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"One important measurement issue concerns the fat tails problem that I mentioned earlier. VAR is concerned with extreme outcomes. If the tails of the probability distributions we are using are too thin, our VAR measures are likely to be too low."
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Exlpore more Extreme quotes
"I was a new devotee of Eastern mysticism and even though I did not join that particular group, I could well have done. They seemed a bit extreme but I regarded myself as not quite ready."
"That made me feel good, not to go to a resort where outside the door is extreme poverty."
"The Greeks said very, very extreme things in their tragedies."
"Extreme nationalism and Bolshevism have broken up the old world, a new world is in the making. It is literally true that old things are passing away; all things may become new, granted we have wise, unselfish, and determined guides."
"I would rather go to any extreme than suffer anything that is unworthy of my reputation, or of that of my crown."
Explore more quotes by John Hull
"When interest rates are high you want the average direction in which interest rates are moving to be downward; when interest rates are low you want the average direction to be upward."
"Alan White and I spent the next two or three years working together on this. We developed what is known a stochastic volatility model. This is a model where the volatility as well as the underlying asset price moves around in an unpredictable way."
"There are challenges in terms of the measurement of VAR for what are known as nonlinear derivatives, where things like gamma and vega are important dimensions of the risk."
"In the interest rate area, traders have for a long time used a version of what is known as Black's model for European bond options; another version of the same model for caps and floors; and yet another version of the same model for European swap options."
"The problem with interest rates are that you are not modeling a single number, you are modeling a whole term structure, so it is a sort of different type of problem."
"Our tree is actually a tree of the short-term interest rate. The average direction in which the short-term interest rate moves depends on the level of the rate. When the rate is very high, that direction is downward; when the rate is very low, it is upward."
"We concluded that you cannot rely on delta hedging alone. It sounds simplistic to say that now, but back then, this was the sort of thing people were only just beginning to realize."
"The real challenge was to model all the interest rates simultaneously, so you could value something that depended not only on the three-month interest rate, but on other interest rates as well."
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