Red-Blooded Risk: The Secret History of Wall Street

Red-Blooded Risk: The Secret History of Wall Street

by Aaron Brown
Released October 2011
Publisher(s): Wiley
ISBN: 9781118043868

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Book description

An innovative guide that identifies what distinguishes the best financial risk takers from the rest

From 1987 to 1992, a small group of Wall Street quants invented an entirely new way of managing risk to maximize success: risk management for risk-takers. This is the secret that lets tiny quantitative edges create hedge fund billionaires, and defines the powerful modern global derivatives economy. The same practical techniques are still used today by risk-takers in finance as well as many other fields. Red-Blooded Risk examines this approach and offers valuable advice for the calculated risk-takers who need precise quantitative guidance that will help separate them from the rest of the pack.

While most commentators say that the last financial crisis proved it's time to follow risk-minimizing techniques, they're wrong. The only way to succeed at anything is to manage true risk, which includes the chance of loss. Red-Blooded Risk presents specific, actionable strategies that will allow you to be a practical risk-taker in even the most dynamic markets.

  • Contains a secret history of Wall Street, the parts all the other books leave out

  • Includes an intellectually rigorous narrative addressing what it takes to really make it in any risky activity, on or off Wall Street

  • Addresses essential issues ranging from the way you think about chance to economics, politics, finance, and life

  • Written by Aaron Brown, one of the most calculated and successful risk takers in the world of finance, who was an active participant in the creation of modern risk management and had a front-row seat to the last meltdown

  • Written in an engaging but rigorous style, with no equations

  • Contains illustrations and graphic narrative by renowned manga artist Eric Kim

There are people who disapprove of every risk before the fact, but never stop anyone from doing anything dangerous because they want to take credit for any success. The recent financial crisis has swelled their ranks, but in learning how to break free of these people, you'll discover how taking on the right risk can open the door to the most profitable opportunities.

Table of contents

  1. Cover Page
  2. Title Page
  3. Copyright
  4. Contents
  5. Acknowledgments
  6. CHAPTER 1: What This Book Is and Why You Should Read It
    1. Risk, Danger, and Opportunity
    2. Red-Blooded Risk Management
    3. Risk and Life
    4. Play and Money
    5. Frequentism
    6. Rationality
    7. Bets
    8. Exponentials and Culture
    9. Payoff
  7. CHAPTER 2: Red Blood and Blue Blood
  8. CHAPTER 3: Pascal's Wager and the Seven Principles of Risk Management
    1. Principle I: Risk Duality
    2. Principle II: Valuable Boundary
    3. Principle III: Risk Ignition
    4. Principle IV: Money
    5. Outside the VaR Boundary
    6. Principle V: Evolution
    7. Principle VI: Superposition
    8. Principle VII: Game Theory
  9. CHAPTER 4: The Secret History of Wall Street: 1654–1982
    1. Pascal and Fermat
    2. Poker
    3. Advantage Gamblers
    4. Sports Betting
    5. Quants to Wall Street
    6. Finance People
    7. Real Finance
  10. CHAPTER 5: When Harry Met Kelly
    1. Kelly
    2. Harry
    3. Commodity Futures
    4. If Harry Knew Kelly
    5. Investment Growth Theory
    6. eRaider.com
    7. MPT Out in the World
  11. CHAPTER 6: Exponentials, Vampires, Zombies, and Tulips
    1. Types of Growth
    2. The Negative Side
    3. Tulips
    4. Tulip Propaganda
    5. Quantitative Tulip Modeling
    6. Money
  12. CHAPTER 7: Money
  13. CHAPTER 8: The Story of Money: The Past
    1. Property, Exchange, and Money
    2. Paleonomics
    3. Transition
    4. What Money Does
    5. Risk
    6. Government and Paper
    7. Paper versus Metal
    8. 1776 and All That
    9. Andrew Dexter
    10. A Short Digression into Politics and Religion
  14. CHAPTER 9: The Secret History Of Wall Street: 1983–1987
    1. Efficient Markets
    2. Anomalies
    3. The Price Is Right ... Not!
    4. Efficiency versus Equilibrium
    5. Beating the Market
    6. Paths
    7. Sharpe Ratios and Wealth
    8. 1987
  15. CHAPTER 10: The Story of Money: The Future
    1. Farmers and Millers
    2. Money, New and Improved
    3. A General Theory of Money
    4. Value and Money
    5. Numeraire
    6. Clearinghouses
    7. Cash
    8. Derivative Money
    9. The End of Paper
  16. CHAPTER 11: Cold Blood
  17. CHAPTER 12: What Does a Risk Manager Do?—Inside VaR
    1. Professional Standards
    2. Front Office
    3. Trading Risk
    4. Quants on the Job
    5. Middle Office
    6. Back Office
    7. Middle Office Again
    8. Looking Backward
    9. Risk Control
    10. Beyond Profit and Loss
    11. Numbers
    12. The Banks of the Charles
    13. Waste
    14. The Banks of the Potomac
    15. The Summer of My Discontent
    16. Validation
  18. CHAPTER 13: VaR of the Jungle
  19. CHAPTER 14: The Secret History of Wall Street: 1988–1992
    1. Smile
    2. Back to the Dissertation
    3. Three Paths
    4. An Unexpected Twist
    5. Surprise!
    6. Computing VaR
  20. CHAPTER 15: Hot Blood and Thin Blood
  21. CHAPTER 16: What Does a Risk Manager Do?—Outside VaR
    1. Stress Tests
    2. Trans-VaR Scenarios
    3. Black Holes
    4. Why Risk Managers Failed to Prevent the Financial Crisis
    5. Managing Risk
    6. Unspeakable Truth Number One: Risk Managers Should Make Sure Firms Fail
    7. Unspeakable Truth Number Two: There's Good Stuff beyond the VaR Limit
    8. Unspeakable Truth Number Three: Risk Managers Create Risk
  22. CHAPTER 17: The Story of Risk
  23. CHAPTER 18: Frequency versus Degree of Belief
    1. Statistical Games
    2. Thorp, Black, Scholes, and Merton
    3. Change of Numeraire
    4. Polling
    5. The Quant Revolution
  24. CHAPTER 19: The Secret History of Wall Street: 1993-2007
    1. Where Did the Money Come From?
    2. Where Did They Put the Money?
    3. Where Did the Money Go?
  25. CHAPTER 20: The Secret History of Wall Street: The 2007 Crisis and Beyond
  26. Postmortem
  27. A Risk Management Curriculum
  28. One Hundred Useful Books
  29. About the Author
  30. About the Illustrator
  31. Index

Product information

  • Title: Red-Blooded Risk: The Secret History of Wall Street
  • Author(s): Aaron Brown
  • Release date: October 2011
  • Publisher(s): Wiley
  • ISBN: 9781118043868