Risk management before and after the Credit Crunch: how will the crisis change the theory and the practice of investment risk management?

Stewart Hodges, Professor of Finance at Cass Business School (Go to Stewart Hodges's Cass Experts entry).

Some risk models failed badly during the credit crunch. Numerous commentators, including Lord Turner in his March 2009 Review, have raised fundamental questions about the validity of Value at Risk (VaR) as a measure of risk. This talk reviews the lessons from the credit crunch. Not all models performed badly but many did, and for a variety of different reasons. Some pitfalls are easily avoided; for example, reliance of Normal distributions estimated from short histories of data. Issues considered will include: good and bad VaR methods, stress testing, aspects of operational risk, liquidity exposure, the limitations to measuring risk, and which techniques seem important and which can we probably discard.