This school of thought claims that risk can be sensed but not accurately measured. Thus the lines are drawn. Our conference was stimulated by the significant strides that have been made in risk assessment and by the divergent views about the outlook for progress in this area. The answer, of course, lies somewhere in between. Financial risk measurement has evolved and its evolution continues.
Quantification is an essential ingredient of any risk management system, but it's no panacea.
In order to understand where we are in terms of risk measurement, it is helpful to see where we have been and how we got here. Obviously, the sophisticated risk measurement tools that we think of today are of fairly recent vintage. Yet, asset manager and financial writer Peter Bernstein reminds us that European bankers were controlling risk before they even had a rudimentary understanding of fractions. Clearly, banking and financial risk taking predated advanced mathematics. In the absence of analytical risk measurement tools, banks, like other businesses, practiced sensible risk management principles such as diversification and risk shifting through rudimentary insurance and futures markets.