Geoff Considine

Risk Management Lessons from Bear Stearns

to comments above:

I did not profile BSC in my earlier piece because it was not something I was looking at. Many of the large financials are showing higher risk than I want. It is hard to screen the entire universe--your point is correct--but it is fairly easy to screen the companies you are considering buying or own.

A lot of my point here was the following. CDS (credit default swaps) are priced in large part by implied volatility, and QPP outlooks for volatility track implied vol quite well--hence the agreement (on average)--this is well documented in quant circles. The market data contains 'priced in' default risk--which is why CDS prices track implied vol. Many professional firms track these stats and use these models--but retail investors and wealth managers tend to be unaware of these tools / metrics / stats.

The BSC debauchle has brought this issue to the fore and it emphasizes the importance of risk management--as Enron and Worldcom did before.