Plight of the Fortune Tellers: Why We Need to Manage Financial Risk Differently

Overview

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...

See more details below
Available through our Marketplace sellers.
Other sellers (Hardcover)
  • All (14) from $1.99   
  • New (3) from $25.18   
  • Used (11) from $1.99   
Close
Sort by
Page 1 of 1
Showing All
Note: Marketplace items are not eligible for any BN.com coupons and promotions
$25.18
Seller since 2007

Feedback rating:

(23160)

Condition:

New — never opened or used in original packaging.

Like New — packaging may have been opened. A "Like New" item is suitable to give as a gift.

Very Good — may have minor signs of wear on packaging but item works perfectly and has no damage.

Good — item is in good condition but packaging may have signs of shelf wear/aging or torn packaging. All specific defects should be noted in the Comments section associated with each item.

Acceptable — item is in working order but may show signs of wear such as scratches or torn packaging. All specific defects should be noted in the Comments section associated with each item.

Used — An item that has been opened and may show signs of wear. All specific defects should be noted in the Comments section associated with each item.

Refurbished — A used item that has been renewed or updated and verified to be in proper working condition. Not necessarily completed by the original manufacturer.

New
BRAND NEW

Ships from: Avenel, NJ

Usually ships in 1-2 business days

  • Canadian
  • International
  • Standard, 48 States
  • Standard (AK, HI)
$33.25
Seller since 2008

Feedback rating:

(163)

Condition: New
2007-09-17 Hardcover New The item is from a closeout sale from bookstore. A great book in new condition! Inquires welcomed and we want your complete satisfaction! Eligible for ... FREE Super Saving Shipping! Fast Amazon shipping plus a hassle free return policy mean your satisfaction is guaranteed! Tracking number provided in your Amazon account with every order. Item is Brand New! Read more Show Less

Ships from: Savannah, GA

Usually ships in 1-2 business days

  • Canadian
  • International
  • Standard, 48 States
  • Standard (AK, HI)
  • Express, 48 States
  • Express (AK, HI)
$70.00
Seller since 2014

Feedback rating:

(113)

Condition: New
Brand new.

Ships from: acton, MA

Usually ships in 1-2 business days

  • Standard, 48 States
  • Standard (AK, HI)
Page 1 of 1
Showing All
Close
Sort by
Plight of the Fortune Tellers: Why We Need to Manage Financial Risk Differently

Available on NOOK devices and apps  
  • NOOK Devices
  • NOOK HD/HD+ Tablet
  • NOOK
  • NOOK Color
  • NOOK Tablet
  • Tablet/Phone
  • NOOK for Windows 8 Tablet
  • NOOK for iOS
  • NOOK for Android
  • NOOK Kids for iPad
  • PC/Mac
  • NOOK for Windows 8
  • NOOK for PC
  • NOOK for Mac
  • NOOK Study

Want a NOOK? Explore Now

NOOK Book (eBook - Course Book)
$12.99
BN.com price
(Save 43%)$22.95 List Price
This digital version does not exactly match the physical book displayed here.

Overview

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?

Read More Show Less

Editorial Reviews

Risk - Nicholas Dunbar
In his new book, Plight of the Fortune Tellers, Rebonato shows... why Merrill Lynch and Citigroup shareholders are right to be concerned. Nowhere have I read a better account of how a conscientious, intellectually disciplined market risk manager approaches his work in today's complex world. Well known to Risk readers as a master of interest rate modeling, Rebonato has written an accessible, non-technical book.
CFA Digest - James Jackson
In Plight of the Fortune Tellers, Rebonato analyzes and offers solutions to problems related to quantitative risk management strategies and the value-at-risk (VAR) methodology currently used by financial managers. Through stories, examples, theory, and practical methods, he first provides a critical review of the current state of affairs in investment risk management. Then, he proposes how we should 'revisit our ideas about probability in financial risk management' and 'put decision making back at center stage.' In Plight of the Fortune Tellers contains valuable insights into the development of VAR methodology and problems associated with its use in the present financial management arena. . . . In Plight of the Fortune Tellers is a book recommended for practitioners currently involved in quantitative methods and for students of investments and risk management at the graduate school level.
Physics World - Jessica James
This is an enjoyable, approachable book that may be read by anyone with an analytical mind. It is free of mathematics, yet it makes no concessions when it comes to explaining the complexities of a problem...I found a flowing prose that was a pleasure to read...[P]light of the Fortune Tellers is a great wake-up call for the industry. It deserves to be widely read since we all would like to be able to rely on the stability of the financial sector. It would be nice to get the risk management right.
The Business Economist - John Llewellyn
Remember that feeling of bewilderment after your first few weeks in your first job after university? That wrenching realization that, while the theories that you had laboured to understand may have been illuminating, they were too abstract to be applied to the real world? Reading Riccardo Rebonato's intriguing book brings those memories flooding back. For while Rebonato well understands, approves of, and writes about quantitative probability and risk theory, his day job involves actually managing financial risk. Hence he appreciates the limits both of theory and of applying it to real world situations. . . . There is considerably more meat in this wise, practical, yet unpretentious book than can be summarized in a short review.
Journal of Investment Management - Lisa R. Goldberg
Plight of the Fortune Tellers is insightful and entertaining. It provides a non-technical yet sophisticated introduction to the perils of modern risk management and it has the potential to lead us in a better direction. Don't miss it.
Journal of Pension Economics and Finance - Moshe A. Milevsky
This book should be on the reading list of experienced risk managers in the financial services industry as well as students who are contemplating a career in the field. It provides a thoughtful qualitative companion to more equation-laden texts on modern risk management.
From the Publisher
"[Plight of the Fortune Tellers] was written to appeal to a wide audience. Stylistically, Rebonato is an engaging writer who uses analogies and interesting examples...I'm confident you'll enjoy this book and that, after reading it, you will join in the dialog that Rebonato has started."—Garp Risk Review

"In his new book, Plight of the Fortune Tellers, Rebonato shows... why Merrill Lynch and Citigroup shareholders are right to be concerned. Nowhere have I read a better account of how a conscientious, intellectually disciplined market risk manager approaches his work in today's complex world. Well known to Risk readers as a master of interest rate modeling, Rebonato has written an accessible, non-technical book."—Nicholas Dunbar, Risk

"In Plight of the Fortune Tellers, Rebonato analyzes and offers solutions to problems related to quantitative risk management strategies and the value-at-risk (VAR) methodology currently used by financial managers. Through stories, examples, theory, and practical methods, he first provides a critical review of the current state of affairs in investment risk management. Then, he proposes how we should 'revisit our ideas about probability in financial risk management' and 'put decision making back at center stage.' In Plight of the Fortune Tellers contains valuable insights into the development of VAR methodology and problems associated with its use in the present financial management arena. . . . In Plight of the Fortune Tellers is a book recommended for practitioners currently involved in quantitative methods and for students of investments and risk management at the graduate school level."—James Jackson, CFA Digest

"This is an enjoyable, approachable book that may be read by anyone with an analytical mind. It is free of mathematics, yet it makes no concessions when it comes to explaining the complexities of a problem...I found a flowing prose that was a pleasure to read...[P]light of the Fortune Tellers is a great wake-up call for the industry. It deserves to be widely read since we all would like to be able to rely on the stability of the financial sector. It would be nice to get the risk management right."—Jessica James, Physics World

"Remember that feeling of bewilderment after your first few weeks in your first job after university? That wrenching realization that, while the theories that you had laboured to understand may have been illuminating, they were too abstract to be applied to the real world? Reading Riccardo Rebonatos intriguing book brings those memories flooding back. For while Rebonato well understands, approves of, and writes about quantitative probability and risk theory, his day job involves actually managing financial risk. Hence he appreciates the limits both of theory and of applying it to real world situations. . . . There is considerably more meat in this wise, practical, yet unpretentious book than can be summarized in a short review."—John Llewellyn, The Business Economist

"Riccardo Rebonato is a better fortuneteller than the risk analysts he writes about. He has read the palms of the quants who revel in developing ever more complex risk models and found that their real life line is rather short. But apart from confirming the prejudices of a financial journalist with no statistical training, is this book worth reading? The answer is yes. It is timely; the subject—financial risk management—matters hugely; it provides a relatively accessible guide to annoyingly influential statistical theories; and it makes you think."—Financial World online

"Plight of the Fortune Tellers is insightful and entertaining. It provides a non-technical yet sophisticated introduction to the perils of modern risk management and it has the potential to lead us in a better direction. Don't miss it."—Lisa R. Goldberg, Journal of Investment Management

"This book should be on the reading list of experienced risk managers in the financial services industry as well as students who are contemplating a career in the field. It provides a thoughtful qualitative companion to more equation-laden texts on modern risk management."—Moshe A. Milevsky, Journal of Pension Economics and Finance

Financial World
[Plight of the Fortune Tellers] is timely. . . . [I]t provides a relatively accessible guide to annoyingly influential statistical theories, and it makes you think.
Journal of Economic Literature
A fascinating read. . . . Rebonato writes in an engaging prose that is free of mathematics, yet intellectually rigorous. He provides a top-level view of risk management, founded on real-world situations.
— Philippe Jorion
Garp Risk Review
[Plight of the Fortune Tellers] was written to appeal to a wide audience. Stylistically, Rebonato is an engaging writer who uses analogies and interesting examples...I'm confident you'll enjoy this book and that, after reading it, you will join in the dialog that Rebonato has started.
Risk
In his new book, Plight of the Fortune Tellers, Rebonato shows... why Merrill Lynch and Citigroup shareholders are right to be concerned. Nowhere have I read a better account of how a conscientious, intellectually disciplined market risk manager approaches his work in today's complex world. Well known to Risk readers as a master of interest rate modeling, Rebonato has written an accessible, non-technical book.
— Nicholas Dunbar
CFA Digest
In Plight of the Fortune Tellers, Rebonato analyzes and offers solutions to problems related to quantitative risk management strategies and the value-at-risk (VAR) methodology currently used by financial managers. Through stories, examples, theory, and practical methods, he first provides a critical review of the current state of affairs in investment risk management. Then, he proposes how we should 'revisit our ideas about probability in financial risk management' and 'put decision making back at center stage.' In Plight of the Fortune Tellers contains valuable insights into the development of VAR methodology and problems associated with its use in the present financial management arena. . . . In Plight of the Fortune Tellers is a book recommended for practitioners currently involved in quantitative methods and for students of investments and risk management at the graduate school level.
— James Jackson
Physics World
This is an enjoyable, approachable book that may be read by anyone with an analytical mind. It is free of mathematics, yet it makes no concessions when it comes to explaining the complexities of a problem...I found a flowing prose that was a pleasure to read...[P]light of the Fortune Tellers is a great wake-up call for the industry. It deserves to be widely read since we all would like to be able to rely on the stability of the financial sector. It would be nice to get the risk management right.
— Jessica James
Financial World online
Riccardo Rebonato is a better fortuneteller than the risk analysts he writes about. He has read the palms of the 'quants' who revel in developing ever more complex risk models and found that their 'real life' line is rather short. But apart from confirming the prejudices of a financial journalist with no statistical training, is this book worth reading? The answer is yes. It is timely; the subject—financial risk management—matters hugely; it provides a relatively accessible guide to annoyingly influential statistical theories; and it makes you think.
Journal of Investment Management
Plight of the Fortune Tellers is insightful and entertaining. It provides a non-technical yet sophisticated introduction to the perils of modern risk management and it has the potential to lead us in a better direction. Don't miss it.
— Lisa R. Goldberg
Journal of Pension Economics and Finance
This book should be on the reading list of experienced risk managers in the financial services industry as well as students who are contemplating a career in the field. It provides a thoughtful qualitative companion to more equation-laden texts on modern risk management.
— Moshe A. Milevsky
The Business Economist
Remember that feeling of bewilderment after your first few weeks in your first job after university? That wrenching realization that, while the theories that you had laboured to understand may have been illuminating, they were too abstract to be applied to the real world? Reading Riccardo Rebonato's intriguing book brings those memories flooding back. For while Rebonato well understands, approves of, and writes about quantitative probability and risk theory, his day job involves actually managing financial risk. Hence he appreciates the limits both of theory and of applying it to real world situations. . . . There is considerably more meat in this wise, practical, yet unpretentious book than can be summarized in a short review.
— John Llewellyn
Read More Show Less

Product Details

  • ISBN-13: 9780691133614
  • Publisher: Princeton University Press
  • Publication date: 9/17/2007
  • Pages: 304
  • Product dimensions: 6.30 (w) x 9.20 (h) x 1.00 (d)

Meet 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).

Read More Show Less

Read an Excerpt

Plight of the Fortune Tellers Why We Need to Manage Financial Risk Differently
By Riccardo Rebonato Princeton University Press
Copyright © 2007
Princeton University Press
All right reserved.

ISBN: 978-0-691-13361-4


Chapter One WHY THIS BOOK MATTERS

But what I ... thought altogether unaccountable was the strong disposition I observed in [the mathematicians of Laputa] toward news and politics, perpetually enquiring into public affairs, giving their judgement on matters of state, and passionately disputing every inch of a party opinion. I have indeed observed the same disposition among the mathematicians I have known in Europe, although I could never observe the least analogy between the two sciences, unless those people suppose that because the smallest circle hath as many degrees as the largest, therefore the regulation and management of the world require no more abilities than the handling and turning of a globe. Jonathan Swift, writing about the mathematicians of Laputa

STATISTICS AND THE STATE

This book is about the quantitative use of statistical data to manage financial risk. It is about the strengths and limitations of this approach. Since we forget the past at our own peril, we could do worse than remind ourselves that the application of statistics to economic, political, and social matters is hardly a new idea. The very word "statistics" shares its root with the word "state," a concept that, under one guise or another, has been withus for at least a few centuries. The closeness of this link, between compilations of numbers, tables of data, and actuarial information on the one hand and the organization and running of a state on the other may today strike us as strange. But it was just when the power of this link became evident that statistics as we know it today was "invented." So, in its early days probability theory may well have been the domain of mathematicians, gamblers, and philosophers. But even when mathematicians did lend a helping hand in bringing it to life, from the very beginning there was always something much more practical and hard-nosed about statistics.

To see how this happened, let us start at least close to the beginning, and go back to the days of the French Revolution. In the first pages of Italian Journey (1798), Goethe writes:

I found that in Germany they were engaged in a species of political enquiry to which they had given the name of Statistics. By statistical is meant in Germany an inquiry for the purpose of ascertaining the political strength of a country, or questions concerning matters of state.

By the end of the eighteenth century, when Goethe explained his understanding of the word "statistics," the concept had been around in its "grubby" and practical form for at least a century. It is in fact in 1700 that we find another German, Leibniz, trying to forward the cause of Prince Frederick of Prussia who wanted to become king of the united Brandenburg and Prussia. The interesting point for our discussion is that Leibniz offers his help by deploying a novel tool for his argument: statistics. Prince Frederick of Prussia was at a disadvantage with respect to his political rivals, because the population of Prussia was thought to be far too small compared with that of Brandenburg to command a comparable seat at the high table of power. If at the time the true measure of the power of a country was the size of its population, the ruler could not be a Prussian. What Leibniz set out to prove was that, despite its smaller geographical size, Prussia was nonetheless more populous than was thought, indeed almost as populous as Brandenburg-and hence, by right and might, virtually as important. How did he set out to do so in those pre-census days? By an ingenious extrapolation based solely on the Prussian register of births, which had been started seventeen years earlier and carefully updated since. The details of how the estimate was reached need not concern us here-probably so much the better for Leibniz, because the jump from the birth data collected over seventeen years to the total size of the population was, by modern statistical standards, flawed. What is of great current interest is the logical chain employed by Leibniz, i.e., the link between some limited information that we do have but that, per se, we may consider of little importance-What do we care about births in Prussia?-to information that we would desperately like to have but is currently beyond our reach: for Leibniz and Prince Frederick, ultimately, what is the might of the Prussian army? If anyone were ever to doubt that there is real, tangible power in data and in data collection, this first example of the application of the statistical line of argument to influence practical action should never be forgotten. The modern bank that painstakingly collects information about failures in the clearing of cheques, about minute fraud, about the delinquency of credit card holders and mortgagors (perhaps sorted by age, postcode, income bracket, etc.) employs exactly the same logic today: data give power to actions and decisions. To the children of the Internet age it may all seem very obvious. But, at the beginning of the eighteenth century, it was not at all self-evident that, in order to gain control over the running of the state, looking at hard, empirical, and "boring" data might be more useful than creating engaging fictions about "natural man," "noble savages," social contracts between the king and the citizens, etc. The first statisticians were not political philosophers or imaginative myth-makers: they were civil servants.

The parallels between these early beginnings and today's debates about statistics run deeper. As soon as the power of basing decisions on actual data became apparent, two schools of thought quickly developed, one in France (and Britain, Scotland in particular) and one in Prussia. Generalizing greatly, the French school advocated an interpretation of the data on the basis of the "regularities of human nature": deaths, births, illness, etc., were, according to the French and British schools of thought, no less regular, and therefore no less amenable to rigorous quantitative analysis, than, say, floods or other "natural" phenomena. Ironically, the Prussian school, that had founded the statistics bureau, failed to reap the full advantage of its head start because it remained suspicious of the French theoretical notions of "statistical law" when applied to human phenomena-and, predictably, derided the French statisticians: "What is the meaning of the statement that the average family has 2.33 children? What does a third of a child look like?"

Perhaps it is not surprising that the country of the fathers of probability theory (Descartes, Pascal, Bernoulli, Fermat, etc.) should have been on the quantitative side of the debate. Indeed, 100 years before statistics were born, Bernoulli was already asking questions such as, "How can a merchant divide his cargo between ten ships that are to brave the pirate-infested seas so as to minimize his risk?" In so doing, he was not only inventing and making use of the eponymous probability distribution, he was also discovering risk aversion, and laying the foundations of financial risk management. Probability and statistics therefore seemed to be a match made in heaven: probability theory would be the vessel into which the "hard" statistical data could be poured to reach good decisions on how to run the state. In short, the discipline of probability, to which these French minds contributed so much, appeared to offer the first glimpses of an intriguing promise: a quantitative approach to decision making.

The Prussian-French debate was not much more constructive than many of the present-day debates in finance and risk management (say, between classical finance theorists and behavioral financiers), with both parties mainly excelling in caricaturing their opponent's position. Looking behind the squabbling, the arguments about the applicability and usefulness of quantitative techniques to policy decisions have clearly evolved, but reverberations of the 200-year-old Franco-Prussian debate are still relevant today. The French way of looking at statistics (and of using empirical data) has clearly won the day, and rightly so. Perhaps, however, the pendulum has swung too far in the French direction. Perhaps we have come to believe, or assume, that the power of the French recipe (marrying empirical data with a sophisticated theory of probability) is, at least in principle, boundless.

This overconfident extrapolation from early, impressive successes of a new method is a recurrent feature of modern thought. The more elegant the theory, the greater the confidence in this extrapolation. Few inventions of the human mind have been more impressive than Newtonian mechanics. The practical success of its predictions and the beauty of the theory took a hold on Western thought that seemed at times almost impossible to shake off. Yet two cornerstones of the Newtonian edifice, the absolute nature of time and the intrinsically deterministic nature of the universe, were ultimately to be refuted by relativity and quantum mechanics, respectively. Abandoning the Newtonian view of the world was made more difficult, not easier, by its beauty and its successes.

It sounds almost irreverent to shift in one paragraph from Newtonian physics and the absolute nature of time to the management of financial risk. Yet I think that one can recognize a similar case of overconfident extrapolation in the current approach to statistics applied to finance. In particular, I believe that in the field of financial risk management we have become too emboldened by some remarkable successes and have been trying to apply similar techniques to areas of inquiry that are only superficially similar. We have come to conclude that we simply have to do "more of the same" (collect more data, scrub our time series more carefully, discover more powerful statistical theorems, etc.) in order to answer any statistical question of interest. We have come to take for granted that while some of the questions may be hard, they are always well-posed.

However, if this is not the case but the practice and the policy to control financial risk remain inspired by the nonsensical answers to ill-posed questions, then we are all in danger. And if the policies and practices in question are of great importance to Our well-being (as is, for instance, the stability and prudent control of the financial system), we are all in great danger.

WHAT IS AT STAKE?

Through financial innovations, a marvelously intricate system has developed to match the needs of those who want to borrow money (for investment or immediate consumption) and of those who are willing to lend it. But the modern financial system is far more than a glorified brokerage of funds between borrowers and lenders. The magic of modern financial engineering truly becomes apparent in the way risk, not just money, is parceled, repackaged, and distributed to different players in the economy. Rather than presenting tables of numbers and statistics, a simple, homely example can best illustrate the resourcefulness, the reach, and the intricacies of modern applied finance.

Let us look at a young couple who have just taken out their first mortgage on a small house with a local bank on Long Island. Every month, they will pay the interest on the loan plus a (small) part of the money borrowed. Unbeknownst to them, their monthly mortgage payments will undergo transformations that they are unlikely even to imagine. Despite the fact that the couple will continue to make their monthly mortgage payments to their local bank, it is very likely that their mortgage (i.e., the rights to all their payments) will be purchased by one of the large federal mortgage institutions (a so-called "government-sponsored agency") created to oil the wheels of the mortgage market and make housing more affordable to a large portion of the population. Once acquired by this institution, it will be pooled with thousands of other mortgages that have been originated by other small banks around the country to advance money to similar home buyers. All these mortgages together create a single, diversified pool of interest-paying assets (loans). These assets then receive the blessing of the federal agency who bought them in the form of a promise to continue to pay the interest even if the couple of newlyweds (or any of their thousands of fellow co-mortgagors) find themselves unable to do so. Having given its seal of approval (and financial guarantee), the federal institution may create, out of the thousands of small mortgages, new standardized securities that pay interest (the rechanneled mortgage payments) and will ultimately repay the principal (the amount borrowed by the Long Island couple).

These new securities, which have now been made appealing to investors through their standardization and the financial guarantee, can be sold to banks, individuals, mutual funds, etc. Some of these standardized securities may also be chopped into smaller pieces, one piece paying only the interest, the other only the principal when (and if) it arrives, thereby satisfying the needs and the risk appetite of different classes of investors. At every stage of the process, new financial gadgets, new financial instruments, and new market transactions are created: some mortgages are set aside to provide investors with an extra cushion against interruptions in the mortgage payments; additional securities designed to act as "bodyguards" against prepayment risk are generated; modified instruments with more predictable cash flow streams are devised; and so on.

So large is this flow of money that every rivulet has the potential to create a specialized market in itself. Few tasks may appear more mundane than making sure that the interest payments on the mortgages are indeed made on time, keeping track of who has repaid their mortgage early, channeling all the payments where they are due just when they are due, etc. A tiny fraction of the total value of the underlying mortgages is paid in fees for this humble servicing task. Yet so enormous is the river of mortgage payments, that this small fraction of a percent of what it carries along, its flotsam and jetsam, as it were, still constitutes a very large pool of money. And so, even the fees earned for the administration of the various cash flows become tradeable instruments in themselves, for whose ownership investment banks, hedge funds, and investors in general will engage in brisk, and sometimes furious, trading.

The trading of all these mortgage-based securities, ultimately still created from the payments made by the couple on Long Island and their peers, need not even be confined to the country where the mortgage originated. The same securities, ultimately backed by the tens of thousands of individual private mortgage borrowers, may be purchased, say, by the Central Bank of China. This body may choose to do so in order to invest some of the cash originating from the Chinese trade surplus with the United States. But this choice has an effect back in the country where the mortgages were originated. By choosing to invest in these securities, the Central Bank of China contributes to making their price higher. But the interest paid by a security is inversely linked to its price. The international demand for these repackaged mortgages therefore keeps (or, actually, pushes) down U.S. interest rates and borrowing costs. As the borrowing cost to buy a house goes down, more prospective buyers are willing to take out mortgages, new houses are built to meet demand, the house-building sector prospers and employment remains high. The next-door neighbor of the couple on Long Island just happens to be the owner of one small enterprise in the building sector (as it happens, he specializes in roof tiling). The strong order book of his roof tiling business and his optimistic overall job outlook make him feel confident about his prospects. Confident enough, indeed, to take out a mortgage for a larger property. So he walks into the local branch of his Long Island bank. Au refrain.

(Continues...)



Excerpted from Plight of the Fortune Tellers by Riccardo Rebonato
Copyright © 2007 by Princeton University Press. Excerpted by permission.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.
Read More Show Less

Table of Contents

Preface ix

Acknowledgments xxvii

Chapter 1: Why This Book Matters 1

Chapter 2: Thinking about Risk 22

Chapter 3: Thinking about Probabilities 40

Chapter 4: Making Choices 67

Chapter 5: What Is Risk Management For? 107

Chapter 6: VaR & Co: How It All Started 117

Chapter 7: Looking Beneath the Surface: Hidden Problems 139

Chapter 8: Which Type of Probability Matters in Risk Management? 182

Chapter 9: The Promise of Economic Capital 199

Chapter 10: What CanWe Do Instead? 223

Endnotes 259

Index 267

Read More Show Less

Customer Reviews

Be the first to write a review
( 0 )
Rating Distribution

5 Star

(0)

4 Star

(0)

3 Star

(0)

2 Star

(0)

1 Star

(0)

Your Rating:

Your Name: Create a Pen Name or

Barnes & Noble.com Review Rules

Our reader reviews allow you to share your comments on titles you liked, or didn't, with others. By submitting an online review, you are representing to Barnes & Noble.com that all information contained in your review is original and accurate in all respects, and that the submission of such content by you and the posting of such content by Barnes & Noble.com does not and will not violate the rights of any third party. Please follow the rules below to help ensure that your review can be posted.

Reviews by Our Customers Under the Age of 13

We highly value and respect everyone's opinion concerning the titles we offer. However, we cannot allow persons under the age of 13 to have accounts at BN.com or to post customer reviews. Please see our Terms of Use for more details.

What to exclude from your review:

Please do not write about reviews, commentary, or information posted on the product page. If you see any errors in the information on the product page, please send us an email.

Reviews should not contain any of the following:

  • - HTML tags, profanity, obscenities, vulgarities, or comments that defame anyone
  • - Time-sensitive information such as tour dates, signings, lectures, etc.
  • - Single-word reviews. Other people will read your review to discover why you liked or didn't like the title. Be descriptive.
  • - Comments focusing on the author or that may ruin the ending for others
  • - Phone numbers, addresses, URLs
  • - Pricing and availability information or alternative ordering information
  • - Advertisements or commercial solicitation

Reminder:

  • - By submitting a review, you grant to Barnes & Noble.com and its sublicensees the royalty-free, perpetual, irrevocable right and license to use the review in accordance with the Barnes & Noble.com Terms of Use.
  • - Barnes & Noble.com reserves the right not to post any review -- particularly those that do not follow the terms and conditions of these Rules. Barnes & Noble.com also reserves the right to remove any review at any time without notice.
  • - See Terms of Use for other conditions and disclaimers.
Search for Products You'd Like to Recommend

Recommend other products that relate to your review. Just search for them below and share!

Create a Pen Name

Your Pen Name is your unique identity on BN.com. It will appear on the reviews you write and other website activities. Your Pen Name cannot be edited, changed or deleted once submitted.

 
Your Pen Name can be any combination of alphanumeric characters (plus - and _), and must be at least two characters long.

Continue Anonymously
Sort by: Showing 1 Customer Reviews
  • Posted September 1, 2009

    more from this reviewer

    Thought-provoking study of risk management

    Reading this book is like reading the prophecies of Cassandra, whose fate was to speak the truth to the unbelieving. In the wake of the fiscal crisis, no one can question the observation that the practice of financial risk management has serious flaws. Business journalist Riccardo Rebonato's discussion of why and how financial institutions misunderstand and mismanage risk provides valuable insights. He works to make his ideas accessible beyond the narrow circles of financial economists and quantitative risk managers. He uses no equations in the text, and his few graphs are clear and accessible. He states his case against excess reliance on statistical methods in plain language. getAbstract believes that his analysis should interest any manager or regulator whose responsibilities include oversight of finance.

    Was this review helpful? Yes  No   Report this review
Sort by: Showing 1 Customer Reviews

If you find inappropriate content, please report it to Barnes & Noble
Why is this product inappropriate?
Comments (optional)