My guest in this episode is Kris Abdelmessih, co-founder of moontower.ai.

Kris began his career at SIG, where he worked as a market maker in several different option pits, before moving to Parallax where he ran a relative value commodities volatility book.  For the last five years, Kris has been writing on his blog Party at the Moontower, which is one of my favorite reads for all things probability, payoff space, trading, optionality, and seeing the world through a volatility lens.

Kris is a passionate educator, so it should come as no surprise that learning is a key thread throughout this entire episode.  Kris discusses how learning is accelerated in the pits and how we can think about replicating it in electronic space.  Kris discusses what he had to unlearn and relearn in his move from market making to relative value trading.  He also shares his thoughts about how firm lineage influences how you learn to trade markets.

Finally, we discuss Kris’s newest venture, moontower.ai, which seeks to provide a “volatility lens” to opinionated traders to help them better express their bets in option space.

There is a lot of experience to unpack in this one.  

I hope you enjoy my conversation with Kris Abdelmessih.

Kris Abdelmessih - Life Through a Volatility Lens (S7E10)

In this episode I speak with Martin Tarlie, a Portfolio Manager at GMO spearheading their work on Nebo, a goals-based investment platform.

Martin describes Nebo as, “bridging the gap between financial planning and portfolio management,” with a key innovation being the reformulation of risk from volatility to not having what you want/need when you want/need it.  In other words, constraints on both wealth target and horizon.

This reformulation of the core problem introduces a number of complications to the portfolio optimization process.  For example, under classic power utility, lower volatility is always preferred.  But if you’re an investor expecting significant shortfall with respect to your wealth targets, increased volatility may be something very much worth pursuing.

We spend plenty of time in the weeds discussing topics such as: the limitations of dynamic programming via backwards indication, the term structure of return variance, ergodicity economics, and portfolio selection sensitivity to utility function choices.  And while these are all important details, at the end of it all, what Martin stresses most is that it’s the reformulation of the problem being solved that ultimately leads to a more pragmatic solution for allocators.

Please enjoy my conversation with Martin Tarlie.

Flirting with Models Transcript on Youtube

Kris Abdelmessih - Life Through a Volatility Lens (S7E10)

Martin Tarlie - Bridging the Gap Between Financial Planning and Portfolio Management (S6E13)