Plight of the Fortune Tellers – Why We Need to Manage Financial Risk Differently - Hardcover

Rebonato, Riccardo

Hardcover

ISBN 10: 0691133611 ISBN 13: 9780691133614

Publisher: Princeton University Press, 2007

Synopsis

Today's top financial-risk professionals have come to rely on ever-more sophisticated mathematics in their attempts to come to grips with financial risk. But this excessive reliance on quantitative precision is misleading - and it puts us all at risk. This is the case that Riccardo Rebonato makes in "Plight of the Fortune Tellers" - and coming from someone who is both an experienced market professional and an academic, this heresy is worth listening to. Rebonato forcefully argues that we must restore genuine decision making to our financial planning, and he shows us how to do it using probability, experimental psychology, and decision theory. This is the only way to effectively manage financial risk in a manner congruent with how human beings actually react to chance.Rebonato challenges us to rethink the standard wisdom about probability in financial-risk management. Risk managers have become obsessed with measuring risk and believe that these quantitative results by themselves can guide sound financial choices - but they can't. In this book, Rebonato offers a radical yet surprisingly commonsense solution, one that seeks to remind us that managing risk comes down to real people making decisions under uncertainty. "Plight of the Fortune Tellers" is not only a book for the decision makers of Wall Street, it's a must-read for anyone concerned about how today's financial markets are run. The stakes have never been higher - can you risk it?

About this title

About the Author

Riccardo Rebonato is global head of market risk and global head of quantitative research and quantitative analysis at the Royal Bank of Scotland. He is visiting lecturer in mathematical finance at the University of Oxford and adjunct professor at the Tanaka Business School, Imperial College London. His books include "Volatility and Correlation: The Perfect Hedger and the Fox" and "Modern Pricing of Interest-Rate Derivatives: The LIBOR Market Model and Beyond" (Princeton).

From the Back Cover

"A fascinating book that very comprehensibly covers the evolution of risk management. Very interesting perspective, accessible to all--from experienced market practitioners to interested beginners."--Jonathan P. Moulds, Bank of America

"While others build straw men only to tear them down, Rebonato stands on the intellectual foundations of his profession to both articulate its weaknesses and suggest a plan for material advancement. This he does with respect, precision, and humor, makingPlight of the Fortune Tellers a welcome oasis in the desert of dry risk management texts."--David Shimko, Towers Perrin

"Riccardo Rebonato provides a refreshingly clear and skeptical analysis of the limitations of quantitative risk management, the naïveté of too many decimal places, and the sloppy ways in which people talk about probability."--Emanuel Derman, Columbia University, head of risk at Prisma Capital Partners, and author of My Life as a Quant: Reflections on Physics and Finance

"This is a unique book: a treatise on risk management with no equations! Since equations are frequently substituted for thought in this area, the book is long overdue. Riccardo Rebonato is one of the leading technical writers in this area, and now brings his experience to bear on the elephant in the room of risk management: do the equations do what their advocates claim? All will benefit from Rebonato's insights, including his proposals for how to reform risk management."--Ian Cooper, London Business School

"In this elegant and controversial book, the author discusses and rejects the current paradigm of quantitative risk management. Rather than the traditional frequentist methods, he advocates using probabilities-as-degree-of-belief and probabilities-as-revealed-by-actions as better approaches to decision making under financial uncertainty. General readers as well as risk-management professionals, students, and academics will find this book exciting and illuminating."--Alexander Lipton, managing director, global head of credit analytics, Merrill Lynch International

"An extremely timely book that will no doubt cause a stir. It is a reality check that carries great authority because of the author's experience and position in the industry and his knowledge of both the business end and the technical side. This is a well-written, entertaining book that will generate a lot of debate in the financial industry about the future of quantitative risk management."--Alexander J. McNeil, coauthor ofQuantitative Risk Management

"Very engaging and in places quite provocative. This book will be a wake-up call for the financial risk management industry. Certainly a good read."--Lane Hughston, King's College London

From the Inside Flap

"A fascinating book that very comprehensibly covers the evolution of risk management. Very interesting perspective, accessible to all--from experienced market practitioners to interested beginners."--Jonathan P. Moulds, Bank of America

"While others build straw men only to tear them down, Rebonato stands on the intellectual foundations of his profession to both articulate its weaknesses and suggest a plan for material advancement. This he does with respect, precision, and humor, makingPlight of the Fortune Tellers a welcome oasis in the desert of dry risk management texts."--David Shimko, Towers Perrin

"Riccardo Rebonato provides a refreshingly clear and skeptical analysis of the limitations of quantitative risk management, the naveté of too many decimal places, and the sloppy ways in which people talk about probability."--Emanuel Derman, Columbia University, head of risk at Prisma Capital Partners, and author of My Life as a Quant: Reflections on Physics and Finance

"This is a unique book: a treatise on risk management with no equations! Since equations are frequently substituted for thought in this area, the book is long overdue. Riccardo Rebonato is one of the leading technical writers in this area, and now brings his experience to bear on the elephant in the room of risk management: do the equations do what their advocates claim? All will benefit from Rebonato's insights, including his proposals for how to reform risk management."--Ian Cooper, London Business School

"In this elegant and controversial book, the author discusses and rejects the current paradigm of quantitative risk management. Rather than the traditional frequentist methods, he advocates using probabilities-as-degree-of-belief and probabilities-as-revealed-by-actions as better approaches to decision making under financial uncertainty. General readers as well as risk-management professionals, students, and academics will find this book exciting and illuminating."--Alexander Lipton, managing director, global head of credit analytics, Merrill Lynch International

"An extremely timely book that will no doubt cause a stir. It is a reality check that carries great authority because of the author's experience and position in the industry and his knowledge of both the business end and the technical side. This is a well-written, entertaining book that will generate a lot of debate in the financial industry about the future of quantitative risk management."--Alexander J. McNeil, coauthor ofQuantitative Risk Management

"Very engaging and in places quite provocative. This book will be a wake-up call for the financial risk management industry. Certainly a good read."--Lane Hughston, King's College London

Edition details

• Publisher: Princeton University Press
• Publication date: 2007
• Language: English
• ISBN 10: 0691133611
• ISBN 13: 9780691133614
• Binding: Hardcover
• Number of pages: 256