The fundamental principle underlying all analytics and data science is Probability. And probability was first invented, or should I say discovered, to assess risk. So what is risk? Can we quantify and measure it? How do we handle risk in life? Is risk always bad?
Today’s guest on Data Chatter is Bala Vamsi Tatavarthy, who is co-founder and investment advisor at Aravali Asset Management, a global arbitrage fund.
Vamsi was my classmate at IIT Madras, where he studied computer science but spent most of his time gaming. He then went to IIM Ahmedabad, where he continued to game heavily and graduated with a gold medal. He now runs a hedge fund, and spends a lot of time gaming.
Moreover, he was one of the last traders to trade on behalf of Lehman Brothers, on 15th September 2008.
Risk, as you can imagine, is a vast subject, and so this is a long podcast. We talk about measuring risk, problems with too much measurement of risk, how risk can be managed, and all that. We also talk about movies, games, the differneces between poker and bridge and physics envy.
Show Notes
00:03:45: Defining Risk, and Lehman Brothers’ collapse
00:09:00: Can risk be created or destoryed? Is it conserved?
00:15:00: Risk, probability distributions and long tails
00:20:45: Uncertainty, volatility and risk
00:28:30: Hedging
00:35:00: Utility functions
00:42:30: Games and risk
00:54:00: Bridge and poker, and finite and infinite games
01:04:15: Ergodicity
01:07:30: VaR, Risk-metrics and Goodhart’s Law
01:14:30: Correlation
Links:
“Risk once created cannot be destroyed”
The Wired article about Gaussian Copula, used to estimate correlations
Too Big To Fail, by Andrew Ross Sorkin
Data Chatter is a podcast on all things data. It is a series of conversations with experts and industry leaders in data, and each week we aim to unpack a different compartment of the "data suitcase".
The podcast is hosted by Karthik Shashidhar. He is a blogger, newspaper columnist, book author and a former data and strategy consultant. Karthik currently heads Analytics and Business Intelligence for Delhivery, one of India’s largest logistics companies.
You can follow him on twitter at @karthiks, and read his blog at noenthuda.com/blog
