Downturn Risk: Another View on the Current Financial Crisis

15 Pages Posted: 19 Mar 2011

See all articles by Daniel Roesch

Daniel Roesch

University of Regensburg

Harald (Harry) Scheule

University of Technology Sydney (UTS) - School of Finance and Economics; Financial Research Network

Date Written: March 14, 2011

Abstract

The current financial crisis had its origins in the US subprime mortgage market and led to downturns in global equity, credit and commodity markets. This paper identifies the lack of economic information in risk valuation models as one reason why the financial industry was unable to predict, mitigate and cover the current losses. This is at first sight rather surprising as credit and credit derivative products have existed for centuries. However, the markets have experienced an exponential growth in size as well as variety. In particular, the associated transparency may have not matched this development in relation to the underlying risks, risk models and model risks.

Keywords: Credit Portfolio Risk, Economic Downturn, Financial Crisis, Model Risk, Securitization

JEL Classification: G20, G28, C51

Suggested Citation

Roesch, Daniel and Scheule, Harald, Downturn Risk: Another View on the Current Financial Crisis (March 14, 2011). Available at SSRN: https://ssrn.com/abstract=1785911 or http://dx.doi.org/10.2139/ssrn.1785911

Daniel Roesch

University of Regensburg ( email )

Chair of Statistics and Risk Management
Faculty of Business, Economics and BIS
Regensburg, 93040
Germany

HOME PAGE: http://www-risk.ur.de/

Harald Scheule (Contact Author)

University of Technology Sydney (UTS) - School of Finance and Economics ( email )

P.O. Box 123
Broadway, NSW 2007
Australia

HOME PAGE: http://https://www.uts.edu.au/staff/harald.scheule

Financial Research Network ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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