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雷达卡
by suzanne
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AIM: Explain the role of risk metrics and discuss the shortcomings of existing risk metrics.
Shortcomings of existing risk metrics include:
- May not scale over long time horizons
- Historical data samples may not predictive (history may not repeat itself)
- Often, they are not designed to capture risks associated with crises (catastrophes)
- In the case of Value at Risk (VaR), VaR says nothing about the magnitude of losses in excess of VaR. (“It could be that the exceedances were really small and that there were many large gains as well because volatility increased rapidly. Alternatively, there could have been very large losses and few large gains.”)
- In the case of the Summer of 2007 and the abrupt withdrawal of liquidity: the risk model may not handle sudden illiquidity.
- Most metrics cannot handle complicated interactions across risks and across institutions: “Statistical risk models typically take returns to be exogenous to the firm and ignore risk concentrations across institutions”
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