Risk Management in Turbulent Times

Risk Management in Turbulent Times

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The subprime crisis has shown that the sophisticated risk management models used by banks and insurance companies had serious flaws. Some people even suggest that these models are completely useless. Others claim that the crisis was just an unpredictable accident that was largely amplified by the lack of expertise and even naivety of many investors. This book takes the middle view. It shows that these models have been designed for qtranquil timesq, when financial markets behave smoothly and efficiently. However, we are living in more and more qturbulent timesq: large risks materialize much more often than predicted by qnormalq models, financial models periodically go through bubbles and crashes. Moreover, financial risks result from the decisions of economic actors who can have incentives to take excessive risks, especially when their remunerations are ill designed. The book provides a clear account of the fundamental hypotheses underlying the most popular models of risk management and show that these hypotheses are flawed. However it shows that simple models can still be useful, provided they are well understood and used with caution.The methodology of Integrated Risk Management in financial institutions is remarkably presented in Shimpi (2001). ... Principles of Corporate Finance, 6th edition, New York: McGraw-Hill. Crouhy, M., D. Galai, ... We also benefitted from the feedback from our students at Toulouse, ZA¼rich, the Bank of Japan, and AXA College.

Title:Risk Management in Turbulent Times
Author:Gilles Beneplanc, Jean-Charles Rochet
Publisher:OUP USA - 2011-08-05


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