The Known, the Unknown, and the Unknowable in Financial Risk Management: Measurement and Theory Advancing Practice

The Known, the Unknown, and the Unknowable in Financial Risk Management: Measurement and Theory Advancing Practice

By: Francis X. Diebold (editor), Richard J. Herring (editor), Neil A. Doherty (editor)Hardback

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Description

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 "quantitative" 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 "killer risks" are often more economic than statistical, and crucially linked to incentives * Shows how to invest and design policies amid financial uncertainty

About Author

Francis X. Diebold is the Paul F. and E. Warren Shafer Miller Professor of Economics at the University of Pennsylvania and professor of finance and statistics at the university's Wharton School. Neil A. Doherty is the Frederick H. Ecker Professor of Insurance and Risk Management at the Wharton School. Richard J. Herring is the Jacob Safra Professor of International Banking and professor of finance at the Wharton School.

Contents

Preface vii Chapter 1: Introduction by Francis X. Diebold, Neil A. Doherty, and Richard J. Herring 1 Chapter 2: Risk: A Decision Maker's Perspective by Sir Clive W. J. Granger 31 Chapter 3: Mild vs. Wild Randomness: Focusing on Those Risks That Matter by Benoit B. Mandelbrot and Nassim Nicholas Taleb 47 Chapter 4: The Term Structure of Risk, the Role of Known and Unknown Risks, and Nonstationary Distributions by Riccardo Colacito and Robert F. Engle 59 Chapter 5: Crisis and Noncrisis Risk in Financial Markets: A Unified Approach to Risk Management by Robert H. Litzenberger and David M. Modest 74 Chapter 6: What We Know, Don't Know, and Can't Know about Bank Risk: A View from the Trenches by Andrew Kuritzkes and Til Schuermann 103 Chapter 7: Real Estate through the Ages: The Known, the Unknown, and the Unknowable by Ashok Bardhan and Robert H. Edelstein 145 Chapter 8: Reflections on Decision-making under Uncertainty by Paul R. Kleindorfer 164 Chapter 9: O n the Role of Insurance Brokers in Resolving the Known, the Unknown, and the Unknowable by Neil A. Doherty and Alexander Muermann 194 Chapter 10: Insuring against Catastrophes by Howard Kunreuther and Mark V. Pauly 210 Chapter 11: Managing Increased Capital Markets Intensity: The Chief Financial Officer's Role in Navigating the Known, the Unknown, and the Unknowable by Charles N. Bralver and Daniel Borge 239 Chapter 12: The Role of Corporate Governance in Coping with Risk and Unknowns by Kenneth E. Scott 277 Chapter 13: Domestic Banking Problems by Charles A. E. Goodhart 286 Chapter 14: Crisis Management: The Known, The Unknown, and the Unknowable by Donald L. Kohn 296 Chapter 15: Investing in the Unknown and Unknowable by Richard J. Zeckhauser 304 List of Contributors 347 Index 359

Product Details

  • ISBN13: 9780691128832
  • Format: Hardback
  • Number Of Pages: 392
  • ID: 9780691128832
  • weight: 709
  • ISBN10: 0691128839
  • translations: English
  • language of text: English

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