The Present, Future and Imperfect of Financial Risk Management
AbstractCurrent research on financial risk management applications of econometrics centres on the accurate assessment of individual market and credit risks with relatively little theoretical or applied econometric research on other types of risk, aggregation risk, data incompleteness and optimal risk control. We argue that consideration of the model risk arising from crude aggregation rules and inadequate data could lead to a new class of reduced form Bayesian risk assessment models. Logically, these models should be set within a common factor framework that allows proper risk aggregation methods to be developed. We explain how such a framework could also provide the essential links between risk control, risk assessments and the optimal allocation of resources.
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Bibliographic InfoPaper provided by Henley Business School, Reading University in its series ICMA Centre Discussion Papers in Finance with number icma-dp2003-12.
Length: 25 pages
Date of creation: Sep 2003
Date of revision: Feb 2004
Publication status: Published in Journal of Financial Econometrics 2005, 3:1, 3-25
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More information through EDIRC
Financial risk assessment; risk control; RAROC; economic capital; regulatory capital; optimal allocation of resources;
Find related papers by JEL classification:
- C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
- G20 - Financial Economics - - Financial Institutions and Services - - - General
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