all cental banks are money wasters even the....

jonny1lot said:
The difference here is how we are defining "black swan." I'm defining in quantitative terms and what the market is pricing in at the time prior to move. Others seem to be defining according to their own subjective definitions. Look, I'll say up front that I'm not the smartest guy in the room. I can only go off of what the market is pricing in at the time.

I estimated the 180 SD calculation, but I'll walk you through the calculation. Annual volatility assumes a 1 SD move. Prior to the move, the annual volatility for the Swiss Franc was a little over 1.7 percent. So there was a 1 SD chance that the Swiss franc would depreciation or appreciate 1.7% in a year's time. This isn't my judgment, this is just what the market was pricing in at the time.

To calculate the daily IV, take the annual and divide by the square root of 365, or roughly 19.1. .017/19.1 = .00089 daily volatility. That day the franc moved 19 percent. .19/.00089 = 213 standard deviations. So I was wrong, it wasn't 180 SDs.

But the point is, that was a huge daily move and I can still feel bad for the guys who were on the wrong side of the market at the time of the move. It is like a really bad beat in poker - it sucks, you feel bad for them, but it happens to us all from time to time. Just another good reason to stay small.
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so lets's just say, you "stay small" like only 10% of total net worth in the trading account. Where do you go with the other 90%? Is anywhere you go immune from Black Swan? Stock market? Bond market? Gold? Real estate?
 
jonny1lot said:
I hate to say it, but that's what you get when you change monetary policy overnight. At least the US Fed would signal over a period of time that it would take such a dramatic action. I wasn't in the Swiss Franc when the unpegging took place, but talk about a black swan move.
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1994 fed interest rate hike was without any warning. Fortunately, i was short :)
 
Visaria said:
1994 fed interest rate hike was without any warning. Fortunately, i was short :)
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Wow, I could just imagine how much those Eurodollar spreads must have moved.

Just out of curiosity, what happened to the spoos when that surprise rate hike occurred?
 
Visaria said:
1994 fed interest rate hike was without any warning. Fortunately, i was short :)
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Your bringing up an interesting era for analogies. Also interesting was the emerging market bonds debacle which could be more likely to repeat itself with the Yuan devaluation.
 
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