My sister called me ugly, but we are identical twins (Or why we should not shoot the ugly sister)

November 30th, 2016

By Taylor Murtha, QUT Master of Applied Finance student

Risk is the team of scientists in the corner doing the calculations to figure out how close they are to a mission failure. Uncertainty is Neil Armstrong putting his foot on the moon hoping it doesn’t collapse or explode and send him into the abyss. Like identical twin sisters they are similar in appearance but they are different in nature, risk is highly quantifiable whilst uncertainty is not. The human equivalent of risk is Warren Buffett, he makes an assumption about the possible outcomes and their likelihood and makes an investment decision based on that information. The human version of uncertainty is Richard Branson, who doesn’t know all the possible outcomes or the specific probabilities but he thinks it is a good idea so he invests. Obviously Richard Branson is far more interesting then Warren Buffett because he is wild and unpredictable which is the perfect metaphor for uncertainty. Read the rest of this entry »

The dark side (about extremes and where nobody knows)

October 24th, 2016

Written by Ruolin Wang, PhD Candidate at QUT

Two years ago, the world witnessed the disappearance of flight MH370. So far, we have not found it, for sure it is gone, together with 239 passengers on board. Every hour, thousands of airplanes fly towards their destinations above in the sky, but very few of them end up with the same fate as MH370. The prevailing but “not yet determined” explanation for the disappearance was that the pilot Zaharie hijacked the aircraft. Is it a risk of air travel? It is the airport control tower’s task to assess foreseeable risks and direct them around bad weather and air traffic to ensure a safe flight. However, as for aircraft hijacking, I am inclined to describe it using the word uncertainty. Why? To put it simply, risk is different from uncertainty.

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How Not To Be a Jerk

October 13th, 2015

If you’re going to manage other people’s money, you need to have mega-ethics

by Jonathan Page, Student of Master of Business (Applied Finance)

Quantitative risk methods have negated personal ethics and responsibility for individual investors and those managing other people’s money – Modern society has a faith-like belief in materialism, that is, science, mathematics and their practitioners. Self-driving cars promise safety and efficiency, as do robots replacing humans in the workplace. Further, the world, including its governments, politicians, scientists and academics believe ‘climate’ can be modelled and forecast with mathematics. If that was not a big enough ask from the gods of materialism, it is believed that finance practitioners can measure, model and control risk in financial markets. Can I hear an Amen?

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Misbehaving supermodels: She ain’t so pretty after all

November 19th, 2014

By Stephen Pearson, a Masters of Applied Finance student

“Beauty is a form of Genius–is higher, indeed, than Genius, as it needs no explanation…It cannot be questioned. It has divine right of sovereignty. It makes princes of those who have it.” – Oscar Wilde. 

One does not usually associate supermodels with those in the risk management profession. While the term ‘models and bottles’ has long been associated with high-flying investment bankers, their middle-office brethren, the risk managers, have always played the nagging house-wife to the bread-winners of high finance.  Yet those in the middle office, while far removed from the limelight of the catwalk, have taken to supermodels of a different kind; models whose beauty is defined by mathematically elegant expressions of risk.

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Never expected this. Yeah, right… whatever!

November 19th, 2014

By Stephen Rollings, a Master of Business Administration student

We human beings are irrational. If I were to ask you what value you would place on a sandwich, your answer would not be based on the attributes of the sandwich alone. How much you value the sandwich will be influenced by the price of other sandwiches, the availability of other lunch options, what other people are eating and prepared to pay, and what else you have been exposed to directly before I ask you the question. If I then ask you to explain your evaluation you will come up with some delusional reason as to why you valued the sandwich how you did, when in reality it is unlikely you understand the real reasons for our behaviour.

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Risk Management: Flawed Fantasy Or Achievable Challenge?

June 26th, 2014

By Brendan Hogan, a Masters of Applied Finance student

Lights are flashing. The screams of children are echoing off the walls. The cabin has become an ecosystem of fear and trepidation. There has been no word from the cockpit in over 20 minutes and the rattling of the Rolls-Royce engines mimic the velocity of an earthquake. A flight stewardess appears from the galley and assures the passengers everything is going to be alright. She asks everyone to put their life vests on as a precaution: “standard procedure,” she says. Read the rest of this entry »

Wall Street, The Love (Hate) Affair With Credit Default Swaps, And The Case Of The Misguided Model

August 5th, 2013

By Martin Kidd

Martin Kidd is Managing Director of Embiggen Finance and is completing a Master of Business (Applied Finance) at Queensland University of Technology

Imagine yourself sitting at a dinner party, where everybody has interesting anecdotes and now it’s your turn to tell a story. You’re a derivatives trader, and you know that if you start talking about work, everyone’s eyes will glaze over because there is approximately zero genuine interest in whatever it is you actually do for a living. Unless you’ve allegedly played a part in the 2007 credit crisis, that is. Credit default swaps have had a bit of a hard time in the finance media since the peak of the financial crisis, so perhaps it’s about time we explored the journey they’ve had since conception through to what’s happening in the market today.

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One Job Too Many (?)

June 25th, 2013

by Jenna Moore, a current Bachelor of Business (Honours) student.

The recent and unexpected $6B trading loss sustained by JPMorgan Chase & Co fuelled the debate centered on CEO duality. CEO duality refers to the situation where the CEO also holds the position of the Chairman of the board. With increasing public awareness and academic interest in corporate strategic leadership, two key questions resound in both corporate finance research and social debate at large: Should the CEO and Chairman roles be separated? Should a separation be mandatory?

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When Ignorance is Not Bliss … Just Risky

June 11th, 2013

By Emily Tooker, Student of Master of Business (Applied Finance)

In the popular 1983 comedic film, Trading Places, commodities broker, Louis Winthorpe III, and rags-to-riches profiteer, Billy Ray Valentine, bet their life savings on the frozen orange juice market to accomplish a lucrative trade in a single master stroke.

At the end of the film, we are treated to Winthorpe and Valentine basking on a tropical island, and the token yacht decorating an expanse of blue ocean in the background.

Real or imagined accounts of overnight monetary success, such as that depicted in Trading Places, have given us the false impression that risk will give its due reward. Likewise, basic finance theory tells us that there is a risk-return trade off – to obtain a higher return, you must be willing to take on more risk – and this theory has driven a risk-seeking culture in finance.

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When all you have is a hammer; Why financial managers are so bad at measuring risk

May 20th, 2013

By Robin (Mac) Stark

When a carpenter sets to work, tools in hand, he is prepared. The house he goes to work on, he is all too familiar with, and, thanks to physics and engineering, he can replicate, time after time, the same solid and reliable structure. Alas – this is not so for the contemporary Financial manager. Yet, there is a belief that a risk analyst can go to her trade, tools in hand, with the same accuracy and reliability of the carpenter. But this is her first mistake, a hammer is a reliable tool derived from the predictability of physics – the carpenter can make use of a simple and reliable hammer because with certainty, the force of the last strike of the hammer will be the same as the next. However, for the risk manager, such an assumption can prove costly, because the game is not the same – finance is not physics, a hammer just won’t do.

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