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The New Paradigm in Risk Management

Finance and Sustainability: Towards a New Paradigm? A Post-Crisis Agenda

ISBN: 978-1-78052-092-6, eISBN: 978-1-78052-093-3

ISSN: 2043-9059

Publication date: 7 October 2011

Abstract

Unfortunately, the answers given are thoroughly embedded in the physics-inspired view of the financial economy as a stable and an equilibrium seeking system. In such a view, if some changes do occur in the financial markets, those changes present no discontinuities and the model has ample time to react by slowly adjusting risk forecasts as the volatility rises. As almost everybody in the world by now knows, currently accepted risk models have time and again shown their inability to deal with financial market reality. Frequent talk of ‘hundred year floods’ and ‘rise in correlations’ not only suggests frequent failures of a theory, but also the inability of the theory to learn from past mistakes by incorporating new data. The crash of 2008, completely unforeseen by all traditional risk systems, should serve as the final wake-up call to re-examine the foundations of the old paradigm and consider how sound they really are.

Citation

Satchkov, D. (2011), "The New Paradigm in Risk Management", Sun, W., Louche, C. and Pérez, R. (Ed.) Finance and Sustainability: Towards a New Paradigm? A Post-Crisis Agenda (Critical Studies on Corporate Responsibility, Governance and Sustainability, Vol. 2), Emerald Group Publishing Limited, Bingley, pp. 299-324. https://doi.org/10.1108/S2043-9059(2011)0000002020

Publisher

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Emerald Group Publishing Limited

Copyright © 2011, Emerald Group Publishing Limited