When I worked in firmwide risk I didn't clearly understand what our job was -- control risk, measure risk, whatever? Recently I heard a very good logical and philosophical talk by Steve Allen of NYU on the whole business. He's the author of Financial Risk Management: A Practitioner's Guide to Managing Market and Credit Risk. One of the things he said is that the purpose of risk management is neither to control nor measure risk, but rather to make risk transparent. It's such a clear and sensible idea. And, he said, and I think I'm quoting him correctly, that a risk manager shouldn't get fired if a firm loses a lot of money. They ought to get fired if a loss occurs owing to some risk that he didn't bring to the firm's attention.Source: Derman, E (2007, March 13), The Purpose of Risk Management, Emanuel Derman’s Blog on Wilmott.
Monday, May 10, 2010
The Purpose of Risk Management
Here is a useful quote from Prof Emanuel Derman about the nature and purpose of risk management:
Posted by William McKibbin