Risk Management Failures: What Are They and When Do They Happen?
AbstractA large loss is not evidence of a risk management failure because a large loss can happen even if risk management is flawless. I provide a typology of risk management failures and show how various types of risk management failures occur. Because of the limitations of past data in assessing the probability and the implications of a financial crisis, I conclude that financial institutions should use scenarios for credible financial crisis threats even if they perceive the probability of such events to be extremely small.
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Bibliographic InfoPaper provided by Ohio State University, Charles A. Dice Center for Research in Financial Economics in its series Working Paper Series with number 2008-18.
Date of creation: Oct 2008
Date of revision:
Other versions of this item:
- René M. Stulz, 2008. "Risk Management Failures: What Are They and When Do They Happen?," Journal of Applied Corporate Finance, Morgan Stanley, vol. 20(4), pages 39-48.
- NEP-ALL-2009-02-07 (All new papers)
- NEP-FMK-2009-02-07 (Financial Markets)
- NEP-RMG-2009-02-07 (Risk Management)
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