January 22, 2014

Risk Management in the Real World | Nassim ‘Black Swan’ Taleb and Raphael Douady

Philosophy and Course benefits

Our methodology is entirely embedded in practice. Most risk management techniques are made by non-practitioners developing theories then finding applications in the real world, with chronic errors and risks of blowups. We travel the opposite direction: we start with the real world, and use entirely practical but rigorous methodology to find which models work or don't work, which models need to be developed and what to do about the problems. We will point out exactly where people are still making fundamental errors and we propose which ones can be corrected. Attendees will leave with effective methods and heuristics, which includes from questions such as which risk reports to look at to how to detect the tail risks in a portfolio.

Who should attend this seminar?

  • Fund managers who want an extra edge
  • Risk managers who need to figure out things not in books and equations
  • Experienced traders who want some perspective


  • The Mother of All Problems: the Law of Large Numbers under Fat Tails.
  • What are Fat Tails? Where can we identify them?
  • How robustness is built.
  • What are limits of statistical methods?
  • Properties of Antifragile Systems and Portfolios
  • How to look at the risks of an investment; how to make a risk report useful:
  • Identifying risk sources. Alternative Extreme Betas, StressVaR, Heuristic(s).
  • Portfolio selection and construction: Diversification and Portfolio Constraints under Extreme Events.
  • Extreme Risk Budgeting. What is wrong with traditional methods:
  • Markowitz, Black-Litterman, VaR, CVaR even with fat tails, Correlation (traditional), Exposures, basis risk…
  • Risk from Models: Fragility Heuristic, Asymmetry of model error, Correlation breaks, Uncertainty on risk model parameters (e.g. tail thickness)
  • Special Topics: American options, squeezes, transaction costs.


Lecturers Biographies

Nassim Nicholas Taleb spent 21 years as an option trader before becoming an academic and researcher specializing in mathematical problems with probability and a "real world" approach to risk management. He is currently Distinguished Professor of Risk Engineering at NYU. Taleb is the author of the INCERTO (Fooled by Randomness, The Black Swan, Antifragile, The Bed of Procrustes), with a parallel mathematical version Probability and Risk in the Real World from which this course is adapted. He is also the author of Dynamic Hedging and numerous academic publications across different fields, ranging from Physica A, Journal of Economic Behavior and Organization and Quantitative Finance to Foreign Affairs. His body of work has 96 translations into 33 languages. Over his career Taleb closed about 650,000 option trades and examined close to 200,000 risk reports.

Raphael Douady is a mathematician with numerous academic publications in chaos theory who turned to mathematical finance and probability theory. He has been advising financial institutions on option pricing and risk models for 20 years. Douady is the co-founder of Riskdata, a risk software focused on extreme risks. He is on the faculty of University of Paris 1-Sorbonne, invited professor at NYU, and the academic director of the French LABEX RéFi (Laboratory of Excellence on Financial Regulation). Taleb and Douady have co-authored “Mathematical Definition, Mapping, and Detection of (Anti)Fragility” Quantitative Finance, 2013

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