What I Learned From Losing $200 Million

[viper37]

It's an interesting read about one of the problem with modern finance: the obsession of maths to predict market movement and exposure to risk.  Faculties are desperately seeking math experts, coming from a branches like maths, physics, engineering in the hope they'll work to develop better, more sophiscated financiel models and products. 
The reality is, you have a bunch of people with a master's degree in finance who know nothing about the basice concepts of finance, who nothing about business administration but who are experts at maths.  They get through the exams by demonstrating formulas and having top notch maths compared to other students.  The theory is always that these people will help those who lack a certain "math" aptitude while we help them with basic financial concepts.  In practice, we're always so busy with our studies that we just chug along through the work, dividing the parts and working alone in our corner.  the reports i gets from other faculties seems eerily similar to what I lived through.

But that's what the market wants: pros at maths who will develop complex products that will generate a megaton of profit.  Until it crashes.

It seems no one ever learns from their mistake.

Link

The 2008 financial crisis taught me about the illusion of control, and how to give it up.
I'd lost almost $200 million in October. November wasn't looking any better.
It was 2008, after the Lehman Brothers bankruptcy. Markets were in turmoil. Banks were failing left and right. I worked at a major investment bank, and while I didn't think the disastrous deal I'd done would cause its collapse, my losses were quickly decimating its commodities profits for the year, along with the potential pay of my more profitable colleagues. I thought my career could be over. I'd already started to feel those other traders and salespeople keeping their distance, as if I'd contracted a disease. <blockquote> My eyes started to fill from a sudden wash of gratitude and relief that came, I think, from no longer being alone. </blockquote> I landed in London on the morning of November 4, having flown overnight from New York. I was a derivatives trader, but also the supervisor of the bank's oil options trading team, about a dozen guys split between Singapore, London, and New York. Until this point I'd managed the deal almost entirely on my own, making the decisions that led to where I ... we ... were now. But after a black cab ride from Heathrow to our Canary Wharf office, I got the guys off the trading floor and into a windowless conference room and confessed: I'd tried everything, but the deal was still hemorrhaging cash. Even worse, it was sprouting new and thorny risks outside my area of expertise. In any case, the world was changing so quickly that my area of expertise was fast becoming obsolete. I pleaded for everyone to pitch in. I said I was open to any ideas.
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