Models, Metrics, and Limitations

Abstract

We know that a credible risk management framework requires a quantitative process to allow for a uniform evaluation of risks and returns, and a consistent approach to portfolio and exposure management. While the subjective and qualitative dimensions of risk management are critical (and are unfortunately sometimes sacrificed in favor of purely quantitative approaches), some form of numeric evaluation is necessary. In fact, stochastic processes (for financial risks) and actuarial processes (for insurable risks) are considered to be an elemental part of modern risk management.