Risk Management Failures: What Are They and When Do They Happen?

René Stulz

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: A 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.

Date: 2008-10
New Economics Papers: this item is included in nep-fmk and nep-rmg
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Journal Article: Risk Management Failures: What Are They and When Do They Happen? (2008)
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