allocation and Leverage , beat me to the punch. In this volume, he summarizes his previous work, and describes in detail, a mathematical model, which helps … Continue reading