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The Present and Future of Financial Risk Management

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  • Carol Alexander

Abstract

Current research on financial risk management applications of econometrics centers 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. Copyright 2005, Oxford University Press.

Suggested Citation

  • Carol Alexander, 2005. "The Present and Future of Financial Risk Management," Journal of Financial Econometrics, Oxford University Press, vol. 3(1), pages 3-25.
    • Handle: RePEc:oup:jfinec:v:3:y:2005:i:1:p:3-25
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    File URL: http://hdl.handle.net/10.1093/jjfinec/nbi003
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    Citations

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    Cited by:

    1. Hayette Gatfaoui, 2010. "Deviation from normality and Sharpe ratio behavior: a brief simulation study," Post-Print hal-00568613, HAL.
    2. Puustelli, Anne & Koskinen, Lasse & Luoma, Arto, 2008. "Bayesian modelling of financial guarantee insurance," Insurance: Mathematics and Economics, Elsevier, vol. 43(2), pages 245-254, October.
    3. Diamandis, Panayiotis F. & Drakos, Anastassios A. & Kouretas, Georgios P. & Zarangas, Leonidas, 2011. "Value-at-risk for long and short trading positions: Evidence from developed and emerging equity markets," International Review of Financial Analysis, Elsevier, vol. 20(3), pages 165-176, June.
    4. Schlegel, Friederike & Hakenes, Hendrik, 2013. "Model Risk - an Agency Theoretic Approach," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79954, Verein für Socialpolitik / German Economic Association.
    5. Ahmad Raza Bilal & Noraini Bt. Abu Talib & Mohd Noor Azli Ali Khan, 2013. "Remodeling of risk management in banking: evidence from the sub-continent and gulf," Journal of Risk Finance, Emerald Group Publishing, vol. 14(5), pages 468-489, November.
    6. Ahmad Raza Bilal & Noraini Bt. Abu Talib & Mohd Noor Azli Ali Khan, 2013. "Remodeling of risk management in banking: evidence from the sub-continent and gulf," Journal of Risk Finance, Emerald Group Publishing Limited, vol. 14(5), pages 468-489, November.
    7. Ravi Kashyap, 2023. "DeFi Security: Turning The Weakest Link Into The Strongest Attraction," Papers 2312.00033, arXiv.org.
    8. Sibbertsen, Philipp & Stahl, Gerhard & Luedtke, Corinna, 2008. "Measuring Model Risk," Hannover Economic Papers (HEP) dp-409, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    9. Małgorzata Tarczynska-Luniewska & Iwona Bak & Uma Shankar Singh & Guru Ashish Singh, 2022. "Economic Crisis Impact Assessment and Risk Exposure Evaluation of Selected Energy Sector Companies from Bombay Stock Exchange," Energies, MDPI, vol. 15(22), pages 1-25, November.
    10. Lee, Chien-Chiang & Chiu, Yi-Bin, 2016. "Globalization and insurance activity: Evidence on the industrial and emerging countries," The North American Journal of Economics and Finance, Elsevier, vol. 36(C), pages 328-349.
    11. George Kouretas & Leonidas Zarangas, 2005. "Conditional autoregressive valu at risk by regression quantile: Estimatingmarket risk for major stock markets," Working Papers 0521, University of Crete, Department of Economics.
    12. Anastassios A. Drakos & Georgios P. Kouretas & Leonidas P. Zarangas, 2010. "Forecasting financial volatility of the Athens stock exchange daily returns: an application of the asymmetric normal mixture GARCH model," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 15(4), pages 331-350.
    13. N.H. Bingham & John M. Fry & Rüdiger Kiesel, 2010. "Multivariate elliptic processes," Statistica Neerlandica, Netherlands Society for Statistics and Operations Research, vol. 64(s1), pages 352-366.
    14. Ravi Kashyap, 2024. "The Concentration Risk Indicator: Raising the Bar for Financial Stability and Portfolio Performance Measurement," Papers 2408.07271, arXiv.org.
    15. Imola Drigă, 2012. "Financial Risks Analysis For A Commercial Bank In The Romanian Banking System," Annales Universitatis Apulensis Series Oeconomica, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, vol. 1(14), pages 1-14.

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