The Known, the Unknown, and the Unknowable in Financial Risk Management

The Known, the Unknown, and the Unknowable in Financial Risk Management

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A clear understanding of what we know, don't know, and can't know should guide any reasonable approach to managing financial risk, yet the most widely used measure in finance today--Value at Risk, or VaR--reduces these risks to a single number, creating a false sense of security among risk managers, executives, and regulators. This book introduces a more realistic and holistic framework called KuU --the K nown, the u nknown, and the U nknowable--that enables one to conceptualize the different kinds of financial risks and design effective strategies for managing them. Bringing together contributions by leaders in finance and economics, this book pushes toward robustifying policies, portfolios, contracts, and organizations to a wide variety of KuU risks. Along the way, the strengths and limitations of qquantitativeq risk management are revealed. In addition to the editors, the contributors are Ashok Bardhan, Dan Borge, Charles N. Bralver, Riccardo Colacito, Robert H. Edelstein, Robert F. Engle, Charles A. E. Goodhart, Clive W. J. Granger, Paul R. Kleindorfer, Donald L. Kohn, Howard Kunreuther, Andrew Kuritzkes, Robert H. Litzenberger, Benoit B. Mandelbrot, David M. Modest, Alex Muermann, Mark V. Pauly, Til Schuermann, Kenneth E. Scott, Nassim Nicholas Taleb, and Richard J. Zeckhauser. Introduces a new risk-management paradigm Features contributions by leaders in finance and economics Demonstrates how qkiller risksq are often more economic than statistical, and crucially linked to incentives Shows how to invest and design policies amid financial uncertainty... I will consider the differentiating features of KuU choice, separately, for individual decision-making (which has been the focus of most research on the subject of KuU) and for the organizational or management level. As the world of risk (the Kanbsp;...

Title:The Known, the Unknown, and the Unknowable in Financial Risk Management
Author:Francis X. Diebold, Neil A. Doherty, Richard J. Herring
Publisher:Princeton University Press - 2010-04-19


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