Difference between revisions of "Risk Management One-Liners"

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(Collection of Risk Management One-Liners)
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== More risk management wisdom ==
 
  
<ul>
 
<li>Identifying, quantifying and managing complexity is one of the least developed areas in financial riskmanagement
 
<li>In the financial universe there are no isolated systems: personal, corporate and country risks interlinked in a correlation web
 
<li>The web of financial contracts and interdependencies is complicated but finite. in due course it can be understood and tamed
 
<li>Financial risk model complexity and quality are not necessarily correlated. But complexity is also in the eye of the beholder
 
<li>Applying quantitative models to financial phenomena is subject to severe misspecification, whether intentional or unintentional
 
<li>After the simplest binary, risk on / off choice, next step up in risk management complexity is the traffic light system: green, orange, red
 
<li>Reputation in banking is not optional but a license to operate. Reputation risk introduces a zero tolerance approach
 
<li>When there is no empirical basis to support risk assessment the fallback is polling expert opinion. Human experts will use analogy
 
<li>When you set a limit on trading you create anchoring bias. Read kahneman
 
<li>Controlling dynamically the amount of risk exposure by setting and updating risk limits is a standard tool for risk management
 
<li>First recorded incident of bank risk concentration: Florentine banks' Bardi and Peruzzi sovereign exposure to King Edward III
 
<li>Regulation is supposed to prevent financial crises. the track record seems not good but we don't really know a world without it
 
<li>Financial crises are recurring economic phenomena where prevailing contractual arrangements / designs get severely challenged
 
<li>Scenario analysis is a basic building block for a probabilistic approach to risk
 
<li>Diversification versus model risk are the two key phenomena relevant for managing portfolio risks
 
<li>In a crisis, all correlations go to one. Except this phenomenon concerns market expectations and prices and actual events might be less correlated
 
<li>Risk insurance can remove risk but does create new risks (exposure to the insurance provider and other residual risks)
 
<li>There is risk and there is the perception of risk. The two are only loosely correlated and perception is generally more volatile
 
<li>One of the simplest and most effective forms of risk management is risk avoidance (also termed zero risk appetite)
 
<li>Operational risks definitely scale with the size and complexity of the organization but the precise law is not easy to establish
 
<li>Some risks can be usefully decomposed into a probability of occurrence and a severity of occurrence. Others have a continuous range
 
<li>Risk is about the deviation /uncertainty around expectation. A bad outcome expectation with little remaining uncertainty is not risky
 
<li>There is no physical law to prevent even the deepest, most active, market to become illiquid
 
<li>Risk is not linear. Robust ratings need log-scale: 10%, 1%, 0.1% hence limited in number. Alphabet soup not a good risk metaphor
 
<li>Credit risk analysis looks at the 1) ability and 2) willingness of an entity to fulfill its contracts. It gets messier very fast
 
<li>All risk models built on past experience. some may contain an element of truth about the future
 
<li>All forms of financial risk are subordinate to sovereign risk
 
</ul>
 
  
 
== See Also ==
 
== See Also ==
 
 
* [[Risk Management Heroes]]
 
* [[Risk Management Heroes]]
 +
* [[Risk Management Wisdom]]
  
 
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[[Category:Risk Management]]
 
[[Category:Risk Management]]

Revision as of 13:50, 11 September 2019

Collection of Risk Management One-Liners

  • Fix the roof while the sun is shining
  • Trust but verify
  • Follow the money
  • It is the leverage, stupid
  • When the tide goes out you find who's been swimming naked
  • There is a sucker born every minute
  • If you do not know who the patsy is - you are the patsy
  • Asking the question is the hardest step
  • There is never only one cockroach
  • Lies, damned lies, and statistics
  • Prediction is very difficult, especially about the future
  • That will never happen, because I have never seen it occur in my lifetime (h\t @scottnorth1)
  • God is in the details. The Devil is in the details too
  • If it's too good to be true, it usually is
  • Fear the Greeks, even when they bring gifts
  • All models are wrong, but some are useful
  • Don't fall in love with your risk models
  • The problem with experts is that they do not know what they do not know
  • The biggest risk is not taking one
  • Any fool can make a complex model, simplicity the key to brilliance


See Also


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