Test Your Risk Intuition

Test Your Risk Intuition

I am dusting off a classic test for risk intuition. If you remember the test from years past, it will be nice to reminisce. If not, take the test now to assess your intuition and look at risk in a new way.

The Misleading Notion Downside Risk

The Misleading Notion Downside Risk

Risk has two components: exposure uncertainty For there to be risk, both must be present. If you swim in shark infested waters, you are uncertain whether you will be attacked. You are exposed because you would suffer and possibly die if attacked. Being both uncertain...
Triangle Shirtwaist Factory Fire

Triangle Shirtwaist Factory Fire

March 25, 2011 marks the hundred year anniversary of the Triangle Shirtwaist Factory fire. One hundred forty-six workers perished in a blaze that engulfed the ten story Asch Building in lower Manhattan. Most were young seamstresses who worked six days a week for a...
The SEC’s Problem With the First Amendment

The SEC’s Problem With the First Amendment

The SEC’s approach to regulating US securities markets relies on controlling speech: they compel “disclosures”, prohibit certain statements, and impose onerous requirements on others. All of this is difficult to reconcile with the First...
Conflict Over Risk Management: A Case Study

Conflict Over Risk Management: A Case Study

Conflict is a recurring problem for financial risk management. At your own firm, are risk managers dismissed as “risk police”? Are risk committee meetings contentious? Do traders hoard information? If you answered “yes” to some of these, you...
What Exactly is an Infinitesimal?

What Exactly is an Infinitesimal?

During the 1800s, mathematicians, and especially Cauchy, finally got around to rigorizing calculus. They got rid of the “infinitesimal” business once and for all, replacing infinitesimals with limits. It is troubling how widespread misunderstanding of calculus is 150 years later. Instead of understanding calculus from Cauchy’s rigorous standpoint, people embrace a hodge-podge of infinitesimals AND limits.

More Questions Than Answers

More Questions Than Answers

For the past four years, I have been living with a mystery—a real-life mystery about some things that weren’t supposed to happen but did anyway. Today I will share with you what has been going on, at least to the extent my limited knowledge—and my fear of a...
I’ll Be Gone. You’ll Be Gone.

I’ll Be Gone. You’ll Be Gone.

In his new book The Accidental Investment Banker, Jonathan Knee introduces us to the phrase IBG YBG, which means “I’ll be gone. You’ll be gone.” This might be whispered between investment bankers when an inconvenient fact comes to light during...
The Trend is Your Friend: Value-at-Risk and Amaranth

The Trend is Your Friend: Value-at-Risk and Amaranth

This week, Jeff Skilling received a well-deserved sentence of 24 years for his creativity at Enron. I wouldn’t take the sentence too seriously. Remember that Mike Milken—the Junk Bond King of the 1980s—was sentenced to ten years. After two years, he was...
Inaugural Article

Inaugural Article

Ask a practitioner of the origins of financial risk management, and he might say it emerged in response to financial blow-ups of the early 1990s. Or he might say it emerged out of efforts by the Basel Committee to standardize bank capital requirements globally. Or he...