Calculating Risk: Panning for gold in Goldman

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Pat Leach wrote this story in 2006

In "Why Can't You Just Give Me the Number?" (p. 55) by Patrick Leach, the Goldman approach to risk was highlighted as a best practice.
To be fair, Pat couldn't have written this exact story in 06, but he did highlight how GS was using quantitative methods and management action in a prudent manner differing from their competitors. Specifically that GS outperformed (ROE) its peers from 2001-2005 and yet had far more trading days with losses than did its peer group. By managing the uncertainty around the losses and gains, and having enough capital to play the game long enough, they were able to come out on top. If the peers are trying to maximize returns, but subject to the contstraint of making every trading day a positive one, then they will have dramatically sub-optimized their overall return.



Jim Franklin
Oracle employee: these opinions are my own and do not necessarily reflect those of Oracle.

Posted by: jhfran   Posted on: 02/10/09  (Edited: 02/10/2009 @ 02:36) You are currently: a Guest | Members login | Terms of Use

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