Primer on Value at Risk

I had posteda while ago on IMF’s recent report on Global Financial Markets.  I just read this chapter on risk management techniques.

It is a pretty useful primer on risk management, Value at Risk in particular. It asks a basic question- DO risk management techniques (VAR) amplify risk?

Well as usual, it is a typical economist answer- not really. Risk management system do show that firms take on more risk when times are good and reverse it when times are bad. This leads to everybody becoming risk sensitive when bad times strike furthering the crisis (like what has happened in subprime crisis.) But still, the risk management techniques have helped understand firm’s risk position and are improving by the day.

A nice revision of risk management.