Chapter 12

Thoughts on Retooling Risk Management

Tanya Beder and Spencer Jones

SBCC Group Inc.


Risk Management is one of the largest academic and practitioner fields within financial engineering. Broad and specialty roles—and often complete departments that focus on risk—exist in tens of thousands of financial and non-financial firms around the world. Areas of practice and, indeed, whole firms have been established to service the risk management community. These include consultants, specialty advisors in accounting firms and law firms, software providers, data vendors, broad stream and specialty media firms, and educational organizations from universities to executive education and conference providers. Risk management draws on core theoretical principles in pure and applied mathematics, finance, economics, accounting, law, psychology, behavioral finance, and the physical sciences, among others. Not only has risk management established itself as a large, permanent field, but also it often takes center stage during times of crisis.

Analysis and discussion of how risk management practices may have contributed to the financial crisis are inevitable. Why were so many firms and customers allowed to become so highly leveraged? How were some lending standards allowed to slip to enable subprime or other loans without proper documentation? How did some banks and broker dealers, and the financial services industry as a whole, become so exposed to single risk factors such as ...

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