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Description of Plight of the Fortune Tellers

Today's top financial-risk professionals have come to rely on ever-more sophisticated mathematics in their attempts to come to grips with financial risk. But this excessive reliance on quantitative precision is misleading - and it puts us all at risk. This is the case that Riccardo Rebonato makes in "Plight of the Fortune Tellers" - and coming from someone who is both an experienced market professional and an academic, this heresy is worth listening to. Rebonato forcefully argues that we must restore genuine decision making to our financial planning, and he shows us how to do it using probability, experimental psychology, and decision theory. This is the only way to effectively manage financial risk in a manner congruent with how human beings actually react to chance.Rebonato challenges us to rethink the standard wisdom about probability in financial-risk management. Risk managers have become obsessed with measuring risk and believe that these quantitative results by themselves can guide sound financial choices - but they can't.

In this book, Rebonato offers a radical yet surprisingly commonsense solution, one that seeks to remind us that managing risk comes down to real people making decisions under uncertainty. "Plight of the Fortune Tellers" is not only a book for the decision makers of Wall Street, it's a must-read for anyone concerned about how today's financial markets are run. The stakes have never been higher - can you risk it?

Title Information

ISBN:

9780691133614

Pages:

304 pages

Format:

Hardback

Product Code:

241972

Publisher:

Princeton University Press

Published:

17/09/2007

Edition:

illustrated edition

Press and Industry Reviews

"[Plight of the Fortune Tellers] was written to appeal to a wide audience. Stylistically, Rebonato is an engaging writer who uses analogies and interesting examples...I'm confident you'll enjoy this book and that, after reading it, you will join in the dialog that Rebonato has started."
- Garp Risk Review

"In his new book, Plight of the Fortune Tellers, Rebonato shows... why Merrill Lynch and Citigroup shareholders are right to be concerned. Nowhere have I read a better account of how a conscientious, intellectually disciplined market risk manager approaches his work in today's complex world. Well known to Risk readers as a master of interest rate modeling, Rebonato has written an accessible, non-technical book."
- Nicholas Dunbar, Risk

"In Plight of the Fortune Tellers, Rebonato analyzes and offers solutions to problems related to quantitative risk management strategies and the value-at-risk (VAR) methodology currently used by financial managers. Through stories, examples, theory, and practical methods, he first provides a critical review of the current state of affairs in investment risk management. Then, he proposes how we should 'revisit our ideas about probability in financial risk management' and 'put decision making back at center stage.' In Plight of the Fortune Tellers contains valuable insights into the development of VAR methodology and problems associated with its use in the present financial management arena. . . . In Plight of the Fortune Tellers is a book recommended for practitioners currently involved in quantitative methods and for students of investments and risk management at the graduate school level."
- James Jackson, CFA Digest

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About Riccardo Rebonato

Riccardo Rebonato is global head of market risk and global head of quantitative research and quantitative analysis at the Royal Bank of Scotland. He is visiting lecturer in mathematical finance at the University of Oxford and adjunct professor at the Tanaka Business School, Imperial College London. His books include "Volatility and Correlation: The Perfect Hedger and the Fox" and "Modern Pricing of Interest-Rate Derivatives: The LIBOR Market Model and Beyond" (Princeton).

Contents of Plight of the Fortune Tellers

Preface
Acknowledgments

1: Why This Book Matters
2: Thinking about Risk
3: Thinking about Probabilities
4: Making Choices
5: What Is Risk Management For?
6: VaR & Co: How It All Started
7: Looking Beneath the Surface: Hidden Problems
8: Which Type of Probability Matters in Risk Management?
9: The Promise of Economic Capital
10: What CanWe Do Instead?

Endnotes
Index