The concept of financial risk and the realties of financial risk management. Understanding risk and weighing risk against reward have become central to all commercial activity in particular to the financial markets.The concept of risk management used to refer to exclusively to the insurance industry but it was hijacked by wizards in financial institutions in the1980s, initially to make their gambling in the markets seem more respectable. Good risk management requires a constant sharpening of one's awareness to new risks and to the probabilities of different outcomes.This guide will increase the reader's risk awareness, by presenting concepts in a simple and entertaining way, and by explaining the endeavours, mistakes and successes of others, as they have tried to identify, measure and simplify risk, and make it work for them. It looks at swaps, futures, options, derivatives, hedging principles, formulas, Monte Carlo simulations, chaos theory, neural networks, Raron (or risk-adjusted rate of return on capital), stress tests, worst case scenarios and all kinds of games that are played in the cause of managing risk. With great panache, colour and clarity David Shirreff does a remarkable job of throwing light on one of the most complicated aspects of business and finance.
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About the Author
David Shirreff is capital markets editor of The Economist. Previously he wrote about risk for Euromoney and was co-founder of Risk magazine.
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Front Cover | Copyright | Table of Contents | Excerpt | Index | Back Cover
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Front Cover | Copyright | Table of Contents | Excerpt | Index | Back Cover
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Customer Reviews
Most Helpful Customer Reviews
1 of 2 people found the following review helpful
By Rolf Dobelli
TOP 500 REVIEWER
Format:Hardcover
David Shirreff was one of the first and remains one of the few journalists to tackle the challenging subject of financial risk. In this book, he collects material from articles he published during the 1990s (a period of astonishing innovation in the field), supplemented by interviews with some of the true luminaries in the areas of financial engineering and financial risk management. Shirreff is a lucid writer with a sharp and concise style. He has the rare gift of making the complexities of finance accessible to a general readership. Therefore, we recommend this book both to financial professionals and to general readers who have an interest in the subject.
Most Helpful Customer Reviews on Amazon.com (beta)
Amazon.com:
4.3 out of 5 stars
6 reviews
6 of 6 people found the following review helpful
5.0 out of 5 stars
An Intelligent and Revealing Look at Risky Follies
25 Aug 2004
By Donald Mitchell
- Published on Amazon.com
Format:Hardcover
Dealing with Financial Risk is the best book I have read on taking an up-to-the-moment look at the financial risk that businesses, regulators, governments and markets experience. While many Nobel Prize winners will tell you that the market is efficient and rationally driven, anyone who works in the markets knows better. Mr. Shirreff takes a candid look at the best attempts by theoreticians and practitioners to eliminate risks . . . and reveals all of the ways that these efforts leave many risks in place.
This book is written to appeal to those who like to understand complex issues (such as how to measure the total exposure of a financial institution to derivative risk), people who enjoy reading about a good meltdown (Barings, Long-Term Capital Management and Metallgesellschaft), and those who like to do better by changing practices (such as by employing not only Monte Carlo simulations by also by advanced game playing in light of varying scenarios). This book will be equally rewarding to any of these three types of readers. However, do realize that only if you have all three interests will you find the entire book to be relevant to your interests. Those who are interested in only one of the three areas will be rewarded by finding ections that are pithy as well as accurate.
The amusing on-going story line in the book is that although institutions are taking on vastly more risk than ever before . . . and are not able to really understand and control where they are . . . they are relentlessly trying to convince regulators to let the institutions determine their own capital needs. It's certainly a recipe for disaster. For the most part the regulators have been wary. Let's hope they continue to be.
This book is written to appeal to those who like to understand complex issues (such as how to measure the total exposure of a financial institution to derivative risk), people who enjoy reading about a good meltdown (Barings, Long-Term Capital Management and Metallgesellschaft), and those who like to do better by changing practices (such as by employing not only Monte Carlo simulations by also by advanced game playing in light of varying scenarios). This book will be equally rewarding to any of these three types of readers. However, do realize that only if you have all three interests will you find the entire book to be relevant to your interests. Those who are interested in only one of the three areas will be rewarded by finding ections that are pithy as well as accurate.
The amusing on-going story line in the book is that although institutions are taking on vastly more risk than ever before . . . and are not able to really understand and control where they are . . . they are relentlessly trying to convince regulators to let the institutions determine their own capital needs. It's certainly a recipe for disaster. For the most part the regulators have been wary. Let's hope they continue to be.
3 of 3 people found the following review helpful
3.0 out of 5 stars
Good for finance and non-finance professionals
24 Feb 2006
By Prof Steve Ahn
- Published on Amazon.com
Format:Hardcover
Everything we do with a purpose is necessarily effected by risk. Think of purpose as a benefit or return, and the uncertainty of realizing any such return as risk. We conduct risk versus return assessments in everything we do then. This book, therefore, could interest nearly anyone.
For the street-smart, non-academic business person, I recommend this book as an informative, instructional primer on financial risk. And for the technical professional, it provides refreshing and entertaining insights. Shirreff's writing is easy to understand and enjoyable to read.
Shirreff contends that financial risk was traditionally treated as a measurable, calculable, and manageable factor. Policy makers and business leaders eventually learned that the art and science of risk management are inseparable. Like games of chance, however, risk management is a simple concept to grasp but difficult or impossible to master in all its manifestations. Shirreff clearly, concisely, and in an often colorful way, guides the reader through many of the key concepts as well as specific techniques of risk assessment and management.
I think anyone, whether a financial type or not, would benefit significantly from reading this book - but then that's just my speculation.
For the street-smart, non-academic business person, I recommend this book as an informative, instructional primer on financial risk. And for the technical professional, it provides refreshing and entertaining insights. Shirreff's writing is easy to understand and enjoyable to read.
Shirreff contends that financial risk was traditionally treated as a measurable, calculable, and manageable factor. Policy makers and business leaders eventually learned that the art and science of risk management are inseparable. Like games of chance, however, risk management is a simple concept to grasp but difficult or impossible to master in all its manifestations. Shirreff clearly, concisely, and in an often colorful way, guides the reader through many of the key concepts as well as specific techniques of risk assessment and management.
I think anyone, whether a financial type or not, would benefit significantly from reading this book - but then that's just my speculation.
1 of 1 people found the following review helpful
4.0 out of 5 stars
Great book, excellent overview on Financial Risk history
17 July 2008
By Steven J. Devney
- Published on Amazon.com
Format:Hardcover|Amazon Verified Purchase
Dealing with Financial Risk offers a great overview of the history of financial errors. The book includes Long-Term Capital Management errors, among a number of other hedge funds.
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