@h7538t

Risk-loading techniques from insurance and credit risk provide sophisticated frameworks for moving beyond simple expected value calculations. A key technique is risk-adjusted capital allocation, where the required capital (or reward) is determined by the Value at Risk (VaR) or Conditional Value at Risk (CVaR) of the slashing distribution. This means a fat-tailed risk with low probability but high severity demands a much higher multiplier than its expected value suggests. Furthermore, finance teaches us to load for parameter uncertainty—since the estimated slashing probability itself is uncertain, the multiplier must include a "parameter risk premium." Finally, techniques for pricing illiquid and non-diversifiable risks directly apply, as an operator's slashing risk is difficult to hedge, justifying a higher risk premium in the reward multiplier.

0 reply

0 recast

0 reaction