A Demon Of Our Own Design

"A Demon of Our Own Design" (2007) is a book by veteran Wall Street risk manager Richard Bookstaber, about, as the subtitle says, "markets, hedge funds, and the perils of financial innovation."

The theme of the book is that the world financial system is vulnerable to singularities -- disasters arising out of apparently trivial details, as implied by chaos theory and its Butterfly effect.

Risk management, however sophisticated it is or can become, won't end this vulnerability. To the contrary, "the more intricate risk-management structures may actually make the system worse."

The dust jacket of the book carries a detail of "The Fall of Icarus," by Jacob Peter Gowi Gowy.

Bookstaber had a front-side seat for such crises as the stock market crash of 1987 and the demise of Long-Term Capital Management and his book is built around themes drawn from those experiences.

Bookstaber's background

Bookstaber worked at several hedge funds, including FrontPoint Partners, running the FrontPoint Quantitative Fund, and Moore Capital Management, overseeing risk management.

He also worked at Ziff Brothers Investments doing both risk management and running a quantitative equity portfolio. He was the managing director in charge of firm-wide risk management at Salomon Brothers and a member of the firm's Risk Management Committee. He also designed and marketed derivative instruments, and worked as a proprietary trader, at Morgan Stanley, where he was the firm's first market risk manager.

In addition to A Demon of Our Own Design, he is the author of three other books and scores of articles on finance topics ranging from option theory to risk management. He received a Ph.D. in economics from MIT.

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* [http://www.blogger.com/profile/01753622527319607465 Richard Bookstaber profile]

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