Financial Risk Management for Dummies. 2016. By Aaron Brown. John Wiley & Sons, Ltd., www.wiley.com. 384 pages, $26.99.
The dummies to whom Financial Risk Management for Dummies is addressed are not outright novices. Rather, they exemplify the maxim that a little bit of knowledge is a dangerous thing. Aaron Brown, chief risk officer of AQR Capital Management, devotes much of the book to dispelling mistaken notions about his subject.
“Risk management is not about predicting or preventing disaster,” he writes. Neither, says Brown, is it about estimating probabilities or outcomes. The “frequentist” approach, with its analogies to casino games, has only limited application. “If all risks were playing roulette or drawing cards,” Brown states, “we wouldn’t need risk managers.” There is little in the book about measuring risk because generally speaking, risk that is measurable can be avoided, insured, hedged, or neutralized via diversification. Contrary to the likely expectations of many investment professionals, Value at Risk (VaR) does not enter the discussion until Chapter 6.