People paid to worry about bad stuff happening concluded long ago that one way to destroy the USA as a functioning state would be to explode a high altitude nuclear weapon above the country; the resulting electromagnetic pulse (EMP) would destroy practically all electrical equipment, including the large transformers that make the electrical grid work.… Continue Reading
Tag Archives: risk management
Why an abrupt tightening of climate change policy may be our only hope
To spend time with climate scientists and energy economists these days is to take part in an increasingly tortuous mental conflict. Outwardly, scientists, policy analysts and academics hoping to influence policy must remain positive and optimistic, while keeping a strong sense of urgency. Privately, many are in despair at the lack of progress on cutting… Continue Reading
Socially useful finance
Evidence from Nigeria shows that access to finance can help households reduce the impact of bad luck, reducing the fall in consumption that they suffer. * Yesterday I was part of a group discussing a draft research paper on the ethics of banking, prepared for the Cambridge Judge Business School Centre for Compliance and Trust. I… Continue Reading
Why is it riskier to be a worker than a capitalist?
We take it for granted that capitalists hire workers rather than workers hiring capital, but why? The main reason is the difficulty of diversifying labour, which means that workers ideally require some form of insurance to offset their concentration of risk. But that is only imperfectly available through the market and this is an important… Continue Reading
The decline in volatility: measuring risk aversion from option prices
Although the world appears a very turbulent place, financial volatility is currently rather low. How do we know this? One method widely used by commentators and market analysts is to refer to a measure of global risk aversion called the VIX. This post explains how can we infer something about market participants’ attitudes to risk, based on option pricing theory… Continue Reading