Managing a Derivatives Portfolio Through Turbulent Markets

By Mark Higgins, Beacon Platform Steering a portfolio of non-linear derivatives, such as options and more exotic products, is challenging at the best of times. Market risks change as markets move and time passes, risks offset in complex ways and proxy hedging is common. In this feature, Mark Higgins co-founder and chief operating officer of Beacon Platform, explores the importance of understanding how profit and loss is explained by different market components to effective portfolio management. This is most definitely not the best of times. The coronavirus pandemic has caused huge moves in every market, creating significant dislocations and stressing model calibrations to their limits and beyond. I’ve lived through several periods of extreme volatility in my career as a quant and market-maker: for example, the Asian financial crisis of 1998, the burst of the dotcom bubble in 2001, the global financial crisis that began in 2007–08 and the European debt crisis of 2011. I’ve seen trading desks manage their positions effectively while continuing to service their clients because they had robust and nimble risk systems, and I’ve seen desks drop years of accumulated profit in weeks because they did not. After a long career on trading floors at two… continue reading

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