Black Swans and Money Helicopters: Staying Ahead in a Nonlinear World

“The real trouble with this world of ours is not that it is an unreasonable world, nor even that it is a reasonable one. The commonest kind of trouble is that it is nearly reasonable, but not quite. Life is not an illogicality; yet it is a trap for logicians. It looks just a little more mathematical and regular than it is; its exactitude is obvious, but its inexactitude is hidden; its wildness lies in wait.”
‐G.K. Chesterton

We have seen this happen many times. A financial crisis erupts and everybody, including the New York Times, remembers risk management. There appear lengthy expositions of the falsity of assuming normally distributed returns, and everyone loudly wonders why the industry was not warned by risk models. However, as soon as the situation stabilizes – or rather appears to stabilize – risk management is again relegated back to the specialized conferences and, incredible as it may seem after the last twenty years, tracking error is again used to completely describe the risk profile of the portfolio.

Our Black Swans and Money Helicopters eBook, written by Daniel Satchkov, addresses this illusion of stability by examining the fallacy of linearity, lessons of 2009, and the logician's trap.