The Risk that Risk Will Change
Journal Of Investment Management (JOIM), Fourth Quarter 2009
Posted: 19 Jan 2010 Last revised: 2 Jun 2010
Date Written: January 19, 2010
Standard approaches to risk management focus on short-run risks, yet many positions are held for longer periods. Over such holding periods there is a risk that risks will change. In this note several easily implemented approaches to estimating the term structure of risk are proposed based on either statistical or economic criteria. It is argued that some portion of the financial crisis of 2007-2008 was due to the use of short-run risk measures to assess long-term risks.
Keywords: Risk, long-term risk, short-run risk, financial crisis, GARCH, TARCH, spline GARCH. value at risk, hedge portfolio
JEL Classification: G00
Suggested Citation: Suggested Citation