Quantitative Risk Management: A Practical Guide to Financial Risk, + Website

9.5 Conclusion

Chapter 9 has demonstrated the use of volatility and VaR for measuring risk, using our simple portfolio of a U.S. Treasury bond and CAC equity index futures. Volatility and VaR are exceedingly valuable for measuring risk but they do not tell us very much about the sources of risk or the structure of the portfolio.

We now turn, in Chapter 10, to the portfolio tools that help untangle the sources of risk and provide some guidance toward managing risk. Like all these tools, however, we have to remember that the numbers produced provide only guidance. Nature can always come up with unanticipated events. We need to use these tools combined with common sense. Risk management is first and foremost the art of managing risk.