CHAPTER FIVE
The perfect storm – risk mismanagement by the numbers
‘Risk’ is a four-letter word: it is more polite to use the phrase ‘risk management’. ‘Derivatives’ is an eleven letter, four-letter word. The sanitized ‘derivatives risk management’ is better. All losses are ‘unexpected’, arising from ‘the unknown’ and some sort of ‘failure’. Of course, it would be far easier to deal with known, expected losses arising from success. Risk is the ultimate unknown.
Traders and banks take risks to make money and risk management is about measuring and controlling risk. Wouldn’t it be simpler to stop trading? Even if you want to manage risk, derivatives just rearrange it. Risk management instruments bring their own risks. Everybody abhors risk-taking; ...
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