Opinion

Emanuel Derman

Ri$k management

By Emanuel Derman
July 12, 2011

There is an article on Bloomberg about the salaries earned by risk managers, here.

Here are brief summaries I found on the web of the backgrounds of the people involved:

  • Mr. Thompson holds an MBA from the Darden School at University of Virginia, where he graduated with honors, and a bachelor’s degree from Allegheny College, where he also graduated with honors and was elected to Phi Beta Kappa.
  • Zubrow worked at Goldman Sachs from 1979 to 2004, JPMorgan said. His last job before leaving the firm where Corzine was co- chairman until 1999 was chief administrative officer.
  • Brian  (Leach) has a B.A. in economics from Brown University and an M.B.A. from Harvard Business School.

What I conclude from this is that these are not traditional risk people now making a lot of money. These are traditional make-a-lot-of-money people now doing risk.

Highly paid risk positions, I suspect, are still not quant positions. Not even clear if they should be, but that’s how it is.

 

 

 

Comments
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I just read the Bloomberg article. If corporations continue to make such choices for their “risk managers”, they are going to be no better at assessing and mitigating risk than they are now. However, they will be out $10-15 million per year in salary and related compensation funds, to pay for these so-called risk managers.

Not one of them is a C.P.A. either! Risk can be operational, market (price/yld etc) or credit in financial services. Or insurance, to some extent. To know how to assess and hopefully mitigate, some combination of accounting, regulatory and quantitative expertise is needed. Usually that won’t be combined in a single individual. That’s okay, you get an expert in one or two, or have the role co-led to by two people, lots of alternatives.

But that Bloomberg article is just lame. And the salaries are far higher than ANY subject matter expert ever earns! Why don’t they hire YOU for one of those positions (if you were to want to do that sort of work)? Or a very experienced C.P.A. who is a Chartered Financial Analyst and familiar with financial markets? Such individuals DO exist.

Depressing. On a lighter note (maybe), I found a nice academic paper about mitigating risk (exogenous as well) that is delightfully readable: “Endogenous and Systemic Risk”, by Jon Danielsson & Hyun Song Shin to share with all.

http://www.scribd.com/doc/59063565/Endog enous-Systemic-Risk

(Hopefully the Scribd link will work. It was posted by a credible individual). It isn’t excessively lengthy or nitty-gritty. But how likely are any of those individuals in the multi-million dollar risk jobs to understand (let alone explain to others, which is quite a challenge, truly) even M.B.A. finance basics like CAPM, VaR, Black-Scholes as a solution to heat transfer PDiffEQ (despite the fact that one of them in the article, Mr. Leach maybe, lauds his experience at LTCM, not as an employee, I noticed)? Seriously, how can there be such naivete? By whomever makes the final hiring decisions?

I’m not just saying this because I’m jealous! Well, actually, I am. I’m a good financial risk manager, but would never be compensated like that. I’m an M.B.A. and statistician, but they don’t want our kind, it seems….

Posted by EllieK | Report as abusive
 

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