The Future of Risk Management in Finance (Presentation Slides)

Abstract

This presentation provides an epistemological perspective on the Future of Risk Management in Finance. The emphasis is on the limitations in risk management (RM) in finance. It provides an assessment of its validity and scope as well as the methods used in risk managementMany bankers and influential policymakers supported the wave of financial innovations as being very useful for modern RM. However, even before the crisis critical questions were raised about the explosion of innovations. Many financial innovations had the effect of creating links between formerly unconnected players and markets resulting in increased network externalities, more fragility and a systematically higher risk level. The presentation argues that there was an overreliance on quantitative models in modern RM. The underlying conventional risk paradigm clashes with the reality of fundamental uncertainty. The presentation suggests taking the existence of fundamental uncertainty and increased complexity more seriously in practice. This requires a more holistic, flexible and broader approach to RM. More attention should also be given to the qualitative aspects of RM in an enterprise-wide framework.