Heisenberg’s Doom Loop Update – Required Reading Edition

Presented without further interruption…

Hopefully you don’t need a refresher on this, because if you do it likely means you haven’t been paying much attention to how shifts in market structure are creating systemic risks that no one understands, but just in case, the idea is that thanks to the low starting point on the VIX, a nominally small spike could force inverse and levered VIX ETPs to panic buy VIX futs into said spike, thus exacerbating the situation and ultimately forcing CTAs, vol. control funds, and risk parity to deleverage into a falling market.

via Market Doom Loop Update: Risk From VIX ETPs, CTAs Flashes Red


Global financial regulators urge caution over rise of robots – FT

Does this represent the ultimate in the “tight coupling” risk management problem (e.g., Feynman’s view of the Challenger disaster, Rick Bookstaber’s take on financial meltdowns, etc.)?

“Applications of AI and machine learning could result in new and unexpected forms of inter-connectedness between financial markets and institutions, for instance based on the use by various institutions of previously unrelated data sources,” said the FSB, in its first dedicated report on AI.

via Global financial regulators urge caution over rise of robots