Chapter 4

Sole Focus On Traditional Risk Management Can Be Dangerous

Days of Future Passed

Abstract

Since the early 1980s, a unique combination of quants, securitization, and computing power has turned risk management into a very sophisticated discipline and fueled financial institutions' revenue models. Complex quant models have allowed each element of risk to be priced precisely into transactions. Securitization has enabled institutions to tap into global pools of liquidity. Enormous computing power has allowed complex models to be driven and provided real-time data in the fast-paced global financial market. The result is that a risk-intermediation model has replaced the liquidity-intermediation model of financial institutions. However, ...

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