Book Description
This consumer-oriented textbook addresses the principles of risk management without skimping on the discussion of insurance. It summarizes the nature of pure risk on the individual and on society and illustrates how insurance can be used to deal with the problems posed by such risk. Mirroring the diverse experience of its authors, the text is equally effective in presenting the principles of insurance theory and offering how-to advice to students. Throughout, the main emphasis is on the insurance product and the use of insurance within the risk management framework. The traditional fields of life insurance, health insurance, property and liability insurance, and social insurance are treated in terms of their relationship to the wide range of insurable risks to which the individual and the business firm are exposed.
Customer Reviews:
Very Good.......2007-01-18
I thought it would be a sleeper,but quite the contrary..I wish I would have read this book 20 years ago.
How Do I Write a Review about an Insurance Book?.......2003-03-04
Well, I guess I can try to review this book from the only perspective I read it from: that of a student. I had to read it for my CFP class on Insurance, and, as an introduction to most forms of insurance, it explains the forms in a very methodical and systematic way; it was very easy to follow and tough to get completely lost.
Honestly, I was never really fascinated with insurance. My life-licensing class was 24 hours of classroom time spread out over one weekend, so maybe that has created some insurance-related intellectual scars. The sections on Life Insurance and the basic components of any insurance contract and the whole insurance process were already familiar to me, so I found those sections incredibly uninteresting. The other forms of insurance were much more interesting and gave me a great foundation for other insurance studies I've done since.
The prose of the book, too, flows extremely well. In fact, I usually just lightly read passages explaining computations and formulas because I come back later to review them in-depth; however, while reading this book, I actually felt I fully understood most of the computations even while I read (which almost never happens because most formula-explaining reads much like Kant's "Metaphysics of Morals").
Just one closing point... I guess you'd have to be either Insurance Commissioner or a professor of insurance to be really interested in this material, but the authors write in a way that allows even the average CFP or insurance student to come away from the book with a good sense of how insurance works and where it fits into an individual's financial plan.
Book Description
Gain the statistical tools and techniques you need to understand today's financial markets with the Second Edition of this critically acclaimed book.
Youll find a comprehensive and systematic introduction to financial econometric models and their applications in modeling and predicting financial time series data. This edition continues to emphasize empirical financial data and focuses on real-world examples. Youll master key aspects of financial time series, including volatility modeling, neural network applications, market microstructure and high-frequency financial data, continuous-time models and Ito's Lemma, Value at Risk, multiple returns analysis, financial factor models, and econometric modeling via computation-intensive methods.
This is an ideal textbook for MBA students and a key reference for researchers and professionals in business and finance. Order your copy today.
Download Description
Analysis of Financial Time Series, Second Edition provides a comprehensive and systematic introduction to current financial econometric models and their applications to modeling and prediction of financial time series data. It utilizes real-world examples and real financial data throughout the book to apply the models and methods described. The author begins with basic characteristics of financial time series data before covering three main topics: analysis and application of univariate financial time series; the return series of multiple assets; and Bayesian inference in finance methods.
Customer Reviews:
Excellent and detailed reference.......2007-05-03
The coverage of the topic is broad and deep. It is one of the few introductory books that devotes some space to transfer function modeling and does so intelligibly.
A must have for the novice as well as those more familiar with the topic that need a solid reference.
The best for Masters level, great all-around.......2007-02-12
This text is absolutely perfect for Masters students learning financial econometrics. There is a little theory, clear explanations, and quite a few real world examples. (I don't think any text would tell the reader what model to use when, because that's application-specific.) It assumes some knowledge of finance and basic econometrics/statistics, which is fair enough. To get more theory, Hamilton (1994) remains the authority, and Campbell, Lo, MacKinlay (1997) is a great introduction for PhD students, and generally an ideal companion volume to this one.
Excellent reference!.......2006-11-05
This book is an excellent toolbox for anyove dealing in the field of financial engineering, however, as a real toolbox, the author doesn't explain the exact use of all tools and how to interpret the results. This is why this book is for advanced users who need a well documented reference but it is not very suitable for beginners in the field. The Splus code is welcome.
Broad coverage, but not for the faint-hearted.......2006-07-05
Written by a University of Chicago professor, this book comprehensively covers times series topics relative to investment and trading-oriented finance (i.e., Wall Street money-making machines). Treatment is generally clear and thorough, but an advanced math and stat background is an absolute prerequisite for understanding the materials.
S-Plus/R code is given, but strangely, there is very little on *why* and
*when* one uses each of the techniques. Under what cirmcustances should I use or not use GARCH? What exactly is PCA good for in real-world applications? These important questions are not answered, in other words, you don't get a sense of the real-world context for these topics.
Best textbook I have ever read .......2005-09-19
First of all, it is well written in a very practical point of view. The whole book is aimed fullly to real financial data(appended in the author's web). People can gain not only the well-explained theories but the hand-on experience with data analysis using SPLUS or any other package.
Secondly, the author is a real expert in this field and has been publishing lots of nice work. All models in the book are clearly illustrated and commented.
Thirdly, it covers a lot of topics in analysis of FT. Reader can learn almost all the valuable things in this field from this book.
If anyone wanna truly learn this book, she/he has to sit down and plays some real data on computer. I think this is the best way and the only way to use this book.
Book Description
Designed specifically for managers, this groundbreaking book emphasizes how to use derivatives to maximize firm value through risk management - instead of just using derivatives to speculate. It presents the crucial tools necessary for executives and derivatives players to effectively hedge with derivatives in order to protect firms from losses. Coverage includes all the pricing tools needed to use derivatives seriously, as well as the tools to evaluate how to use a particular derivative to reduce risk. Risk Management and Derivatives takes a general approach to derivatives, illustrating how to use existing derivatives for risk management - as well as derivatives that do not yet exist.
Customer Reviews:
Wealth of information and very detailed.......2007-01-31
This is one of the best books I ever had. Being able to understand every detail is not easy , but the author does a great job in bringing mathematical concepts with an application perspectives
One of the worst book i've ever read.......2006-04-18
Do not buy this book. It's one of the most poorly written book i've ever read. The author likes to use long winded sentenses to explain simple concepts and he does a piss poor job at it. In addition, this book lack quality example problems to help you learn the concepts. When there are examples, they are deeply burried in text rather than clearly shown in a designated area. Imagine an algebra or calculus book with examples explained in text rather than numbers. (.i.e two plus two equals four ... as opposed to 2+2=4) This is how bad this book is. This book is not worth the money. The only way that it's worth the price I paid is if I get a chance to throw it that the author.
If anyone out there know of a well written risk management book, please let me know. I'd greatly appreciate it.
Encountered feelings.......2004-04-16
I have encountered feelings about this book. I liked that it relates corporate finance topics with risk management, giving a better picture of how finance should be understood. I definitely agree that it is full of very valuable insights that increase our knowledge and understanding of finance and risk management. Some of my impressions about the book are:
-The book is sometimes easy to follow, but many times it is very difficult to follow.
-Many difficult parts to follow were unnecessarily complicated by the author.
-Many times the book didn't follow clearly an idea, as if each following sentence or paragraph was written by different people with something different in his mind each.
-Many times it used several lines and paragraphs to explain something simple that could be stated in one sentence.
-Some topics were explained very clearly but others were dreadfully explained.
-Some numeric examples were clear and some were very difficult to follow
My opinion is that you should look for another book on the subject; unfortunately I cannot give an advice about an alternative book.
Anyway, before reading this book you should have a good understanding about the CAPM, derivatives (futures, forwards, options), and basic probability.
This book could become a great book if the author took the time to improve its readability and coherence, because it has very valuable knowledge embedded in it.
Derivatives and hedging for everyone.......2003-06-26
Risk Management and Derivatives by Rene Stulz is a pioneering book into the need, value, and how to of corporate risk management. Rene Stulz is one of the leaders in this area of finance and has researched and studied it over many years, he is one of the leading experts in the understanding and managing of firm risk. The book motivates the subject by presenting existing and new arguments for the use of risk management by corporations. The book is designed to prepare current and future managers and executives for the world and value of derivatives. To assist the reader, learning objectives are presented at the beginning of each chapter. Many books approach the subject in a very technical or overly simplistic method to the use of derivatives to manage a firms risk, this book gives enough detail for a good understanding and use of derivatives for managing a firm's risk but is not to technical for the non-derivatives expert. All necessary quantitative background is provided in the book.
The book begins by discussing derivatives and how they are used to manage risks. It then goes on to look at the value of risk management from the investor as well as the firms viewpoint. The book then examines the basic derivatives tools used for managing risk, including forwards, futures and options. To help the manager in the use of these instruments the book uses many real world examples and discusses the identification and measurement of exposures. To help the reader understand the use and value of the most commonly used derivatives instruments, the author discusses their use and even explains the pricing of options using the Black-Scholes as well as the binomial pricing models. There is even a chapter on interest rate risk, which is the must common risk that is hedged. In the last several chapters of the book, the author goes beyond the basics and discusses more advanced risk management tools and instruments along with a chapter on swaps, which is a fast growing and flexible tool for hedging interest and exchange rate risks. The book concludes with an extensive discussion of the practice of risk management that examines the recent academic studies and predictions of the future of this valuable and growing field.
If you are interested in risk management or are a manager that is interested in increasing firm value and reducing risk, then this is a must read. This book is the state of the art in this exciting area of finance and is written by one of its leading pioneers.
Book Description
A compelling vision. Bold leadership. Decisive action. Unfortunately, these prerequisites of success are almost always the ingredients of failure, too. In fact, most managers seeking to maximize their chances for glory are often unwittingly setting themselves up for ruin. The sad truth is that most companies have left their futures almost entirely to chance, and don’t even realize it. The reason? Managers feel they must make choices with far-reaching consequences today, but must base those choices on assumptions about a future they cannot predict. It is this collision between commitment and uncertainty that creates THE STRATEGY PARADOX.
This paradox sets up a ubiquitous but little-understood tradeoff. Because managers feel they must base their strategies on assumptions about an unknown future, the more ambitious of them hope their guesses will be right – or that they can somehow adapt to the turbulence that will arise. In fact, only a small number of lucky daredevils prosper, while many more unfortunate, but no less capable managers find themselves at the helms of sinking ships. Realizing this, even if only intuitively, most managers shy away from the bold commitments that success seems to demand, choosing instead timid, unremarkable strategies, sacrificing any chance at greatness for a better chance at mere survival.
Michael E. Raynor, coauthor of the bestselling The Innovator's Solution, explains how leaders can break this tradeoff and achieve results historically reserved for the fortunate few even as they reduce the risks they must accept in the pursuit of success. In the cutthroat world of competitive strategy, this is as close as you can come to getting something for nothing.
Drawing on leading-edge scholarship and extensive original research, Raynor’s revolutionary principle of Requisite Uncertainty yields a clutch of critical, counter-intuitive findings. Among them:
-- The Board should not evaluate the CEO based on the company’s performance, but instead on the firm’s strategic risk profile
-- The CEO should not drive results, but manage uncertainty
-- Business unit leaders should not focus on execution, but on making strategic choices
-- Line managers should not worry about strategic risk, but devote themselves to delivering on commitments
With detailed case studies of success and failure at Sony, Microsoft, Vivendi Universal, Johnson & Johnson, AT&T and other major companies in industries from financial services to energy, Raynor presents a concrete framework for strategic action that allows companies to seize today’s opportunities while simultaneously preparing for tomorrow’s promise.
Customer Reviews:
Requisite uncertainty and human capabilities.......2007-08-22
Zachary Stein ((Harvard Graduate School of Education) & Theo L. Dawson (Developmental Testing Service)
We agree with many of the other reviewers of this book. It combines high quality scholarship and accessibility, making it stand out from most of the popular leadership literature. But we think most of the other reviews have missed a key dimension of Raynor's model, a facet of his vision that sets it apart from the more traditional literature on strategies and organizations. With a nod to the research of Elliot Jaques, Raynor makes it clear that the proposed model of "requisite uncertainty" would have us build organizations that are sensitive both to the demands of the marketplace and the realities of human capabilities. We all know that organizations need to be responsive to socio-economic trends and uncertainties, but only a select few are privy to the notion that organizational hierarchies need to be designed in light of facts about human cognition and cognitive development. In our minds, this latter point is what sets the "Strategy Paradox" apart.
Individuals occupying different roles are faced with different demands. This we all know. But Raynor helps to clarify just who should be doing what, and moreover, what those at the top need to do to handle the unprecedented uncertainties of post-modern socio-economic conditions. As Raynor explains, these high-level demands cash out in terms of dialogically rich inquiry-based procedures for "crystallizing and preserving a diversity of opinions" regarding strategic options. Needless to say, that's a tall order that not just anybody can fill. What's preferable is not always possible. Our only criticism is that Raynor has too little to say about the cognitive capabilities that would make his vision possible. There is a rich literature about adult cognitive development and its measurement that Raynor does an inadequate job of referencing. Jaques and Kegan are the tip of a very complex iceberg. And frankly it's an iceberg that might sink this ship.
From where we sit, the model is incomplete without further consideration of the cognitive demands of "Strategic Flexibility." Any life-span cognitive developmental psychologist will tell you that less than 3% of the adult population in the developed world has the cognitive skills to meet these demands. We don't mean to rain on the parade, but for this model to work we need to ensure that those who engage in the highest levels of strategic planning are equipped with the requisite cognitive and discourse skills. Without them, real-world implementations will be less than stellar.
To sum up, our reading of the "Strategy Paradox" reveals a devil in the details. We think that Raynor's radical suggestions regarding human capabilities and organizational strata are the trend-setting elements of his model. Zeroing in on these suggestions exposes a formidable challenge.
Raynor has put time back into strategy.......2007-08-14
I won't repeat the powerful insights stated by many of the other positive reviewers. Read them yourself. They are special in their own right!
Raynor's latest book is beautifully written. It should all be savoured (slowly if necessary)...
The chapters which I believe Raynor will be truly remembered for are nestled in the middle (chapters 6-8). In these wonderful pages he rightfully restores "time" into strategy-making ("who stole time?", should indeed give rise to several more business books).
Leveraging Elliott Jaques' seminal work on time-spans of discretion, Raynor introduces "strategic flexibility" with compelling clarity and irrefutable logic. As an added bonus, he also illuminates the real role of corporate boards with such lucidity, that reading SOX prescriptions in future will seem sadly impoverished.
I have seen and heard Raynor speak in public. He is a virtuosic whirlwind on stage. Read this book. It is even better than the live performance.
Key Concepts Make it Worth Buying.......2007-08-08
I enjoyed The Strategy Paradox, and have added it to the Pearls of Wisdom page on my site. Powerful concepts in the hands of enlightened leaders, particularly those leading large organizations:
1. Extreme strategies do not come without risk
2. You don't have to predict the future to be successful
3. Divide responsibility for strategy formulation by time horizons
4. Give your organization a chance to adapt and succeed in the most likely future scenarios through options not commitment
In my mind if you get come away from a business book with one or more useful insights, then it was more than worth the time invested. This book is definitely worth the time if you are already (or aspire to be) a corporate leader or strategist.
Five star content!
Read this book before your competitors do.......2007-07-31
I have very high hopes for Raynor's book - it might force business practitioners to think more deeply about formulating real strategy and structuring the organization for competitive advantage. Most treatments of strategy address competitive dynamics (in the line of Porter), likewise positioning, or competency leverage (Collins). Raynor brings forward insights from his research and publishing in innovation (The Innovator's Solution), Harvard doctoral research, and the practical understanding that comes from actually consulting. While his book could anchor a top-notch MBA course, it might lead a good company's board to make much better strategic decisions.
I would not compare The Strategy Paradox with popular business books, such as The Long Tail or even Good to Great, but instead deeply-researched work like Alfred Chandler's. Raynor reveals the perils and promises of strategy formulation, the management of strategy and commitment, and the design and execution of strategic options. Keep in mind that most of what's published in journals and books is very loose, or even just junk research. Strategic management remains largely influenced, in the actual practice of corporate decision making, by Porter's 1980's work, resource allocation, and what I call Powerpoint SWOT. So who should care? Just about every executive and business unit-level manager. And, of course, educators and consultants focusing on business strategy and organizational dynamics.
It is one of the few works on competitive strategy that guides organizational structure as well as business positioning - not directly through guidance on design, but in terms of organizational function necessitated by requisite uncertainty. Raynor never mentions "strategic alignment," a troublesome notion from consulting with no good research support. Rather, he demonstrates how organizational focus on strategic action (as implied by "alignment") results from appropriate structural management, where uncertainty and commitment are appropriately weighted in the hierarchy. In time for Alfred Chandler's handoff to history with his passing in May, Raynor retrieves the original effectiveness of hierarchical management, and maps it functionally to uncertainty. This cleanly obviates the necessity for fuzzy nostrums such as "strategic alignment." (Or perhaps it saves it, for fans of alignment approaches).
Raynor explains complex business scenarios with a brisk storyline. The footnotes are a fascinating secondary read - the points are backed up by his research, Harvard studies, and dozens of well-cited papers. While optional to the main points, the research is actually useful and interesting. Some key concepts are novel in strategy research, such as the application of Elliott Jacques' work on requisite organization to support the principle of Requisite Uncertainty.
I highly recommend this book, and if you are an executive or board advisor, I urge you to read it before your competitors do.
The system encourages mediocrity........2007-07-23
Raynor's book is not the easiest read, but then again, that says more about the reader than it does about the book. The concept is rather revolutionary--and thus, difficult to digest immediately--in that it suggests almost everything we know about strategy and success is wrong. All the books, studies and anecdotes are comparing successful companies and mediocre companies instead of what they claim to do: compare success and failure. If they actually did compare the two, Raynor claims, you'd find a lot of similarities. That all too often, the keys to success are the recipes for failure. And that the people who we hold up as fearless leaders are really just one change in fate away from being the people we mock as losers. He's saying that this is inevitable, after all, how can a study include the business that started and failed and no one ever heard of? Thus, we only see wild success or middle of the road, bet hedgers.
Von Clauswitz talked of this too, saying that as we examine history, before we judge military defeats we must consider what our opinion would be had they succeeded. In other words, if the insurgent resistance in Iraq hadn't been so strong or if the WMD had materialized, would Bush's unilateral, undertrooped strategy be as derided as it is right now? Or if weather hadn't beaten back the Persians at Thermopylae, would we still think them arrogant and brash?
Accordingly, Rayor's book is a very unique look at some of the most illustrious examples of business failure. We see that some of Sony's biggest gaffs, had the market gone the way they'd hoped, would have been their biggest successes. This is true because of the theories two assumptions:
1) A successful strategy requires full commitment
2) Full commitment, in light of unpredictable futures, can mean catastrophic failure
And thus, the more you strategize, the more likely you are to be both massively successful and massively unsuccessful. The only middle ground--and often the most commonly taken--is mediocrity, where the company is neither successful or driven out of business.
Raynor poses a conclusion we often find ourselves also coming to:
"The only way [Company X] could have managed the situation any better is to have predicted the future...and that of course, is impossible. The future never gets here."
He sees strategies as equity or stock. You're purchasing the stock, and if you guessed right, you make money and if you guess wrong, you lose. The real way to succeed then, is to buy options on stocks. Essentially, to set up multiple, concurrent strategy options, from which you can then "agree to buy" the winners. These options then make your chosen strategy mobile in the face on an unpredictable future. This gives you strategic flexibility.
Overall, this was a very interesting book. The review deriding it above are to be expected--if we could all understand this, it wouldn't exactly be a paradox or problem would it? Pick it up and even if you don't understand every word, merely being cognizant of the dilemma would help you.
Book Description
Inside markets, innovation, and risk
Why do markets keep crashing and why are financial crises greater than ever before? As the risk manager to some of the leading firms on Wall Street–from Morgan Stanley to Salomon and Citigroup–and a member of some of the world’s largest hedge funds, from Moore Capital to Ziff Brothers and FrontPoint Partners, Rick Bookstaber has seen the ghost inside the machine and vividly shows us a world that is even riskier than we think. The very things done to make markets safer, have, in fact, created a world that is far more dangerous. From the 1987 crash to Citigroup closing the Salomon Arb unit, from staggering losses at UBS to the demise of Long-Term Capital Management, Bookstaber gives readers a front row seat to the management decisions made by some of the most powerful financial figures in the world that led to catastrophe, and describes the impact of his own activities on markets and market crashes. Much of the innovation of the last 30 years has wreaked havoc on the markets and cost trillions of dollars. A Demon of Our Own Design tells the story of man’s attempt to manage market risk and what it has wrought. In the process of showing what we have done, Bookstaber shines a light on what the future holds for a world where capital and power have moved from Wall Street institutions to elite and highly leveraged hedge funds.
Customer Reviews:
Spectacular info... but ah what to do, what to do.......2007-09-22
This book is very well layed out and is an excellent primer on what is going on behind the scenes in the financial markets.
The end is a bit disappointing in that the issues are clearly explicated but the solution seems a bit murky and maybe impossible. The author does acknowledge the difficulty of implementing a truly workable solution.
Great risk insights, and lots of useful reminders on liquidity mechanics .......2007-09-21
A finance-related book like this one is always something I open with a fear of "deja vu". To Bookstaber's credit, his numerous insights quickly got me over this. It is a constant reminder to risk practitioners and traders that liquidity supply is a serious matter. It does indeed move mountains. For new comers into risk management and trading, it explains the sources of the LTCM debacle, and its learnings. By all standards, I recommend this book to any finance graduate, experienced trader, or risk manager. A very useful read.
The Wisdom of the Cockroach.......2007-09-14
In recounting his time as risk manager at a number of prominent houses (Morgan Stanley, Salomon Brothers, Citigroup etc.), Bookstaber completes the i-banking trifecta. First there was the Michael Lewis classic, Liar's Poker, detailing the juvenile bravado and macho antics of the trading floor. Then Jonathan Knee gave an intimate portrait of the i-banker deal making culture with The Accidental Investment Banker.
And now, in A Demon of Our Own Design, we get a glimpse at the risk management side of things... a sort of master plumber's walking tour through the bowels of the system, with technical descriptions of exactly what happens when pipes burst and boilers explode. (Some will find Bookstabers' level of detail intolerably dull; others will find it quite fascinating. I was in the fascinated camp.)
Nature of the beast
In describing the finer points of risk arbitrage, Bookstaber explains why it's normal -- expected even -- for trading desks to take a good whack every so often. The nature of the beast is to make relatively steady profits, month in and month out, and then give back a chunk of those profits when something goes haywire. (That's how you move huge sums on an arb desk; grind out small bets that are almost guaranteed to work, juice up the returns with leverage, and try not to be in the vicinity when the rare position goes kablooey.)
In light of this general modus operandi, perhaps it isn't surprising that the "quant" funds recently took a major hit (as of September 2007). They had been minting money for an extraordinarily long period, had the leverage to show for it, and now, after the recent "oops," seem to be generally back in business.
In fact it appears natural for much of Wall Street to work in this "make a little, lose a lot" fashion... the key idea being that all the little updrafts make up for the once-in-a-blue-moon downdrafts. (Such calculus works better for the fee collectors than the fee payers, but that's a different kettle of fish.)
Bookstaber's detail-rich description of the various trades that investment houses put on, many of them lasting years, is also enlightening. The details seem to confirm that, by and large, Wall Street is a gigantic, slow moving, conventional-returns type machine. (And what else could it be, really, with such an ocean of capital to allocate and so many jobs to fill? There is only so much creativity and contrarianism to go round.)
A dangerous combination
Risk manager war stories aside, Bookstaber's goal is to hammer home a key philosophical point regarding risk. He wants readers to understand that financial markets are inherently unstable, and this reality places limits on how far we (or anyone) should go in pursuit of outsized returns.
To make his point, Bookstaber uses various analogies to describe how the market is a highly complex, tightly coupled system... and to explain why the combination of high complexity and tight coupling is particularly dangerous.
The counterexample Bookstaber gives of a highly complex, loosely coupled system is the US Postal Service. The USPS has countless potential points of failure and myriad moving parts, but there are no catastrophic linkages involved. A lost package does not set off a disastrous daisy chain of events in which millions of packages are lost.
In contrast, the classic example of a highly complex, tightly coupled system is a nuclear reactor. The reactor is tightly coupled because any point of failure can lead to a knock-on chain reaction; one small thing going wrong can set the entire mechanism on a path to disaster. Being a highly complex, tightly coupled system, the market is less like the postal service and more like the nuclear reactor, in that the combination of aggressive leverage, complex methodologies and heavily interlocking parts leads to significant potential for catastrophe.
Exquisitely adapted
Another serious problem is Wall Street's deeply ingrained tendency to push the envelope. (Richard Lowenstein put it exceptionally well in his book Origins of the Crash: "Finance has its own Peter Principle, by which a successful model will be adapted to progressively riskier causes until it fails.")
In this habit of fighting for every inch of profit, Wall Street is like a self-evolving animal overquick to embrace the particulars of its immediate environment. The more precisely an animal is attuned to a particular "fitness landscape," the better that animal can thrive... in the short term at least, as long as everything stays just so. To be exquisitely adapted (as opposed to robustly adapted) is to be vulnerable to the slightest change.
Thus when the fitness landscape DOES change -- as it inevitably will -- the heavily specialized competitors tend to get crushed (if not go extinct). If a strategy-gone-sour broadsides a large enough group of market participants, the entire financial ecosystem can be thrown into turmoil. When the turmoil from this upheaval spills into the broader economy, wreaking havoc in its wake, the "demon" spoken of in the book's title is unleashed. (As this reviewer interprets it anyway.)
Wisdom of the cockroach
So the problem, in sum, is Wall Street's tendency to `overadapt' to every appealing landscape it encounters, building up complexity and leverage to dangerous levels in doing so.
Bookstaber's suggestion is to heed the wisdom of the cockroach.
The cockroach has survived a longer time span, and a wider variety of harsh environments, than humans could ever match. It is one of the creatures man cannot wipe out no matter how hard he tries. And yet, the cockroach's key risk management strategy is embarrassingly simple... simpler, even, than putting in a stop loss. The deeper point is that simple equals robust; by refusing to get fancy, and sticking with the tried-and-true, the cockroach ensures its reign as champion survivor.
Bookstaber uses the cockroach (and other examples from nature) to argue that we, too, should consider cutting back on our excessively specialized ways. The cost of a rough-edged strategy is forgoing excess profits in accomodative environments... but the benefit is increased likelihood of survival in a much wider range of environments, including the truly harsh ones. (As Jim Grant likes to joke, if so many of these credit-driven vehicles can barely handle prosperity, how are they supposed to fare when adversity hits?)
Harrumphs all round
Bookstaber's finger-wagging solution (be less fancy; take less risk) has the ring of common sense to it, especially in the way it frustrates all those market participants determined to have their cake and eat it too.
For those who seek to wring every last nickel out of the market (as LTCM used to brag of doing), Bookstaber argues persuasively that flying too close to the sun will always be perilous. The commitment to leveraging every edge on a broad scale inevitably leads to disaster-prone configurations, no matter how smart the players.
For those who think the answer is greater regulation of markets, i.e. more rules, Bookstaber shows how extra layers of bureaucracy can actually bring about the exact opposite of the intended affect. Perversely, layers of red tape can (and often do) make a situation more risky, by increasing confusion and complacency simultaneously.
Nor is greater information disclosure the answer. If the market's traditional liquidity providers (traders, market makers, speculators etc.) are forced to disclose their positions to the world in real time, they will react in the manner of poker players forced to play their hands face-up. To the extent that disclosure resolves uncertainty, it also drives market participants from the game. And because "liquidity is a coward" as the old saying goes, always running away when you need it most, strict disclosure rules would likely make bad market conditions worse at the least opportune times.
Some left smiling
Two groups in particular may be left smiling at the end of this book -- value investors and trend followers. In both the theory and practice of their normal operations, value investors and trend followers intuitively embraced Bookstaber's message a long long time ago, favoring longevity and robusticity over the temptations of adjusting to the moment.
It is perhaps not surprising, then, that value investors and trend followers are arguably the most profitable market participants by far on an absolute-dollar basis, hauling in hundreds of billions in profit over the course of many decades. They are champion survivors too... with a touch more class than the cockroach.
A MUST READ for all financial markets professionals.......2007-09-13
This is an excellent book. I cannot say enough good things about it. Unquestionably one of the best books on financial markets of the hundreds that I have read. This book provides a ringside view of how the major banks and hedge funds work and why financial risks have become more magnified than before.
Derivatives, trading and hedge funds are here to stay. They perform a valuable service to the financial markets, though Warren Buffet will disagree with me. Nevertheless, it is the mis-use of derivatives and the excessive use of leverage that leads to financial disasters. This book provides an excellent insight into why we witness financial turmoil in some of the most liquid markets.
I strongly recommend it to all MBA finance students as well as to financial markets professionals at hedge funds, prop trading desks, risk managers, quants, bankers, pension fund managers.
Demon.......2007-09-12
I found this book very interesting and full of information I haven't seen elsewhere. A Wall Street "quant" insider's perspective, focused on what can and does go wrong. The author also ties his analysis of famous Wall Street tailspins to other notable failures, including Chernobyl and the Challenger, and finds common themes.
Book Description
Designed to form the basis of an undergraduate course in mathematical finance, this book builds on mathematical models of bond and stock prices and covers three major areas of mathematical finance that all have an enormous impact on the way modern financial markets operate, namely: Black-Scholes’ arbitrage pricing of options and other derivative securities; Markowitz portfolio optimization theory and the Capital Asset Pricing Model; and interest rates and their term structure. Assuming only a basic knowledge of probability and calculus, it covers the material in a mathematically rigorous and complete way at a level accessible to second or third year undergraduate students. The text is interspersed with a multitude of worked examples and exercises, so it is ideal for self-study and suitable not only for students of mathematics, but also students of business management, finance and economics, and anyone with an interest in finance who needs to understand the underlying theory.
Customer Reviews:
Mathematics for Finance: A useful tool for the unskillled investor.......2007-03-19
I enjoyed reading the book and solving exercises in it. I have a Ph.D.in chemistry and my wife and I did our his and her's MBA in the 1990s. I wanted to learn more concepts in finance and needed an easy entry, something I could enjoy, and without spending much money. The book by Capinski came recommended from a friend who teaches Economics at Cal State. I can speak for myself: I feel reasonably informed and I feel the book gave me concepts I can use to handle my own portfolio.
In the future, this text should be offered with an interactive CD that contains Xls, matrix, calculus, and graphing capabilities so one (I) can visualize the outcomes of proposed solutions.
Incoherent.......2007-01-18
Anyone can scribble a bunch of equations on paper and call it a book. Without sufficient context, they are useless.
Insufficient and disappointing. Not even a good introductury text........2006-05-15
As a graduate student in Financial Engineering I have found this book useless.
The title of the book is "Mathematics for Finance", but can you find in it even an elementary introduction to the stochastic processes? No. Ditto for the Ito's lemma and many other topics. The derivation of the Black Scholes formula is just sketched, and the insight that you can get from it is very limited.
Nevertheless, I wouldn't mind these limitations if this book provided a clear introduction to more advanced topics: unfortunately this book is not good even in that. In comparison to other textbooks the theorems and definitions are convoluted and do not go straight to the point. For example, in Shreve's "Stochastic Calculus for Finance" or Baxter & Rennie "Financial Calculus" the Fundamental Theorem of Asset Pricing is stated in this way: "In a market with risk neutral probability there is no arbitrage". Can you find such a simple and explanatory definition in Capinski's book? Not at all. The theorem at page 83 (you can see it yourself by searching inside the book) basically says the same thing using 8 lines of text and little financial intuition.
The only good thing that I can say about this book is that all exercises are resolved.
Overall, "Mathematics for Finance" has been a big disappointment: it doesn't have either the mathematical depth of Shreve's books or the conciseness in explaining financial concepts of Baxter & Rennie.
Whatever is the level of education that you are pursuing, graduate or undergraduate, I don't see any point in using it.
Great Book for Undergrad Quants.......2005-08-29
Mathematics for Finance (An Introduction to Financial Engineering) is a book intended for undergrad students "IN MATHEMATICS" or other discipline with a relative high mathematical content.
The book assumes some basic notion of Calculus and Probability Theory and it is focused more on the mathematics than in its theory and application of Finance. If you are looking to dwell into the mathematics (Proof of Equations) this is a great book, but if you are looking for a book that is rich in theory and in application then you should consider "Option, Future and Other Derivatives" or "Quantitative Methods for Finance" as an alternative. Both books are "a most" for any finance student and are of great help. Now if you want an introduction into the mathematics behind Finance then this book is a perfect purchase.
Important to state that all the problems presented in this book are solved meaning that it is great for self teaching. Marek Capinsi and Thomas Zastawniak have done a great job on this book.
I gave it four stars, because it has room for impovement.
Joining the chorus.......2005-08-03
I can only echo the other reviewers. As far as I can tell this book has no serious competition. This is an excellent introduction to mathematical finance for those with a solid undergraduate level understanding of higher math but without graduate level exposure. I agree that it is ideal for self study as that is exactly what I am using it for. The price is right especially in contrast with its overpriced brethren. Five stars!
Book Description
This book focuses on problem-solving from managerial, consumer, and societal perspectives. It emphasizes both the business managerial aspects of risk management and insurance and the numerous consumer applications of the concept of risk management and insurance transaction. Specific chapter topics include insurance Regulation and contracts, basic property and liability insurance contracts, homeowners insurance, the personal auto policy, professional financial planning, life insurance policies, annuities, medical expense and disability insurance, standard life insurance contract provisions and options, commercial property insurance, general and special liability insurance, employee benefits, social security, and unemployment and workers' compensation insurance. For use by individuals in insurance occupations, and by those preparing for the certified financial planner board.
Customer Reviews:
Introduction to Risk Management and Insurance.......2007-01-09
Excellent reference book and very descriptive definitions of insurance concepts
A good book.......2006-11-10
For an entry level class on insurance this is a good book to start with.
Should be required reading for Undergrad Business.......2006-07-18
Definitely worth reading, even if not required for a class. A very accessible introduction to the field of Risk Management along with useful, practical information about the kinds of insurance contracts that will be encountered by consumers and businesses alike.
This, and introductory business law should be taught to all undergraduate b-school students. A great book, much better and more useful than a certain black-and-yellow book about insurance that you might be tempted to order.
5 Stars
Awesome Text!.......2003-05-12
This book is user-friendly, and students really like it. The only thing they don't like is the price, but, every intro text like this is over $100 these days. I really love this text for teaching my introductory classes.
The best introduction to a complicated subject available........1997-09-05
Extremely well written, many current examples and court cases, raises important social aspects of the insurance transaction. Covers issues important to consumers expecially frequently purchased insurance contracts
Book Description
"This new edition of Active Portfolio Management continues the standard of excellence established in the first edition, with new and clear insights to help investment professionals."
-William E. Jacques, Partner and Chief Investment Officer, Martingale Asset Management.
"Active Portfolio Management offers investors an opportunity to better understand the balance between manager skill and portfolio risk. Both fundamental and quantitative investment managers will benefit from studying this updated edition by Grinold and Kahn."
-Scott Stewart, Portfolio Manager, Fidelity Select Equity ® Discipline
Co-Manager, Fidelity Freedom ® Funds.
"This Second edition will not remain on the shelf, but will be continually referenced by both novice and expert. There is a substantial expansion in both depth and breadth on the original. It clearly and concisely explains all aspects of the foundations and the latest thinking in active portfolio management."
-Eric N. Remole, Managing Director, Head of Global Structured Equity, Credit Suisse Asset Management.
Mathematically rigorous and meticulously organized, Active Portfolio Management broke new ground when it first became available to investment managers in 1994. By outlining an innovative process to uncover raw signals of asset returns, develop them into refined forecasts, then use those forecasts to construct portfolios of exceptional return and minimal risk, i.e., portfolios that consistently beat the market, this hallmark book helped thousands of investment managers. Active Portfolio Management, Second Edition, now sets the bar even higher. Like its predecessor, this volume details how to apply economics, econometrics, and operations research to solving practical investment problems, and uncovering superior profit opportunities. It outlines an active management framework that begins with a benchmark portfolio, then defines exceptional returns as they relate to that benchmark. Beyond the comprehensive treatment of the active management process covered previously, this new edition expands to cover asset allocation, long/short investing, information horizons, and other topics relevant today. It revisits a number of discussions from the first edition, shedding new light on some of today's most pressing issues, including risk, dispersion, market impact, and performance analysis, while providing empirical evidence where appropriate. The result is an updated, comprehensive set of strategic concepts and rules of thumb for guiding the process of-and increasing the profits from-active investment management.
Customer Reviews:
One to add to your reading list.......2007-06-30
I know many have this book and have never read it. Others read this book but never really understand it. However, if you can read it and understand it, it can offer a powerful tool for how to allocate capital. It actually is the basis for most indexing and quantitative methodologies. When applied to fundemental approaches to investment it can be quite powerful.
Sadly, though not enough money managers embrace what this book is trying to say with regards to risk and return.
Practical approach and mathematically rigorous at the same time.......2006-02-01
Excellent book for whom is looking for a practical approach that at the same time is presented through a rigorous mathematical methodology. The book is absolutely superior over the academic textbooks that usually limit themselves to CAPM and efficient market theory. Grinold and Kahn go much forward and at the same time had managed to clearly and meticulously show the CAPM model, its limitations and the more sophisticated tools developed from it. Beside of showing the active way of managing a portfolio, the serious mathematical presentations through which the different theories such as CAPM are described are very convincing of how difficult it could be to beat the market.
Theoretical framework with no practical examples........2005-01-20
There is important information in this book but most of us need to see numerical examples to reinforce theoretical concepts. This book really comes up short in this area. It provides some discussion with the formulas/equations it presents but is very incomplete in terms of worked out examples. Yes, including worked out examples might might mean a book three times as long, but the book would then be many, many times more useful to practitioners.
As it currently stands the book can only benefit the super-genius-theoretical types who do not need to see examples to understand OR someone who ALREADY really understands the concepts.
The book rather frequently presents variables or constants without explicitly defining them for the reader (it assumes we know what they mean from the accompanying discussion).
The book gives exercises, but without answers what good are these?
The one thing the book does is make you realize there is a lot you do not know. You can find ideas in portfolio management that exist by reading this book but if you are at all like me you are going to have to look elsewhere for the answers. I have had better luck with Google searches for stuff like Style Analysis.
The book shows how smart the authors are: they know stuff that must of us do not. Unfortunately this is the feeling I get as I read sections of their book. They intend to keep it this way. Bottom line: the book fails to bridge the gap between theory and practice.
This is the seminal text for Quantitative Finance.......2004-11-11
If you work for one of the top alpha quant shops (Barclays, Goldman, etc.), this text is a the proverbial must read. These are the guys that essentially invented quantitative finance in its modern form, building upon the [only somewhat applicable] concepts of Sharpe and Rosenberg and demonstrating how they can be harnassed to drive alpha. Anybody who has given this text a poor review obviously doesn't work in quantitative finance (chances are they're merely stock-pickers). If you want to understand how to drive alpha and beat the market, this text goes a lot further than explaining the simple concepts of information ratio and tracking error; instead, this book touches on the beauty of multi-factor models and covariance risk management.
Very boring and dry.......2004-10-05
This book is a funny phenomenon in itself: it seems that every portfolio manager keeps a copy on her desk, but nobody I've talked to likes the book, or has even really read it. I read it and had to struggle hard to go from one page to the next. It's one of the WORST books I've ever read in any field. The book attempts to give the reader a comprehensive overview of the portfolio management discipline. Unfortunately, it's extremely dry, to the point of boring the reader to death. A lot of pages are also wasted on topics of dubious value, while important subjects like global management is treated lightly. I highly recommend against this book. It's a waste of money.
Average customer rating:
- Great for the novice Risk Manager
- This book is a must read for all mid-level and executive level managers
- Remarkably Succinct Coverage of a Hot New Topic
- A well written and thought out book on Risk Management
- A Must Read for Risk Management
|
Enterprise Risk Management: From Incentives to Controls
James Lam
Manufacturer: Wiley
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ASIN: 0471430005 |
Book Description
Enterprise risk management is a complex yet critical issue that all companies must deal with as they head into the twenty-first century. It empowers you to balance risks with rewards as well as people with processes. But to master the numerous aspects of enterprise risk management, you must first realize that this approach is not only driven by sound theory but also by sound practice. No one knows this better than risk management expert James Lam. In Enterprise Risk Management: From Incentives to Controls, Lam distills twenty years' worth of experience in this field to give you a clear understanding of both the art and science of enterprise risk management.
Organized into four comprehensive sections, Enterprise Risk Management offers in-depth insights, practical advice, and real world case studies that explore every aspect of this important field.
- Section I: Risk Management in Context lays a solid foundation for understanding the role of enterprise risk management in today’s business environment.
- Section II: The Enterprise Risk Management Framework offers an executive education on the business rationale for integrating risk management processes.
- Section III: Risk Management Applications discusses the applications of risk management in two dimensions–functions and industries.
- Section IV: A Look to the Future rounds out this comprehensive discussion of enterprise risk management by examining emerging topics in risk management with respect to people and technology.
JAMES LAM is President of James Lam & Associates, an independent risk advisory firm. Before starting his own firm, Lam was founder and president of ERisk and partner of Oliver, Wyman & Company. In 1997, as chief risk officer at Fidelity Investments, he was named the first-ever Financial Risk Manager of the Year by the Global Association of Risk Professionals. Prior to Fidelity, he was chief risk officer of Capital Markets Services, Inc., a GE Capital Company. Lam graduated with honors from Baruch College and received his MBA from UCLA. He is also currently an Adjunct Professor of Finance at Babson College.
Customer Reviews:
Great for the novice Risk Manager.......2006-07-27
If you are a budding Risk Manager/ Officer or are considering a career move towards Risk Management, this book is a good high-level illustration of what the major sleeves of Risk Management has to offer.
For the experienced risk professional, this is a bit too fundamental.
This book is a must read for all mid-level and executive level managers.......2005-09-21
James Lam has written a remarkably clear and relevant portrayal of how [enterprise] risk management can be used to deliver real value in any business.
During the past year, I developed a course for the Executive MBA program at Villanova University. After reviewing several books on the subject, I chose this one because of its clear and comprehensive coverage of the subject matter.
I would highly recommend this book to anyone with a serious interest in understanding risk management from a holistic perspective. This includes risk professionals as well as those involved in line and staff functions.
Remarkably Succinct Coverage of a Hot New Topic.......2005-02-04
You bought Jorion, Pearson, and Hull; you slammed headfirst into the quantitative quagmire of risk management, and you may even have passed the Financial Risk Manager exam, sponsored by the Global Association of Risk Professionals, but are you prepared to become your company's "Risk Champion?" Can you explain to laymen why loss distributions are not normal? Can you illustrate the "sweet spot" in the profit/risk tradeoff? If you aren't quite there yet, pick up James Lam's new book, Enterprise Risk Management, From Incentives to Controls. It's a book you can read on the five hour flight from New York to Los Angeles, and its melodies will linger in your memory. This book has changed the way I communicate with people both in and outside the risk management profession. Read it with a highlighter in your hand, and keep the book within easy reach.
A well written and thought out book on Risk Management.......2004-10-05
This book provides practical and insightful look at risk management and how it can benefit companies. Reading and understanding this book should be a pre-requisite for any person going to take on management position.
A Must Read for Risk Management.......2004-08-23
This book is not only about the theory of enterprise risk management, but also a summary of the author¡¯s experience in practicing risk management for more than twenty years. And what is more, there are several case studies that are deeply analyzed in the book. It is because of this that I think it is an excellent work on enterprise risk management. In addition, it is interesting that the Balance of the Yin and Yang in the Chinese traditional philosophy is applied as Lesson 7 by the author. It is a must read for all business managers and students who want to pursue a career in risk management.
Book Description
Learn about today's hottest new risk management tools
One of the hottest areas of finance today, alternative risk transfer, or ART, refers to the use of various insurance products to manage market, credit, operational, legal, environmental, and other forms of risk. As the capital and insurance markets continue to converge, the number and complexity of new risk-defraying insurance products available to corporations, brokerages, money managers and other financial professionals will continue to grow. Expert Christopher L. Culp uses case studies of recent ART transactions used by risk managers to put the field into perspective for financial professionals and to acquaint them with the various types of risk control products now available. In addition he explores, in-depth, the links between ART, derivatives and bank-arranged risk financing, and he explains the key differences between classic insurance products and financial guarantees, risk financing, bundled layering, and other ART forms.
Customer Reviews:
For Useless Academics.......2004-04-03
If you are a practicioner, skip this book. Even academics will find this rehash (and outright clone) of better material a waste of time.
Packed with Knowledge!.......2002-11-12
Finance professional and professor Christopher L. Culp tells all, that is, all about alternate risk transfer (ART) products. Culp discusses corporate finance in detail, covering different types of capital. He sets out the risk control and capital structure functions of various classical and alternative risk transfer steps, such as derivatives targeted at market and credit risk, asset divestiture, insurance and reinsurance. Don't even go here if you aren't already familiar with (or studying) the sophisticated basics of finance, since this is highly technical reading, including numerous formulas, charts and graphs describing financial theories and processes. But if you are an expert, we from getAbstract congratulate you on finding your way to Culp, who aimed his book at the already-savvy: corporate treasurers, financial officers and those who participate in capital markets and the reinsurance industry.
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