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Financial Risk Measurement for Financial Risk Management
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Financial risk management is a huge field with diverse and evolving components, as
evidenced by both its historical development (e.g. Diebold, 2012 ) and current best
practice (e.g. Stulz, 2002 ). One such component—probably the key component—is
risk measurement , in particular the measurement of financial asset-return volatilities and
correlations (henceforth “volatilities”). Crucially, asset-return volatilities are time varying,
with persistent dynamics. This is true across assets, asset classes, time periods, and
countries, as vividly brought to the fore during numerous crisis events, most recently
and prominently the 2007–2008 financial crisis and its long-lasting aftermath. The
field of financial econometrics devotes considerable attention to time-varying volatility
and associated tools for its measurement, modeling, and forecasting. In this chapter we suggest practical applications of the new “volatility econometrics” to the measurement
and management of market risk, stressing parsimonious models that are easily estimated.
Our ultimate goal is to stimulate dialog between the academic and practitioner communities,
advancing best-practice market risk measurement and management technologies
by drawing upon the best of both.
NONE
Management
English
1-95
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