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A Tractable Agent-Based Model for the VIX 
23 October 2018, London and Online

Overview
Agent-Based risk models have been a trend since the 2008 financial crisis, with major initiatives at the Bank of England and Oxford University (INET). The market is modelled as a complex network of players, where random shocks can propagate into unexpected places and have disastrous large-scale effects. Agent-based models are more conceptually correct than standard correlation-based models, generating the sort of fat-tailed distributions that are observed in the markets. However, they are notoriously difficult to calibrate. There is not enough transparency to know what every agent is holding nor its likely course of action.

This talk will focus on the February collapse of the XIV. The collapse offers a rare example of where we can actually specify the parameters of an agent-based model. We will combine an analysis of the prospectus, market share estimates for the XIV and price impact modelling to show how risk was underestimated by traditional risk models relative to a well-defined agent-based one.

Bio
Hari P. Krishnan is a PM at Doherty Advisors, an award-winning volatility hedge fund in New York. He was previously a fund manager at CrossBorder Capital in London and was an executive director and co-head of alternative asset allocation at Morgan Stanley (Chicago and London). Hari has also worked as an options trading strategist for a market-making firm at the CBOE and as a senior economist at the Chicago Board of Trade. He received a PhD in applied math from Brown University and was a research scientist at Columbia University before moving into finance. Hari is the author of The Second Leg Down, which provides strategies for protecting capital after an initial sell off, published by Wiley in 2017.

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