It's 2020. Charlie Sanford is 83. His vision of finance, revealed to us in the mid-1990s, has become a reality. The financial sector no longer thinks in terms of dollars and cents, but in units of risk: one Cat (catastrophe) equals 20 fat tails equals 250 SDs (standard deviations), equals 150 Vars (values-at-risk) or a 50-50 chance that the price will go either up or down.
Everyone is a risk manager: the bus conductor, the fireman, the librarian or deep-sea fisherman, they must come to terms with a level of risk that they are comfortable with, and pass the rest on to someone else.
La Banque Imaginaire (the virtual bank) is there to lay off those layers of risk with which they are not comfortable, or to add some more, according to their appetite. For example, the bus conductor may wake up one morning and decide he doesn't want to go to work on his boring old bus. He calls the Banque Imaginaire: 0100 0100.
Banquier Imaginaire (BI): Good morning, how can I help you?
Conductor: I don't want to go to work this morning.
BI: Excellent, sir, I have just the thing for you.