Bob Litterman

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Chaos Kings: How Wall Street Traders Make Billions in the New Age of Crisis by Scott Patterson

"World Economic Forum" Davos, 2021 United States Capitol attack, 4chan, Alan Greenspan, Albert Einstein, asset allocation, backtesting, Bear Stearns, beat the dealer, behavioural economics, Benoit Mandelbrot, Bernie Madoff, Bernie Sanders, bitcoin, Bitcoin "FTX", Black Lives Matter, Black Monday: stock market crash in 1987, Black Swan, Black Swan Protection Protocol, Black-Scholes formula, blockchain, Bob Litterman, Boris Johnson, Brownian motion, butterfly effect, carbon footprint, carbon tax, Carl Icahn, centre right, clean tech, clean water, collapse of Lehman Brothers, Colonization of Mars, commodity super cycle, complexity theory, contact tracing, coronavirus, correlation does not imply causation, COVID-19, Credit Default Swap, cryptocurrency, Daniel Kahneman / Amos Tversky, decarbonisation, disinformation, diversification, Donald Trump, Doomsday Clock, Edward Lloyd's coffeehouse, effective altruism, Elliott wave, Elon Musk, energy transition, Eugene Fama: efficient market hypothesis, Extinction Rebellion, fear index, financial engineering, fixed income, Flash crash, Gail Bradbrook, George Floyd, global pandemic, global supply chain, Gordon Gekko, Greenspan put, Greta Thunberg, hindsight bias, index fund, interest rate derivative, Intergovernmental Panel on Climate Change (IPCC), Jeff Bezos, Jeffrey Epstein, Joan Didion, John von Neumann, junk bonds, Just-in-time delivery, lockdown, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, Mark Spitznagel, Mark Zuckerberg, market fundamentalism, mass immigration, megacity, Mikhail Gorbachev, Mohammed Bouazizi, money market fund, moral hazard, Murray Gell-Mann, Nick Bostrom, off-the-grid, panic early, Pershing Square Capital Management, Peter Singer: altruism, Ponzi scheme, power law, precautionary principle, prediction markets, proprietary trading, public intellectual, QAnon, quantitative easing, quantitative hedge fund, quantitative trading / quantitative finance, Ralph Nader, Ralph Nelson Elliott, random walk, Renaissance Technologies, rewilding, Richard Thaler, risk/return, road to serfdom, Ronald Reagan, Ronald Reagan: Tear down this wall, Rory Sutherland, Rupert Read, Sam Bankman-Fried, Silicon Valley, six sigma, smart contracts, social distancing, sovereign wealth fund, statistical arbitrage, statistical model, stem cell, Stephen Hawking, Steve Jobs, Steven Pinker, Stewart Brand, systematic trading, tail risk, technoutopianism, The Chicago School, The Great Moderation, the scientific method, too big to fail, transaction costs, University of East Anglia, value at risk, Vanguard fund, We are as Gods, Whole Earth Catalog

“Nassim Taleb is a vulgar bombastic windbag” http://noahpinionblog.blogspot.com/2014/01/of-brains-and-balls-nassim-talebs-macro.html. “Without any precise models, we can still reason” https://necsi.edu/climate-models-and-precautionary-measures. CHAPTER 19: IT’S WAY PAST TIME This chapter is based on multiple interviews with Robert Litterman, as well as an account of his career at the Minneapolis Federal Reserve. https://www.minneapolisfed.org/article/2019/interview-with-robert-litterman. “Today, my testimony will focus on The Green Swan” https://www.democrats.senate.gov/climate/hearings/climate-crisis-committee-to-hold-hearing-on-economic-risks-of-climate-change. “Bad news is costly,” they wrote https://www.pnas.org/content/116/42/20886.

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One person dying of an infectious disease does increase the risk that his neighbor will get sick and die. When such risks become systemic, posing potential ruin to society as a whole, extreme precaution is required. * * * Taleb wasn’t the only expert in systemic risk applying lessons learned on Wall Street to the increased threats facing the world. In the 2010s, Bob Litterman, who once managed one of the largest stock portfolios in the world for New York investment giant Goldman Sachs, turned his decades of risk management skills to one of the worst threats of all: global warming. Unlike Taleb, who shunned models and argued that it was the uncertainty in forecasts for climate change that required extreme precaution, Litterman would go on to construct a model that prescribed the same precautionary approach practiced by chaos kings: When the risk is existential, you’ve got to panic early.

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Unlike Taleb, who shunned models and argued that it was the uncertainty in forecasts for climate change that required extreme precaution, Litterman would go on to construct a model that prescribed the same precautionary approach practiced by chaos kings: When the risk is existential, you’ve got to panic early. CHAPTER 19 IT’S WAY PAST TIME Heavy rain splashed the windshield of Bob Litterman’s Tesla as he maneuvered through light traffic on the New Jersey Turnpike. It was December 6, 2014, a Saturday. Litterman and his wife, Mary, were looking forward to a fun evening in New York City. Dinner and drinks with friends. A Broadway show. He set the Tesla’s cruise control to seventy-two miles an hour.

Capital Ideas Evolving by Peter L. Bernstein

Albert Einstein, algorithmic trading, Andrei Shleifer, asset allocation, behavioural economics, Black Monday: stock market crash in 1987, Bob Litterman, book value, business cycle, buy and hold, buy low sell high, capital asset pricing model, commodity trading advisor, computerized trading, creative destruction, currency risk, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, diversification, diversified portfolio, endowment effect, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, financial engineering, financial innovation, fixed income, high net worth, hiring and firing, index fund, invisible hand, Isaac Newton, John Meriwether, John von Neumann, Joseph Schumpeter, Kenneth Arrow, London Interbank Offered Rate, Long Term Capital Management, loss aversion, Louis Bachelier, market bubble, mental accounting, money market fund, Myron Scholes, paper trading, passive investing, Paul Samuelson, Performance of Mutual Funds in the Period, price anchoring, price stability, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, seminal paper, Sharpe ratio, short selling, short squeeze, Silicon Valley, South Sea Bubble, statistical model, survivorship bias, systematic trading, tail risk, technology bubble, The Wealth of Nations by Adam Smith, transaction costs, yield curve, Yogi Berra, zero-sum game

Indeed, Black soon became an enthusiastic guide to the development of quantitative modeling for a wide range of profitable strategies, in fixed-income as well as in equities, while the Goldman staff gradually learned how to take advantage of Black’s quirky methods and personality. One day in 1986, Black interviewed a man named Bob Litterman for a position in fixed-income research. Litterman was a Ph.D. from the University of Minnesota who also had had a stint of teaching at MIT, but his F 214 bern_c15.qxd 3/23/07 9:11 AM Page 215 Goldman Sachs Asset Management 215 primary interest was in econometrics—the application of statistical methods to economic and financial forecasting.

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Blake Grossman at BGI says, “The markets are very efficient, very dynamic, constantly reaching greater levels of efficiency that makes them more and more difficult to beat. The half-lives of our strategies [are] shrinking.” David Swensen at Yale acknowledges his “huge respect for efficient markets.” Bob Litterman at Goldman Sachs asserts that “I am not worried that markets are fully efficient— yet. But they are becoming more efficient all the time, and fast. The world is going quant, and there are no secrets! Alpha is in limited supply and hard to find.” Myron Sholes has a similar view: “We are one group among myriad teams making markets more efficient by compressing time.”

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Gabaix, Xavier, Arvind Krishnamurthy, and Olivier Vigneron, 2005. “Limits of Arbitrage: Theory and Evidence from the Mortgage-Backed Securities Market,” National Bureau of Economic Research, Working Paper No. 11851. Gottlieb, Jason, 2003. “Risk Management and Risk Budgeting at the Total Fund Level,” in Bob Litterman and the Quantitative Resources Group of Goldman Sachs Asset Management, Modern Investment Management: An Equilibrium Approach, Hoboken, NJ: John Wiley & Sons, pp. 211–228. bern_z02bbiblio.qxd 254 3/23/07 9:13 AM Page 254 BIBLIOGRAPHY Goyal, Amit, and Sumil Warhal, 2005. “The Selection and Termination of Investment Management Firms by Plan Sponsors,” American Finance Association Annual Meeting, Boston.

Mathematics of the Financial Markets: Financial Instruments and Derivatives Modelling, Valuation and Risk Issues by Alain Ruttiens

algorithmic trading, asset allocation, asset-backed security, backtesting, banking crisis, Black Swan, Black-Scholes formula, Bob Litterman, book value, Brownian motion, capital asset pricing model, collateralized debt obligation, correlation coefficient, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, delta neutral, discounted cash flows, discrete time, diversification, financial engineering, fixed income, implied volatility, interest rate derivative, interest rate swap, low interest rates, managed futures, margin call, market microstructure, martingale, p-value, passive investing, proprietary trading, quantitative trading / quantitative finance, random walk, risk free rate, risk/return, Satyajit Das, seminal paper, Sharpe ratio, short selling, statistical model, stochastic process, stochastic volatility, time value of money, transaction costs, value at risk, volatility smile, Wiener process, yield curve, zero-coupon bond

The author published in 2000, also with Prentice Hall, two “clones” of this book: Modern Investment Theory – United States Edition and Modern Investment Theory – International Edition. E. JURCZENKO, B. MAILLET (eds), Multi-Moment Asset Allocation and Pricing Models, John Wiley & Sons, Ltd, Chichester, 2006, 233 p. Bob LITTERMAN, Modern Investment Management – An Equilibrium Approach, John Wiley & Sons, Inc., Hoboken, 2003, 624 p. William F. SHARPE, Investors and Markets – Portfolio Choices, Asset Prices, and Investment Advice, Princeton University Press, 2006, 232 p. 1. A detailed presentation of the market efficiency and its various forms (weak, semi-strong, strong) is beyond the scope of this book.

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Donna KLINE, Fundamentals of the Futures Market, McGraw-Hill, 2000, 256 p. Tze Leung LAI, Haipeng XING, Statistical Models and Methods for Financial Markets, Springer, 2008, 374 p. Raymond M. LEUTHOLD, Joan C. JUNKUS, Jean E. CORDIER, The Theory and Practice of Futures Markets, Stipes Publishing, 1999, 410 p. Bob LITTERMAN, Modern Investment Management – An Equilibrium Approach, John Wiley & Sons, Inc., Hoboken, 2003, 624 p. T. LYNCH, J. APPLEBY, Large Fluctuation of Stochastic Differential Equations: Regime Switching and Applications to Simulation and Finance, LAP LAMBERT Academic Publishing, 2010, 240 p. A.G.

How I Became a Quant: Insights From 25 of Wall Street's Elite by Richard R. Lindsey, Barry Schachter

Albert Einstein, algorithmic trading, Andrew Wiles, Antoine Gombaud: Chevalier de Méré, asset allocation, asset-backed security, backtesting, bank run, banking crisis, Bear Stearns, Black-Scholes formula, Bob Litterman, Bonfire of the Vanities, book value, Bretton Woods, Brownian motion, business cycle, business process, butter production in bangladesh, buy and hold, buy low sell high, capital asset pricing model, centre right, collateralized debt obligation, commoditize, computerized markets, corporate governance, correlation coefficient, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency risk, discounted cash flows, disintermediation, diversification, Donald Knuth, Edward Thorp, Emanuel Derman, en.wikipedia.org, Eugene Fama: efficient market hypothesis, financial engineering, financial innovation, fixed income, full employment, George Akerlof, global macro, Gordon Gekko, hiring and firing, implied volatility, index fund, interest rate derivative, interest rate swap, Ivan Sutherland, John Bogle, John von Neumann, junk bonds, linear programming, Loma Prieta earthquake, Long Term Capital Management, machine readable, margin call, market friction, market microstructure, martingale, merger arbitrage, Michael Milken, Myron Scholes, Nick Leeson, P = NP, pattern recognition, Paul Samuelson, pensions crisis, performance metric, prediction markets, profit maximization, proprietary trading, purchasing power parity, quantitative trading / quantitative finance, QWERTY keyboard, RAND corporation, random walk, Ray Kurzweil, Reminiscences of a Stock Operator, Richard Feynman, Richard Stallman, risk free rate, risk-adjusted returns, risk/return, seminal paper, shareholder value, Sharpe ratio, short selling, Silicon Valley, six sigma, sorting algorithm, statistical arbitrage, statistical model, stem cell, Steven Levy, stochastic process, subscription business, systematic trading, technology bubble, The Great Moderation, the scientific method, too big to fail, trade route, transaction costs, transfer pricing, value at risk, volatility smile, Wiener process, yield curve, young professional

The technicians thought the PhDs were hopeless geeks who wouldn’t know a good trade if they sat next to it on a bus. Stocks Are Stories, Bonds Are Mathematics This split was never more apparent than it was on the one day I actually met Fischer Black. I’d been invited over by a group of Goldman equity traders, technicians all. Previously, I’d met Bob Litterman, Fischer’s collaborator, at a Berkeley finance seminar, and called to let him know I was coming to his building. He decided to have his crowd join the group of equity traders for my show-and-tell. First, I got to meet Fischer himself. He graciously showed me some analytic software they were developing.

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In the middle of discussing the portfolio model, Fischer interjected, “Banks don’t need to diversify their portfolios; their portfolio risks can be diversified by equity investors.” This is, of course, a fundamental proposition in finance, and, while it has an answer on several different levels, involves a complex discussion. There was silence around the table. The Goldman bankers were clearly not interested in getting into that discussion. Their eyes came to rest on Bob Litterman, the one who worked most closely with Fischer. “Well, Fischer, that’s right. But the banks want to diversify.” “Oh, well, if they want to diversify, then that’s Okay.” The discussion resumed with looks of relief around the table. We had not been sure when we started the business whether we were selling models, or data, or a service, or some combination.

Portfolio Design: A Modern Approach to Asset Allocation by R. Marston

asset allocation, Bob Litterman, book value, Bretton Woods, business cycle, capital asset pricing model, capital controls, carried interest, commodity trading advisor, correlation coefficient, currency risk, diversification, diversified portfolio, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, family office, financial engineering, financial innovation, fixed income, German hyperinflation, global macro, high net worth, hiring and firing, housing crisis, income per capita, index fund, inventory management, junk bonds, Long Term Capital Management, low interest rates, managed futures, mortgage debt, Nixon triggered the end of the Bretton Woods system, passive investing, purchasing power parity, risk free rate, risk-adjusted returns, Robert Shiller, Ronald Reagan, Sharpe ratio, Silicon Valley, stocks for the long run, superstar cities, survivorship bias, transaction costs, Vanguard fund

Basu, Sanjoy, 1977, “Investment Performance of Common Stocks in Relation to Their Price-Earnings Ratios: A Test of the Efficient Market Hypothesis,” Journal of Finance (June), pp. 663–682. Bernstein Wealth Management Research, 2006, Hedge Funds: Too Much of a Good Thing?, Bernstein Global Wealth Management (June). Black, Fischer, and Robert Litterman, 1992, “Global Portfolio Optimization,” Financial Analysts Journal (September-October), pp. 28–43. Bodnar, Gordon, Bernard Dumas, and Richard Marston, 2004, “Cross-Border Valuation: The International Cost of Equity Capital,” in Hubert Gatignon and John Kimberly, eds., Globalizing: Drivers, Consequences and Implications, INSEADWharton Alliance.

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Keim, 1993, “Risk and Return in Real Estate: Evidence from a Real Estate Stock Index,” Financial Analyst Journal (September/ October), pp. 39–46. Gyourko, Joseph, Christopher Mayer, and Todd Sinai, 2006, “Superstar Cities,” working paper. Harvard Management Company Endowment Report, 2009, “Message from the CEO”, September. He, Guangliang, and Robert Litterman, 1999, “The Intuition Behind BlackLitterman Model Portfolios,” Goldman Sachs Investment Management Division. Hennessee Group LLC, 2007, “Sources of Hedge Fund Capital,” The 2007 Manager Survey. Himmelgerg, Charles, Christopher Mayer, and Todd Sinai, 2005, “Assessing High House Prices: Bubbles, Fundamentals and Misperceptions,” Journal of Economic Perspectives (Fall), 67–92.

The Crisis of Crowding: Quant Copycats, Ugly Models, and the New Crash Normal by Ludwig B. Chincarini

affirmative action, Alan Greenspan, asset-backed security, automated trading system, bank run, banking crisis, Basel III, Bear Stearns, Bernie Madoff, Black-Scholes formula, Bob Litterman, business cycle, buttonwood tree, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, collective bargaining, corporate governance, correlation coefficient, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, delta neutral, discounted cash flows, diversification, diversified portfolio, family office, financial engineering, financial innovation, financial intermediation, fixed income, Flash crash, full employment, Gini coefficient, Glass-Steagall Act, global macro, high net worth, hindsight bias, housing crisis, implied volatility, income inequality, interest rate derivative, interest rate swap, John Meriwether, Kickstarter, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, low interest rates, low skilled workers, managed futures, margin call, market design, market fundamentalism, merger arbitrage, Mexican peso crisis / tequila crisis, Mitch Kapor, money market fund, moral hazard, mortgage debt, Myron Scholes, National best bid and offer, negative equity, Northern Rock, Occupy movement, oil shock, price stability, proprietary trading, quantitative easing, quantitative hedge fund, quantitative trading / quantitative finance, Ralph Waldo Emerson, regulatory arbitrage, Renaissance Technologies, risk free rate, risk tolerance, risk-adjusted returns, Robert Shiller, Ronald Reagan, Sam Peltzman, Savings and loan crisis, Sharpe ratio, short selling, sovereign wealth fund, speech recognition, statistical arbitrage, statistical model, survivorship bias, systematic trading, tail risk, The Great Moderation, too big to fail, transaction costs, value at risk, yield curve, zero-coupon bond

It contains, for example, a comprehensive inventory of the types of trades LTCM had entered into and an inventory of lessons learned. This book is not only a useful history of recent financial crises, but a treasure trove of insightful quotations from interviews with many luminaries among modern financial practitioners and academics.” —Robert Litterman, Former Partner and Head of Risk Management at Goldman Sachs; co-inventor of the Black-Litterman Model “Chincarini returns to the proverbial crime scene of a decade earlier to find the origins of the crisis of 2008. Based on new interviews with key players and his own analysis, the book argues that the LTCM collapse of 1998 should have been the early warning signal of fragility in the financial system rooted in the fact that holders of sophisticated financial products so often just end up copying each other’s behavior.

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Whether it is possible to set risk controls around the many examples of crowdedness may be debatable, but what is not arguable is that the market did and probably will continue to present surprises for which the crowd of investors is not prepared. This is an excellent exploration of many of the most interesting events in the financial markets of the past several decades, with insights from many of the former academics turned participants, as well as a very useful compilation of lessons learned. Robert Litterman Former Partner and Head of Risk Management, Goldman Sachs; co-inventor of the Black-Litterman Model Preface My initial motivation for writing this book was to clarify many of the misunderstandings surrounding financial failures and crises. After a collapse, we are often given incorrect versions of what happened, and this leads us to make mistakes again in the future.

Beyond Diversification: What Every Investor Needs to Know About Asset Allocation by Sebastien Page

Andrei Shleifer, asset allocation, backtesting, Bernie Madoff, bitcoin, Black Swan, Bob Litterman, book value, business cycle, buy and hold, Cal Newport, capital asset pricing model, commodity super cycle, coronavirus, corporate governance, COVID-19, cryptocurrency, currency risk, discounted cash flows, diversification, diversified portfolio, en.wikipedia.org, equity risk premium, Eugene Fama: efficient market hypothesis, fixed income, future of work, Future Shock, G4S, global macro, implied volatility, index fund, information asymmetry, iterative process, loss aversion, low interest rates, market friction, mental accounting, merger arbitrage, oil shock, passive investing, prediction markets, publication bias, quantitative easing, quantitative trading / quantitative finance, random walk, reserve currency, Richard Feynman, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, robo advisor, seminal paper, shareholder value, Sharpe ratio, sovereign wealth fund, stochastic process, stochastic volatility, stocks for the long run, systematic bias, systematic trading, tail risk, transaction costs, TSMC, value at risk, yield curve, zero-coupon bond, zero-sum game

“Earnings Growth: The Two Percent Dilution,” Financial Analysts Journal, vol. 59, no. 5, pp. 47–55. Bhansali, Vineer. 2010. Bond Portfolio Investing and Risk Management. New York: McGraw-Hill. Billio, Monica, Mila Getmansky, and Loriana Pelizzon. 2012. “Crises and Hedge Fund Risk,” Yale ICF Working Paper, vol. 7, no. 14. Retrieved from ssrn.com/abstract=1130742. Black, Fischer, and Robert Litterman. 1992. “Global Portfolio Optimization,” Financial Analysts Journal, vol. 48, no. 5, pp. 28–43. Blitz, David C., and Pim Van Vliet. 2008. “Global Tactical Cross-Asset Allocation: Applying Value and Momentum Across Asset Classes,” Journal of Portfolio Management, vol. 35, no. 1, pp. 23–38. Bodie, Zvi, Robert C.

Nerds on Wall Street: Math, Machines and Wired Markets by David J. Leinweber

"World Economic Forum" Davos, AI winter, Alan Greenspan, algorithmic trading, AOL-Time Warner, Apollo 11, asset allocation, banking crisis, barriers to entry, Bear Stearns, Big bang: deregulation of the City of London, Bob Litterman, book value, business cycle, butter production in bangladesh, butterfly effect, buttonwood tree, buy and hold, buy low sell high, capital asset pricing model, Charles Babbage, citizen journalism, collateralized debt obligation, Cornelius Vanderbilt, corporate governance, Craig Reynolds: boids flock, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Danny Hillis, demand response, disintermediation, distributed generation, diversification, diversified portfolio, electricity market, Emanuel Derman, en.wikipedia.org, experimental economics, fake news, financial engineering, financial innovation, fixed income, Ford Model T, Gordon Gekko, Hans Moravec, Herman Kahn, implied volatility, index arbitrage, index fund, information retrieval, intangible asset, Internet Archive, Ivan Sutherland, Jim Simons, John Bogle, John Nash: game theory, Kenneth Arrow, load shedding, Long Term Capital Management, machine readable, machine translation, Machine translation of "The spirit is willing, but the flesh is weak." to Russian and back, market fragmentation, market microstructure, Mars Rover, Metcalfe’s law, military-industrial complex, moral hazard, mutually assured destruction, Myron Scholes, natural language processing, negative equity, Network effects, optical character recognition, paper trading, passive investing, pez dispenser, phenotype, prediction markets, proprietary trading, quantitative hedge fund, quantitative trading / quantitative finance, QWERTY keyboard, RAND corporation, random walk, Ray Kurzweil, Reminiscences of a Stock Operator, Renaissance Technologies, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Metcalfe, Ronald Reagan, Rubik’s Cube, Savings and loan crisis, semantic web, Sharpe ratio, short selling, short squeeze, Silicon Valley, Small Order Execution System, smart grid, smart meter, social web, South Sea Bubble, statistical arbitrage, statistical model, Steve Jobs, Steven Levy, stock buybacks, Tacoma Narrows Bridge, the scientific method, The Wisdom of Crowds, time value of money, tontine, too big to fail, transaction costs, Turing machine, two and twenty, Upton Sinclair, value at risk, value engineering, Vernor Vinge, Wayback Machine, yield curve, Yogi Berra, your tax dollars at work

The technicians thought the Ph.D.’s were hopeless geeks who wouldn’t know a good trade if they sat next to it on a bus. Stocks Are Stories, Bonds Are Mathematics This split was never more apparent than it was on the one day I actually met Fischer Black. I’d been invited over by a group of Goldman equity traders, technicians all. Previously, I’d met Bob Litterman, Fischer’s collaborator, at a Berkeley finance seminar, and called to let him know I was coming to his building. He decided to have his crowd join the group of equity traders for my show-and-tell. First, I got to meet Fischer himself. He graciously showed me some analytic software they were developing—sort of a spreadsheet on steroids that calculated more about bonds and derivatives than I knew existed.

What Happened to Goldman Sachs: An Insider's Story of Organizational Drift and Its Unintended Consequences by Steven G. Mandis

activist fund / activist shareholder / activist investor, algorithmic trading, Bear Stearns, Berlin Wall, Bob Litterman, bonus culture, book value, BRICs, business process, buy and hold, Carl Icahn, collapse of Lehman Brothers, collateralized debt obligation, commoditize, complexity theory, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, disintermediation, diversification, eat what you kill, Emanuel Derman, financial innovation, fixed income, friendly fire, Glass-Steagall Act, Goldman Sachs: Vampire Squid, high net worth, housing crisis, junk bonds, London Whale, Long Term Capital Management, merger arbitrage, Myron Scholes, new economy, passive investing, performance metric, proprietary trading, radical decentralization, risk tolerance, Ronald Reagan, Saturday Night Live, Satyajit Das, shareholder value, short selling, sovereign wealth fund, subprime mortgage crisis, systems thinking, The Nature of the Firm, too big to fail, value at risk

Silverstein 0.475% 1,258,841 66,718,552 88,597,201 Joseph D. Gatto 0.475% 1,258,841 66,718,552 88,597,201 Joseph Della Rosa 0.475% 1,258,841 66,718,552 88,597,201 Lawton W. Fitt 0.475% 1,258,841 66,718,552 88,597,201 Peter G.C. Mallinson 0.475% 1,258,841 66,718,552 88,597,201 Richard G. Sherlund 0.475% 1,258,841 66,718,552 88,597,201 Robert Litterman 0.475% 1,258,841 66,718,552 88,597,201 Robert V. Delaney 0.475% 1,258,841 66,718,552 88,597,201 Tracy R. Wolstencroft 0.475% 1,258,841 66,718,552 88,597,201 Connie K. Duckworth 0.425% 1,126,331 59,695,546 79,271,180 Danny O. Yee 0.425% 1,126,331 59,695,546 79,271,180 David L. Henle 0.425% 1,126,331 59,695,546 79,271,180 Esta E.

Adaptive Markets: Financial Evolution at the Speed of Thought by Andrew W. Lo

Alan Greenspan, Albert Einstein, Alfred Russel Wallace, algorithmic trading, Andrei Shleifer, Arthur Eddington, Asian financial crisis, asset allocation, asset-backed security, backtesting, bank run, barriers to entry, Bear Stearns, behavioural economics, Berlin Wall, Bernie Madoff, bitcoin, Bob Litterman, Bonfire of the Vanities, bonus culture, break the buck, Brexit referendum, Brownian motion, business cycle, business process, butterfly effect, buy and hold, capital asset pricing model, Captain Sullenberger Hudson, carbon tax, Carmen Reinhart, collapse of Lehman Brothers, collateralized debt obligation, commoditize, computerized trading, confounding variable, corporate governance, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, cryptocurrency, Daniel Kahneman / Amos Tversky, delayed gratification, democratizing finance, Diane Coyle, diversification, diversified portfolio, do well by doing good, double helix, easy for humans, difficult for computers, equity risk premium, Ernest Rutherford, Eugene Fama: efficient market hypothesis, experimental economics, experimental subject, Fall of the Berlin Wall, financial deregulation, financial engineering, financial innovation, financial intermediation, fixed income, Flash crash, Fractional reserve banking, framing effect, Glass-Steagall Act, global macro, Gordon Gekko, greed is good, Hans Rosling, Henri Poincaré, high net worth, housing crisis, incomplete markets, index fund, information security, interest rate derivative, invention of the telegraph, Isaac Newton, it's over 9,000, James Watt: steam engine, Jeff Hawkins, Jim Simons, job satisfaction, John Bogle, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Meriwether, Joseph Schumpeter, Kenneth Rogoff, language acquisition, London Interbank Offered Rate, Long Term Capital Management, longitudinal study, loss aversion, Louis Pasteur, mandelbrot fractal, margin call, Mark Zuckerberg, market fundamentalism, martingale, megaproject, merger arbitrage, meta-analysis, Milgram experiment, mirror neurons, money market fund, moral hazard, Myron Scholes, Neil Armstrong, Nick Leeson, old-boy network, One Laptop per Child (OLPC), out of africa, p-value, PalmPilot, paper trading, passive investing, Paul Lévy, Paul Samuelson, Paul Volcker talking about ATMs, Phillips curve, Ponzi scheme, predatory finance, prediction markets, price discovery process, profit maximization, profit motive, proprietary trading, public intellectual, quantitative hedge fund, quantitative trading / quantitative finance, RAND corporation, random walk, randomized controlled trial, Renaissance Technologies, Richard Feynman, Richard Feynman: Challenger O-ring, risk tolerance, Robert Shiller, Robert Solow, Sam Peltzman, Savings and loan crisis, seminal paper, Shai Danziger, short selling, sovereign wealth fund, Stanford marshmallow experiment, Stanford prison experiment, statistical arbitrage, Steven Pinker, stochastic process, stocks for the long run, subprime mortgage crisis, survivorship bias, systematic bias, Thales and the olive presses, The Great Moderation, the scientific method, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Thomas Malthus, Thorstein Veblen, Tobin tax, too big to fail, transaction costs, Triangle Shirtwaist Factory, ultimatum game, uptick rule, Upton Sinclair, US Airways Flight 1549, Walter Mischel, Watson beat the top human players on Jeopardy!, WikiLeaks, Yogi Berra, zero-sum game

Amir and I had no inside knowledge about the workings of the many hedge funds that were affected in August 2007, nor did we have any proprietary access to brokerage records or trading histories. So, please take this narrative with caution and a healthy dose of skepticism. However, the Unwind Hypothesis is consistent with the rumors, reports, and accounts told to the public during and since the crisis (an illuminating example is the public lecture on the Quant Meltdown given by Bob Litterman, who sat on the Goldman Sachs risk committee during that time).31 Various participants in the events of August 2007 have looked at our simulation, and they haven’t said it’s wrong. From a scientific viewpoint, no one has come up with a stronger hypothesis in the years since we first proposed it.

Expected Returns: An Investor's Guide to Harvesting Market Rewards by Antti Ilmanen

Alan Greenspan, Andrei Shleifer, asset allocation, asset-backed security, availability heuristic, backtesting, balance sheet recession, bank run, banking crisis, barriers to entry, behavioural economics, Bernie Madoff, Black Swan, Bob Litterman, bond market vigilante , book value, Bretton Woods, business cycle, buy and hold, buy low sell high, capital asset pricing model, capital controls, carbon credits, Carmen Reinhart, central bank independence, classic study, collateralized debt obligation, commoditize, commodity trading advisor, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, deal flow, debt deflation, deglobalization, delta neutral, demand response, discounted cash flows, disintermediation, diversification, diversified portfolio, dividend-yielding stocks, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, fiat currency, financial deregulation, financial innovation, financial intermediation, fixed income, Flash crash, framing effect, frictionless, frictionless market, G4S, George Akerlof, global macro, global reserve currency, Google Earth, high net worth, hindsight bias, Hyman Minsky, implied volatility, income inequality, incomplete markets, index fund, inflation targeting, information asymmetry, interest rate swap, inverted yield curve, invisible hand, John Bogle, junk bonds, Kenneth Rogoff, laissez-faire capitalism, law of one price, London Interbank Offered Rate, Long Term Capital Management, loss aversion, low interest rates, managed futures, margin call, market bubble, market clearing, market friction, market fundamentalism, market microstructure, mental accounting, merger arbitrage, mittelstand, moral hazard, Myron Scholes, negative equity, New Journalism, oil shock, p-value, passive investing, Paul Samuelson, pension time bomb, performance metric, Phillips curve, Ponzi scheme, prediction markets, price anchoring, price stability, principal–agent problem, private sector deleveraging, proprietary trading, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, random walk, reserve currency, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, riskless arbitrage, Robert Shiller, savings glut, search costs, selection bias, seminal paper, Sharpe ratio, short selling, sovereign wealth fund, statistical arbitrage, statistical model, stochastic volatility, stock buybacks, stocks for the long run, survivorship bias, systematic trading, tail risk, The Great Moderation, The Myth of the Rational Market, too big to fail, transaction costs, tulip mania, value at risk, volatility arbitrage, volatility smile, working-age population, Y2K, yield curve, zero-coupon bond, zero-sum game

Thus, active management is a zero-sum game before costs and fees, and a negative-sum game after they are included. Any gains one active investor makes must come at the expense of a losing active investor. The average active investor must deliver a lower net return than the average passive investor who benefits from much lower costs and fees. In jargon, the net alpha is negative. • Robert Litterman’s “active risk puzzle” notes that only a small share of institutional risk budgets is allocated to active management. (Even when capital is allocated to long-only active managers, tracking error targets tend to be much lower than the volatility of underlying assets.) Given that equity market risk takes up 90% of many risk budgets, and the related SR is about 0.3, the small share of active risk must imply a much lower expected SR for active management.

Trading and Exchanges: Market Microstructure for Practitioners by Larry Harris

active measures, Andrei Shleifer, AOL-Time Warner, asset allocation, automated trading system, barriers to entry, Bernie Madoff, Bob Litterman, book value, business cycle, buttonwood tree, buy and hold, compound rate of return, computerized trading, corporate governance, correlation coefficient, data acquisition, diversified portfolio, equity risk premium, fault tolerance, financial engineering, financial innovation, financial intermediation, fixed income, floating exchange rates, High speed trading, index arbitrage, index fund, information asymmetry, information retrieval, information security, interest rate swap, invention of the telegraph, job automation, junk bonds, law of one price, London Interbank Offered Rate, Long Term Capital Management, margin call, market bubble, market clearing, market design, market fragmentation, market friction, market microstructure, money market fund, Myron Scholes, National best bid and offer, Nick Leeson, open economy, passive investing, pattern recognition, payment for order flow, Ponzi scheme, post-materialism, price discovery process, price discrimination, principal–agent problem, profit motive, proprietary trading, race to the bottom, random walk, Reminiscences of a Stock Operator, rent-seeking, risk free rate, risk tolerance, risk-adjusted returns, search costs, selection bias, shareholder value, short selling, short squeeze, Small Order Execution System, speech recognition, statistical arbitrage, statistical model, survivorship bias, the market place, transaction costs, two-sided market, vertical integration, winner-take-all economy, yield curve, zero-coupon bond, zero-sum game

I particularly appreciate the generosity and encouragement that the following individuals have extended to me: Stanley Abel Howard Baker Frank Baxter Brandon Becker Gil Beebower Jeff Benton Dale Berman Charles Black David Booth Harold Bradley Kurt Bradshaw Pearce Bunting Richard Cangelosi Jim Cochrane David Colker Cromwell Coulson Larry Cuneo David Cushing Harry Davidow Pina DeSantis Mike Edleson Jim Farrell Tom Fay Gene Finn Ed Fleischman Russ Fogler Gifford Fong Stuart Fraser Dean Furbush Jim Gallagher Gary Gastineau Brian Geary Steven Giacoma Jim Gilmore Phil Ginsberg Gary Ginter Keith Goggin Wendy Gramm Dick Grasso Bob Greber Leo Guzman Spence Hilton Dave Hirschfeld Blair Hull Billy Johnson Rick Ketchum Rick Kilcollin Ray Killian Howard Kramer Ken Kramer Arthur Leavitt Charlie Lebens Marty Leibowitz Dave Leinweber Rich Lindsey Evelyn Liszka Bob Litterman Bill Lupien Bernie Madoff Peter Madoff Steven Malin David Malmquist Tim McCormick Dick McDonald Seth Merrin Dick Michaud Mark Minister Nate Most Annette Nazareth Gene Noser Bill Pratt Eddie Rabin Murali Ramaswami Bill Ryan Henry Sasser Evan Schulman Andy Schwarz Christina Sciotto Jim Scott Jim Shapiro David Shaw Katy Sherrerd Fred Siesel Deborah Soesbee George Sofianos Eric Sorensen Olof Stenhammar Rob Telsar Artie Tolendini Jack Treynor Wayne Wagner Jeffery Wecker Genie Williams Steve Wallman Steve Wunsch Steve Youngren Dorit Zeevi Four people particularly influenced the development of this book.

Money and Power: How Goldman Sachs Came to Rule the World by William D. Cohan

"Friedman doctrine" OR "shareholder theory", "RICO laws" OR "Racketeer Influenced and Corrupt Organizations", Alan Greenspan, asset-backed security, Bear Stearns, Bernie Madoff, Bob Litterman, book value, business cycle, buttonwood tree, buy and hold, collateralized debt obligation, Cornelius Vanderbilt, corporate governance, corporate raider, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, deal flow, diversified portfolio, do well by doing good, fear of failure, financial engineering, financial innovation, fixed income, Ford paid five dollars a day, Glass-Steagall Act, Goldman Sachs: Vampire Squid, Gordon Gekko, high net worth, hiring and firing, hive mind, Hyman Minsky, interest rate swap, John Meriwether, junk bonds, Kenneth Arrow, London Interbank Offered Rate, Long Term Capital Management, managed futures, margin call, market bubble, mega-rich, merger arbitrage, Michael Milken, moral hazard, mortgage debt, Myron Scholes, paper trading, passive investing, Paul Samuelson, Ponzi scheme, price stability, profit maximization, proprietary trading, risk tolerance, Ronald Reagan, Saturday Night Live, short squeeze, South Sea Bubble, tail risk, time value of money, too big to fail, traveling salesman, two and twenty, value at risk, work culture , yield curve, Yogi Berra, zero-sum game

.… Corzine was able to convey the culture in a really profound way.” Another cultural change that Paulson and Corzine instituted after they took over and that seemed to ignite the troops was the new system of risk controls, accountability, internal police, and open lines of communication. Around that time, Goldman partner Robert Litterman, a former professor at MIT who had joined Goldman in 1985, created the “value-at-risk” model, which attempts to quantify how much Goldman could lose trading on any given day. (Many Wall Street firms still use a version of Litterman’s model, including Goldman, although the model’s ability to gauge genuine risk remains controversial.)