Expect the Unexpected: Risk Management Must Be Creative

· Risk Management
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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:

A flying spinning top

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:

That means a risk manager has to be very creative, try to think about the unexpected and take nothing as a fact. If we can learn one thing from history: Details of crises do not repeat – they are unthinkable.

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