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» » Pandora’s Risk: Uncertainty at the Core of Finance (Columbia Business School Publishing)
Pandora’s Risk: Uncertainty at the Core of Finance (Columbia Business School Publishing) e-book

Author:

Kent Osband

Language:

English

Category:

Business

Subcategory:

Finance

ePub size:

1449 kb

Other formats:

docx doc lrf rtf

Rating:

4.8

Publisher:

Columbia University Press (July 5, 2011)

Pages:

304

ISBN:

0231151721

Pandora’s Risk: Uncertainty at the Core of Finance (Columbia Business School Publishing) e-book

by Kent Osband


The subtitle of the book is rightly "Uncertainty at the Core of Finance. Not risk, but uncertainty.

Kent Osband combines fundamental economic insight with fresh, principled quantitative methodology to spur and demand new approaches of handling uncertainty in today's turbulent markets. Tilmann Gneiting, University of Heidelberg). The subtitle of the book is rightly "Uncertainty at the Core of Finance. The distinct is important, because risks are things that we know some things about the possible economic outcomes, and can control them to a degree.

The subtitle of the book is rightly "Uncertainty at the Core of Finance.

With uncertainty embedded at its core, Osband's rational approach points to a finance theory worthy of  . Author of the acclaimed work Iceberg Risk: An Adventure in Portfolio Theory, Kent Osband argues that uncertainty is central rather than marginal to finance.

With uncertainty embedded at its core, Osband's rational approach points to a finance theory worthy of investing. Markets don't trade mainly on changes in risk. They trade on changes in beliefs about risk, and in the process, markets unite, stretch, and occasionally defy beliefs. Recognizing this truth would make a world of difference in investing.

Columbia Business School Publishing. Kent Osband combines fundamental economic insight with fresh, principled quantitative methodology to spur and demand new approaches of handling uncertainty in today's turbulent markets. Every financial regulator should have this book. Every academic burdened by the lies of Modern Portfolio Theory should get this book.

Results from Google Books With uncertainty embedded at its core, Osband's rational approach points to a finance theory worthy of investing.

Results from Google Books. With uncertainty embedded at its core, Osband's rational approach points to a finance theory worthy of investing.

current document Columbia Business and Economics Columbia Business School Publishing all documents. Belittling uncertainty has driven a rift between financial theory and practice and within finance theory itself. It has misguided regulation. It has stoked the greatest financial imbalances in world history. Hoping to spark a revolution in the mindset of the investment professional, Osband recasts the market as a learning machine rather than a knowledge machine. The market continually errs, corrects itself, and makes new errors. Respecting that process without idolizing it will lead to wiser investment, trading, and regulation.

Автор: Osband Kent Название: Pandora& Risk: Uncertainty at the Core .

Series: Columbia Business School Publishing. Published by: Columbia University Press. DOI: 1. 312/osba15172.

Kent Osband has worked for twenty-five years as a for major investment firms .

Kent Osband has worked for twenty-five years as a for major investment firms, international financial institutions, and think tanks. magna cum laude from Harvard University and a P. in economics from the University of California, Berkeley, and has taught at Harvard and at the University of California, Los Angeles. He is the author of Iceberg Risk: An Adventure in Portfolio Theory.

With uncertainty embedded at its core, Osband's rational approach points to a finance theory worthy . Series:Columbia Business School Publishing. Uncertainty at the Core of Finance. See all formats and pricing. Pandora's Risk: Uncertainty at the Core of Finance (pp. vii–viii). New York Chichester, West Sussex: Columbia University Press. Online ISBN: 9780231525411.

Author of the acclaimed work Iceberg Risk: An Adventure in Portfolio Theory, Kent Osband argues that uncertainty is central rather than marginal to finance. Markets don't trade mainly on changes in risk. They trade on changes in beliefs about risk, and in the process, markets unite, stretch, and occasionally defy beliefs. Recognizing this truth would make a world of difference in investing. Belittling uncertainty has created a rift between financial theory and practice and within finance theory itself, misguiding regulation and stoking huge financial imbalances.Sparking a revolution in the mindset of the investment professional, Osband recasts the market as a learning machine rather than a knowledge machine. The market continually errs, corrects itself, and makes new errors. Respecting that process, without idolizing it, will promote wiser investment, trading, and regulation. With uncertainty embedded at its core, Osband's rational approach points to a finance theory worthy of twenty-first-century investing.
Keath
This amazing little book is unique in that it is essential reading simultaneously for novice outsiders, finance insiders, top-experts, and policy makers alike!

Like its contents, this book deserves a thoughtful, if extensive review; one that I hope to write soon and amend my unequivocal recommendation here.

Pandora's Risk is the single best compilations of the open "puzzles in finance", along with the most physically (as opposed to philosophically) plausible set of explanatory models/hypotheses.

Among the varied target audiences, no other group must hear the author's pitch on sustainable finance, than regulators and central bankers.
Alas, I fear the call to heed fat-tails remains a voice in the wilderness. As we head into bigger and bigger financial collapses (each standing on the shoulders of the previous inaction) there is nothing more timely to heed the fundamental notions of lending and risk as addressed in this book or in equivalent ways.
Darksinger
The book has some interesting points, but its claims are far more grandiose than what it actually delivers. It promises to develop / describe a new mathematically sound theory of understanding uncertainty, but in fact is just a rehash of standard Bayesian methods. Furthermore, the writing is very poor - terms are muddled and used imprecisely, a lot of unnecessary jargon is dropped without explaining what / how the author is interpreting the them. Moreover, there is nothing worse than math written out in words - I don't know of anyone except story-book editors who think it's clearer that way.
Mr.Bean
Erudite writer but a confused and confusing book. It does a shoddy job in depicting the mathematics of risk which dominates the second half. The qualitative narrative of risk in the first half is banal. A waste of my money and time, and I had extremely high hopes, given the author's deep knowledge of the subject. I have read his research from his sellside days and know that he knows his stuff. It doesn't come through here. His editor really needs to learn finance and do a better job of editing.
sergant
This is the most insightful book on risk and trading that I've ever read.

Like most people, I'm happy to have my biases and suspicions confirmed, so many books I like are basically stating things I already knew and agreed with, even if they do it in an organized and elegant way. Pandora's Risk is different. It took me in directions I had never imagined even existing.

Good traders have a Bayesian model in their heads: always dancing along the fine line between sticking to convictions and adjusting to new information. Osband extends that simple observation to the entire market and shows the implications of this insight for risk management. As well as being insightful, Pandora's Risk is easy to read as the technical details are put in an extensive appendix.

All financial professionals should read this book.
Domarivip
This is two books in one, and very well done. The main part of the book explains risk and uncertainty in general terms, such that most people can understand it. But for those that can deal with complex math, the latter part of the book offers a lot of additional firepower.

Risk is a tough subject because history only vaguely informs you as to how bad things can get. Past is not prologue. There are two possibilities, the past contains and event that was so horrible that it can never happen again, or, the past does not tell you how bad things can be.

Market observers took the first view, that the Great Depression could not repeat. As a result, few prepared for a situation where there was too much debt, and insufficient ability to service it.

The subtitle of the book is rightly "Uncertainty at the Core of Finance." Not risk, but uncertainty. The distinct is important, because risks are things that we know some things about the possible economic outcomes, and can control them to a degree. Uncertainty is where we don't really understand the dimensions of the outcomes, and have little if any control.

There is fundamental uncertainty to the simplest aspect of finance, money. Money seems stable enough in the short-run, but every now and then it fails due to hyperinflation, or the slow steady failure in the store of value sense of moderate inflation over long periods.

Wealth itself is uncertain. Even if you own it free and clear, there's no way to tell what it will be exchangeable for next year, much less further out. There are a lot of people who thought they knew what their homes were worth 5-7 years ago that are decidedly disappointed.

Government debt is uncertain, as governments think they can always roll it over, but political and other obstacles can lead to a refusal to pay when debt service becomes high relative to tax revenues.

Banking is uncertain, mainly because of borrowing short to lend long. If banks limited themselves to facilitating transactions, a lot of the uncertainty would go away. Banks would be a lot smaller, less profitable, and there would be fewer of them, and the economy would be more stable. (Entities with longer liability structures, like pension plans, endowments, and life insurers would become the new source of lending. More would be financed through equity.)

Credit is uncertain. During boom times, corporate bonds behave independently, and diversification evens out results. As a result, corporate credit seems safer than it really is, and marginal ideas get to borrow. During bust times, far more corporate debt defaults than would be expected -- there's almost no such thing as an average year. It's either feast or famine.

There are things that can be done to try to mitigate uncertainty: credit ratings, or any scoring system for assets, lending at a more senior level, and Value-at-Risk. Also using more robust assumptions on possible outcomes, which would lead to smaller position sizes, less leverage, or more cash.

The book has a real strength in showing how the the assumption of normally-distributed risks fails dramatically in many cases, and offers alternatives that would work better. Trouble is, once you realize how volatile the world really is, a lot of strategies either don't work, or need to be scaled back.

The book praises actuaries as risk managers, with their ethics code and stress tests, as opposed to quants with Value-at-Risk and no ethics code. Banks and Wall Street would be better off in the long run hiring actuaries, who think about risk more holistically, and getting rid of the quants in their risk control departments. Same for the regulators who evaluate banks.

There are other controversial ideas here: is it possible that the strong economic growth of the past is an anomaly? Is it possible that growth for nations, and the world as a whole follows S-curves, like products and companies?

This is an ambitious book, and I like it a lot because it is willing to cross boundaries and apply the principles in one area to another that seemingly should not receive it. I liked it a lot, and would recommend it to many.

Quibbles

On page 17, he thinks of currency as a put option, but I think of it as 0% overnight commercial paper. On page 37, he confuses Moses and Joseph, having Moses predict the 7 good followed by 7 bad years, when it was Joseph who did that.

Who would benefit from this book:

Every financial regulator should have this book. Every academic burdened by the lies of Modern Portfolio Theory should get this book. Anyone who fancies himself to be a risk manager should have this book. Finally, if you want to understand why financial markets are inherently uncertain, this book will teach you well.

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