Red-Blooded Risk: The Secret History of Wall Street

A Risk Management Curriculum

Over the last few years, several universities have created degree programs in risk management and some professional schools now allow it as a specialization. I have interviewed graduates of some of these programs and remain generally unimpressed. In some cases, the programs are repackagings of portfolio management mathematics and regulatory risk reporting detail, cynically sold at exorbitant prices to students who are good at math and desperate to find jobs.

In other cases, the effort seems sincere and includes some valuable material, but suffers from a superficial and narrow focus. As I hope I've convinced you, risk management requires some radical rethinking of probability theory and economics. That can only happen if you go back to the fundamentals and insist on rigor. I have also argued that a risk manager must cast her net of learning wide, beyond probability and economics to accounting, data processing, psychology, law, logic, history, and philosophy among other fields.

The single most valuable skill in a new employee for financial risk management is deep understanding of real financial data in a real firm. Someone who knows nothing about finance or risk but can get reliable numbers is worth gold, and I will be happy to train her in everything else she needs. Someone who can do everything else, but bases conclusions on unreliable data, is worthless.

Unfortunately, getting reliable data requires skills not easily taught by academic instructors. ...