“Attitude is a little thing that makes a big difference.” [Winston Churchill]

Abstract

Risk management is the process of analyzing exposure to risk and deciding how to handle such exposure efficiently.

To analyze exposure to risk you often have to simulate business. You will calculate how your profits & losses could develop in general and what the best or worst performance could be.

Nassim Nicolas Taleb wrote some very interesting and valuable books on this subject:

Dynamic Hedging - Managing Vanilla and Exotic Options

Fooled by Randomness - The Hidden Role of Chance in Life and in the Markets

The Black Swan - The Impact of the Highly Improbable

Monte Carlo simulations are used frequently to simulate business or market developments. One of the best books on this topic is Peter Jaeckel’s Monte Carlo Methods in Fincance.