Investment-Risk

This book was well written for the rookies and professionals. Authors explained the trading process from pre-trade to post-trade analysis, with added topics like impact cost and VWAP. Great explanations. A must have desknotes.

This is an excellent financial resource for the seasoned professional or enthusiastic student. The book is the first of its kind to address finance and investing from the point of view of the trader.

It widely known that improper implementation of an investment decision can negate much of a manager's anticipated alpha, but how exactly should managers examine the set of potential implementation schemes? The solution to this question is the primary focus of Optimal Trading Strategies. The authors provide a very thorough investigation of transaction costs (e.g. when, where, and why they arise) and continue with an easy-to-understand analytical process to estimate, manage, and control those costs. The authors' approach to developing these "optimal trading strategies" also turns out to be the basis for achieving "best execution." The net result to managers is higher returns. I highly recommend this reference for anyone interested in understanding all aspects of finance and investment theory, and it makes a wonderful complement to graduate level texts.

Ever since Datek took advantage of the Small Order Execution System and made day-trading popular, every day people have been looking for a sensible way to make money trading stocks.
They are now learning the tools that large investment companies have been using for years. Every basis point counts.

Anybody interested in Program Trading needs to read this book.
I cannot recommend this more highly, and this comes from a comlpetely unbiased review of an excellent book.

This is an essential book for anyone interested in evaluating credit risk. It is well written and one of the best in its class in the market.

For more on products, however, especially the explosively growing credit derivatives market, I recommend Tavakoli's "Credit Derivatives" 2nd Edition.

This is probably still the best book on the valuation of credit risk. It is concise, rigorous, yet with many examples and a good treatment of implementation issues.

This book discusses credit risk valuation in detail and quantitatively. The book is very strong on counterparty credit risk of derivatives. That is really the focus, though it also has stuff on general credit risk and credit derivatives (I wish it had more on credit derivatives). It also offers a chapter on general option pricing and risk-neutral valuation principles (brief but very good). What I also liked was the appendix with a short description of the more important and more advanced mathematical concepts used in the book. Although (or perhaps because) not an easy read but rather terse and demanding, I found it to be an extremely valuable resource. It really helped me understand the subject matter and gave me a good idea of how to model such risks.

Reviewer: The author, Charles M. Cottle *** charles@RiskDoctor.com
Although this original text was written for professional market makers, it proved to be a valuable resource for sophisticated retail investors and hedgers. I therefore created a new book, "Coulda Woulda Shoulda" (available for free download at www.riskdoctor.com) which borrowed about 80% of the original text and added more tools for non-professionals including an email dialogue with a relative novice, spanning 2 months. Most of the strict market making tools have been removed but will be resurrected in book 3; "Taming Your Portfolio" due out later this year.

There are basically two types of options books: mathematical
books on valuation that tend to be filled with solutions
for ever more exotic contracts, and books for traders that
go over the practical workings of positions in various
concrete scenarios. Cottle is definitely of the second type.
There's not really much math in it, unless you're intimidated
by three-dimensional graphs. What it does have is an incredible
wealth of insight, from experience, into the tricks and the

exceptions--the rent-a-call, the dividend plays, contract
risk and post-expo deltas, complicated synthetics, the
interrelations between greeks.

That said, what moved me to write a review was to take
exception with a previous reviewer's comment: "No lazy
editing or prose here". The prose is okay, but the editing
is worse than lazy--it's horrendous. Flipping my copy open
at random I come to p.151-152 on Break-Even analysis. Try
finding column 7 in exhibit 4-23, or the supposed arrow in
column 4. It's all a mess. That's an extreme case, but
throughout the text, it's hard enough trying to pick up
the bond options lingo (futures in 32nds but futures-options
in 64ths--all "ticks"; and the different multipliers for
indexes and futures), without having to deal with missing
words, inaccurate references, etc, etc. But ultimately, working
to figure it all out gets you to understand it all the better.

With five years of floor trading as an equity options market
maker, and having read and reread and rereread... Natenberg,
Baird, Hull, Connolly, Cox Ross Rubinstein, Chriss, Taleb--and
others--I'd say Cottle is clearly the best book. That said,
however, I don't know how much use a non-professional--someone
who doesn't manage a large, actively traded book of options--
will get out of it. It should be intellectually rewarding if you
can figure it out. Maybe inspire you to go look for a minimum
wage clerking job in Chicago, NY, Philly, or SF to get abused
for a year or so and then maybe get a badge.

I read Options: Perception and Deception at least 3-4 times before many of the advanced concepts began to sink in. This is not a book for an options novice; in fact, I would suggest that most people read Natenberg's book on options prior to engaging in this incredible text. While many of the advanced 3-D graphs were beyond my grasp, I particularly liked Cottle's description of "real world" options positions, how he executed them and how he managed them throughout their duration. Of particular interest to many readers should be the concept of "gamma scalping", and the section on wingspreads and adjusting positions. This text is so far beyond "mainstream" options books, that words do not describe how important this book will become.

"Ignorance is Blight"... Devlin Advogado's scrawled message across his desk left me with an unsettled feeling, similar to the one I had a long time ago while reading Robert Pirsig's 'Zen and the Art of Motorcycle Maintenance'. Perhaps academic research will someday quote from Kent Osband's 'Iceberg Risk' (New York: Texere, 2002), much as Richard Roll, in his famous 1977 Critique of tests of the CAPM, quoted from Pirsig. Osband endeavors to help us avoid blight in this enlightening and entertaining story as we follow supersharp risk analyst Devlin and his pragmatic manager, Conway Wisdon, on a wild ride through the world of investment banking risk management.

But Iceberg Risk is more than a novel; indeed, it is really two books in one: each chapter covers the intuition of its subtopic first, through the clever device of Devlin and Conway's saga within Megabucks Investment Bank; and then delves more directly into the mathematics. Of the math, the reader is encouraged to explore "about as much or as little as you want", a feature I especially appreciated given my low-calorie mathematical diet. And, just as the novel part is an entertaining read, the quantitative part is a useful summary of the mechanics of portfolio management theory.

Part I of Iceberg Risk covers the statistics of probability, covariance and correlation, Pascal's triangles and Bernoulli variables, IID versus non-IID estimates of tail risk, Tchebyshev's inequality, the Kuhn-Tucker conditions for the solution to a Lagrangean optimization, mixtures of discrete and continuous probability measures, De Finetti's theorem, the problems with VaR and the ubiquitous (in finance) normality assumption, and even computer sex (read the book!). Osband gives us a quick introduction to matrix math (though it is even more sparse than the helpful section in Markowitz' 1959 book) before concluding the first half of the book with conditional multivariate normality.

Part II of Iceberg Risk offers a unique and thoughtful approach to overcoming the deficiencies of standard risk assumptions for portfolio management. In this part of the book Osband covers convex and nonconvex utility, regret aversion, choice theory, the appraisal ratio of Treynor-Black and even delves into the Bayesian approach to statistics. Partition functions are introduced as a method of combining conditional return distributions with multi-regime risk aversion. Without resorting to Monte Carlo simulation techniques, Osband proposes a numerical approach to generating risk estimates, since there is no closed-form equation available to solve the issue. He even shows how to account for options and other nonlinear payoff assets.

Osband's approach to risk management is fresh and appealing. It would be worthwhile reading for risk managers and portfolio managers. One aspect I liked very much about his writing style is that the characters represent very distinct human traits, much like those of another of my favorite authors, Ayn Rand. For example, we are introduced to the concept of regret aversion when Conway meets Regretta:

"He spun around to see a raven-haired woman dressed in black. She was beautiful, but with the saddest eyes Conway had ever seen. 'Pardon me for eavesdropping,' she said, 'But if Dr. Know-nothing can't help you, maybe I can.' 'Go away, Misery Girl,' snapped Devlin. 'We don't need you.' 'Oh, I think you do,' she said... 'Now here's what I think you need to do. First measure every outcome in terms of its gross percentage return... Second, square that return and take the negative inverse. Third, form the probability-weighted average of the various negative inverses. Fourth, pick the portfolio that generates the highest probability-weighted average. Am I being clear?' Devlin and Conway were blown away. 'She does math,' mumbled Devlin to himself."

Osband makes the observation that "The mainstream seems less interested in managing risk than the appearance of risk." Readers of Osband's Iceberg Risk might just become a bit less mainstream for the reading.

Financial professionals of all stripes will enjoy this entertaining book. Value-at-Risk (VAR), the most common risk management technique misses hidden risks.

If we use the model for a normal distribution, a five-standard deviation credit loss event should only happen once in every 7,000 years, but in the market place, we see this happen once or twice in a decade. A book that talks about hidden risk and the deficienies of VAR in capturing credit risk is another very entertaining read by Tavakoli called "Credit Derivatives" (Second Edition).

one of the few truly original works i've seen in my yrs as a risk manager! this work goes well beyond the standard re-hashing of the much hackneyed debate surrounding Var & deficiencies of existing measures.
novel format does a great job of conveying intuition & bridging chasm b/n ivory tower musings & the industry politics of accepting good ideas. There are key practical insights on many aspects of risk & portfolio mgt. Treatment of ExpUtility framework & Cond normality is good.

This is a superb investment book. Bernstein first covers basic statistical topics and historical risk and return data for stocks, bonds and bills. He then presents a lucid discussion of portfolio theory and its applications for the small investor. The most important result of this theory is that the risk and return of a portfolio are very different from the risk and return of its constituent parts, so that adding a 'risky' asset to a portfolio can actually decrease the portfolio's overall volatility. This discussion requires only minimal mathematical background. Bernstein then takes on the controversial topic of market efficiency. He also describes stock valuation models, current valuation levels, growth and value investing, Fama and French's three factor model, the concept of the efficient frontier and numerous other important topics in finance. But the discussion throughout is very clear and understandable as well as practical. After making a compelling case for index investing with periodic rebalancing, Bernstein presents helpful Vanguard and DFA model portfolios. What the author has done is to take the most significant results from academic finance and translated them into English for the individual investor. He has done investors a great service.

I would have to agree with John Bogle's endorsement: "This is a great book!"
While Malkiel's Random Walk covers Modern Portfolio Theory, Bogle covers the virtues of index investing, and Graham, Lynch and Fisher cover individual stock selection, studies show that asset allocation alone is responsible for over 90% of a portfolio's performance in the long run. Yet asset allocation theory seems to me to be under-represented in the investment literature for non-professionals.
Bernstein's book goes a long way to correct this gap. He starts out almost too simply. Bernstein takes the reader step-by-step through a discussion of basic financial math and statistics (hitting variance and correlation coefficients in particular) as he builds the case and explanation behind asset diversification. He writes to an intelligent audience but does not assume a mathematical or financial background. I like that he encourages the reader to take a chapter at a time. He instructs the reader to finish the chapter, and then put the book down and get back to life. This adds to the methodical tone of the book: a step at a time.
In the final chapter "Odds and Ends" the author changes gears. Suddenly we are in the world of - well - odds and ends, the finer points of portfolio management. This was the most interesting part of the book for me. Here Bernstein reviews the case for index investing and - of special interest to me - value investing. What is the premium in returns for small vs. large caps, value vs. growth? Which MPT stat, P/E or P/B is the better predictor of future performance? Why is value averaging so important and yet so counter intuitive? This chapter alone was worth the price of the book.
Finally, Bernstein shares the wealth. The bibliography and recommending reading sections are terrific. This alone might be worth twice the price of the book.
In a time when we are all more intimately involved with the management of our retirement accounts, I cannot recommend this book highly enough to anyone and everyone. You cannot afford not to be familiar with the contents of this book. Highly recommended.

When you pick up this book and look through it the graphs my scare you. Don't let your math phobia kick in. William Bernstein does a great job of walking you through each chapter. In fact at the end of one of the first chapters he tells you to put the book down for a few days and just digest the information. I would rate myself as at least an investor with moderate investing knowledge. I found this book helpful and the charts held validate the points Mr. Bernstein is making. I suspect I will refer to it often when I have a guestion about investing.

This book is more academic than practical, which is not a bad thing. I enjoyed reading it and found it to be well researched and very educational. Just remember, however, that any systematic strategy that makes money in the stock market will become ineffective as soon as it becomes well known (anyone remember "Beating the Dow" or its offspring, "The Foolish Four?"). So read this book if the topic interests you, but don't expect to cash in by exploting these anomalies.

Also, A Random Walk addresses some of these anomalies and explains why, given transaction costs among other things, one cannot profit from them.

The financial markets give investors a chance to make money when they work - and when they don't. When markets work efficiently they uncover the true value of an asset by pegging its fair price for informed buyers and sellers. When for a variety of reasons markets are inefficient they misprice assets. When the specific circumstances of that mispricing are recognized and persistent (viz. predictable) it is an anomaly. The regularity of anomalies offers investors, at least in theory, the opportunity to profit by taking a position that recognizes the temporary nature of the mispricing before it rights itself. These anomalies are the subject of Singal's study which takes its title from the updated 1970's classic exposition of the efficient market hypothesis by Princeton Economics professor Burton Malkiel.

This is a detailed look at ten market anomalies. Singal's goal is to move us well beyond descriptions and academic evidence and offer trading strategies intended to achieve an outsized market return. Each chapter summarizes key points and projects potential returns from implementing the outlined strategy. Additional market anomalies are briefly identified in the final chapter. As a bonus of sorts an appendix gives the most detailed explanation of short selling I have read.

From a practical standpoint some anomalous situations would appear to be more exploitable than others. Mergers between public companies occur with some frequency, so an understanding of how to play the merger premium paid by acquiring companies for their target is useful. Changes to the composition of the S&P 500 Index and their impact on stock prices occur with less frequency, but this is balanced by opportunities from the January and "New December Effect" (mark your calendars). From anecdotal observations, I am not convinced by the author's discussion of the Weekend Effect, and the chapter on International Investing seems like a fair argument for diversification rather than an anomaly. The so-called Value Line Enigma identified in the final chapter is perplexing to this reader, since the supposed outperformance of their recommended stocks runs directly counter to a similar study of mutual funds picked by Morningstar. An apples to oranges comparison to some, perhaps, but it is a sufficiently known study to warrant comment. A chapter dealing with currency forward rates will be beyond most non-professional investors. I would have liked to have heard more about spin-offs, the long-term overperformance of "independent" subsidiaries occasionally distributed to shareholders of a parent company. Singal identifies the simpler, "sharper" corporate mission as the reason. Actually, it may be strong sponsorship and generous, upfront management incentives which spark those returns.

The question remains, does this serious academic study offer practical trading strategies to investors bent on gain. The answer is that Singal has so many ideas packed into the book that investors will be influenced in the aggregate in their trading decisions. Not to be aware of these market biases exposes traders to more uncertainty and risk than may be necessary.

The format in which this book was written is outstanding. Simply because I don't have an interest in all the chapters, and the way in which it was written allows me to read several chapters without reading the entire text. The anomalies are based on backtesting and research, and not just feel or emotion.
Singal shows that there are temporary mispricings in the market and offers suggestions how individuals can implement strategies to profit from them.

This book has many fine features but has two serious drawbacks as well.

On the positive side, I have never read a more complete polemic in favor of the hedge fund industry. He shreds EMF with loads of good evidence and humorous anecdotes. However, there seems to be a constant drive to reinforce this point. Unfortunately, it takes away from a more thorough analysis of the types of hedge fund investing.

Another problem with the book is that it has trouble discovering its audience. At times, we get detailed descriptions of what alpha and beta represent (Finance 101) and at other times, abstruse PM concepts are brushed over as common knowledge.

I would definitely recommend this book but I recommend that the reader is accompanied by a Dictionary of Finance and Investing.

The iceberg on the cover represents total risk-partly visible and partly not. Ineichen's point is that hedge fund or absolute return managers tackle total risk while their traditional mutual fund counterparts worry about only one part of it, namely the risk of straying from their benchmark. His extensive discussion contains worthy lessons for all investors who want to understand risk. While not every chapter may be useful for every reader, this book is an excellent place to learn about alternative investment strategies.

This is an excellent introduction for potential investors to assess risk and reward.

For more on new hedge fund products, hedge fund leverage, and off-balance sheet risk, I also highly recommend Tavakoli's "Credit Derivatives" 2nd Edition.

I'm a technical analysis/trading systems book "junkie", having bought most of the major titles in the trading genre (and I've tried to use a bunch as well!). If I had to cull down my trading psychology titles down to one or two titles, I'd probably choose "Market Wizards" and this title. I especially like his A.C.T.I.O.N. plan upon which the book is organized, because it outlines a framework through which one can get into the hallowed mental "zone" that so many other authors love to talk about, but so few give solid methodology to achieve. It was the best kind of book: an easy read, but I became a better trader afterward. Well worth the money.

The Way of the Warrior Trader is the best book I have ever read on being mentally prepared for any activity that you do. Dr. Richard McCall, a psychologist who teaches martial arts principles to professionals, has used his background in the martial arts and the samurai to add a zest to an easy read about discipline, mental approach and adding confidence to your stressful daily activities. I am a skilled craps player, or rhythm roller, and staying in the zone when I am throwing the dice is important to winning money at the tables. I had heard that McCall does his training of discipline at the craps tables so I decided to read his book. What I found is a book that is a must read for any trader, athlete, gambler, or anyone that needs to be mentally prepared for their daily tasks or activities.

Dominator

I've read em all - Douglas,Steenbarger,Toppel,Tharp,Kiev, Koppel, well you get the idea, and they are all helpful but this book is the best of the lot. It gets you mentally prepared to trade or what other challenges you face in life. Don't fail to read and study "The Way of the Warrior-Trader" by Dr. Richard McCall - you will be glad you did.

Book is great for those who want to know how bond trading really works, especially for those just starting out. Good for both salespeople and traders. However, the book is a decade old and has little on ETS and other recent developments. It also has many, many errors which are irritating, thus the 4/5. I should hope that these points are addressed in a second edition. It is otherwise well-written.

Ms.Ray focuses on providing a clear conceptual framework for understanding fixed income concepts. The approach is highly intuitive and reader-friendly. A must for anyone trying to get to grips with the concepts of duration, BPV, vols, forwards, etc....

The Bond Market, by Christina Ray was one of the first books I read about fixed income securities that really explained how trading really is in the real world. I am happy to find another copy on ADC. This was used as a text in a class in Grad. school and I lost the book. Highly recommended.

If you are a student just taken up a course in derivatives or risk management you should have this book. if you find john hull more technical, you have Don Chance who covers options and other derivatives in a greater detail and in more words. everything you want to know about how banks etc have risk mangaement systems in place and market risk instruments is here.

in case you want a greater coverage of options and pricing options, you should definatly take a look at Black Scholes and Beyond by Neil Chriss, a work of art.

This is an excellent book for non finance majors who would like to grasp the physical concepts behind different derivatives products traded in the OTC markets. The book is ideal for a preperation read for all aspiring to take Financial Engineering / Derivatives as majors in graduate programs.

If you are interested in the basic concepts governing derivatives without getting into the mathematics of it then this is the ideal book. I recommend this book for any one who is contemplating taking Derivatives as an advanced level course. The book would give a solid foundation to the concepts of risk management.