The Present, Future and Imperfect of Financial Risk Management

Carol Alexandra ()
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Carol Alexandra: ICMA Centre, University of Reading

ICMA Centre Discussion Papers in Finance from Henley Business School, University of Reading

Abstract: Current 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.

Keywords: Financial risk assessment; risk control, RAROC, economic capital; regulatory capital; optimal allocation of resources (search for similar items in EconPapers)
JEL-codes: C11 C13 G20 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2003-09, Revised 2004-02
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Published in Journal of Financial Econometrics 2005, 3:1, 3-25

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