Classification of Unknowns and Risk Scenarios

Abstract

While we have introduced risk and its mathematics, probability, its history and impact on modern finance and financial risk management, all areas which are generally well known, the need to broaden the discussion to include a wider range of the unknown requires a significant departure from previously used methods. In particular, we need to define and characterise types of the unknown, given that some unknowns are merely random, some are capable of deep and possibly quantitative analytical treatment, while others will be far from accessible. We then must introduce knowledge, its hierarchies and the use of a wide swathe of knowledge to reduce the unknown.