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Red-Blooded Risk: The Secret History of Wall Street Hardcover – October 11, 2011

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Product Details

  • Hardcover: 432 pages
  • Publisher: Wiley; 1 edition (October 11, 2011)
  • Language: English
  • ISBN-10: 1118043863
  • ISBN-13: 978-1118043868
  • Product Dimensions: 6.3 x 1.1 x 9.3 inches
  • Shipping Weight: 3 pounds (View shipping rates and policies)
  • Average Customer Review: 4.3 out of 5 stars  See all reviews (24 customer reviews)
  • Amazon Best Sellers Rank: #759,603 in Books (See Top 100 in Books)

Editorial Reviews


"Wickedly original, one of the most fascinating accounts I haveever seen. A rollicking and highly opinionated read." (RiskProfessional, October 2011)

“No one who reads Red-Blooded Risk: The Secret History ofWall Street will ever again regard risk management as anecessary but unproductive appendage of the financial industry.Other authors have chronicled how quantitative finance influencedinvestment management, but Aaron Brown has made a compelling casefor a far more profound economic impact. . . If Red-BloodedRisk: The Secret History of Wall Street dealt with nothing morethan the inadequacy of models used in highly important activities,it would represent a valuable contribution to financial economics.Brown’s book, however, covers a great deal more thaneconometric malpractice. Probably no other book offers as muchinsight into the process with so little resort to mathematicalnotation. Especially valuable are Brown’s discussions ofmiddle-office risk management and value at risk, comparativelyrecent innovations that are essential to understanding modernfinancial institutions. Readers of Red-Blooded Risk shouldbe prepared to have many of their assumptions challenged.Red-Blooded Risk is one of the most original andthought-provoking books reviewed in these pages in the past 20years. No one who reads it will ever again regard riskmanagement as a necessary but unproductive appendage of thefinancial industry. Other authors have chronicled how quantitativefinance influenced investment management, but Aaron Brown has madea compelling case for a far more profound economicimpact.”
Martin S. Fridson, CFA Institute PublicationsBook Reviews

“Red-Blooded Risk
mixes risk history and philosophynimbly and provides a perspective that can be both refreshing andchallenging (often on the same page). While the book is not withoutweaknesses, it is also brimming with original perspectives andcontroversial opinions. Those who work in risk management orquantitative finance will enjoy Brown’s story-telling andexpert perspectives, even if they do not share his views, whilenon-quants will find his insights and confessions to be a usefulglimpse into the psyche and ethos of an influential group of earlyquantitative risk takers.
Roger M. Stein, Research and AcademicRelations, Moody’s Corporation, as reviewed inQuantitative Finance (August 6, 2012)

From the Inside Flap

Everyone talks about risk, but few people give serious thoughtto what risk is. It's hard to describe it without expressing anopinion—we like things that are innovative, daring, creative,and bold; but those are exactly the same things that are reckless,speculative, risky, and irresponsible.

This book is the story of a group of young math whizzes whounleashed a revolution—one that reshaped our financial systemand continues to echo through the halls of government,universities, and corporations today. In the 1970s, disillusionedwith the sorry state of quantitative analysis, these youngmathematicians (soon to be known as "quants") invented a new way oflooking at probability and set out to prove it in the ultimatetesting ground of odds-making: Las Vegas.

Once there, the quants turned conventional wisdom about gamblingon its head. People said you can't beat the house, yet the quantsmanaged to beat blackjack and other casino games. People said youneeded a lifetime to learn poker, yet the quants' aggressivemathematical tactics swept the table against the best players inthe world. Then the quants turned to sports betting, overturningthe business model and squeezing out local bookies with a globalorganization that matched bets without taking risk.

Armed with their theories and experience, the quants raisedtheir sights and headed to Wall Street, determined to replicatetheir success. Finance was a tougher challenge than gambling, butby the mid-1990s, the quants had remade Wall Street as thoroughlyas they had remade Las Vegas. That transformation went unnoticed bythe bond salesmen and investment bankers who ran Wall Street, aswell as by academics, regulators, journalists, and investors; yetthese changes caused both the greatest wealth creation event in thehistory of the world, and also to the financial disasters we havewitnessed in its wake.

There's more here than just a lesson in recent financialhistory, however. Brown's story goes beyond the headlines toexplore basic questions of economics, like the meaning of propertyand the nature of exchange. Along the way, it reveals secrets aboutthe building of the pyramids, the glory of ancient Athens, theforcethat built the Roman Empire, a world-changing invention frommedieval Italy, a secret in a mysterious letter written in 1654 andnot decoded until the 1990s, and an essential aspect of theAmerican Revolution left out of history books.

This book will change the way you think about everything fromhistory, risk, and money to vampires, zombies, and tulips. Itoffers a fascinating and thrilling account of great events thathave never before been described in an easily accessible form.There are bold ideas, colorful characters, and, most important, thekeys to understanding the modern financial world and how its innerworkings affect our daily lives.

More About the Author

I'm the author of "Red-Blooded Risk" and "The Poker Face of Wall Street," and a co-author of "A World of Chance." My day job is working for AQR Capital Management. I also am a columnist for Wilmott and Quantum magazines, and write for a lot of finance and poker periodicals; as well as teach classes and speak at conferences. I serve on the Editorial Board of the Global Association of Risk Professionals and am a member of the National Book Critics Circle. In past lives I've been a professional poker player, trader, finance professor, portfolio manager and head of mortgage securities.

I live on the upper west side of New York City with my wife. I have a son who is an undergraduate at the University of Chicago, and a daughter in high school.

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Customer Reviews

Aaron is good friends with Nassim Taleb and they share similar views about risk.
Brandon G. Adams
It is an easy and enjoyable read, and at the same time it offers a deep and different perspective that cannot be found in academic textbooks.
Espen Gaarder Haug
Would be interesting to hear what Taleb has to say!Comparing to other books it makes fun reading.
Narendra Modi

Most Helpful Customer Reviews

33 of 38 people found the following review helpful By Brandon G. Adams on October 5, 2011
Format: Hardcover
Aaron is the quant's quant --- a god on Internet forums on topics ranging from quantitative finance to applied probability to poker. He left academics a long time ago to become rich (he's currently the head risk manager at the hedge fund AQR), and, in the process, he picked up some hard-won lessons about the realities of risk. This is not an academic book --- it's a quick-reading guide to thinking about risk in an intuitive way.

Aaron is good friends with Nassim Taleb and they share similar views about risk. As compared to Taleb's Black Swan, this book is a faster, more entertaining read. It's less conceptually dense, but it probably packs more of a punch. This is the book to learn from. The practical philosophy about speculation presented by both books is that one should spend much of one's energy playing defense; one should be constantly paranoid about unlikely events that might decimate one's portfolio.

Red-Blooded Risk contains the best intuitive explanation of the Kelly Criterion contained in any book that I've read. It also has innovative material about the powerful role of exponential growth in economics and investing. Aaron lays out a convincing case for the idea that investors should spend much of their time looking for attractively priced "lottery tickets" (potential exponential growth that is underpriced by the market).

This book is about more than investing. Red-Blooded Risk is really a comprehensive guide to thinking about risk in life, and it's probably the best guide of this sort currently on the market.
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41 of 49 people found the following review helpful By Gordon on December 26, 2011
Format: Hardcover Verified Purchase
I was impressed by the 5 stars of this book and bought it on my kindle. I realized the book is not as great as I have expected for the following reasons:

1. Interesting story made boring.
The author has many interesting little facts, academic experiment results and logic. I believe they will make him an interesting person to chat with, or an interesting presentation in a conference or seminar. However they become boring in text mainly because of the book's prolixity and disorganized article structure.

2. Misleading titles:
Both the book title and the chapter titles provide misleading information to what the content will tell you. For the most obvious example, you can hardly expect too much history on the wall-street on the "secret history of wall street". You will expect to be traced back history as far as stone age about how ancient people (and even animals) react to risk. (Probably "the history that made wall-street"?)

3. Lengthy introductions before making a point:
Whenever the author tried to put forth an idea, the author will trace all the way to its origin, and the origin of the origin. You often find yourself reading something like this: "before we talk about C, let's talk about B first.". Then it will follow "before we talk about B, let's talk about A." The author believe the origin of his knowledge is very important and he would like you to be equaly fascinated by the evolution of his ideas. This is understandable perhaps given his math background as he would just felt inclined to proof every result. However I just find myself lost within the process like I got lost in a math class.
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12 of 14 people found the following review helpful By David J. Aldous on December 17, 2011
Format: Hardcover
This is the best book I've ever read that discusses financial trading and risk management as actually practiced over the last 35 years, in relation to underlying ideas from mathematical probability (described via arithmetic examples not formulas). Like Taleb's The Black Swan: The Impact of the Highly Improbable it combines stories from the author's own experience, a broad range of historical episodes and his own opinionated views, but the latter are presented in a more grounded and thoughtful style as well-argued analysis. In particular the book goes into as much detail concerning what a risk manager actually does as anyone not professionally involved would want, and makes it sound sufficiently exciting that, if I were 21 again, I might consider it as a career.

Regarding links with mathematics and statistics (my own interest -- but remember this is not a technical math book) three chapters struck me as particularly memorable. There is a very clear exposition of the Kelly criterion as "risk ignition" under the slogan "get rich exponentially slowly" (see Fortune's Formula: The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street for a more leisurely discussion). Chapter 5, which everyone interested in the basic mathematics of finance should read, compares and contrasts modern portfolio theory with Kelly. If you are a novice this will start you on the right track; if expert then you might disagree, but thinking why you disagree will sharpen your wits.
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