Dealing with Financial Risk

[Soultrader 12]

Product Description from Amazon

 

Risk is an intrinsic component of finance that both dictates and complicates investments and companies. This book offers an exceptionally thorough and ambitious introduction to financial risk and risk management—direct from the capital markets editor of The Economist.

 

Dealing with Financial Risk presents key concepts in a simple and entertaining way by explaining the endeavors, mistakes, and successes of others as they tried to identify, measure, and simplify risk and make it work for them. It includes analysis of some of the recent corporate disasters and what each has added to the understanding of financial risk, including Baring Brothers in 1995, Long-Term Capital Management in 1998, and Enron in 2001. In addition, the book explores the risks of the financial system as a whole and analyzes recent attempts to ensure greater stability within the system.

 

This book will become a standard introduction to the concept of financial risk and the realities of financial risk management. Written for the intelligent layman as well as for a company or bank executive or a student who needs an introduction or refresher course on risk, Dealing with Financial Risk capitalizes on the pervasiveness and persistence of the topic.

[Soultrader 12]

Received this book from a friend in Bloomberg. The book discusses various examples of financial risk mainly within the derivatives market. It is also a very simplified read on how swaps work.

 

Dealing with Financial Risk covers detailed stories on LTCM, Metallgesellschaft, and Mulhouse Brand. It also addresses the importance of risk officers, their roles and models, the role of regulatory agencies, and a few insights on how insiders deal with financial crisis. A reader looking to obtain further insights into to how risks are transferred within the financial industry may find this book interesting. A trader looking to gain an edge in his strategy will find this book dull and boring.

 

What I particulary liked about this book is the insights into how major banks and regulators socialize to make key financial decisions. Here is a particular excerpt from the book:

 

American bank: "We are willing to take the hit if the market value of these options goes down, but not if they decide that they can't pay and won't pay."

 

Greenspan: "We're prepared to support the American banks on this line."

 

American bank: "Unless we have an agreement we're shorting the D-mark with everything we have tomorrow."

 

Greenspan: "We'de better let them know that."