Last week, in response to a recent story in the Financial Times,TM we published The VIX, Volatility and Market Risk. In that post, we outlined the BISAM Cognity approach to modeling risk, explaining that our "real world" risk models do not assume risk equals volatility, but rather that turbulence (vol of vol), deviation from normality and "tail-fatness" are the lenses through which market risk should also be measured.
To this point, and as a follow up to last week's post, I'm pleased to share this Cognity backtest from our archives, which looks at a set of long and short call "what if" scenarios on the VIX in September 2008.
Click through the following case study for a deep dive into the what-if scenarios and backtest results and see how a Portfolio Manager only looking through the lens of Normal VaR measures in this scenario would have failed to see a major risk contributor (potential -30+% loss in portfolio performance by shorting the VIX) and a major risk diversifier (+40% increase in portfolio performance by taking a long position).
Portfolio analytics based on normal distributions do not provide the insight needed for sound what-if decisions. BISAM's patented Cognity models uncover new opportunities and upside potential. Visit www.bisam.com/cognity to learn more about our Real World Risk Modeling capabilities and request a Cognity demo today.