Banking: Difference between revisions
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<ref> Avinash Persaud: ''Sending the Herd Off the Cliff Edge: The disturbing interaction between herding and market-sensitive risk management practices'', Jacques de Larosiere Prize Essay, Institute of International Finance, December 2000 [http://www.erisk.com/ResourceCenter/ERM/persaud.pdf]</ref> that they used data that had been contaminated by previous rescues, and that their use generated herding behaviour that itself contributed to instability. | <ref> Avinash Persaud: ''Sending the Herd Off the Cliff Edge: The disturbing interaction between herding and market-sensitive risk management practices'', Jacques de Larosiere Prize Essay, Institute of International Finance, December 2000 [http://www.erisk.com/ResourceCenter/ERM/persaud.pdf]</ref> that they used data that had been contaminated by previous rescues, and that their use generated herding behaviour that itself contributed to instability. | ||
Some were sufficiently sophisticated to embody a recognition that probability distributions other than the familiar bell-shaped ''normal distribution''. Many had been "stress-tested" - meaning that they had been successfully applied to past situations. However all were based upon data from the period of historically low economic volatility that started in the early 1980s and came to be known as the "great moderation" | Some were sufficiently sophisticated to embody a recognition that probability distributions other than the familiar bell-shaped ''normal distribution''. Many had been "stress-tested" - meaning that they had been successfully applied to past situations. However all were based upon data from the period of historically low economic volatility that started in the early 1980s and came to be known as the "great moderation" | ||
<ref>[http://faculty.chicagogsb.edu/steven.davis/research/Interpreting_the_Great_Moderation,_NBER_version.pdf Stephen Davis and James Kahn: ''Interpreting the Great Moderation'', National Bureau of Economic Research Working Paper 14048, May 2008]</ref>. | |||
Revision as of 09:00, 4 December 2008
Risk management
During the 1990’s, Value-at-Risk computer programs based upon portfolio theory were widely adopted for measuring market risk in banking portfolios - despite objections by Barry du Toit [1] and Avinash Persaud [2] that they used data that had been contaminated by previous rescues, and that their use generated herding behaviour that itself contributed to instability. Some were sufficiently sophisticated to embody a recognition that probability distributions other than the familiar bell-shaped normal distribution. Many had been "stress-tested" - meaning that they had been successfully applied to past situations. However all were based upon data from the period of historically low economic volatility that started in the early 1980s and came to be known as the "great moderation" [3].
- ↑ Barry du Toit Risk, theory, reflection: Limitations of the stochastic model of uncertainty in financial risk analysis Riskworx June 2004 [1]
- ↑ Avinash Persaud: Sending the Herd Off the Cliff Edge: The disturbing interaction between herding and market-sensitive risk management practices, Jacques de Larosiere Prize Essay, Institute of International Finance, December 2000 [2]
- ↑ Stephen Davis and James Kahn: Interpreting the Great Moderation, National Bureau of Economic Research Working Paper 14048, May 2008