Prepare Yourself for the Next Black Swan Event With Tail Risk Analysis
Learn how to identify what your tail risk is so that you’re prepared for the next market crash.
I can’t tell you when the next market crash is coming. I have a couple of guesses, but I don’t think predicting the timing is the most important part to consider anyway. Earthquakes and other natural disasters are similarly unpredictable, but it’s not about prediction — it’s about preparation.
When the next disaster strikes, you need to have a plan for how you are going to handle it. And the first step to having a plan for a crisis is to know exactly what is at risk.
So today I’m going to explain a few financial terms to you so that you have a thorough understanding of what’s at stake in your own portfolio. I’m also going to show you how you can implement these concepts with python so that you can actually apply what you’ve learned. I’m going to go over drawdowns, historical value at risk, expected shortfall, parametric value at risk, and we’ll look at some random walk and Monte Carlo simulations. Let’s get started!