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Copula, risk modelling and mathematic finance - Essay Example

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Investment valuation is like selling an ageing automobile: econometrists love to cloak recommendations in numbers and words that we hope most people will not understand, and then look for escape routes in to eternity! Seriously, the propensity of the business environment to…
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Copula, risk modelling and mathematic finance
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Download file to see previous pages People and teams can influence future performance, though the cause and effect relationship lies more in the present than in the past.
The ability of investment to produce future returns is fraught with probabilities. The alternative chosen for use of an asset is a matter of deliberation and discretion. It should therefore be possible to value an investment based on the risk-taking nature of the group that controls deployment of the asset. The matter is worth pursuing wherever there is value in predicting future cash flows from an investment, and when the past is known to be of low relevance for conditions in the future. It is also of interest because it could allow for the professional application of modeling to an area of widespread interest and concern amongst all communities of investors.
Though a quantile approach can ameliorate the confusing scatter of past events with respect to independent variables, major qualitative changes in their complex inter-relationships can result in the most disruptive discontinuities as we extend past trends in to horizons of the future. There are situations in which statistical validity is inadequate for a decision on a risk with very serious consequences. We need, as far as possible, to create comprehensive scenarios in which the outcome can be reasonably guaranteed if specified conditions are met. The imperatives of a risk management approach will not allow for the degree of uncertainty to which mere smoothing of past variations may be restricted.
Legislation, regulation and social pressures from organized groups are different today from their past arraignment. They continue to change as well. We are asked to discontinue things to which we are accustomed, new challenges arise from technology and new opportunities as well. Investments with long gestation are par for many courses, yet the futility of past data grows as we travel ever more distant in to the future. However, ...Download file to see next pagesRead More
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