"Black Swans" and the Financial Crisis

2012 ◽  
Vol 15 (02) ◽  
pp. 1250008 ◽  
Author(s):  
Terry Marsh ◽  
Paul Pfleiderer
Keyword(s):  
Risk Management ◽  
Standard Deviation ◽  
Asset Pricing ◽  
Financial Crisis ◽  
Financial Models ◽  
Rare Events ◽  
Black Swan ◽  
Black Swans ◽  
The One ◽  
P Distribution

Post-mortems of the financial crisis typically mention "black swans" as the rare events that were the Achilles heel of financial models, manifesting themselves as "25 standard deviation events occurring several days in a row". Here, we briefly discuss the implications of "black swan" events in asset pricing and risk management. We then show that the "black swans" problem virtually disappears for S&P Index returns when surprises are measured relative to the standard deviation of the conditional S&P distribution. In our illustration, we use the one-day-lagged VIX as an easy-to-understand measure of that conditional S&P standard deviation.

Ecological Studies of the Black Swan IV.* The Timing and Success of Breeding on Two Nearby Lakes on the Southern Tablelands of New South Wales

1982 ◽  
Vol 9 (2) ◽  
pp. 261 ◽  
Author(s):  
LW Braithwaite
Keyword(s):  
Social Factors ◽  
Extended Period ◽  
Black Swan ◽  
Factors Affecting ◽  
Nest Sites ◽  
Black Swans ◽  
South Wales ◽  
Access To Water ◽  
Ease Of Access ◽  
The One

The breeding of black swans on two nearby lakes, 18 km apart, was documented over a 5-year period. The lakes differed in physiography and in botanical features. The numbers of swans breeding and the timing of breeding differed markedly between the lakes and coincided with gross differences and changes in observed abundance in aquatic plants known to be important as food for swans. Important factors affecting the selection of nest sites were social factors, security, the presence of an adequate substrate and of materials to construct a nest, and ease of access to water. Within each breeding season the timing of laying often differed among nesting colonies on the one lake, apparently reflecting an influence from social factors in synchronizing breeding within a colony. Breeding success was poor, due evidently to failure of cygnets to survive in the first weeks after hatching and to desertion of eggs in nests. Failure of food supplies may be the main cause. The reproductive strategy of the black swan appears to be essentially opportunistic; the female is capable of laying repeatedly over an extended period, so that eggs are often produced at times that do not necessarily predict suitable conditions for either the survival of cygnets or even the completion of incubation.

Critical Pipeline Failures and Rare-Events Data

2014 ◽  
Author(s):  
Andrew W. Kendrick
Keyword(s):  
Risk Assessment ◽  
Observational Learning ◽  
Rare Events ◽  
Current Approach ◽  
Black Swan ◽  
Corporate World ◽  
Black Swans ◽  
Statistical Approaches ◽  
Pipeline Failures ◽  
Events Data

This paper presents the severe and often times game-changing limitations associated with our observational learning mode and the ineffective knowledge base that results from it. More specifically, this paper stands our current approach of pipeline risk assessment on its head, describing how “rare-events” data, as they relate to significant pipeline failures, are simply not being addressed by our probabilistic risk analyses and modern statistical approaches. Further, risk blindness has been shown to consistently minimize the perception of high-consequence risk in the corporate world. Touching on themes from Nassim Taleb’s book, The Black Swan [1], this paper is about those failure events that lie outside the realm of regular possibility. Such events would never have been convincingly predicted prior to their occurrence, and yet they carry an extreme impact. Note that just because a failure was catastrophic does not necessarily mean it was a Black Swan. For example the financial melt down of 1982 was a catastrophe, but it was not a black swan. There have been numerous pipeline failures over the years that were quite catastrophic, but which were not Black Swans as referenced in this paper. They were neglect. It is important not to confuse the two.

The concept of motivation for effective credit risk management

2020 ◽  
Vol 26 (11) ◽  
pp. 2567-2593
Author(s):  
M.V. Pomazanov
Keyword(s):  
Risk Management ◽  
Economic Modeling ◽  
Type I ◽  
Credit Risk Management ◽  
Curve Modeling ◽  
Business Functions ◽  
The Common ◽  
Lending Decisions ◽  
The One

Subject. The study addresses the improvement of risk management efficiency and the quality of lending decisions made by banks. Objectives. The aim is to present the bank management with a fair algorithm for risk management motivation on the one hand, and the credit management (business) on the other hand. Within the framework of the common goal to maximize risk-adjusted income from loans, this algorithm will provide guidelines for ‘risk management’ and ‘business’ functions on how to improve individual and overall efficiency. Methods. The study employs the discriminant analysis, type I and II errors, Lorentz curve modeling, statistical analysis, economic modeling. Results. The paper offers a mechanism for assessing the quality of risk management decisions as opposed to (or in support of) decisions of the lending business when approving transactions. The mechanism rests on the approach of stating type I and II errors and the corresponding classical metric of the Gini coefficient. On the ‘business’ side, the mechanism monitors the improvement or deterioration of the indicator of changes in losses in comparison with the market average. Conclusions. The study substantiates the stimulating ‘rules of the game’ between the ‘business’ and ‘risk management’ to improve the efficiency of the entire business, to optimize interactions within the framework of internal competition. It presents mathematical tools to calculate corresponding indicators of the efficiency of internally competing entities.

Risk Privatisation and Social Investment – Self-Employment in the United Kingdom

2020 ◽  
Vol 66 (3) ◽  
pp. 261-283
Author(s):  
Kevin Caraher ◽  
Enrico Reuter
Keyword(s):  
Risk Management ◽  
United Kingdom ◽  
Private Insurance ◽  
Social Investment ◽  
Work Related ◽  
Policy Interventions ◽  
Self Employment ◽  
The United Kingdom ◽  
Social Risks ◽  
The One

Abstract With increasing numbers of self-employed persons in the United Kingdom (UK) struggling to protect themselves via personal savings or private insurance against work-related social risks (an issue that has gained further importance in light of the Covid-19 pandemic), this article first discusses self-employment as a type of work that implies intrinsically privatised forms of risk management. Secondly, current social policy interventions towards vulnerable self-employed persons in the United Kingdom (UK) are analysed to identify the mix of instruments used for, on the one hand, investment and support and, on the other hand, conditionality, coercion and activation. Finally, we explore how responsibilities for risk management manifest themselves and argue that the expansion of activation and conditionality increases pressures upon self-employed workers with insufficient incomes and thus indicates a far-reaching risk privatisation, while undermining the idea of a meaningful social investment approach.

Does bank governance affect risk and efficiency? Evidence from Islamic banks in GCC countries

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Samir Srairi ◽  
Khawla Bourkhis ◽  
Asma Houcine
Keyword(s):  
Risk Management ◽  
Financial Crisis ◽  
Risk Taking ◽  
Audit Committee ◽  
Governance Structure ◽  
Board Structure ◽  
Islamic Banks ◽  
Bank Efficiency ◽  
Content Type ◽  
Gcc Countries

Purpose The motivation of the study is to shed further light on the question of whether the governance structure of Islamic banks (IBs) has an impact on the efficiency and risk of Islamic banks operating in the Gulf Cooperation Council (GCC) after the global financial crisis and during the period 2010–2018. This study aims to examine the extent of governance structure on the efficiency and risk of IBs as the effect of the financial crisis has been less on IBs. In addition, the authors are interested in the GCC region as it represents the hub of Islamic finance. Design/methodology/approach In this study, the authors examine how the banking governance structure affects the risk-taking and performance of IBs in the GCC countries between 2010 and 2018. The authors construct a banking governance index (CGI) composed of sub-indices for the board structure, risk management, transparency and disclosure, audit committee, Sharia supervisory board and investment account holders. Unlike the majority of previous studies, bank performance is measured with technical efficiency scores using a data envelopment analysis and the authors use a comprehensive CGI. Findings The results show that IBs in GCC countries adhere to 54% of the attributes covered in the CGI. The authors also note a lack of disclosure regarding the investment account holders and the audit committee. As well, the results indicate that bank governance is positively associated with risk-taking and bank efficiency. Banking risk is influenced by the Sharia board and risk management while bank efficiency is affected by the characteristics of the board structure and investment account holders. Originality/value To the best of the authors’ knowledge, this is the first study that has developed a comprehensive governance index for IBs in GCC countries that includes a wide range of governance dimensions. The study contributes to the literature on governance in the banking sector by simultaneously examining its impact on the risk-taking and efficiency of IBs and recognizes the dynamic relation between these three variables for IB.

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