In the quantitative research department, the core department of Citadel, more than 80 former famous university mathematics professors and astrophysicists have developed mathematical models to provide finger support for traders. On the 37th floor of the Citadel building, there is an area called "Doctor Street". From the floor to the ceiling, there are white boards filled with all kinds of complicated data formulas, even the window glass is no exception.
In Kenneth's office, there is also a whiteboard like this for scribbling at any time. He often writes some program codes on it, or writes pricing models of convertible bonds and mortgage securities. Technology penetrated into every business type of Citadel, and quickly penetrated into Kenneth's newly added business. All these technologies are designed to keep the company highly agile, so Kenneth can evaluate and seize opportunities in almost any situation and deploy his team at lightning speed.
Kenneth's point of view is that the core content of risk management is to understand how the portfolio will operate under different market changes. If you are not satisfied with the results of a risk test, you must adjust your portfolio in advance. "Good risk management is to make arrangements before the crisis, not to wait until after the crisis." Kenneth said.
Kenneth's understanding of risk management comes from the 1987 stock market crisis he experienced when he was studying at Harvard. Before the crisis, many professional investors said to Kenneth, "If the market starts to fall, I will sell my stock." Kenneth clearly remembers that on the day of the crisis, the headlines in the news media were nancy reagan's health problems and small-scale conflicts in the Middle East. Unexpectedly, the US stock market plunged 25% that day.
Kenneth believes that the market fluctuates violently and rapidly, and it is difficult for investors to change their portfolios during the crisis. Therefore, the deployment of risk management must be completed before the crisis comes.
In order to ensure the preservation and appreciation of customers' assets, Citadel attaches great importance to the diversification of investment portfolio and carefully manages the company's cash flow. In addition, it implements strict risk management for its portfolio. The risk manager of Citadel simulates the changes of the investment portfolio in different crisis environments every day-the Asian financial crisis resurfaces or the "9. 1 1" event repeats itself. In some cases, Citadel will adjust its portfolio as long as the investment loss exceeds the tolerable limit. Citadel takes 30% of its management capital as working capital, on the one hand, for the sake of risk management, and on the other hand, to prepare for seizing investment opportunities when the market fluctuates.