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Judging by his newest “diary of a quant”, Man AHL’s Russell Korgaonkar is as exhausted by the end-of-year funding outlook blizzard as we’re. And as he factors out, strategists aren’t, umm, nice at predicting the longer term.
Man AHL has lengthy been highly regarded for the concept volatility is definitely the easiest way to foretell the close to future and dial up and down your publicity accordingly. It’s the primary (self-serving) level of Korgaonkar’s submit.
“Volatility scaling,” Man AHL calls it, however elsewhere the method is often name volatility concentrating on. It’s broadly used within the trend-following hedge fund house, danger parity and variable annuity merchandise, and varieties the idea for value-at-risk fashions which might be just about all over the place.
It has its critics — who argue it embeds automated feedback loops into markets — however it’s true that volatility tends to cluster. It’s equally true that nothing will cease the Wall Avenue-Industrial Complicated from churning out extremely predictable annual investment outlooks.
Nevertheless, we primarily needed to spotlight the report for a phenomenal, up to date model of considered one of Alphaville’s favourite-ever chart codecs: implied charges forecasts over time, and what charges have really finished.
It’s an oldie however a goody, and we reckon it’s good to resurface every so often as a reminder of how exhausting it’s to make predictions, particularly in regards to the future. Please bear that in thoughts as we enter 2025!
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