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• Derivatives. It is worth mentioning that cost and usefulness are Group, said: “I see extreme risks thinking as an exercise for the
often in opposition. The cost of derivatives protection can often mind. They remind us that it is naive and dangerous to cling to
be reduced by specifying more precise conditions – but the more a single vision about the future. Yes, we do not know what the
precise the conditions, the greater the chance that they are not future holds. But our brains are more than capable of imagining
exactly met and hence the ‘insurance’ does not pay out. multiple versions of the future. As investors, we are trying to
navigate a highly volatile, uncertain, complex and ambiguous
• Hold a negatively-correlated asset. There is no single asset world. The scenarios are most effective when they are used, in
that will work against all possible bad outcomes. Further, there a deliberately-created interactive environment, to make explicit
is no guarantee that the expected performance of the hedge asset - and to challenge - assumptions that underpin your investment
will actually transpire in the future event. portfolios or your business strategy.”
Liang Yin, Senior Investment Consultant at the Thinking Ahead Reference: www.willistowerswatson.com

2019 extreme risks ranking and descriptions

Rank Risk Description

1 Global temperature change Earth’s climate tips into a less-habitable state (hot or cold)

2 Global trade collapse A worldwide protectionist backlash against cross-border trade

3 Cyber warfare Internet being weaponised that causes severe damage to virtual systems vital to the econo-
my and even to hard infrastructure
4 Resource scarcity* A major shortfall in the supply of food/water/energy

5 Currency crisis Extreme movement between exchange rates

6 Depression A deep trough in economic output with massive increase in unemployment

7 Infrastructure failure An interruption of a major infrastructure network

8 Banking crisis Banking activity halts due to lack of liquidity

9 Sovereign default Non-payment by a major sovereign borrower

10 Stagnation A prolonged period of little or no economic growth

11 Biodiversity collapse A collapse in biodiversity, in which an accelerating number of species decline to extinction
12 Health progress backfire Massive rise in morbidity or mental ill-health, antibiotic resistance

13 Nuclear contamination A major nuclear disaster, leading to large radioactivity release and lethal effects

14 Abandonment of fiat money A complete collapse in trust on governments and governments-backed paper currency

15 Extreme longevity Significant increase in life expectancy overwhelms support systems

Rabia Kübra Kanun / kubrac@bestyayincilik.com