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Profile Business Search Profile Business by Benoit B. Mandelbrot Richard L. Hudson Search Benoit B. Mandelbrot Richard L. Hudson
Customer Reviews:
Excellent approach of the falure to predict financial risks
This is an excellent approach to explain the failure in the tools that we use in the real financial world to attempt to estimate risk in the market. It has an easy going reading. If you are a Financial or Economic professional or student you will really enjoy this book. My boss recommended it to me.
Gentle introduction to fractals and finance 
Mandelbrot presents fractal theory in an intuitive and non-mathematical way.
I would agree with Andrei's review below. He disputes the current methods of pricing and risk management while presenting some of his own ideas. This is good but there's no final solution. Some points could be more succinct and less anecdotal.
The book provides the starting point and Mandelbrot would like others to be serious and to take on the baton to find the perfect solution. Does perfection exist!? He thinks so.
I would recommend this book for those who want an intro to fractal finance but be prepared for a hard slog as you wish he'd get to the point.
Misbehaviour of markets
I was slightly concerned that this book would lurch suddenly from overly simple to incomprehensibly complex and mathematical. It doesn't. It is interesting and comprehensible from beginning to end and avoids detailed maths while still explaining what the maths is and what it does in a clear and enjoyable way. Mandelbrot is, by his own admission, a visual mathematician more than an abstract one and this makes him far easier to understand than most mathematicians. And yes - the book does explain the inevitability of financial crashes, including the current one.
Tilting at windmills 
In this tome Mr Mandelbrot lambasts the previous century's inadequate financial models but seems unwilling to admit that the field has moved on somewhat, and unable to offer a practical model of his own.
Mr Mandelbrot shows how Bachelierian models fail to account for disastrous market drops which ruined many investors. He rubbishes two conventional assumptions: that each price move is independent of another and that their magnitude follows a Normal distribution. Skillfully constructed charts make plain the reality that a large market move is likely to be followed by another. More charts show just how badly market data fits to a Normal distribution: by this measure dozens of trading days in the 20th century were so unlikely not even one should have occurred in the lifetime of the universe.
The author suggests we discard such woefully unrealistic theory and start again, taking fractals as our base. In a display humility atypical of the rest of the book Mr Mandelbrot admits to having no way to calculate price and risk in his proposed model, or even calibrate its parameters "Alpha" and "H" to the real world.
The tragedy of this foray into fractal finance is in its pointlessness. What made 1960s financial models so unrealistic was the assumption of unchanging volatility. By late 90s anyone with sufficient computing power could drop this assumption and include real "volatile volatility" in their models. In modern theory, October 1987 was not a 22-sigma "not in the lifetime of the universe" event. It was a spike in the volatility process, as the models predict will happen from time to time.
In fairness, the book offers many insights into what drives the markets, the trouble with fundamental valuation, rationality of market agents, flow of information, and more. I could recommend reading it for those insights alone.
...with tangerine trees and marmalade skies... 
Orthodox economics is very formal using complex models to predict future behaviour. Most economists, like meteorologists, are not held accountable for their predictions.
Within the very wide field of economics there are many conflicting views about the nature of economics and there is much in the way of interesting work going on out there and I would cite the contributions of the Austrian school and the evolutionary school and especially point to the very accessible work of Paul Ormerod who give somewhat different views to those of the standard model.
This book is not aimed at those practitioners of economics or indeed the professionals of the City of London or Wall Street. To my mind, as an interested observer, Mandelbrot and Hudson are doing all of us a service in illuminating the gaps in economic theory that underpins the financial industry. John Maynard Keynes, who's General Theory of Employment, Interest and Money (1936)can be said to lie at the heart of much of contemporary economic theory, once famously compared the financial services industry to gambling, also made his fortune on the stock market.
The book methodically disects each of the pillars of contemporary financial theory and exposes it's weakness then introduces some basic fractal geometry ideas to exhibit their apparent ly better predictive use. As someone who favours the approach of ideas of chaos theory into the economics brew I tend to be more open to the approach that Mandelbrot uses but the proof of the pudding, as we say in England, lies in the eating and this populist text is certainly not the place for complex technical proofs or highly mathematical analysis. It is a difficult path to take but for the purposes for which this book is intended, which I believe is aimed at the educated investor or someone without an economics or financial background, it is about right.
I found the book both accessible and lucid. There are areas with which I would have wished for a more techical exposition but this is something that I will take up when I delve further into this subject matter.
There are many interesting ideas here and I suspect that there are many in the financial services community who are looking into these in greater detail or even have already absorbed them into their toolkit. Given the competitive nature of the financial markets I suspect that this knowledge will quickly be dispesed throughout the community.
All in all this is a nice easy read which will prompt further thought and study upon it's contents. My only, minor reservation, which prevents me awarding five stars is that I think a non-technical appendix, in keeping with the rest of the book, about the basic precepts of fractal geometry would have been helpful for the lay reader.
Well worth a look.
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the (mis) behaviour of markets
the (mis) behaviour of markets, a fractal view of risk, ruin and reward. by benoit b. mandelbrot. £9.99 06 nov 2008 paperback profile books ltd. includes material on the market crisis. this book presents models where the complex ...
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