John Yang

In reality, the left tails can be ugly, which means when crisis happens, it goes really bad.

Losses can cluster.

Like when you have one bad day, it doesn't stop there.

Like it goes on a strike.

And those are the issues that we're trying to address with our new simulation model.

More specifically, we have three challenges that we're trying to have our model to address.

First, each asset need to have its own personality.

In the Gaussian baseline, you're kind of assuming everything follows a bell curve, but that's not true.

Bonds behave very different from equities.

That also behave very different from, say, oil futures.

Each of them has to be like fitted independently instead of just assuming a bell curve for everything.

And the second challenge is that the asset classes also need to move together realistically.

You can't just model equity without thinking about bound because think about it, when equity drops, when it's like reacting to one macro event, asset classes don't move in isolation.

So we're trying to model that correlated behavior in our model as well.

And the third challenge that we're addressing is that the model also need to take into the bad outcomes and the tail events seriously.

For now, a normal distribution has a relatively thin tail, and it's not really giving the tails the attention that it deserves.

That was my setup for the problem.

I don't know, Ben, if you have any questions about that or anything you would like to clarify.

Exactly.

Those are the exact steps that we're taking in our simulation process.