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Risk Management

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  • Philippe Jorion

    () (School of Business, the University of California, Irvine, Irvine, California 92697-3125)

Abstract

Modern risk management systems were developed in the early 1990s to provide centralized risk measures at the top level of financial institutions. These are based on a century of theoretical developments in risk measures. In particular, value at risk (VAR) has become widely used as a statistical measure of market risk based on current positions. This methodology has been extended to credit risk and operational risk. This article reviews the benefits and limitations of these models. In spite of all these advances, risk methods are poorly adapted to measure liquidity risk and systemic risk.

Suggested Citation

  • Philippe Jorion, 2010. "Risk Management," Annual Review of Financial Economics, Annual Reviews, vol. 2(1), pages 347-365, December.
  • Handle: RePEc:anr:refeco:v:2:y:2010:p:347-365
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    References listed on IDEAS

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    1. The VIX: The only thing to fear is the lack of fear itself
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2014-07-14 17:36:53

    Citations

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    Cited by:

    1. de Araújo, André da Silva & Garcia, Maria Teresa Medeiros, 2013. "Risk contagion in the north-western and southern European stock markets," Journal of Economics and Business, Elsevier, vol. 69(C), pages 1-34.
    2. Carruthers, Bruce G., 2013. "Diverging derivatives: Law, governance and modern financial markets," Journal of Comparative Economics, Elsevier, vol. 41(2), pages 386-400.

    More about this item

    Keywords

    risk measurement; market risk; value at risk; stress tests; credit risk;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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