The Present and Future of Financial Risk Management
University of Reading - ICMA Centre
February 20, 2004
ISMA Centre Discussion Paper No. DP2003-12
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.
Number of Pages in PDF File: 25
Keywords: Financial risk assessment, risk control, RAROC, economic capital, regulatory capital, optimal allocation of resources
JEL Classification: C11, C13, G20working papers series
Date posted: February 26, 2004
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