Letter from Editor-in-Chief Robert Sales.

As recent events have demonstrated, commercial and central banks must hurdle significant risk management obstacles. Til Schuermann and Peter Tufano summarize recent research papers on risk management failures, macro-model-based stress testing and central banks’ approach to managing asset bubbles, and author-supplied abstracts provide more details.

The global credit crisis has forced the financial risk management community to rethink its methods. Change is definitely on the horizon, and, if we are smart, the revisions will be the result of forwardlooking analysis. Aaron Brown explains the underlying causes of the crisis and predicts the changes that will ... click here for more details.

Over the last 10 years, Francois Schmitt has worked in market risk, credit risk and risk analytics at major investment banks, including Lehman Brothers, UBS and JPMorgan. During this period, he spent much of his time dealing with hedge funds. In a recent interview with GRR contributor Robert Bothwell, Schmitt ... click here for more details.

Recently, there was a correlation breakdown in the modelling of credit default swaps. What was the specific nature of this problem? Did it stem from a fundamental market inconsistency, or was it the result of the inadequacy of the Gaussian copula model? Rodanthy Tzani and Alexios P. Polychronakos make a ... click here for more details.

What steps can a bank take to estimate the most unfavorable price scenarios for foreclosed properties? Debdeep Chatterjee explains how the worst-case recovery value for foreclosed properties can be calculated using a net present value-driven framework.

Operational risk has a primarily human nature. Loss-number crunching and value-at-risk (VaR) quantifications are useful, but cannot be used independently as a proxy for future losses or present a perfect picture of the company’s risk profile. The truth is that after every significant operational loss — whether process, system or ... click here for more details.

Master’s in finance graduates are being touted as an elite corps of financial wizards — the chosen ones who will lead the finance industry into the future. Given the troubles that a boundless faith in quantitative “certainties” can provoke, however, we would all be that much safer if those individuals ... click here for more details.

The lighter side of risk management.