Episode 010: Forest fire insurance

About this episode

This episode explores the concept of systemic risk in financial systems through the lens of forest fire insurance and volatility.

Forest Fire Insurance explores how risk truly builds in financial systems and why volatility is not the enemy it is often portrayed to be. Marvin Barth and Mark Farrington are joined by David Dredge, CIO of Convex Strategies, to unpack the idea of self organised criticality in markets using the forest fire analogy. The discussion ranges from leverage, correlation and contagion to the failures of Sharpe ratio thinking and the dangers of suppressing volatility. The conversation moves through convexity, tail risk, demographic decline, central bank policy and the growing fragility of the global financial system. Dredge explains why insurance is cheapest when it feels least necessary and why the real risk lies in accumulated undergrowth rather than the spark that eventually ignites it. This episode is a deep dive into how systemic risk forms, how it is mispriced and why prudent investors should think less about forecasting outcomes and more about preparing for nonlinear shocks. Timestamps 00:00 Introduction to Thematic Edge and today’s guest 01:00 David Dredge, Convex Strategies and tail risk investing 03:20 Forecasting versus risk management 05:30 The forest fire analogy and self…

People in this episode

Host: Marvin Barth

Guest: David Dredge

Topics covered

• forest fire insurance
• systemic risk
• volatility
• financial systems
• risk management
• tail risk
• central bank policy

Keywords

• forest fire analogy
• self organised criticality
• Sharpe ratio
• leverage
• contagion
• tail risk
• volatility
• central bank policy

Mentioned in this episode

Organizations: Convex Strategies

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