We’re developing an AI-enabled wargaming-tool, grim, to significantly scale up the number of catastrophic scenarios that concerned organizations can explore and to improve emergency response capabilities of, at least, Sentinel.
Interesting! Let us know how it goes, and ideally provide a link to the wargaming AI so we can try it!
That said, I think buying out of the money volatility options is a very bad idea. Those options are extremely expensive financial products. They cost you a pile of money, up to 8% for every month you hold them. You will spend a lot of money each month and go bankrupt before the world goes down. VXX is calculated in strange ways, too. And finally but most importantly, you need to worry about counterparty risk. If you bought those products from Lehman Brothers just before the financial crisis, you might have had a claim, but it was worthless. Same about insurance companies and their re-insurers. A sufficiently disastrous catastrophic risk will bankrupt them, and they will pay out to no one.
As an economist I also like to remind people that the world and its tech stack has been on an exponential growth course since the industrial revolution, and is very likely to stay on it. Writing and reading mostly about catastrophic risk might bias you into worrying too much. Be aware of that.
The "catastrophic risk hedge" that is actually useful is the smarter prepper stack. You don't need water, but you need to be away from population centers. For water, have purification tablets and iodine tablets ready. Your home needs to be as self sufficient as can be (sfh on large parcel with spare solar panels, energy storage, water treatment, electric bikes, own greenhouse, starlink). And you need stuff you can trade in a catastrophic scenario. That meant physical gold in most of history, but now I'm not sure about gold at all because the gold price is very high. Actually useful stuff for trading in (like surplus purification tablets, the now very cheap solar inverters, surplus starlink dishes, or surplus unperishable food) is better than expensive gold.
We weren't suggesting continually rolling VXX options. We were proposing that, if we're starting to get concerned about the tail risks of a particular situation, this would be a way to set aside a fixed amount of capital for potentially large gain and then move on from thinking about one's portfolio more or less as one goes on to act on the world.
Hi Roman! Great points, particularly appreciated on VXX! Providing a public link is a bit tricky at the moment, but I'm happy to invite to a private interatio in the near future!
Elaborating more about the prepper home, it is probably best (and less expensive than VXX) if you are able to maintain a simple production line for something that is useful to everyone in a catastrophe, and does not depend on a vulnerable supply chain. You can then trade that stuff. It is even useful in the face of minor supply chain disruptions like tariffs. Some examples:
- Water purification plants
- Plastics/polyester production line (you can make bags, clothes and home textiles to keep people warm)
- Energy production equipment (like steam turbines suitable for locally available wood or coal chips)
- Basic electronics
- food grown inside (or in your pond, like algae)
- milling (like an old watermill)
It's even better if you are a small business owner whose self-contained business is profitable now, and the product is something useful in a catastrophe, because you gain skills that would be doubly useful then.
Interesting! Let us know how it goes, and ideally provide a link to the wargaming AI so we can try it!
That said, I think buying out of the money volatility options is a very bad idea. Those options are extremely expensive financial products. They cost you a pile of money, up to 8% for every month you hold them. You will spend a lot of money each month and go bankrupt before the world goes down. VXX is calculated in strange ways, too. And finally but most importantly, you need to worry about counterparty risk. If you bought those products from Lehman Brothers just before the financial crisis, you might have had a claim, but it was worthless. Same about insurance companies and their re-insurers. A sufficiently disastrous catastrophic risk will bankrupt them, and they will pay out to no one.
As an economist I also like to remind people that the world and its tech stack has been on an exponential growth course since the industrial revolution, and is very likely to stay on it. Writing and reading mostly about catastrophic risk might bias you into worrying too much. Be aware of that.
The "catastrophic risk hedge" that is actually useful is the smarter prepper stack. You don't need water, but you need to be away from population centers. For water, have purification tablets and iodine tablets ready. Your home needs to be as self sufficient as can be (sfh on large parcel with spare solar panels, energy storage, water treatment, electric bikes, own greenhouse, starlink). And you need stuff you can trade in a catastrophic scenario. That meant physical gold in most of history, but now I'm not sure about gold at all because the gold price is very high. Actually useful stuff for trading in (like surplus purification tablets, the now very cheap solar inverters, surplus starlink dishes, or surplus unperishable food) is better than expensive gold.
We weren't suggesting continually rolling VXX options. We were proposing that, if we're starting to get concerned about the tail risks of a particular situation, this would be a way to set aside a fixed amount of capital for potentially large gain and then move on from thinking about one's portfolio more or less as one goes on to act on the world.
Hi Roman! Great points, particularly appreciated on VXX! Providing a public link is a bit tricky at the moment, but I'm happy to invite to a private interatio in the near future!
Thanks! I'd be interested.
Elaborating more about the prepper home, it is probably best (and less expensive than VXX) if you are able to maintain a simple production line for something that is useful to everyone in a catastrophe, and does not depend on a vulnerable supply chain. You can then trade that stuff. It is even useful in the face of minor supply chain disruptions like tariffs. Some examples:
- Water purification plants
- Plastics/polyester production line (you can make bags, clothes and home textiles to keep people warm)
- Energy production equipment (like steam turbines suitable for locally available wood or coal chips)
- Basic electronics
- food grown inside (or in your pond, like algae)
- milling (like an old watermill)
It's even better if you are a small business owner whose self-contained business is profitable now, and the product is something useful in a catastrophe, because you gain skills that would be doubly useful then.