Saturday, October 8, 2011

Lifes' risks in the new world

Any uncertainty leads to risk. There are many types of  Risk. Many are non-financial and related to lifes' uncertainties. In a continously changing and evolving world, new uncertainties arise and the same old uncertainties have more (and seldomly, less) risk than the previous decades/generations. When the old parameters to measure risk are inadequate, inaccurate and inappropriate, how can one measure risk? Risk is always measured with respect to certainty just like dark is defined to the relativeness of light. And when certainty itself (the reference point) cannot be defined/yet to be refined, how do you measure risk? At a macro level, it is possible to say that the risk is more in the new world compared to the old world, but measuring it against another new world situation is impossible. And when risk cannot even be known accurately and measured, how can you successfully hedge the risks? Having huge exposures and open positions may have upsides even in life, but the downside risk is huge and scary.
One unique aspect about each of lifes' risks unlike financial risks are that you cannot be semi-hedged. You are either fully covered or stark naked!

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