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Market Risk with Interdependent Choice
Company: University of Oxford
Year Of Publication: 2000
Month Of Publication: May
Pages: 27
Download Count: 419
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Comment Num: 0
Language: EN
Source:
Who Can Read: Free
Date: 1-29-2007
Publisher: Administrator
Summary
Risks faced by traders from price movements are sometimes magni?ed by theactions of other traders. Risk management systems which neglect this feature maygive a seriously misleading picture of the true risks. The hazards arising from thispotential blindspot are at their most dangerous when the prevailing conventionalwisdom lulls traders into a false sense of security on the attractivenss of a tradingposition. The efforts of one trader to reverse his trade makes more acute the need to follow suit on the part of others. For markets dominated by traders withshort time horizons, such interdependence leads to exaggerated price movements.Estimates of ‘value at risk’ which recognize such interdependence of actions candiverge substantially from those given by conventional technique
Author(s)
Morris, Stephen Sign in to follow this author
Shin, Hyun Song Sign in to follow this author
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