Tail Risk Killers: How Math, Indeterminacy, and Hubris Distort Markets

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January 5, 2012


Mixed media product, 384 pages

Other Formats


007178490X / 9780071784900


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Main description

Reshape your investing strategy for an increasingly uncertain world

“An engrossing, fast-paced, terrific read for anyone interested in the financial imbalances due to too much reliance on math and too little respect for indeterminacy.”
—Tyler Durden, ZeroHedge.com

The world does not unfold according to a fixed set of rules. It is a dynamical system whose evolution looks like a bell curve with fat “tails.” The same is true of financial markets. However, every day we rely on the certainty and precision of mathematical strategies that assume the contrary to control and grow wealth in markets.

Tail Risk Killers shows you how the rigidity of model-based thinking has led to the fragility of today’s global financial marketplace, and it explains how to use adaptive trading strategies to mitigate risk in impending market conditions.

Risk management veteran Jeff McGinn pokes holes in prevalent assumptions about how financial markets act that tend to underestimate the likelihood of occurrence of extreme events. Through clear, conversational writing, real-world anecdotes, and easy-tofollow formulas, he provides a glimpse into the way tomorrow’s successful traders are viewing financial markets—with an eye for probability distributions. While illustrating how to protect your assets from tail risk, he shows you how to:

  • Implement the six axioms for risk management
  • Prepare for the unintended consequences of central banks suppressing tail risk
  • Identify and avoid the dark risks hidden in today’s derivative-laden financial system
  • Anticipate the fate of credit default swaps that may not face extinction

McGinn argues that the intervention of central banks has robbed global markets of their opportunities to adapt, but this highly relevant book shows you that it is not too late to adapt your portfolio to survive the extreme events that happen more often than popular financial models suggest.

Tail Risk Killers helps you discover useful information and processes beyond the focus of industry standards, helps you connect the dots of evolving trading strategies and time your next trade for maximum profitability.

Author comments

Jeff McGinn serves as Head of Analytics at VHQC Consulting, an operational risk management and information management company. He has more than twenty years of experience in unlocking the elusive nature of risk, data analysis, and statistical modeling for such companies as Citibank, The Associates Financial, and a variety of Fortune 500 companies.

Back cover copy

Tail risks are rare, high-impact events manifested at the far ends of a probability distribution. Left alone, they occur naturally and the market adjusts accordingly. However, statistical modeling expert Jeff McGinn argues that central banks kill these tail risks by artificially distorting markets, which makes them vulnerable to more catastrophic risk when the contrived market conditions become unsustainable.

In Tail Risk Killers, McGinn considers the limitations of linear scientific thinking when applied to a complex adaptive system like financial markets. He reveals how strategies that understate the role of indeterminacy are incomplete tools for making accurate market predictions. Using insightful examples and practical formulas, he guides you step-by-step through developing the right trading mindset to accurately manage risk by:

  • Gathering data, history, and techniques outside the prevalent paradigm
  • Identifying the slow change of evolution and adapting to new conditions
  • Making predictions once conditions are constant and stable

Tail Risk Killers is the authoritative road map for evolving your trading strategy and protecting your portfolio from extreme events that happen more often than you might think.

Copyright 2014 McGraw-Hill Global Education Holdings, LLC


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