All the math in the world does not help if the people using it are reckless, clueless, or dishonest. Chapter 44 is Wilmott’s tour through the greatest hits of derivatives disasters. These are not abstract case studies. Real people lost real billions, institutions collapsed, and careers ended. Some of these stories are tragic, some are farcical, and a few are both.
In Part 1 we covered what arbitrage is, the different types (pure vs speculative), and how arbitrageurs keep prices consistent across markets. Sounds like easy money, right? Buy low here, sell high there, pocket the difference. This part is about why it is not that simple. Harris lays out four specific risks that make arbitrage genuinely dangerous, and he has some incredible real-world examples to prove it.
In Part 1, we covered the earliest roots of hedge funds, from Japanese rice traders to Karl Karsten’s statistical forecasting and Benjamin Graham’s value-oriented approach. Now we get to the person who took all those ideas and built something that actually changed Wall Street forever.