Building Your Wings on the Way Down

And while you’re at it, it'd be worth your while learning to play Hold 'Em poker too, writes Aaron Brown

Ray Bradbury famously defined “living at risk” as jumping off a cliff and building your wings on the way down. Too many financial risk managers who came late to the field think of risk as a passive bad thing to be minimized, an unfortunate by-product of profit-making activities, like air pollution, neckties or meetings. Ray understood that risk can be chosen and managed actively. Sometimes the value of being the first one off the cliff outweighs the risk of not getting your wings finished on time (and, in this case, not in time means not at all).

It would be foolish to jump off the cliff without being prepared to make wings. Obvious as that is, another common mistake is to choose a risk without also selecting a management strategy that gives it a chance of success. Some people have the wisdom to see this without bitter experience, the self-knowledge to pick strategies within their capacities and the discipline to adhere to plan. Or maybe not. I’ve never met one. I do meet a lot of people who never choose risk, a lot who choose risk without a strategy and a lot who apply a fixed strategy to all types of risks. The few who either select risks appropriate to their preferred strategy, or who have mastered a range of strategies so they have the right approach for any risk they happen to select, learned how to manage risk the hard way.

Logged-in members can download the article by clicking the link below. To log in or register visit here.

Related Posts

Amaranthus Extermino On September 19, 2006 the hedge fund Amaranth Advisors of Greenwich, Connecticut announced that it had lost $6 billion, about two thirds of the $9...
Poker as a Lottery Doyle Brunson , two-time winner of the World Series of Poker main event, has likened a poker tournament to a lottery in which more skilled players...
Six Degrees of Idiocy One of the classic works of poker, and risk management, is Herbert Yardley’s 1957 best-seller, The Education of a Poker Player, Including Where an...
Opscore Web Service Two decades in the market have seen ITO33 firmly establish itself as the solution provider of choice for convertible bond specialists. This gold s...
An Asymptotic FX Option Formula in the Cross Curre... In this article, we introduce analytic approximation formulae for FX options in the Libor market model (LMM). The method to derive the formulae is an ...
Rootless Vol Even if you started out clueless about the volatility σ , given a good enough measuring stick and fast enough hands you ought to be able to measure ...
Forecasting the Yield Curve with S-Plus Methods capable of forecasting the entire yield curve based on a time series extension of the Nelson-Siegel model Nelson and Siegel (1987) were su...
Order Statistics for Value at Risk Estimation and ... We apply order statistics to the setting of VaR estimation. Here techniques like historical and Monte Carlo simulation rely on using the k-th heaviest...
120719_brown