What…

Under extreme market conditions – that we call here non-parametric to mean that they cannot easily be subjected to mathematical analysis – investors tend to be more concerned about the return of their money than about the return on their money. Protecting Assets Under Management (AUM) becomes the surest, if not the only, path to survival and growth.

How…

Investors face a whole range of unknowns: from “known unknowns” to “unknown unknowns”. The sheer complexity of the situations encountered on the markets is such that they can only be dealt with through the development of a parsimonious set of “battle-tested” heuristics aimed at designing effective investment strategies to protect assets.

Why…

Today’s markets react in less than a few tens of a second based on investors’ perceptions of how unpredictable, impossible, and unthinkable events might affect the behavior of others. Our chapter proposes a conceptual model of the unknown and an accompanying set of heuristics aimed at conceptualizing market response, at connecting proven facts and at converting observed discrepancies into profitable investment opportunities.

Related contributions

• Bounded rationalities, routines, and practical as well theoretical blindness: on the discrepancy between markets and corporations by Laurent Bibard
• Credo Ut Intelligam by Henri Bourguinat and Eric Briys
• The choice of the distribution of asset returns: how extreme value theory can help? by François Longin