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Math Gone Mad
Company: Policy Analysis
Year Of Publication: 2014
Month Of Publication: September
Resource Link: Click here to open
Pages: 64
Download Count: 0
View Count: 1358
Comment Num: 0
Language: English
Source: article
Who Can Read: Free
Date: 8-28-2014
Publisher: Administrator
Summary
Risk models are subject to a number of major weaknesses. They are usually based on poor assumptions and inadequate data, are vulnerable to gaming and often blind to major risks. They have difficulty handling market instability and tend to generate risk forecasts that fall as true risks build up. Most of all, they are based on the na?ve belief that markets are mathematizable. The Fed’s regulatory stress tests are subject to all these problems and more. The solution to these problems is legislation to prohibit risk modeling by financial regulators and establish a simple, conservative capital standard for banks based on reliable capital ratios instead of unreliable models.
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Author(s)
Dowd, Kevin Sign in to follow this author
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