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Managing Extreme Financial Risk by Karamjeet Paul

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Chapter 6

If you Can’t Measure it, You Can’t Manage it

Taming Something That’s Lurking Around

Abstract

A management process requires three components to work effectively: definition and quantification criteria for the object of management, judgment on limits or targets, and controls. Currently there is no definition of a measure for exposure from tail risk. Therefore, the key challenge today is to define a measure that can be used to develop metrics related to the sustainability of an institution as a going concern. An example of events at Citicorp in 1980 demonstrates that without a definition, quantification, and measurement of risk it is nearly impossible to institute a process to effectively manage exposure. The example also shows that ...

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