Risk theory
Based strictly on responses expressed by you, I get to detect an apparent contradiction, that if confirmed, would be giving a heavy blow to the foundations of any Financial Theory and particularly to Modern Portfolio Theory.
Let’s see:
On the one hand and given the responses of the majority, you define risk through ex-ante proposition: it is a possibility of harm. This possibility is in the future and also devoid of certainty. The definition is therefore based on the notion of uncertainty (do not know what could happen) and therefore predates the facts (ex-ante).
On the other hand, you can measure that a proposition is based on ex-post-post facto, which is based on historical volatility.
I see a huge methodological flaw, so vast that we have been slow to see it before our eyes, but I guess I define something else.
Is there or is there a contradiction? Whether there are methodological flaw?
I declare the debate.
Could it be that this minimal methodological flaw that went unnoticed by most, is the reason prodigious financial institutions of evaporated almost overnight, recently?
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Tags: financial institutions, Financial Theory, methodological flaw, Risk theory