The magic of riskometers
The way financial risk is measured is by a device I have called the riskometer. It is a fantastic thing, plunge it into the bowels of the City of Lond…
Read moreModels
25 posts in this category
How to manipulate risk forecasts and not get caught
It is easy to manipulate risk forecasts. If your regulator or compliance officer sets a risk target you don't like, just tell them what they want to h…
Read morePerceived and actual risk
Perceived risk is risk predicted by models, and actual risk is the fundamental underlying risk. We measure perceived risk and care about the actual ri…
Read moreMisleading measurements and garbage in - garbage out models of systemic risk
There are many measurements of systemic risk and a huge number of papers depend on those measurements. But is that work of any use? There is an archet…
Read moreThe five principles of correct riskometer use
It is easy to criticise risk forecasting, but it's rather pointless unless one can come up with proposals. Here are my five principles for the correct…
Read moreHere be dragons
Medieval mapmakers noted the risk of an unknown kind by “here be dragons”. Attempts at measuring extreme risk should come with a similar warning. Just…
Read moreVIX, CISS and all the political uncertainty
Two widely used indicators of financial risk, the VIX index and the ECB's CISS are at a historical low. The (financial) world must be really safe. …
Read moreBig Banks' Risk Does Not Compute
A Bloomberg piece that cites our work, Big Banks' Risk Does Not Compute.
Read moreModels and regulations and the political leadership
Why do the regulatory authorities seemingly fall into the category of model believers, if not quite to the view that there must be one true model?…
Read moreWhy do we rely so much on models when we know they can't be trusted?
There a lot of evidence that models are less than perfectly reliable. Why then do we rely so much on models in decision-making, and especially finan…
Read moreDoes a true model exist and does it matter?
When designing models, the underlying assumption is often that the model captures the true data generating process. Does a true model exist? To me,…
Read moreImpact of the recent market turmoil on risk measures
Last January I looked at how the Swiss FX shock affected the most popular risk measures. Events of the past week give us another interesting test.…
Read moreMarket moves that are supposed to happen every half-decade keep happening
Bloomberg today had an interesting piece, called Market Moves That Are Supposed to Happen Every Half-Decade Keep Happening. Here is their self-describ…
Read moreThe Danish FX event
Denmark had a small FX event on March 20, in the context of the Swiss FX shock, it is not much a of an event, but it does reinforce stereotypes.
Read moreWhat do ES and VaR say about the tails
So, does ES capture tail risk, but VaR not? Therefore the Basel committee is correct, and we all should use ES. Is that true?
Read moreWhat the Swiss FX shock says about risk models
The Swiss central bank last week abandoned its euro exchange rate ceiling. This column argues that the fallout from the decision demonstrates the inhe…
Read moreOn the Swiss FX shock
Just looked again at the what I did on the January 2015 Swiss FX shock, looking at how the various risk measures performed in the days after the even…
Read moreModel risk: Risk measures when models may be wrong
Risk forecasting is central to financial regulations, risk management, and macroprudential policy. This column raises concerns about the reliance on r…
Read moreThe appropriate use of risk models: Part II
Financial risk models have been widely criticised for both theoretical and practical failures, especially during the recent financial crisis. In the s…
Read moreThe appropriate use of risk models: Part I
Risk models are at the heart of the financial sector's self-monitoring as well as supervision by regulators. This column, the first of two, addresses …
Read moreRisk and crises: How the models failed and are failing
Financial models are widely blamed for underestimating and thus mispricing risk prior to the crisis. This column analyses how the models failed and qu…
Read moreFinancial regulation built on sand: The myth of the riskometer
Much of today's financial regulation assumes that risk can be accurately measured so that financial engineers, like civil engineers, can design safe p…
Read moreRegulation and financial models: Complexity kills
Complex financial models and intricate assets structures meant extraordinary profits before the crisis. Markets for structured products became overly …
Read moreBlame the models
In response to financial turmoil, supervisors are demanding more risk calculations. But model-driven mispricing produced the crisis, and risk models d…
Read moreModels and risk | Financial Regulation, Systemic Risk, Stability and AI
Blogs and appendices on artificial intelligence, financial crises, systemic risk, financial risk, models, regulations, financial policy, cryptocurrencies and related topics
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2024