Published by GARP –  NOVEMBER 19, 2013

A series of catastrophic events in recent years have sensitized corporations, governments and other institutions to the low-probability, high-impact threats known in the risk management profession as tail risks. These events have been occurring with increasing frequency in the form of both natural and human-caused disasters. The financial kind is the focus of veteran risk manager and adviser Karamjeet Paul in the recently published Managing Extreme Financial Risk: Strategies and Tactics for Going Concerns. He notes that the crisis of 2008-’09 was but the latest — and certainly the most costly and far-reaching — of a modern progression that included the stock market crash of 1987, the savings and loan failures of the early 1990s, Long Term Capital Management and the Asian debt collapse in the late 1990s, and the Internet bubble shortly thereafter. Given this established, albeit unpredictable, pattern of mounting costs and concerns, Paul explains how conventional modeling is ill-suited for tail risks and lays out a framework for managing them that he defines as “sustainability management,” taking into account the systemic and operational consequences of extreme events that threaten not only a firm’s profitability, but also its very existence. (Click here to read more …)