How much risk can you manage?

摘要

Sound judgement is a key element in running any business. In banking and finance this skill is seen as vital to be able to manage and price risk successfully. After all, if a bank cannot correctly monitor, judge and manage the risks on its books, what prospect does it have of surviving, let alone prospering? The issue of management judgement is not new and the modern banker has a huge raft of tools to help in the task of correctly assessing risk. In the past 50 years or so there has been an explosion in so-called quantitative measures of risk. Whether it is the principles of sensible portfolio diversification laid out by Harry Markowitz or the breakthrough in the pricing of options by Messrs Black & Scholes, or the proliferation of Value-at-Risk models in the past 10 years or so, everywhere bankers are offered a huge range of instruments and measures with which to manage, control and judge risk. Yet, while these developments in mathematical risk models and the availability of cheap and powerful desk-top computing have helped to revolutionise finance, the problem of risk has not been solved. Dreadful mistakes and expensive errors of judgement still come to light, often in organisations that have access to huge resources and brain power. With all this help at hand, why do things still go wrong?