23 Sep Takeaways From Eurekahedge’s Interview With Winton Capital
On tail risk events
As the events of the past few years have shown extreme events, whether financial or natural, are far from uncommon. Surprises have always happened in history and we have tried to design a trading system that can withstand such surprises. We do regular back tests to see how our current positions would have fared during past crises and how we would cope. History as Mark Twain said does not repeat itself but it rhymes.
Risk measures based on normal, parametric, distribution of returns have played a big part in financial mathematics in recent years. Perhaps that is why so many financial institutions have got into trouble! Risk is absolutely not a one dimensional concept; there is no unique quantitative definition of risk. Many naive market participants think they know what ‘the risk’ is. We have developed lots of different ways you assess risk quantitatively and we balance them all in a complex fashion.