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Risk Management in a Fair Valuation World

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  • Kemp, M. H. D.

Abstract

This paper considers the impact that the current trend towards fair valuation of assets and liabilities is likely to have on risk measurement and management practices within the financial services industry. The paper analyses the different sorts of risks faced by organisations such as asset managers, pension funds, banks and insurers, and seeks to identify how their approach to the measurement and management of these sorts of risks might change as fair valuation becomes more entrenched. It argues that what it describes as traditional ‘time series’ based risk measurement is likely to be progressively displaced over time by a greater emphasis on what the paper refers to as ‘derivative pricing’ (or ‘fair value’ or ‘market consistent’) based risk modelling. It comments on the trend towards liability driven investment. The paper focuses on ‘financial’ risks (market, credit, liquidity and, more generally, asset/liability risk) rather than ‘operational’ risks, whilst noting that the dividing line between the two can be open to interpretation. Insurance risk is seen as in some respects straddling both camps.

Suggested Citation

  • Kemp, M. H. D., 2005. "Risk Management in a Fair Valuation World," British Actuarial Journal, Cambridge University Press, vol. 11(4), pages 595-712, October.
    • Handle: RePEc:cup:bracjl:v:11:y:2005:i:04:p:595-712_00
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    Cited by:

    1. Stenfors, Sari & Tanner, Leena & Syrjanen, Mikko & Seppala, Tomi & Haapalinna, Ilkka, 2007. "Executive views concerning decision support tools," European Journal of Operational Research, Elsevier, vol. 181(2), pages 929-938, September.
    2. Mariana IOVITU & Elena-Mihaela ILIESCU, 2009. "The Effects of Economic Crisis on Country Risk," Timisoara Journal of Economics, West University of Timisoara, Romania, Faculty of Economics and Business Administration, vol. 2(4(8)), pages 191-198.
    3. Chakravorty, Satya S. & Hales, Douglas N., 2008. "The evolution of manufacturing cells: An action research study," European Journal of Operational Research, Elsevier, vol. 188(1), pages 153-168, July.
    4. Hülsmann, Michael & Grapp, Jörn & Li, Ying, 2008. "Strategic adaptivity in global supply chains--Competitive advantage by autonomous cooperation," International Journal of Production Economics, Elsevier, vol. 114(1), pages 14-26, July.

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