Managing Extreme Financial Risk

Chapter 3

Need for a Distinct Focus on Tail Risk

In No Uncertain Terms

Abstract

Risk management and sustainability management have starkly different objectives and motivations. One cannot be extended to manage the other. Risk management deals with quantifiable uncertainty effectively and has an objective to structure, preserve, and protect profits from risk. Traditional risk management can't address unquantifiable uncertainty, which gives rise to tail risk. Sustainability management addresses unquantifiable uncertainty and has an objective to preserve and protect capital. Risk management is based upon the theory of probability and drives the revenue engine. Using a probability-based approach to manage going-concern sustainability is dysfunctional ...