The Failure of Risk Management. Douglas W. Hubbard
MIGHT WORK, BUT NOT HERE NOTES CHAPTER 10: Where Even the Quants Go Wrong: Common and Fundamental Errors in Quantitative Models A SURVEY OF ANALYSTS USING MONTE CARLOS THE RISK PARADOX FINANCIAL MODELS AND THE SHAPE OF DISASTER: WHY NORMAL ISN'T SO NORMAL FOLLOWING YOUR INNER COW: THE PROBLEM WITH CORRELATIONS THE MEASUREMENT INVERSION IS MONTE CARLO TOO COMPLICATED? NOTES
7 PART THREE: How to Fix It CHAPTER 11: Starting with What Works SPEAK THE LANGUAGE GETTING YOUR PROBABILITIES CALIBRATED USING DATA FOR INITIAL BENCHMARKS CHECKING THE SUBSTITUTION SIMPLE RISK MANAGEMENT NOTES CHAPTER 12: Improving the Model EMPIRICAL INPUTS ADDING DETAIL TO THE MODEL ADVANCED METHODS FOR IMPROVING EXPERT'S SUBJECTIVE ESTIMATES OTHER MONTE CARLO TOOLS SELF-EXAMINATIONS FOR MODELERS NOTES CHAPTER 13: The Risk Community: Intra- and Extra-organizational Issues of Risk Management GETTING ORGANIZED MANAGING THE MODEL INCENTIVES FOR A CALIBRATED CULTURE EXTRAORGANIZATIONAL ISSUES: SOLUTIONS BEYOND YOUR OFFICE BUILDING PRACTICAL OBSERVATIONS FROM TRUSTMARK FINAL THOUGHTS ON QUANTITATIVE MODELS AND BETTER DECISIONS NOTES
8 APPENDIX: Additional Calibration Tests and Answers
9 Index
List of Tables
1 Chapter 2EXHIBIT 2.1 Current Top Risks According to Three Surveys EXHIBIT 2.2 Summary of Risk Assessment Methods Used According to the HDR/KPM...
2 Chapter 4EXHIBIT 4.1 Simple Substitution of Quantitative versus the Risk Matrix
3 Chapter 5EXHIBIT 5.2 Summary of the Four Horsemen
4 Chapter 6EXHIBIT 6.1 Example of the Risk of a Project Failure Expressed as a Vector Q...EXHIBIT 6.3 Example of Three Bets Considered Equivalent by a Decision-Maker
5 Chapter 7EXHIBIT 7.1 Sample Calibration Test with True/False Trivia Questions EXHIBIT 7.3 Sample Calibration Test with 90 Percent Confidence Interval* Que...
6 Chapter 8EXHIBIT 8.1 Likelihood Scale Proposed by the National Institute for Standards ...EXHIBIT 8.2 Impact Scale Proposed by the National Institute for Standards ...EXHIBIT 8.3 Variances in Understanding of Common Terms Used in the IPCC Repo...EXHIBIT 8.6 Examples of Impact Scale Partitions
7 Chapter 11EXHIBIT 11.2 LEC vs. Risk Tolerance
8 Chapter 12EXHIBIT 12.4 Some Available Monte Carlo Tools
9 Chapter 13EXHIBIT 13.2 Brier's Core Example for Forecasters
List of Illustrations
1 Chapter 2EXHIBIT 2.3 Does This Work? One Version of a Risk Map Using Either Numerical...
2 Chapter 4EXHIBIT 4.2 Example of a Loss Exceedance Curve
3 Chapter 5EXHIBIT 5.1 Risk and Probability in Economic Literature
4 Chapter 6EXHIBIT 6.2 The Exponential Utility Function Where S = $5 Million
5 Chapter 7EXHIBIT 7.2 Comparison of Uncalibrated and Calibrated IndividualsEXHIBIT 7.4 Score Distribution of Actual Ten-Question 90 Percent Confidence ...EXHIBIT 7.5 Agreement between First and Second Estimates of IT Project Failu...
6 Chapter 8EXHIBIT 8.4 Distribution of Scores from Five Different Five-Point ScalesEXHIBIT 8.5 Comparison of Scales versus Historical Data
7 Chapter 10EXHIBIT 10.1 The Normal DistributionEXHIBIT 10.2 Power-Law Distributions of Hurricane and Earthquake Frequency a...EXHIBIT 10.3 Frequency and Magnitude of Daily Price Drops in the S&P 500 and...EXHIBIT 10.4 Examples of Correlated DataEXHIBIT 10.5 Same Correlation Coefficient, Very Different Patterns
8 Chapter 11EXHIBIT 11.1 Mapping the Nonquantitative Matrix to a Simple Quantitative Rep...EXHIBIT 11.3 A (Simplified) Risk Management Cycle
9 Chapter 12EXHIBIT 12.1 Application of Robust Bayesian Method to Launch Failure RatesEXHIBIT 12.2 Conditional Robust Bayesian Method: Chance of Shuttle Disaster ...EXHIBIT 12.3 Examples of Various Distribution Types
10 Chapter 13EXHIBIT 13.1 Evolving Global Probability Model
Guide
1 Cover
2 Table of Contents
Pages
1 iii
2 iv
3 v