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Financial Risk Management For Dummies Paperback – Illustrated, December 14, 2015
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- Martin S. Fridson, CFA, chief investment officer at Lehmann, Livian, Fridson Advisors, LLC, New York City
From the Inside Flap
Take the risk out of financial management
Frazzled by financial management? Through easy-to-follow instruction, this friendly guide shows you how to manage risk, firstly by understanding it and then by taking control of it. Plus, you’ll discover how to measure and value financial risk, set limits, stop losses, control breakdowns and hedge bets.
- Tackle risk head-on – find out how to take charge of risk, manage your financial risk and work as a financial risk manager
- Stop stressing – discover how to measure your financial risk, prep yourself for anything that may come your way and get comfortable with pushing the boundaries
- Know that the sky’s the limit – manage your financial risk by setting limits, stopping losses, controlling drawdowns and hedging bets
- Work it – get the lowdown on working in financial institutions, from understanding how traders work to making sense of portfolio management–and everything in between
- Talk the talk – communicate risk, deal with regulations and avoid the ‘Tower of Babel’
Open the book and find:
- How to work with financial risk
- Ways to set and understand limits
- The ins and outs of portfolio management
- Everything you need to know about managing asset risk
- How to help regulators (and yourself)
- Ten great risk managers in history
- Risk management tips you can’t be without
- Publisher : For Dummies; 1st edition (December 14, 2015)
- Language : English
- Paperback : 384 pages
- ISBN-10 : 111908220X
- ISBN-13 : 978-1119082200
- Item Weight : 1.51 pounds
- Dimensions : 7.3 x 0.9 x 9.2 inches
- Best Sellers Rank: #403,602 in Books (See Top 100 in Books)
- Customer Reviews:
Top reviews from the United States
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Risk assessment and risk premiums affect lots of every day decisions, but not in obvious ways. Experts toss around terms that are familiar to me but mean something different in risk management. By reading Brown’s books on risk, especially this recent book, “Financial Risk Management for Dummies”, I was delighted to learn clear, simple explanations for a lot of the stuff; and just as important, confirmed my suspicions that a lot of the stuff that experts call risk-management is often just bad practice. I now feel I can interact intelligently with people working in the field of risk management and refer them to this book so that they too may read it, as a start, and, if necessary, contact the author to discuss things they could do which would be helpful to them—i.e., improving their products and services and how they explain their products and services to stakeholders in a uniform and consistent way and avoid doing things that are or could be harmful.
While in graduate school, I learned the math behind the Greeks (parameters) but had not thought about the different risk management aspects of each Greek parameter until I read Chapter 8, Speaking Greek, of this book. All along, I have thought diversification and hedging are the only techniques for managing risk, but in Chapter 13, Hedging Bets, I was surprised to learn that risk managers dislike hedges and use them only as a last resort. And, Chapter 18, Reporting Risk, gave me an unexpected insight into the importance of giving all stakeholders the same view of risk—i.e., having an accurate picture of risk and managing it properly—but even the best risk managers frequently fail to do this for their audience/clientele.
The book helped me recognize financial risk and how to successfully manage it, analyze the different risk methodologies and apply them effectively to different situations, utilize tools such as stop losses, drawdown control and hedging. Specifically, I learned how to assess and manage risk, through easy to follow steps, firstly, by understanding it and then controlling or mitigating it. I also learned how to measure and value financial risk, hedge bets and how to communicate about financial risk with the pros.
The book is fun and easy to read and I got the feeling that being a risk manager could be challenging, exciting, rewarding and fulfilling. Some of the author's personal stories—e.g., the regulation story, playing poker with stops, distinguishing fraud from finance, and emotional stop loss were very interesting and insightful for me. I highly recommend it.
Sure, you'll get the math, from VaR to vega. But you'll also learn that good financial risk managers can't rely on quantitative skills alone. Brown discusses how effective communication with co-workers, bosses, boards, lawyers, regulators, and industry peers can all improve an organization's risk readiness.
This is clearly a book that will aid those considering or starting out in the financial risk management field. I also believe that fund managers, traders, family office managers and RIAs will learn a lot from this book about how to keep their operations responsibly afloat. But I'd also recommend this book to anyone who might be interested in thought-provoking essays about risk.
The difference between this ideology and how a professional thinks about the markets is counter-emotional and otherwise "bass ackwards”: pros focus on what there is to lose and the myriad ways losing can happen. They imagine "new and improved" ways one can lose and how to avoid those instances when possible.
Hence, one's gains are only gains to the extent they keep their losses small. Focusing on playing defense is the key to lasting success in the financial markets for investor or trader.
Aaron has a done a great job in clarifying what the salient aspects of risk management actually are and where that is different from diversification, and most of this data analysis can be done at home on a mac or PC using a basic spreadsheet. He also explains with examples how a part of risk management comes down to using your judgment or common sense. There are certain parts of risk that we can't define because there is no sufficient data to study (what pros call 'tail risk').
Aaron delineates with great detail where individuals managing risk need to look to have a more clear understanding of the perils that go with financial risk. For example, 'diversification' is "risk reduction" and for most people, that's where it ends. Diversification is NOT risk management - there is much more to it. More surprising is that he is able to illustrate these concepts WITHOUT the jargon and vernacular of someone is his position. He's speaking to today's market participants who most likely do not speak this dialect of financial literacy.
A reader does not need to know advanced math such as Differential Equations, Stochastic Calculus, or know how to derive Ito's Lemma to get the most from this book. In this regard the book's format follows the "...For Dummies" ethos. But for the Chief Risk Manager of AQR and a developer of Value at Risk (VaR) to write such a book, is like a carpenter building a new home with tools used by cavemen and it is the sign of a great teacher to be able to teach these concepts to laypeople.
IMHO, this book will provide more than several "aha" moments to the uninitiated to risk management and I recommend this book and "initiate coverage" with a screaming "Buy Rating." The value herein is well worth many multiples of the price and will stimulate a lot of great thinking from the reader's standpoint.
Top reviews from other countries
Having said that it is great in parts and otherwise peppered with wisdom if you invest the time sorting the chaf.
As I am working in a Risk Management Product targeting risk managers and I have very little background in Risk and no patience to get my CFA, I picked up this book and was not disappointed.
In the first few chapters, the author sets the context of risk, discussed Bayesian and Frequentist approaches with the example of Roulette Wheel.He also talks of approaches from Game Theory, Evolution, Thermodynamics and uncertainty which were insightful. Further he distinguishes dangers, risk and opportunity and talks about risk goals and financial market theories. He talks about risk functions in front office, back office and middle office which I found interesting. He provides useful advice on communicating risk to various stakeholders.
In the next few chapters, he talks at length about VaR and types of VaR (Value at Risk) and their interpretation which was very useful. He then explains stress testing. His explanation of alpha, beta, delta, gamma, vega, theta, rho and oas is very fun and descriptive. He then discusses the normal distribution and extreme events. His discussion of limits using the traffic analogy is quite good and I enjoyed this chapter the most. His detailed analysis of stop losses, drawdowns and hedges are something I think I can even apply in my personal trading.
In the last few chapters, his analysis of traders and money managers is full of memorable anecdotes and would be useful to a risk manager. Further, the way he characterizes banks , insurance industry, regulators (esp BASEL and viewing them as stakeholders), risk IT is something I will keep in mind for a long time.His chapters on communicating and reporting risk will help the job of a risk manager.
The last chapter is about various stories of major risk events, risk books and risk managers which I just skimmed.
Overall, I feel wiser when I am thinking about risk or collaborating with Risk professional