Bakait

In: Business and Management

Submitted By yashguts
Words 8558
Pages 35
Edited by Foxit Reader Copyright(C) by Foxit Software Company,2005-2007 For Evaluation Only.

Fisher College of Business Working Paper Series

Charles A. Dice Center for Research in Financial Economics
Risk Management Failures: What Are They and When Do They Happen?
René M. Stulz, Department of Finance, The Ohio State University, NBER, and ECGI

Dice Center WP 2008-18
Fisher College of Business WP 2008-03-017

October 2008

This paper can be downloaded without charge from: http://www.ssrn.com/abstract=1278073

An index to the working paper in the Fisher College of Business Working Paper Series is located at: http://www.ssrn.com/link/Fisher-College-of-Business.html

fisher.osu.edu

Risk management failures: What are they and when do they happen?
René Stulz*

October 2008

Abstract A large loss is not evidence of a risk management failure because a large loss can happen even if risk management is flawless. I provide a typology of risk management failures and show how various types of risk management failures occur. Because of the limitations of past data in assessing the probability and the implications of a financial crisis, I conclude that financial institutions should use scenarios for credible financial crisis threats even if they perceive the probability of such events to be extremely small.

* Reese Chair of Banking and Monetary Economics, Fisher College of Business, Ohio State University, NBER, and ECGI. I am grateful for assistance from Jérôme Taillard and Mike Anderson, and for comments from Rich Apostolik, Don Chew, Cliff Smith, and Peter Tufano.

Edited by Foxit Reader Copyright(C) by Foxit Software Company,2005-2007 For Evaluation Only.

In commentaries on the financial crisis that started during the summer of 2007, a constant refrain is that somehow risk management failed and that there were risk management failures at…...

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