Re: Article 4

From: Horseless
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Date: 21 Feb 2008
Time: 12:09:04

Comments

I don't believe risk management standardization works very well. Glyn mentions the emergence of accounting standards as an example but that has at least two problems. First, those standards don't work very well. Sure, one can neatly categorize items now, but the whole point of accounting was to get a clearer picture of a firm's health and absolutely no professional bond trader (at least anywhere I've worked) is going to believe accounting statements without modification. For example, the standard of reporting many assets are the at lower of cost or market can make many numbers useless. Second, risk management is far more subjective than accounting approaches, with many things that are not standard in addition to items that you might not believe are priced correctly with standard models. For the latter, to some of us the guassian models to price credit tranches were obviously wrong, and we would be worse off being forced to use something so clearly incorrect.

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