Jan 1, 2009
Limitations of Traditional Risk Models in Forecasting Risk
The current economic crisis has upset many common assumptions about the global financial system and shaken investor confidence. While there are unique aspects to this crisis, it is important to understand that severe economic crises in general are not rare events. Traditional methods of modeling risk often fail to reflect the frequency of declines and when these declines will occur. It is important for investors to rely on more than the output from traditional risk models in assessing the potential risk associated with investments.