Risk management research divides into measurement and mechanism. The measurement literature — VaR and expected shortfall estimation, extreme value theory, drawdown analysis — asks how to quantify what can go wrong in a portfolio. The mechanism literature — systemic risk, contagion networks, stress testing — asks how losses propagate between institutions and markets.
The practical test for measurement papers is backtesting honesty: a VaR model is only as good as its violation rate and the independence of its violations, and papers that report Kupiec or Christoffersen tests on out-of-sample data outrank those that stop at in-sample fit. For tail-risk work specifically, be wary of estimators tuned to one crisis; the ranking below rewards papers validated across multiple stress regimes. This is also where regulation (Basel’s shift from VaR to expected shortfall) keeps the academic work unusually connected to practice.
Related hubs: Volatility Modeling, Portfolio Optimization, Fixed Income & Rates.
Explainers from the corpus: risk measures beyond VaR →
Many of the current difficulties in residential mortgage-backed securities (RMBS) and collateralized debt obligations (CDOs) can be attributed to a misapplicati
Volatility is the language in which finance often describes risk, but it is not the language in which institutions experience risk. Allocators live through drawdowns, liquidity needs, spending rules, rebalance decisions, board oversight, and the interval between a prior high-water mark and full reco
This work explores the formation and propagation of systemic risks across traditional finance (TradFi) and decentralized finance (DeFi), offering a comparative framework that bridges these two increasingly interconnected ecosystems. We propose a conceptual model for systemic risk formation in TradFi
The growth of the tech startup ecosystem in Latin America (LATAM) is driven by innovative entrepreneurs addressing market needs across various sectors. However, these startups encounter unique challenges and risks that require specific management approaches. This paper explores a case study with the
Management and disclosure of environmental, social and governance (ESG) issues have received substantial interest over the last decade. In this paper, we outlin
The Panic of 2007-2008 was a run on the sale and repurchase market (the “repo” market), which is a very large, short-term market that provides financi
The most widely used investment risk measures - variance, standard deviation, and tracking error - treat upside deviations as equally undesirable as downside losses. In stable markets with assumed symmetric return distributions, this simplification is potentially harmless. In the climate transition
The success of OpenAI’s ChatGPT in 2023 has spurred financial enterprises into exploring Generative AI applications to reduce costs or drive revenue within different lines of businesses in the Financial Industry. While these applications offer strong potential for efficiencies, they introduce new mo
The COVID-19 continues to hit the world economy as well as the financial markets. As a result of the coronavirus spread across all continents, the majority of t
In sharp contrast to the recommendations of Modern Portfolio Theory (MPT), a vast majority of investors are not well diversified. This neglect of diversificatio
Portfolio management is an essential component of investment strategy that aims to maximize returns while minimizing risk. This paper explores several portfolio management strategies, including asset allocation, diversification, active management, and risk management, and their importance in optimiz
Financial and gambling markets are ostensibly similar and hence strategies from one could potentially be applied to the other. Financial markets have been extensively studied, resulting in numerous theorems and models, while gambling markets have received comparatively less attention and remain rela
Given that Olympic Games held over the past decade each have cost USD 8.9 billion on average, the size and financial risks of the Games warrant study. The objec
Set in June 2001, the case places the student in the role of Scott Topping, Director of Corporate Finance at Southwest Airlines. Scott is responsible for the a
This document is the written testimony submitted to the House Oversight Committee for its hearing on hedge funds and the financial crisis, held November 13, 200
The emergence of agentic artificial intelligence (AI) represents a fundamental transformation in financial markets, characterized by autonomous systems capable of reasoning, planning, and adaptive decision-making with minimal human intervention. This comprehensive survey synthesizes recent advances
Explainability in AI and ML models is critical for fostering trust, ensuring accountability, and enabling informed decision making in high stakes domains. Yet this objective is often unmet in practice. This paper proposes a general purpose framework that bridges state of the art explainability techn
This paper explores key theoretical frameworks instrumental in understanding the relationship between sustainability and institutional investment decisions. The study identifies and analyzes various theories, including Behavioral Finance Theory, Modern Portfolio Theory, Risk Management Theory, and o
In this paper, we discuss aspects of model risk management in financial institutions which could be adopted by academic institutions to improve the process of conducting academic research, identify and mitigate existing limitations, decrease the possibility of erroneous results, and prevent fraudule
With the rapid growth of technology, especially the widespread application of artificial intelligence (AI) technology, the risk management level of commercial banks is constantly reaching new heights. In the current wave of digitalization, AI has become a key driving force for the strategic transfor
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