Modern risk management is a real challenge. Today, I played with my levitation device. I noticed that most people do not believe that levitation is real. In fact there is a formal proof that levitation in a static magnetic field cannot be stable. This situation is similar to common believes in financial markets.
In the following video, I show that magnetic levitation is real:
Already in 1842 Samuel Earnshaw published a formal proof that there is no stable equilibrium in static field. But still, the spinning top is flying in a stable position:
The interesting thing is that it took over a hundred years for this invention: Roy M. Harrigan discovered the levitation device in 1978/79 – a big surprise. It turns out that this proof does not hold for dynamic systems like the one I show in my video with the spinning top. As a side note, stable levitation is also possible based purely on gravity in the Lagrangian Points (L4 and L5).
In risk management, you also have to think about the unexpected – even if there seems to be a proof that it can never happen. There are numerous events in the current market situation which were completely unthinkable just a few years ago:
- Bonds sell with negative interest-rate,
- one of the €-countries defaults,
- blue-chip stocks lose 100% of their value within 20 minutes,
- another flash crash happens within 24 months,
- a company with AAA-rating defaults within hours,
- FED and ECB buy government bonds and thus directly print money,
- a Ponzi scheme destroys 65 billion US$,